CFTC’s Commodity ETF Limits Put Future In Question

Two commodity-based Deutsche Bank exchange traded funds (ETFs) have seen their position limit exemptions repealed by the Commodity Futures Trading Commission (CFTC). This brings up a number of questions about the fate of these and other commodity ETFs.

Two funds issued by PowerShares will no longer be exempt from U.S. position limits in wheat and corn, forcing a shift in their holdings to comply with federal trading restrictions.

Asjylyn Loder and Tina Seeley for Bloomberg report that PowerShares DB Commodity Index Fund (DBC) and PowerShares DB Agriculture Fund (DBA) will have to comply with caps designed to keep a one investor from gaining too much control of the market, according to the CFTC. Together, the two ETFs are worth $5.8 billion.

Deutsche Bank says that the funds are going to continued to conduct business “in the normal course.” The Securities and Exchange Commission (SEC) filing said:

As of Oct. 31, the funds will be subject to federal limits of 13,500 Chicago Board of Trade corn contracts in any non-spot month, and 5,000 wheat contracts, and an all-months combined limit of 22,000 corn contracts and 6,500 wheat contracts.

The repeal of these exemptions are in response to suspicions that such ETFs could be having an undue influence on the prices of certain commodities. The imposition of these limits could be bad news for commodity funds, as these ETFs have been under the microscope lately.

In July and August, the CFTC conducted hearings in order to see whether they should crack down on speculation. The provider of United States Natural Gas (UNG) vigorously defended their funds and dismissed  accusations that they were affecting the markets.

CFTC Chairman Gary Gensler suggested that limits on oil and gas markets, as well as carbon trading, could be next, report Carolyn Cui and Sarah N. Lynch for The Wall Street Journal.

Timothy Gardner for Reuters reports that Congress is debating a bill that would set up an emissions market under which the government would set a cap on greenhouse gas pollution that declines over time and polluters and investors would buy and sell the rights to release greenhouse gases. Who would ultimately regulate this market is still a question mark.

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