Friday, February 27, 2009

USO Investigated By CFTC Over Price Moves

The ETF bubble looks like it may be the next one to burst. WSJ just out that the CFTC is probing the USO ETF for price moves coinciding with trades in and out of crude-oil contracts. The USO has recently gotten prominent media attention over allegations that it is a perpetually value bleeding asset, and potentially a pyramid structure.
The Commodity Futures Trading Commission confirmed late Thursday that its enforcement staff is investigating USO concerning its so-called "roll" into a new contract on Feb. 6. The scrutiny is part of a broader probe into the oil market.

"The CFTC takes seriously issues surrounding price movements in our nation's vital energy markets," acting CFTC Enforcement Director Stephen J. Obie said.

USO has grown so large in recent months -- its holdings account for 20% of all April crude futures contracts on the New York Mercantile Exchange and about 30% of the contracts on ICE Futures Europe -- that it has a noticeable effect on oil prices when it moves in and out of contracts each month.

It is not clear what would happen to the USO in case impropriety is found and the fund is forced to shutdown and unwind its massive futures positions. Nonetheless, this could be a harbinger of increasing regulatory intervention in other ETFs which have seen a huge rise in trading in recent months. Sphere: Related Content
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Anonymous said...


Anonymous said...

Is "roll yield" a fictional return?

CFTC/NFA rules require hypothetical risk disclosure statement, yet commodity index funds and ETFs market "roll yield" as if it actually exists when this article shows that it results from the model used not from reality. Wondering when investors in these funds are going to start the lawsuits?