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CFTC Issues Customer Advisory Regarding Commodity ETPs and Funds - The 40 Act Blog

Written by itlist | Jun 02, 2020

Recently, the CFTC issued a customer advisory (Advisory) in response to increased investor interest in exchange-traded products (ETPs) and funds that invest in futures or other types of commodity interests (collectively, Pools).

The Advisory highlights the distinctions between ETPs and funds that invest in securities and Pools, which include the lack of correlation in value of the shares of a Pool to the value of the underlying commodity over time, the types of risks that affect the value of the underlying commodities or futures, and (in the case of Pools that invest in futures) the possibility of losses even when underlying commodity prices are increasing.

The Advisory also warns investors about the risk of a Pool changing its holdings or strategies to respond to market conditions without providing notice to participants, or with only limited notice provided to participants (e.g., on the Pool’s website).

Recently, an ETP that invests in oil futures made several changes to its strategy over consecutive days in response to adverse conditions in the oil futures markets, which is discussed in the April 2020 edition of Seward & Kissel’s Fund Industry Insights under the heading “Market Volatility Impacts to Exchange Traded Products”: https://www.sewkis.com/people/paul-miller/publications/seward-kissel-fund-industry-insights/

The Advisory is available here: https://www.cftc.gov/LearnAndProtect/FraudAwarenessPrevention/CFTCFraudAdvisories/CustomerAdvisory_IsolationArticle.htm