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The manager of U.S Commodity Funds plans to tell the U.S. Commodity Futures Trading Commission that current energy market regulations should remain unchanged.

"We are of the view that current regulation of the energy commodity positions held by investors in futures by the exchanges is sufficient," Chief Investment Officer John Hyland wrote in prepared testimony. Hyland, whose funds include the U.S. Oil Fund (USO) and U.S. Natural Gas Fund (UNG), also argues that exemptions from position limits granted to index funds should be extended to funds that track a single commodity.

The CFTC is holding its third day of hearings Wednesday to determine whether and how to limit the size of holdings for index funds, as well as swap dealers and other investors which do not produce or consume the commodities underlying many derivatives.

USO and UNG sell shares on the New York Stock Exchange, then use the proceeds to buy oil and natural gas futures. At times both funds have held a large share of outstanding contracts in the front month, leading some to blame them for recent extreme price swings.

"In the absence of the (U.S. Natural Gas Fund) volumes, we believe prices would have fallen because of the increasing supply, increased inventories and weak demand relative to the previous year," the Industrial Energy Consumers of America, which represents large manufacturers, says in its prepared testimony for the hearing.

In his testimony, Hyland makes the case that, by adding volume to the oil and gas markets, the U.S. Commodity Funds have lowered, rather than increased, volatility. The funds are described as passive investors, buying or selling only when shares are bought or sold on the stock exchange. Because the funds sell out of the front month contract well before expiration, there is also no danger of being forced to take physical delivery, Hyland wrote.

-By Brian Baskin, Dow Jones Newswires; 212-416-2453; brian.baskin@dowjones.com