Deutsche Bank announced today that it will close the $425 million PowerShares DB Crude Oil Double Long Exchange Traded Notes (DXO) on September 9.
The move is in response to the limitations imposed by the New York Mercantile Exchange where the bank manages its exposure.
The repurchase value of the Notes will be determined as of the date notice is given which is expected be September 9. Payment of the repurchase value of the Notes will be made on the third business day following the date of notice.
The bank will continue to suspend daily creations of DXO which were first halted on August 18. Although Deutsche Bank did not specify why the action was taken in its 8K filing, the fund may have been a victim of its own success combined with regulator-induced risk.
According to the Wall Street Journal, the ETN was launched last June and quickly become one of largest leveraged commodity products. The fund invested entirely in one contract and may have run into position limits set up by Nymex.
Nymex didn’t respond to the WSJ’s story, but probably didn’t expand Deutsche Bank’s position limits due to regulatory uncertainty caused by the Commodity Futures Trading Commission (CFTC). Based on hearings and statements this summer, the regulator of corn and wheat futures appears to be on track to intervene in the energy markets with plans to dictate position limits to the exchanges.
The Journal article quotes US Commodity Funds‘ John Hyland “This is an example of how actions by regulators can lead to a reduction of investment choices by retail investors, without necessarily producing a benefit to the marketplace”.