Wednesday, July 8, 2009

Latest on UNG

Yesterday was a crazy day for the natural gas etf, UNG. Trading was halted in the middle of the afternoon due to the issuer needing to issue more shares. Here's the press release:

On July 6, 2009, the United States Natural Gas Fund, LP ("UNG") announced in a current report on Form 8-K that only 32,100,000 of its units registered with the Securities and Exchange Commission (the "SEC") were available for purchase by UNG's Authorized Purchasers. As stated in its current prospectus, UNG creates and redeems units in blocks of 100,000 units called "Creation Baskets" and "Redemption Baskets," respectively. Only Authorized Purchasers may purchase or redeem Creation Baskets or Redemption Baskets.

As of July 7, 2009, UNG issued all of the remaining outstanding units to its Authorized Purchasers. As a result of these issuances, UNG will temporarily suspend the issuance of additional Creation Baskets until the SEC declares effective the registration statement on Form S-3 (333-159772) which was initially filed on June 5, 2009 and registers an additional 1,000,000,000 units. This registration statement is currently subject to review and comment by the SEC, the Financial Regulatory Industry Association ("FINRA") and the National Futures Association ("NFA").

The suspension of the issuance of Creation Baskets has no effect on the ability of Authorized Purchasers to redeem baskets of units.

UNG will issue a subsequent current report on Form 8-K to announce the effectiveness of the foregoing registration statement and its ability to resume offering Creation Baskets to its Authorized Purchasers.

Any forward-looking statements in this current report are based on expectations of UNG management at this time. Whether or not actual results and developments will conform to management's expectations and predictions, however, is subject to a number of risks and uncertainties, including the special considerations discussed in UNG's prospectus, general economic, market and business conditions, changes in laws or regulations or other actions made by governmental authorities or regulatory bodies, and other world economic and political developments. UNG undertakes no duty to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

There is also an issue of the CFTC looking into more regulation for commodities markets to limit speculation. I'm not a fan of the government trying to meddle with the market. Todd Sullivan and Doug from covered this here.

To me, it has just become more of a hassle. Its enough to worry about natural gas prices and the pressure they've been under, but to deal with regulatory issues and the reaction that investors may have just adds additional headaches. I still like the thesis for natural gas and will likely keep my shares, but we're now likely to see more days like yesterday and see more controversy.

Outside of that, we've got earnings coming. I'll do another post entirely about that and how I think the market may respond.

Disclosure: Long UNG.

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