ETF News & Commentary
SAN DIEGO (ETFguide.com) - The rhetoric by financial regulators of greater restrictions on the buying and selling of commodities futures contracts is finally being felt in the exchange-traded product marketplace.
Deutsche Bank announced that it will redeem all outstanding PowerShares DB Crude Oil Double Long Exchange Traded Notes (NYSEArca: DXO). DXO attempts to double the monthly performance of the Deutsche Bank Liquid Commodity Index - Optimum Yield Oil Excess Return Index. At the end of July, DXO had $597 million in assets.
Faced with restrictions by commodity regulators, DXO’s managers have been unable to obtain adequate exposure to crude oil for the note’s normal operation. As a result, Deutsche Bank chose to redeem the notes.
Other commodity exchange- traded products have faced similar difficulties amid an increasingly restrictive regulatory environment impacting investments that use commodity futures.
Last week, Barclays Global Investors (BGI) temporarily suspended the creation of new shares for its iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG). GSG’s performance is linked to the S&P GSCI Total Return Index, which consists of a diversified group of 24 different commodities. Like other commodity ETFs and ETNs it uses commodity futures contracts to obtain its market exposure.
In late August, the U.S. Commodity Futures Trading Commission announced its plan to withdraw two no-action letters that originally provided exemptive relief from federal agricultural speculative positions limits set forth in CFTC regulations. The letters pertain to the PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC), which was previously allowed to take positions in corn and wheat futures that exceeded federal limits. The revised restrictions limiting commodity positions become effective on October 31st and will force PowerShares and Deutsche Bank to alter their indexing strategies to comply with the new guidelines.
None of the other notes offered by Deutsche Bank are yet affected by the DXO announcement, nor are the PowerShares DB exchange traded funds offered by DB Commodity Services.
Deutsche Bank expects to provide notice of DXO’s redemption on September 9, 2009. The repurchase value of the notes will be determined as of the date notice is given. Payment of the repurchase value of the notes will be made on the third business day following the date of notice. Daily creations of DXO will remain suspended. Daily repurchases at the option of investors will be accepted in the normal manner up to and including September 9th.
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