The FT is reporting on Friday, along with all the other wires, that the CFTC is investigating the United States Oil Fund:
US federal regulators are investigating an investment vehicle that has amassed a 20 per cent stake in a crude oil contract traded in New York and London amid fears that its activities could be distorting the market.
The Commodity Futures Trade Commission is investigating the United States Oil Fund, an exchange-traded fund listed in New York, after its size surged in the past three months to 95,000 lots on the West Texas Intermediate contract for immediate delivery.
Stephen Schork of the Schork report, who has criticised the fund’s position in his most recent editions, says this on the matter:
Thanks to knock-on momentum from Wednesday’s post DOE rally, spot NYMEX crude oil for April delivery closed above $45 for the first time in two weeks on Thursday. However, last night word broke of the CFTC’s probe of the USO. There is no debate; the USO artificially impacted the Mar/Apr roll. If the CFTC does its job that is the conclusion it will come to. But, given what a crack job government regulatory bodies did in policing Madoff, we suppose anything is possible.
Meanwhile, another day, another structured reverse convertible product issued to the market linked to the ETF. This one from JP Morgan, according to SEC filings.
FT Alphaville has been reporting on the rise of these structured products issued by banks since last December 2008.
The products, which have mostly been short-term securities offering attractive coupons, effectively provide banks with downside protection on exposure to the USO. They do so by playing the volatility of the Oil Fund’s volatility measure the OVX. To read more about how they work click here.
The size of the ETF’s position in April WTI Nymex has meanwhile slightly fallen back since Thursday to 59,495 contracts versus 60,656. The fund is set to begin its roll into the May contract next week.
Related links:
A self propelled pyramid? -FT Alphaville
Return of reverse con – FT Alphaville