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VIAE-MAIL 

Mr. David Stawic~ 

Secretary 

UNITED STATES 

Commodity Funds LLC 

June 16, 2009 

Commodity Futures Trading Commission 

Three Lafayette Centre 

1155 21st Street, NW 

Washington, DC 20581 

Re: Concept Release on Whether to Eliminate the Bona Fide 

Hedge Exemption for Certain Swap Dealers and Create a 

New Limited Risk Management Exemption From 

Speculative Position Limits 74 FR 12282 (March 24, 2009) 

Dear Mr. Stawick: 

COMMENT 

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I am writing this letter on behalf of United States Commodity Funds LLC ("USCF"), a 

commodity pool operator registered with the Commodity Futures Trading Commission 

("CFTC"), that manages several exchange traded commodity pools, including the United States 

Oil Fund, LP and the United States Natural Gas Fund, LP. USCF wishes to provide a response 

to your request for comments on the CFTC's Concept Release on Whether to Eliminate the Bona 

Fide Hedge Exemption for Certain Swap Dealers and Create a New Limited Risk Management 

Exemption From Speculative Position Limits ("Concept Release"). We believe that (i) the bona 

fide hedge exemption should be extended to other physical commodities currently subject to 

exchange position limits and accountability levels; (ii) any future regulation of the commodity 

futures market should codify the CFTC's no-action position with respect to the activities of 

index-based tracking funds; and (iii) the CFTC should extend it futures position relief to 

exchange-traded commodity funds tracking single commodity benchmarks. 1 

1 Our letter addresses only those questions presented in the Concept Release that relate to the current activities of 

USCF's publicly traded commodity pools, which include Question 4 (extension of the bona fide hedging exemption 

to additional physical commodities) and Question 14 (treatment ofinc:lex-based funds under any new regulatory 

structure). 

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Mr. David Stawick 

I. Description of USCF and its Related Funds 

As a registered commodity pool operator, USCF is general partner of and manages the 

United States Oil Fund, LP, the United States Natural Gas Fund, LP, the United States 12 Month 

Oil Fund, LP, the United States Gasoline Fund, LP, the United States Heating Oil Fund, LP, and 

the United States Short Oil Fund, LP (each, a "Fund" and collectively, the "Funds"). Each ofthe 

Funds is an exchange-traded commodity pool that invests in futures contracts for energy 

commodities with the investment objective of having the net asset value ("NAY") of the units of 

each Fund reflect changes ·in percentage terms of the price of a given commodity futures 

contract. The specific commodity focus and investment strategy of each Fund varies; however, 

the structure and method of investing in all of USCF's Funds is identical. Units of each of the 

Funds are listed on the NYSE Area, Inc. ('NYSE Area"). 

The Funds' units are created or redeemed only in blocks called Creation Baskets and 

Redemption Baskets, respectively, pursuant to an effective registration statement filed with the 

Securities and Exchange Commission ("SEC"). Only persons authorized by the Funds 

("Authorized Purchasers") may purchase or redeem Creation or Redemption Baskets from a 

Fund. 2 The amount of the purchase payment for a Creation Basket is equal to the aggregate 

NAV of units in the Creation Basket. Similarly, the amount of the redemption proceeds for a 

Redemption Basket is equal to the aggregate NAY of units in the Redemption Basket. The 

purchase price for Creation Baskets, and the redemption price for Redemption Baskets is the 

actual NAY calculated at the end of the business day when an order for a purchase or redemption 

is accepted by a Fund. The NYSE Area publishes an approximate NAY intra-day based on the 

prior day's NAY and the current price of each Fund's benchmark commodity futures contract, 

but the basket price is determined based on the actual value of the assets when the NAY is 

calculated at the end of the day. 

Authorized Purchasers, who are registered broker-dealers and participants in The 

Depository Trust Corporation, sell units acquired through Creation Baskets to the public at prices 

that are expected to reflect, among other factors, the trading price of the units on the NYSE Area, 

the NAY ofthe particular Fund at the time the Authorized Purchaser purchased the Creation 

Baskets and the NAY at the time of the offer ofthe units to the public. Baskets are generally 

redeemed when the market price per unit is at a discount to the NAY per unit. Retail investors 

seeking to purchase or sell units on any day are expected to effect such transactions in the 

secondary market, on the NYSE Area, at the market price per unit, rather than in connection with 

the creation or redemption of baskets. 

2 Authorized Purchasers do not receive from the Funds, USCF or any of their respective affiliates any fee or other 

compensation in connection with the sale of the units, although Authorized Purchasers may receive commissions 

and/or fees from investors who purchase the units. 

8401704 Page 2 6116/2009 
Mr. David Stawick 

USEF 

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Each ofthe Funds has several thousand investors (for example, the United States Oil 

Fund, LP at December 31, 2008 had over 150,000 investors) and no investor to, to the Funds' 

knowledge, has ever held more than 5% of the units outstanding, other than when a Fund initially 

offers its units to the public. 3 

II. Similarity to Index Funds Previously Granted No-Action Relief 

As noted in the Concept Release, 4 the CFTC staff has granted no-action reliefto two 

index-based funds from the speculative position limits for futures and options contracts on 

certain agricultural commodities established pursuant to Section 4a(a) of the Commodity 

Exchange Act ("CEA"). 5 Although these index-based funds did not expressly qualify for the 

bona fide hedging exemption set forth in CFTC regulation 150.3(a)(l), the CFTC determined 

that these funds "represented a legitimate and potentially useful investment strategy" 6 and thus 

extended no-action relief from CFTC position limits, subject to certain conditions aimed at 

protecting futures markets. These conditions (discussed below) highlight many of the unique 

attributes of index-based funds that allow these funds to actively participate in the commodity 

futures market while still providing substantial protections and full disclosure to market 

participants and the investing public, such that their activities do not trigger the concerns that 

strict futures position limits are intended to address. Nearly all of the conditions upon which the 

CFTC staffpremised its relief for index-based funds are already operational or structural 

characteristics ofthe Funds. 

Just as the price exposure faced by index-based funds results from a promise or 

obligation to track an index, each of the Funds is subject to similar exposure resulting from its 

commitment to track changes in the price of a futures contract relating to a specified commodity. 

Meeting this objective may require both index-based or commodity futures contract-tracking 

funds to invest in future positions that exceed current or future CFTC limits. However, 

offsetting this type of price exposure does not currently fall within the bona fide hedging 

exemption. The CFTC staff effectively addressed this problem for index-based funds by 

granting them relief from speculative position limits in its two no-action letters. In these noaction letters, the CFTC staff identified several attributes of the index-based funds that provided 

sufficient protections to the futures market and thus were required in order to receive the 

requested relief. 

3 Since each of the Funds are registered under the Securities Exchange Act of 1934 ("Exchange Act"), investors 

holding 5% or more of a Fund's units are required to disclose their holdings and intentions under Section 13 of the 

. Exchange Act. 

4 See Concept Release, footnote 15. 

5 CFTC Letter 06-09, April 19, 2006; CFTC Letter 06-19, September 6, 2006. 

6 Concept Release, footnote 15. 

8401704 Page 3 6/!6/2009 
USEF 

Mr. David Stawick 

The following discussion outlines how the Funds already meet the key conditions upon 

which reliefwas granted by the CFTC staff for index-based funds (using the conditions as stated 

in the CFTC staff letters). 

a. The futures trading activity passively tracks a widely recognized commodity index. 7 

Each of the Funds is passively managed and employs a "neutral" investment strategy 

intended to track changes in the price of a benchmark commodity regardless of whether the price 

goes up or down. This strategy means that the Funds, just like the index-based funds provided 

no-action relief, do not seek to generate positive returns in all market conditions based on the 

individual investment decisions of their CPO. Thus the Funds are not actively managed and do 

not engage in speculative activities in the futures market. 

Additionally, the trading activities of the Funds occur in widely recognized commodity 

futures contracts. The commodities futures tracked by the Funds are each traded on the New 

York Mercantile Exchange ("NYMEX"), and represent some ofthe most highly traded and 

liquid commodity futures contracts in the world. These commodities include the NYMEX 

futures contracts for (i) light, sweet crude oil delivered to Cushing, Oklahoma; (ii) natural gas 

delivered to Henry Hub, Louisiana; (ii) RBOB gasoline for delivery to the New York harbor; and 

(iv) heating oil (also known as No. 2 fuel) delivered at the New York harbor. 

b. The futures trading activity is unleveraged. 8 

The futures trading activity of each Fund is unleveraged, as all futures positions are fully 

collateralized. Each time a Fund receives a purchase order for a Creation Basket the Fund 

purchases futures contracts in the appropriate commodity that have an aggregate market value 

that approximates the purchase price received by the Fund for such Creation Basket. After 

transferring the required margin for the futures contracts purchased with its futures commission 

merchant, the Fund then invests the remainder of its proceeds from the Creation Basket in short 

term obligations ofthe United States of two years or less ("Treasuries"), cash and/or cash 

equivalents. Through this process each Fund ensures that the value of its Treasuries, cash and 

cash equivalents, whether held by the Fund or posted as margin or collateral, at all times 

approximates the aggregate market value of its obligations under its futures contracts. 

7 See CFTC Letter 06-09 at 4; CFTC Letter 06-19 at 5. 

8 See CFTC Letter 06-09 at 4; CFTC Letter 06-19 at 5. 

8401704 Page 4 6/16/2009 
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UNITED STAT"ES Cr,n1rn,~thh fta~ck l )iMr. David Stawick 

c. Positions in excess of the speculative limits are not carried into the spot month. 9 

None ofthe Funds intends to take delivery of the commodity underlying its futures 

contracts. Instead, each Fund sells its near month contracts and purchases corresponding next 

month contracts over a one to four day period beginning on the day that is two weeks prior to the 

expiration of the near month contract. 10 Rolling contract positions in this manner provides the 

following two significant protections to the futures market: (i) by rolling out of their front month 

contracts two weeks prior to expiration, the Funds protect the futures market from any 

unexpected price fluctuations that could occur if such trades were performed during the final 

days ofthe contract month when the risk of price distortion is particularly high; and (ii) by 

rolling out oftheir positions over a four-day period the larger Funds are able to trade out of large 

overall positions in the front month contract without upsetting the market by executing all trades 

on the same day. 

d. Both the index and the fund are highly transparent. 1 1 

Each of the Funds is highly transparent. The Funds provide the following information on 

their websites as of the end of the most recent NYSE Area trading day: (i) current NAY; (ii) 

closing price; (iii) premium/discount; (iv) shares outstanding; (v) daily holdings of each of the 

Funds' investments and pending trades in such investments; and (vi) recent performance 

information. Information on the Funds is also available on the NYSE Area website, which 

publishes a wide variety of Fund data, including: (i) intra-day and closing prices; (ii) daily 

trading volume; and (iii) previous day's closing price. 

In addition, the Funds publish their anticipated roll dates on their publically-accessible 

websites, thus providing full transparency to the market concerning their transactions. 

Publishing the roll dates ensures that market arbitrage opportunities will prevent speculators in 

the market from successfully front-running the timing of a Fund's roll, which is the type of 

activity that carries the risk of disturbing futures markets. 

9 See CFTC Letter 06-09 at 4; CFTC Letter 06-19 at 6. 

10 Currently, the only Funds that do not sell their contracts over a four-day period are the United States 12 Month Oil 

Fund, LP ("US 120F"), the United States Gasoline Fund ("UGA'') and the United States Heating Oil Fund 

("USHO"). Unlike the other funds managed by USCF, which generally hold all of their futures contracts in the near 

month and then roll all of these contracts into the next month contract, US 120F holds futures contracts spread over 

a 12 month period. When US 120F rolls out of its near month contract, it purchases new positions in the thirteenth 

month contract. As a result, US 120F's roll does require extension over a four-day period in order to ensure that no 

disturbance in the market occurs. At this time, UGA and USHO do not roll over a four-day period due to their small 

size. However, should these two funds increase to a size that requires them to hold more significant amounts of 

futures contracts they will be moved to a four-day roll. 

11 See CFTC Letter 06-09 at 4; CFTC Letter 06-19 at 6. 

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UNIHD STi\HS 

("rl!Y1rnnd!r\ ~-tinds II C 

Mr. David Stawick 

e. The fund is subject to unique federal and self-regulatory oversight by virtue of the 

shares being listed on the NYSE Area, and thereby subject to regulation by the SEC and 

FINRA, as well as to regulation by the CFTC and the NFA. 12 

The structure of the Funds places them under the same multi-tiered regulatory structure 

as the index-based funds that obtained no-action relief from the CFTC. 13 In addition to 

regulation ofUSCF as a commodity pool operator by the CFTC and National Futures 

Association, the sale of Fund securities on the NYSE Area subjects each Fund to comprehensive 

federal securities regulation by the U.S. Securities and Exchange Commission ("SEC"), the 

Financial Industry Regulatory Authority ("FINRA") and NYSE Area. These regulatory 

organizations review the offering documents of each Fund and provide ongoing regulatory 

oversight ofthe Funds' operations. 

f The futures trading does not result in price exposure for the fund. 14 

As noted above, each Fund employs a "neutral" investment strategy intended to track 

changes in the price of a benchmark commodity future regardless of whether the price goes up or 

down. The fact that each Fund seeks only to track its benchmark commodity future and not to 

achieve any financial gain from its trading activities in futures markets means that the Funds do 

not experience the price exposure typically attendant to their futures trading. Instead, as with 

index-based funds, the Funds only experience price exposure with respect to their commitment to 

track their specified benchmark. The Funds best hedge this risk through their purchase of futures 

contracts that constitute or are closely related to their respective benchmarks. If stringent 

position limits were placed on their investments in the commodity futures contracts serving as 

benchmarks for the Funds, the Funds would be required to invest in investments that would not 

provide a direct correlation to price changes in the benchmark or may not provide the same level 

of credit risk that is provided by investments in exchange traded commodity futures. 

III. Requested Action 

We understand that the CFTC is currently reviewing its regulation of commodity futures 

activities in light of recent market events. These events were wholly unrelated to the activities of 

index- and commodity-tracking funds using the commodity futures market to hedge the exposure 

to investors that results from their obligation to track the price movement of an index or 

commodity. In fact, the Funds play an important role in providing liquidity to the futures 

markets in a manner that is both transparent and contains less risk than alternative investments 

12 See CFTC Letter 06-09 at 4. 

13 See, e.g., CFTC Letter 06-09 at 3. 

14 See CFTC Letter 06-19 at 5. 

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Mr. David Stawick 

(e.g., purchasing futures contracts directly on a leveraged basis, through a commodity trading 

advisor on a leveraged basis, or by entering into over-the-counter contracts). 

As price takers-merely tracking the price movement of their respective commoditiesthe Funds' investment strategies preclude them from acting in a way that could lead to the 

manipulation of prices or cornering of the futures market. Empirical data shows that the Funds' 

activities in the futures market have resulted in little or no price disruption even as the overall 

size of the Funds' positions have increased dramatically. Instead of disrupting the futures 

market, the Funds provide a steadying force by adding significant liquidity to the market. In 

2008, nearly 324,000 individual investors gained access to the futures market through 

investments in the Funds. These investors were able to enter the futures market without the 

traditional settlement risk attendant to futures contracts acquired on a leveraged basis, due to the 

unleveraged nature ofthe Funds' investments. 

Rather than acting as a source of ri.sk, the Funds provide investors with a transparent 

vehicle through which to hedge their pre-existing price risk in commodities. Whether this risk 

arises from direct economic interests in commodities, or from broader inflationary or other 

investment risks, the Funds provide an important hedging alternative to· individual investors, 

without increasing market risk or otherwise adversely affecting the futures market. Although the 

futures positions held by the Funds may appear to be large in relation to each Fund as the legal 

holder of such positions, these investments represent the aggregation of demand from tens of 

thousands of individual investors seeking to reduce their financial risk through hedging in the 

commodity futures market. 

The CFTC staff has previously noted that passively managed index-tracking investment 

vehicles represent "a legitimate and potentially useful investment strategy'' 15 and that view 

should equally apply to investment in vehicles such as the Funds. We strongly encourage the 

CFTC to codify its staffs position and extend it to the Funds in any future regulation resulting 

from the Concept Release. 

Sincerely, 

Nicholas D. Gerber 

cc: James M. Cain 

Sutherland Asbill & Brennan LLP 

15 Concept Release, footnote 15. 

8401704 . Page 7 6/16/2009