Natural Gas Fund Says It Has Run Out of New Shares (Update2)
By Asjylyn Loder
July 7 (Bloomberg) -- The United States Natural Gas Fund, the largest exchange-traded fund in the fuel, said today that it has run out of new shares and will suspend issuance of creation baskets of new units.
The Alameda, California-based fund said it can’t issue new shares until it gets permission from the Securities and Exchange Commission, the Commodities Futures Trading Commission, the Financial Industry Regulatory Authority and the National Futures Association. The fund applied to register 1 billion new shares on June 5 and is awaiting approval.
“In particular today, when the CFTC announced that it is reviewing position limits, there’s no guarantee that they’ll get those shares,” said Paul Justice, an ETF strategist with Morningstar Inc. in Chicago.
Trading of the units was suspended pending the company’s filing today with the SEC. Trading resumed after 2:20 p.m. The fund fell 35 cents, or 2.9 percent, to $12.20 at 3:06 p.m.
The natural gas fund has seen its popularity soar in recent months as investors staked out positions in natural gas. The price of the fuel has dropped 40 percent this year. The shares outstanding in the fund have increased to 281 million, more than eight times the level at the start of the year.
As its popularity has grown, so has its position in natural gas. At of the close of business yesterday, the fund held 18.7 percent of the open interest in August natural gas futures on the New York Mercantile Exchange, in addition to 51,746 natural gas swaps on NYMEX and 244,432 natural gas swaps on the ICE over-the-counter market, according to the fund’s Web site.
Fund Shares
The fund has an open-ended number of shares. It creates new shares or redeems outstanding shares in baskets of 100,000. The fund then invests the money in near-month natural gas futures, rolling the contracts forward to the second month as the near month approaches expiration.
Without the ability to issue new shares, the fund may begin trading like a closed-end fund with significant premiums or discounts from the value of its underlying assets, Justice said.
“Until the issues are resolved, I would consider the situation riskier than it was just a month ago,” Justice said. |
