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As a result of the broker’s ultimatum, the Samsung (KS:005930) S&P GSCI Crude Oil ER Futures ETF will halt issuance of new shares starting Monday. The ETF also bought put options to protect against negative oil prices and will adjust its existing futures positions, moving from a 100% weighting in September West Texas Intermediate contracts to an equal weighting in September, October and December.
Samsung Asset Management (Hong Kong) Ltd., which disclosed the moves in a filing to the Hong Kong stock exchange, said it’s in “active discussions” to find a new broker. It didn’t disclose the name of the existing one.
Unprecedented oil-market volatility has wreaked havoc on ETFs and other products that were designed to give investors an easy way to bet on the direction of crude prices. The Samsung ETF and the $3.5 billion U.S. Oil Fund, which trades in New York, are among those that have upended their strategies to reduce the risk of getting wiped out by another plunge below zero.
While the moves may help protect existing investors, they’ve introduced new layers of complexity and may cause the funds to diverge from their original goal of simply tracking front-month oil futures.
The Samsung ETF’s announcement will likely be closely watched by oil traders given its moves can have an impact on futures prices. The fund contributed to a sell-off in June WTI futures last month after dumping its entire holdings to buy September contracts.
In its filing on Sunday, Samsung Asset said the latest changes are “in good faith and in the best interests of the unit holders” but have made it “impracticable” to meet the fund’s original investment objective. It repeated a warning that in a “worst case scenario,” investors could lose all their money.
Here are some further details from the filing:
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