Looks Like CFTC's Aim Is To Suppress Commodity Prices


"Limiting the size of ETFs will result in higher costs for investors. . ."

U.S. regulators have begun targeting the big-time speculators suspected of artificially inflating prices for oil, natural gas and gold.

Exchange-traded funds, popular as one of the few avenues for small investors to gain direct exposure to commodity futures, are a top target in the CFTC's drive to rein in speculation in oil markets. Its moves reverse a trend in market innovation that allowed almost anyone to bet on the direction of energy prices along with the likes of Goldman Sachs.

And bet they did. Commodity ETFs came into existence in 2003 just as the boom in commodities prices was getting underway. They have ballooned to hold $59.3 billion in assets as of July, according to the National Stock Exchange.

Since the beginning of 2009, $22.1 billion has flowed into these funds compared with inflows of $7.3 billion during the same period in 2008. Almost half of the new money coming in this year has been directed at the largest commodity ETF, which buys gold, amid worries about inflation.

The funds pool money from investors to make one-way bets, usually on rising prices. Some say this causes runaway buying that ignores bearish signs that more knowledgeable investors and commercial hedgers usually heed. The CFTC has said its priority is to protect end consumers of commodities, who would benefit from lower prices that regulators and lawmakers say would result from limits on speculation.

Cutting out individual investors isn't the goal, said Bart Chilton, a CFTC commissioner, in an email. "The Commission has never said 'You aren't tall enough to ride,'" Mr. Chilton said. "I don't want to limit liquidity. . .I want to ensure that prices for consumers are fair and that there is no manipulation—intentional or otherwise."

Yet the coming regulatory changes are already reshaping this popular corner of the investing world for small investors.

Limiting the size of ETFs will result in higher costs for investors, ranging from individuals to banks and hedge funds with multimillion-dollar positions, as legal and operational costs must be spread out over a fewer number of shares.

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