Deutsche Suspends Creations On DAG

February 15, 2011

Deutsche Bank suspended “further issuance” of the PowerShares DB Agriculture Double Long Exchange Traded Note (NYSEArca: DAG), but noted that redemptions of the notes won’t be affected by its decision, which is effective immediately.

Deutsche Bank didn’t provide a reason for its decision in a press release, and an official at the bank in New York declined to comment beyond that statement. However, industry sources believe exposure the ETN was holding to corn, wheat, soybeans and sugar futures was nearing limits that might attract the attention of regulators at the Commodity Futures Trading Commission. Halting of creations was a way for Deutsche to avoid any regulatory problems.

The move may cause the leveraged ETN, which had $148.8 million in assets as of Feb. 14, to trade like a closed-end fund, since it will now have a finite number of outstanding shares. DAG fell today by 58 cents, or 3.6 percent, to $15.38 a share, according to data on IndexUniverse.com.

“Therefore any purchase of the Notes in the secondary market may be at a purchase price significantly different from their indicative value,” Deutsche Bank said in a statement.

DAG is part of a family of commodity-related leveraged ETN Deutsche Bank has marketed with Invesco PowerShares. Deutsche Bank brought the ETN to market in April 2008.

Deutsche halted creations, then liquidated the PowerShares DB Crude Oil Double Long Exchange Traded Note (NYSEArca: DXO) in September 2009 for reasons also related to position limits, as Matt Hougan wrote about at the time in a piece titled “What Really Happened To DXO.”

The Deutsche Bank declined to discuss either DXO’s liquidation or the possibility that DAG might ultimately face a similar fate.

 

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