A leading US regulatory body is set to probe the role of exchange-traded funds (ETFs) in the suspected artificial inflation of oil, natural gas and gold prices, the Wall Street Journal reported on Saturday (22nd August).

ETFs have become increasingly popular with small investors since their introduction at the advent of the commodity prices boom in 2003 because of their ability to provide direct exposure to commodity futures.

Figures from the National Stock Exchange suggest that they held a huge $59.3 billion in assets as of July 2009, with about $22.1 billion being ploughed into them already this year.

However, the Commodity Futures Trading Commission (CFTC) is now set to explore activity in ETFs, which effectively involve making one-way bets, generally on particular prices increasing.

Although critics are suggesting that the move will eventually eliminate small investors and make the funds the preserve of the top financial companies, the CFTC has rejected those claims.

"The commission has never said 'You aren't tall enough to ride'," said Commissioner Bart Chilton in an email quoted by the news provider.

"I don't want to limit liquidity, but above all else, I want to ensure that prices for consumers are fair and that there is no manipulation - intentional or otherwise."

Nevertheless, placing restrictions on the size of ETFs will see investors' expenses increased, largely because this will require legal and operational costs to be split between fewer shares.

The news comes as ETF Securities, one of the leading operators of the funds, revealed that it launched five new ETFs on its Tokyo Stock Exchange debut on Monday, Reuters reports.

With its Physical Gold, Physical Silver, Physical Platinum, Physical Palladium and Physical PM Basket ETFs, the London-based firm is aiming to manage $1 billion in assets in Japan by the end of next year.

Hector McNeil, the company's Global Head of Sales and Marketing, told the news provider: "Certainly, we would want to become the leading provider of ETFs in the Asian region. That's our ultimate aim and objective.

"The great thing about Asia is that nobody has really established dominance and footprint … so we feel it's actually the place where the opportunity is."

Meanwhile, ETF Securities also confirmed on Monday that the amount of metal it holds to back its palladium product reached a record high at the end of last week, according to Reuters.

The ETFS Physical Palladium security hit a figure of 376,883 oz on 20th August after increasing by more than 100 oz from the previous day.

Sources:

Small Investors Face Big Hit in ETF Push (22/08/09)

INTERVIEW - ETF Sec eyes $1bln assets in Japan by end-'10 (24/08/09)

ETF Securities palladium holdings hit new record (24/08/09)

The progress of platinum group metal exchange traded funds (ETFs) (13/08/09)

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