DXO Becomes First Victim of CFTC Activity

September 1, 2009 by  
Filed under Commentary, ETF Closings, ETNs, Regulation & Legislation

PowerShares DB Crude Oil Double Long ETN (DXO) became the first apparent victim of the recent CFTC activity surrounding exchange traded products.  Deutsche Bank (DB) announced today (9/1/09 press release) that it will redeem all outstanding shares of DXO after the market close on September 9.

Unlike many other ETF and ETN closures that result from the failure of the products to gain traction in the market, DXO has attracted more than $600 million in assets since its launch in June 2008.  In fact, it may have become too successful.

Deutsche Bank did not directly mention the CFTC in its announcement but said this redemption is the result of “limitations imposed by the exchange” causing a “regulatory event” as defined in the terms of the Notes.  Exchange-traded notes (ETNs) are different than typical ETFs, but that does not appear to be a root-cause of this closure.  See our open letter to ETN sponsors and our article on ETN risk for additional information.

Daily share creations of DXO have been suspended, and it closed today at a 4.5% premium to its underlying value.  Additional information can be found on the PowerShares ETN website, including the prospectus for the DXO Notes.

No other DB ETNs are affected at this time, including PowerShares DB Crude Oil Long ETN (OLO), PowerShares DB Crude Oil Short ETN (SZO), and PowerShares DB Crude Oil Double Short ETN (DTO).  DTO was the best new exchange-traded product of 2008.

Disclosure: no positions


3 Responses to “DXO Becomes First Victim of CFTC Activity”

  1. Tony B on September 1st, 2009 9:42 pm

    If $600 million in assets is “too successful”, what asset level is appropriate to not be effected by these rules?
    Without even looking I can think of several ETN/ETF’s that breach this level. I think many even double that value.

  2. Ron Rowland on September 2nd, 2009 7:38 am


    I think it’s a combination of things. DXO is leveraged and leveraged products have had their own regulatory problems recently. My guess is that PowerShares DB is thinking twice about whether or not they want to be in the leveraged ETF business. The “regulatory event” provides them with cover to do this.

    Additionally, because it is leveraged, DB needs to buy 2x the fund’s assets in crude oil contracts to cover this fund. I also believe that the CFTC restrictions apply at the company level (DB) and not at the fund level.


  3. Tania on September 11th, 2009 2:46 pm

    I still have in my account DXO short (11/09/009) , may You know who will take carry about return , share price and procedure in action. thanks

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