US watchdog probes ETF’s oil contract stake

Discussion in 'ETFs' started by Banjo, Feb 26, 2009.

  1. Banjo


  2. US federal regulators are investigating an investment vehicle that has amassed a 20 per cent stake in a crude oil contract traded in New York and London amid fears that its activities could be distorting the market.

    The Commodity Futures Trade Commission is investigating the United States Oil Fund, an exchange-traded fund listed in New York, after its size surged in the past three months to 95,000 lots on the West Texas Intermediate contract for immediate delivery.


    Meanwhile, another day, another structured reverse convertible product issued to the market linked to the ETF. This one from JP Morgan, according to SEC filings.

    FT Alphaville has been reporting on the rise of these structured products issued by banks since last December 2008.

    The products, which have mostly been short-term securities offering attractive coupons, effectively provide banks with downside protection on exposure to the USO. They do so by playing the volatility of the Oil Fund’s volatility measure the OVX. To read more about how they work click here.

    The size of the ETF’s position in April WTI Nymex has meanwhile slightly fallen back since Thursday to 59,495 contracts versus 60,656. The fund is set to begin its roll into the May contract next week.
  3. It is about time they started looking into commodity ETFs and stopped blaming individual traders for these huge swings up and down and threatening to raising margins to 100% , etc. Speculators are price takers not price makers but Congress still doesn't seem to have the slightest clue as to what they are doing with regards to the financial markets (or anything else for that matter). The CFTC seems to be the only agency that has some intelligence. Maybe it should take over securities regulation too.