Barclays Capital announced today that it is halting the issuance of new shares in the iPath Dow Jones-AIG Natural Gas ETN (NYSEArca: GAZ).
GAZ is the third commodity-focused exchange-traded product to stop issuing shares in the past few weeks, joining the United States Natural Gas Fund (NYSEArca: UNG) and the PowerShares DB Crude Oil Double Long ETN (NYSEArca: DXO).
GAZ saw significant inflows after the sponsors of UNG (the only competing natural gas product) announced on August 12 that they were suspending issuance of new shares. GAZ ended July with $127 million in assets, but closed yesterday with $187 million, nearly a 50% increase.
Investors turned to GAZ following the announcement because UNG started trading at a large premium to its net asset value; it closed yesterday at a 12.4% premium to NAV. Investors may have been playing that premium, taking a long position in GAZ and a short position in UNG, anticipating that UNG’s premium would eventually disappear.
ETF and ETN issues are worried that the CFTC will impose strict position limits on commodity holders, making it difficult or impossible for these products to track their benchmarks. They are halting issuance of new shares to cap the size of these funds. Issuers do not want to be in a position where they are forced to redeem shareholder positions to meet new CFTC caps.
In the filing announcing the move, Barclays warned that more iPath ETNs may join GAZ in the near future.
“In light of current market dynamics and ongoing regulatory review, the factors underlying the temporary suspension of the Notes may impact other commodity-linked iPath ETNs in the future.”
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