CFTC Puts New Limits on Two Commodity ETFs

In a move that casts a shadow on the future of US securities markets, the Commodities Futures Trading Commission (CFTC) withdrew permission for Deutsche Bank to exceed established limits on positions in Soybean, Corn and Wheat contracts.

The action affects two ETFs run by Deutsche Bank’s DB Commodity Services – PowerShares DB Commodity Index Tracking Fund (DBC) and PowerShares DB Agriculture Fund (DBA).    DBC invests in futures contract on six of the most heavily-traded and important physical commodities in the world – crude oil, heating oil, gold, aluminum, corn and wheat.  DBA provides ETF investors with exposure to the performance of the agricultural sector by investing in futures contracts on some of the most liquid and widely traded agricultural commodities – corn, wheat, soy beans and sugar.

The Wall Street Journal is reporting that a spokesperson for DB Commodity Services said it was given until October 31 to pare its holdings.

CFTC Chairman Gary Gensler explained the action in a short statement released yesterday by the agency – “I believe that position limits should be consistently applied and vigorously enforced.  Position limits promote market integrity by guarding against concentrated positions.”

The move by the regulator continues a series of actions to place limits on trading in the futures markets to “stamp out excessive speculation”.  Tighter restrictions on position limits will likely result in loss of market share for US securities markets as investors move their trading activity to over-the-counter swaps and international markets.

US Commodity Funds’ United States Natural Gas Fund (UNG) recently stopped taking new investment dollars after running out of shares.  Despite receiving approval to increase the fund’s share count, the CFTC’s aggressive stance has caused John Hyland, US Commodity Funds’ chief investment officer, to hold off taking new money while the firm explores other investment options. See Natural Gas ETF Manager Looks for New Approach.