Barclays Suspends Issuing Shares for Commodity ETF
August 28, 2009

SAN DIEGO (ETFguide.com) - Barclays Global Investors (BGI) announced that it has temporarily suspended further creation of new shares of the iShares S&P GSCI Commodity-Indexed Trust (NYSEArca: GSG).

The unexpected move highlights just how far reaching the rapidly changing regulatory environment concerning the management of commodity ETFs has become.

Last week the U.S. Commodity Futures Trading Commission announced its intention to withdraw two no-action letters that originally provided exemptive relief from federal agricultural speculative positions limits set forth in CFTC regulations. The letters pertain to the PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC), which was previously allowed to take positions in corn and wheat futures that exceeded federal limits. 

“I believe that position limits should be consistently applied and vigorously enforced,” CFTC Chairman Gary Gensler said. “Position limits promote market integrity by guarding against concentrated positions.”

The CFTC’s restrictions on futures contracts positions that commodity ETFs can take has made managing these funds increasingly difficult. This is especially true as the assets within commodity ETFs have ballooned. As funds grow, their positions in commodity contracts also grow as they attempt to gain market exposure.

GSG’s performance is linked to the S&P GSCI Total Return Index, which consists of a diversified group of 24 different commodities. The fund uses commodity futures contracts to obtain its market exposure.

With $1.7 billion in assets, GSG is one of the largest commodity ETFs. Since the beginning of the year, the fund has climbed by 5.73% in value.

The temporary limitation on issuance of new GSG shares may impair traders' ability to balance the supply and demand for the Trust's shares in the secondary market. The fund already trades at a slight premium of 0.42% to its underlying net asset value.

"We are actively working with regulators, product partners and exchanges to explore solutions that will lead to resumption of the creation of new shares of the iShares S&P GSCI Commodity-Indexed Trust to satisfy demand," said Michael Latham, Co-CEO of iShares at Barclays Global Investors.

He adds, "We've taken this temporary step to protect existing investors from being adversely affected by market reaction to proposed new regulations of commodity futures that have created uncertainty. Just as we were able to design a product that gave investors access to difficult-to-reach markets using a combination of significant talent, resources and perseverance under one set of regulatory guidelines, we are pursuing a solution for investors that will adjust to any new environment that results from proposed new regulations."