(Corrects to remove soybeans from first paragraph in story published Aug. 19.)

Aug. 19 (Bloomberg) -- Two Deutsche Bank AG PowerShares commodity funds, worth a total of $5.8 billion, will no longer be exempt from U.S. position limits in wheat and corn, forcing a shift in their holdings to comply with federal trading restrictions.

The Deutsche Bank funds will have to comply with caps designed to keep a single investor from gaining too much control of the market, the Commodity Futures Trading Commission said today. The agency has been tightening restrictions on commodity speculation amid concerns it’s pushing up prices and increasing risks.

The CFTC move will curtail the commodity holdings of PowerShares DB Commodity Index Tracking Fund, the largest broad- based commodity index fund in the U.S., and PowerShares DB Agriculture Fund, the largest agricultural exchange-traded fund. Both track Deutsche Bank indexes.

“Ultimately, an overhaul of the indexes may be necessary,” said Bradley Kay, an ETF analyst with Morningstar Inc. in Chicago. “They will have a very difficult time trying to maintain their current investments and their low tracking error.”

The funds will “continue” to conduct business “in the normal course,” both funds said in filings with the U.S. Securities and Exchange Commission yesterday. Renee Calabro, spokeswoman for Deutsche Bank, said the company would have no further comment.

‘No-Action’ Letters

The regulatory agency said in a statement that it withdrew a “no-action” letter to DB Commodity Services LLC, managing owner of the two PowerShares ETFs, that permitted the DB Commodity Index Tracking Master Fund to exceed federal position limits for trading of those agriculture futures contracts.

“I believe that position limits should be consistently applied and vigorously enforced,” Gary Gensler, chairman of the commission, said in the statement.

As of Oct. 31, the funds will be subject to federal limits of 13,500 Chicago Board of Trade corn contracts in any non-spot month, and 5,000 wheat contracts, and an all-months combined limit of 22,000 corn contracts and 6,500 wheat contracts, according to the SEC filings.

“This could be bad news for commodity funds in general,” said Tom Lydon, president and chief executive officer of Global Trends Investments and editor of ETF Trends, in an e-mail today. Commodity funds “have been under the microscope lately.”

Limiting Speculation

In July and August, the CFTC held hearings on whether to tighten limits on energy speculation amid concerns that index funds helped push up energy prices last year.

In June, the U.S. Senate Permanent Subcommittee on Investigations said in a report that commodity index traders pushed up the price of wheat last year.

Deutsche Bank, Germany’s largest bank, has had an exemption from the position limits since May 2006. The agency said it will work with Deutsche Bank and one other entity “as they transition to positions within current federal speculative limits.”

The commission said today that it also withdrew a no-action letter from a second, unidentified trader that used a “proprietary commodity investment strategy” including positions in the Chicago Board of Trade’s corn, soybeans and wheat markets.

The agency said the letter, numbered 06-19, was granted on Sept. 6, 2006. Gresham Investment Management LLC, a registered commodity pool operator, received a no-action letter numbered 06-19 on Sept. 6, 2006, for trading in corn, soybeans and wheat, according to a public letter Gresham sent to the commission on January 28, 2008.

Henry Jarecki, the chairman of New York-based Gresham, told the commission at a hearing last month that it shouldn’t restrict the holdings of commodity investors, saying it was “inaccurate to believe” that index investors caused commodity prices to rise. He couldn’t be reached for comment today.

To contact the reporters on this story: Asjylyn Loder in New York aloder@bloomberg.net; Tina Seeley in Washington at tseeley@bloomberg.net.

Last Updated: August 20, 2009 16:43 EDT