With the US Commodity Funds LLC's U.S. Natural Gas Fund still yet to secure the SEC's greenlight to issue more shares, it's unable to purchase new contracts, and this has been impacting gas prices, the Wall Street Journal noted Thursday. The fund has yet to gain approval amid concerns that it may be so big that it distorts trading in the gas market.

The WSJ pointed out recent gas trading activity that seems to justify the SEC's concerns. Natural gas prices at the New York Mercantile Exchanged dropped 4.3% Wednesday, and declining demand has further dampened prices. The UNG fund was trading at a premium to its assets yesterday, falling 2.3% as natural gas futures slid much further.

The halt on new shares of the $4.3 billion UNG fund is a reflection of increased regulatory review of commodity ETFs. Commodity ETFs have become a special focus for SEC investigation as of late due to their complex structure. The Commodity Futures Trading Commission has also taken an interest in commodity funds, and will hold public hearings later this month to decide wheter to apply commodity position limits.

The SEC and CFTC scrutiny comes at a time of significant both in both the number and size of commodity ETFs. Commodity funds totaled over $58.2 billion in assets at the end of May, according to ICI data. The growth of the commodity ETF space was recently recognized with the creation of new Morningstar commodity fund categories (see the MFWire, 6/07/09). 

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