[Federal Register Volume 77, Number 28 (Friday, February 10, 2012)]
[Notices]
[Pages 7219-7225]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-3152]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66334; File No. SR-NYSEArca-2011-94]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of a Proposed Rule Change To List and Trade Shares of the
ProShares Managed Futures Strategy Fund, ProShares Commodity Managed
Futures Strategy Fund, and ProShares Financial Managed Futures Strategy
Fund Under NYSE Arca Equities Rule 8.200
February 6, 2012.
I. Introduction
On December 5, 2011, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to list and trade shares of the ProShares Managed
Futures Strategy Fund, ProShares Commodity Managed Futures Strategy
Fund, and ProShares Financial Managed Futures Strategy Fund (each a
``Fund,'' and collectively, ``Funds'') under NYSE Arca Equities Rule
8.200. The proposed rule change was published for comment in the
Federal Register on December 23, 2011.\3\ The Commission received no
comments on the proposal. This order grants approval of the proposed
rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 66002 (December 19,
2011), 76 FR 80433 (``Notice'').
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II. Description of the Proposed Rule Change
The Exchange proposes to list and trade shares (``Shares'') of each
of the Funds pursuant to NYSE Arca Equities Rule 8.200, Commentary .02,
which permits the trading of Trust Issued Receipts either by listing or
pursuant to unlisted trading privileges.\4\ Each Fund is a series of
the ProShares Trust II (``Trust''), a Delaware statutory trust.\5\
ProShare Capital Management LLC is the Trust's Sponsor (``Sponsor''),
and Wilmington Trust Company is the Trust's trustee. Brown Brothers
Harriman & Co. serves as the administrator, custodian, and transfer
agent of the Funds (``Administrator''). SEI Investments Distribution
Co. serves as distributor of the Shares.
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\4\ Commentary .02 to NYSE Arca Equities Rule 8.200 applies to
Trust Issued Receipts that invest in ``Financial Instruments.'' The
term ``Financial Instruments,'' as defined in Commentary .02(b)(4)
to NYSE Arca Equities Rule 8.200, means any combination of
investments, including cash; securities; options on securities and
indices; futures contracts; options on futures contracts; forward
contracts; equity caps, collars and floors; and swap agreements.
\5\ See the Trust's Registration Statement on Form S-1, dated
November 29, 2011 (File No. 333-178212) relating to the Funds
(``Registration Statement'').
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The Funds and Principal Investment Strategies
The Funds seek to provide investment results (before fees and
expenses) that correspond to the performance of the S&P Dynamic Futures
Index (``DFI'' or ``Index'') or to a sub-index of the Index (``Sub-
Index''). The ProShares Managed Futures Strategy seeks to provide
investment results (before fees and expenses) that correspond to the
performance of the DFI. The ProShares Commodity Managed Futures
Strategy seeks to provide investment results (before fees and expenses)
that correspond to the performance of the S&P Dynamic Commodities
Futures Index (``DCFI''), a Sub-Index of the DFI. The ProShares
Financial Managed Futures Strategy seeks to provide investment results
(before fees and
[[Page 7220]]
expenses) that correspond to the performance of the S&P Dynamic
Financial Futures Index (``DFFI''), another Sub-Index of the DFI.
The Index and each Sub-Index were developed by Standard & Poor's
and are long/short rules-based investable indexes designed to attempt
to capture the economic benefit derived from both rising and declining
trends in futures prices.\6\ The Index is composed of unleveraged
positions in U.S. exchange-traded futures contracts on sixteen
different tangible commodities (``Commodities Futures Contracts''), as
well as U.S. exchange-traded futures contracts on eight different
financials, such as major currencies and U.S. Treasury securities
(``Financials Futures Contracts,'' and together with the Commodities
Futures Contracts, collectively, ``Index Components'').\7\ Commodities
Futures Contracts and Financials Futures Contracts each comprise a Sub-
Index of the Index: the DCFI and the DFFI, respectively (collectively,
``Sub-Indexes'').
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\6\ Standard & Poor's is not a broker-dealer, is not affiliated
with a broker-dealer, and has implemented procedures designed to
prevent the use and dissemination of material, non-public
information regarding the Index and Sub-Indexes.
\7\ The Index Components are traded on the Chicago Mercantile
Exchange, Inc. (``CME''), COMEX (a division of CME), Chicago Board
of Trade (``CBOT,'' a division of CME), NYMEX (a division of CME),
and ICE Futures US (``ICE'') (collectively, ``Futures Exchanges'').
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In order to achieve the investment objective of the Funds, the
Sponsor will invest in: (1) Exchange-traded futures contracts of the
type comprising the Index or Sub-Indexes, as applicable (``Futures
Contracts''); and/or (2) under limited circumstances (as further
described herein), swap agreements whose value is derived from the
level of the Index, a Sub-Index, one or more Futures Contracts, or, in
the case of currency-based Financials Futures Contracts, the exchange
rates underlying such Financials Futures Contracts. Each Fund may also
invest in cash or cash equivalents, such as U.S. Treasury securities or
other high credit quality, short-term fixed-income or similar
securities (including shares of money market funds, bank deposits, bank
money market accounts, certain variable rate-demand notes, and
repurchase agreements collateralized by government securities) that may
serve as collateral for the Futures Contracts or swap agreements. The
Sponsor does not expect the Funds to invest directly in any commodity
or currency.
Each Fund seeks to achieve its investment objective by investing,
under normal market conditions, in exchange-traded Futures Contracts.
In the event position accountability rules or position limits with
respect to a Futures Contract is reached with respect to a Fund, the
Sponsor may, in its commercially reasonable judgment, cause such Fund
to obtain exposure through swaps whose value is derived from the level
of the Index, a Sub-Index, one or more Futures Contracts, or, in the
case of currency-based Financials Futures Contracts, the exchange rates
underlying such Financials Futures Contracts, or invest in swaps if
such instruments tend to exhibit trading prices or returns that
correlate with the Index, the Sub-Indexes, or any Futures Contract and
will further the investment objective of the Funds.\8\ The Funds may
also invest in swaps if the market for a specific Futures Contract
experiences emergencies (e.g., natural disaster, terrorist attack, or
an act of God) or disruptions (e.g., a trading halt or a flash crash)
that would prevent the Funds from obtaining the appropriate amount of
investment exposure to the affected Futures Contracts directly.\9\
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\8\ To the extent practicable, the Funds will invest in swaps
cleared through the facilities of a centralized clearing house.
\9\ The Sponsor will attempt to mitigate the Funds' credit risk
by transacting only with large, well-capitalized institutions using
measures designed to determine the creditworthiness of a
counterparty and will take various steps to limit counterparty
credit risk.
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The Index and Sub-Indexes
The Index is composed of the Index Components, representing
unleveraged long or short positions in U.S. exchange-traded futures
contracts in the commodity and financial markets.\10\ The Index
Components are formed into ``sectors'' of one or more contracts with
similar characteristics. Index Components within each sector are chosen
based on fundamental characteristics and liquidity. The Commodities
Futures Contracts comprise the DCFI as described below, and weightings
of the Commodities Futures Contracts are based on generally known world
production levels, as adjusted to limit the impact of the energy
sector. The Financials Futures Contracts comprise the DFFI, as
described below, and weightings of the Financials Futures Contracts are
based on, but not directly proportional to, gross domestic product.
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\10\ As set forth in the Index weighting scheme example below,
the commodities portion of the Index consists of multiple commodity
sectors (e.g., Energy, Industrial Metals) and each sector is
assigned a percentage sector weight. Each sector, in turn, consists
of one or more components, each with an assigned component weight.
Similarly, the financial markets portion of the Index consists of
multiple foreign currency and U.S. Treasury sectors (e.g.,
Australian Dollar and U.S. Treasury Notes), each with an assigned
sector weight. Each such sector has one component, with an assigned
component weight.
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The positions the Index (and accordingly, each Sub-Index) takes in
the Index Components are not long-only, but are set by sector, long,
short or, in the case of Energy, flat based on the relation of the
current aggregate price input of the Index Components in a particular
sector with a seven-month weighted moving average of the aggregate
price inputs of the same Index Components. For the Index and the DCFI,
the sector weights will vary based on whether Energy is positioned long
or flat. If Energy is flat, its weight is redistributed pro-rata among
the other sectors. Since the DFFI has no commodity exposure, the
weights of the sectors and the Index Components that comprise it are
not impacted by the long or flat positioning of the Energy sector.
For the Index, if Energy is positioned ``long,'' the initial Index
weights, together with information about the exchange and trading hours
for each Futures Contract, are as follows:
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Index weights with energy ``long''
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Weight Weight Weight Exchange Trading hours \11\
Sub-Index (%) Sector (%) Component (%)
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DCFI.................... 50 Energy................. 14.12 Light Crude............ 10.20 NYMEX (CME)........... 6 p.m.-5:15 p.m. next
day.
........ ........ Heating Oil............ 1.54 NYMEX (CME)........... 6 p.m.-5:15 p.m. next
day.
........ ........ RBOB Gasoline.......... 1.40 NYMEX (CME)........... 6 p.m.-5:15 p.m. next
day.
[[Page 7221]]
........ ........ Natural Gas............ 0.98 NYMEX (CME)........... 6 p.m.-5:15 p.m. next
day.
........ Industrial Metals...... 5.02 Copper................. 5.02 COMEX (CME)........... 6 p.m.-5:15 p.m. next
day.
........ Precious Metals........ 3.79 Gold................... 3.22 COMEX (CME)........... 6 p.m.-5:15 p.m. next
day.
........ ........ Silver................. 0.57 COMEX (CME)........... 6 p.m.-5:15 p,m, next
day
........ Livestock.............. 5.27 Lean Hogs.............. 2.04 CME................... ** \12\
........ ........ Live Cattle............ 3.23 CME................... ** \13\
........ Grains................. 13.85 Corn................... 5.75 CBOT (CME)............ 7pm-8:15 a.m.; 10:30
a.m.-2:15 p.m.
........ ........ Soybeans............... 3.37 CBOT (CME)............ 7 p.m.-8:15 a.m.;
10:30 a.m.-2:15 p.m.
........ ........ Wheat.................. 4.73 CBOT (CME)............ 7 p.m.-8:15 a.m.;
10:30 a.m.-2:15 p.m.
........ Softs.................. 7.95 Coffee................. 1.26 ICE................... 3:30 a.m.-2 p.m.
........ ........ Cocoa.................. 0.42 ICE................... 4 a.m.-2 p.m.
........ ........ Sugar.................. 3.58 ICE................... 3:30 a.m.-2 p.m.
........ ........ Cotton................. 2.69 ICE................... 9 p.m.-2:30 p.m. next
day.
DFFI.................... 50 Australian Dollar...... 1.67 Australian Dollar...... ........ CME................... 6 p.m.-5:15 p.m. next
day.
........ British Pound.......... 3.08 British Pound.......... ........ CME................... 6 p.m.-5:15 p.m. next
day.
........ Canadian Dollar........ 2.10 Canadian Dollar........ ........ CME................... 6 p.m.-5:15 p.m. next
day.
........ Euro................... 15.67 Euro................... ........ CME................... 6 p.m.-5:15 p.m. next
day.
........ Japanese Yen........... 7.31 Japanese Yen........... ........ CME................... 6 p.m.-5:15 p.m. next
day.
........ Swiss Franc............ 0.70 Swiss Franc............ ........ CME................... 6 p.m.-5:15 p.m. next
day.
........ U.S. Treasury Notes 9.74 U.S. Treasury Notes.... ........ CBOT (CME)............ 6:30 p.m.-5 p.m. Next
\14\. day.
........ U.S. Treasury Bonds 9.74 U.S. Treasury Bonds.... ........ CBOT (CME)............ 6:30 p.m.-5 p.m. Next
\15\. day.
---------- ---------- ----------
Totals.............. 100 ....................... 100 ....................... 100 ...................... ......................
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For the DCFI, if Energy is positioned ``flat,'' the initial Index
weights will be as follows:
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\11\ All times are Eastern time (``E.T.''), inclusive of
electronic and open outcry trading sessions, as applicable.
\12\ Lean Hogs trade from 10:05 a.m. Monday to 2:55 p.m. Friday,
with daily trading halts from 5 p.m. to 6 p.m.
\13\ Live Cattle trade from 10:05 a.m. Monday to 2:55 p.m.
Friday, with daily trading halts from 5 p.m. to 6 p.m.
\14\ ``U.S. Treasury Notes'' refer to 10 year U.S. Treasury Note
futures.
\15\ ``U.S. Treasury Bonds'' refer to those futures with
underlying bonds of a remaining term to call or maturity of 15-25
years.
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Index weights with energy ``flat''
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Sub-Index Weight (%) Sector Weight (%) Component Weight (%)
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DCFI......................... 41.78 Energy.......... 0.00 Light Crude.... 0.00
.............. .............. Heating Oil.... 0.00
.............. .............. RBOB Gasoline.. 0.00
.............. .............. Natural Gas.... 0.00
.............. Industrial 5.84 Copper......... 5.84
Metals.
.............. Precious Metals. 4.41 Gold........... 3.75
Silver......... 0.66
.............. Livestock....... 6.13 Lean Hogs...... 2.38
Live Cattle.... 3.76
.............. Grains.......... 16.13 Corn........... 6.70
[[Page 7222]]
.............. .............. Soybeans....... 3.92
.............. .............. Wheat.......... 5.51
.............. Softs........... 9.26 Coffee......... 1.47
Cocoa.......... 0.48
.............. .............. Sugar.......... 4.17
.............. .............. Cotton......... 3.13
DFFI......................... 58.22 Australian 1.94 Australian 1.94
Dollar. Dollar.
.............. British Pound... 3.59 British Pound.. 3.59
.............. Canadian Dollar. 2.44 Canadian Dollar 2.44
.............. Euro............ 18.24 Euro........... 18.24
.............. Japanese Yen.... 8.51 Japanese Yen... 8.51
.............. Swiss Franc..... 0.81 Swiss Franc.... 0.81
.............. U.S. Treasury 11.34 U.S. Treasury 11.34
Notes. Notes.
.............. U.S. Treasury 11.34 U.S. Treasury 11.34
Bonds. Bonds.
������������������������������
Totals................... 100 ................ 100 ............... 100
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For the DCFI, if Energy is positioned ``long,'' the initial Sub-
Index weightings would be as follows:
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DCFI weights with energy ``long''
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Sector Weight (%) Component Weight (%)
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Energy........................................ 28.24 Light Crude..................... 20.40
.............. Heating Oil..................... 3.08
.............. RBOB Gasoline................... 2.80
.............. Natural Gas..................... 1.96
Industrial Metals............................. 10.04 Copper.......................... 10.04
Precious Metals............................... 7.58 Gold............................ 6.44
.............. Silver.......................... 1.14
Livestock..................................... 10.54 Lean Hogs....................... 4.08
.............. Live Cattle..................... 6.46
Grains........................................ 27.70 Corn............................ 11.50
.............. Soybeans........................ 6.74
.............. Wheat........................... 9.46
Softs......................................... 15.90 Coffee.......................... 2.52
.............. Cocoa........................... 0.84
.............. Sugar........................... 7.16
.............. Cotton.......................... 5.38
�����������������������������������������������
Total..................................... 100 ................................ 100
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For the DCFI, if Energy is initially positioned ``flat,'' the
weights would be as follows:
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DCFI weights with energy ``flat''
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Sector Weight (%) Component Weight (%)
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Energy........................................ 0.00 Light Crude..................... 0.00
.............. Heating Oil..................... 0.00
.............. RBOB Gasoline................... 0.00
.............. Natural Gas..................... 0.00
Industrial Metals............................. 13.98 Copper.......................... 13.98
Precious Metals............................... 10.56 Gold............................ 8.99
Silver.......................... 1.58
Livestock..................................... 14.69 Lean Hogs....................... 5.69
Live Cattle..................... 8.99
Grains........................................ 38.61 Corn............................ 16.04
.............. Soybeans........................ 9.39
.............. Wheat........................... 13.18
Softs......................................... 22.16 Coffee.......................... 3.53
.............. Cocoa........................... 1.16
[[Page 7223]]
.............. Sugar........................... 9.98
.............. Cotton.......................... 7.50
�����������������������������������������������
Total..................................... 100 ................................ 100
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Finally, for the DFFI, the initial weights would be as follows:
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DFFI weights
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Sector Weight (%) Component Weight (%)
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Australian Dollar............................. 3.34 Australian Dollar............... 3.34
British Pound................................. 6.16 British Pound................... 6.16
Canadian Dollar............................... 4.20 Canadian Dollar................. 4.20
Euro.......................................... 31.34 Euro............................ 31.34
Japanese Yen.................................. 14.62 Japanese Yen.................... 14.62
Swiss Franc................................... 1.40 Swiss Franc..................... 1.40
U.S. Treasury Notes........................... 19.48 U.S. Treasury Notes............. 19.48
U.S. Treasury Bonds........................... 19.48 U.S. Treasury Bonds............. 19.48
�����������������������������������������������
Total..................................... 100 ................................ 100
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Sectors will be rebalanced monthly to the applicable weights, and the
weighting of each individual Index Component within a particular sector
will be rebalanced annually.
Energy's Short Exemption
If Energy receives a negative price signal (as determined by the
weighted moving average, as discussed below), it is positioned flat
(zero-weight) rather than short. This is due to the ``risk of ruin''
inherent in the Energy sector because of the concentration of supply in
a relatively small number of production locales. If supply from these
locales were to be disrupted (whether by war, terrorism, or other
events), the price of the Energy sector within the Index and the DCFI
is exposed to large scale price increases regardless of the current
trend and position setting. This would expose the Index and the DCFI to
significant, if not total, losses in such a circumstance. As such, the
Energy sector is positioned flat in a negative price environment and
the weight it would otherwise receive is redistributed pro rata among
the other sectors of the Index and the DCFI, as applicable.
Determining the Long/Short Positioning of the Sectors
The rule for the Index and each Sub-Index regarding long or short
positions is summarized as follows:
Long positions are tracked when a sector's current
aggregate 1-month price change is greater than or equal to the
exponential average of the past seven monthly price inputs; and
Short positions (or flat, in the case of Energy) are
tracked when a sector's current 1-month price change is less than the
exponential average of the past seven monthly price inputs.
Monthly positions are determined on the second to last DFI business
day of the month (defined as the position determination date, or
``PDD'') when the monthly percentage change of an Index Component's
price is compared to past monthly price changes, exponentially weighted
to give greatest weight to the most recent return and least weight to
the return seven months prior. The weighted sum of the percentage
changes of all the Index Component prices equals the daily movement of
the Index.
To create an exponential average for comparison, price inputs
(percentage change from current and previous PDDs) are weighted per the
schedule below. Due to this weighting methodology, current price
movements are more important than those of the more distant past.
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Number of months Weight
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7............................................................. 2.32
6............................................................. 3.71
5............................................................. 5.94
4............................................................. 9.51
3............................................................. 15.22
2............................................................. 24.34
1............................................................. 38.95
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SUM....................................................... 100.00
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Because this valuation is done on a sector basis, all the Index
Components within a particular sector will be set long, short (or flat,
in the case of Energy) upon each monthly rebalancing.
Sector Rebalancing
While sector weights are fixed and rebalanced back to their base
weight monthly, Index Components that are part of a multi-component
sector (energy, livestock, grains, and precious metals) are only reset
back to their base weight within their sector during the first five
business days of February. For example (assuming Energy is long), the
Japanese Yen (a single component sector) and Grains (a multi-component
sector) will rebalance to 6.85% and 11.16% of the Index respectively on
the roll date, as described below. However, the individual components
within the grains sector will only rebalance to their base weight at
the beginning of the year. During the year, they ``float'' within the
11.16% Index Grains weighting. During this monthly rebalancing, the
Index will also ``roll'' certain of its positions from the current
contract to a contract further from settlement.\16\
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\16\ The Index is composed of Index Components, which are
futures contracts. In order to maintain consistent exposure to the
Index Components, each Index Component contract must be sold prior
to its expiration date and replaced by a contract maturing at a
specified date in the future. This process is known as rolling.
Index Component contracts are rolled periodically. The rolls are
implemented pursuant to a roll schedule over a five-day period from
the first through the fifth Index business days of the month. An
Index business day is any day on which the majority of the Index
Components are open for official trading and official settlement
prices are provided, excluding holidays and weekends. The roll
schedule is set forth in the Registration Statement.
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[[Page 7224]]
Additional details regarding the Trust, Funds, Shares, trading
policies and investment strategies of the Funds, creations and
redemption procedures, fees, investment risks, Index and Sub-Indexes,
net asset value (``NAV'') calculation, the dissemination and
availability of information about the underlying assets, trading halts,
applicable trading rules, surveillance, and the Information Bulletin,
among other things, can be found in the Notice and/or the Registration
Statement, as applicable.\17\
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\17\ See Notice and Registration Statement, supra notes 3 and 5,
respectively.
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III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change to list and trade the Shares of the Funds is consistent with the
requirements of Section 6 of the Act and the rules and regulations
thereunder applicable to a national securities exchange.\18\ In
particular, the Commission finds that the proposed rule change is
consistent with the requirements of Section 6(b)(5) of the Act,\19\
which requires, among other things, that the Exchange's rules be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to foster cooperation
and coordination with persons engaged in facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest. The Commission notes that
the Funds and the Shares must comply with the requirements of NYSE Arca
Equities Rule 8.200 and Commentary .02 thereto to be listed and traded
on the Exchange.
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\18\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\19\ 15 U.S.C. 78f(b)(5).
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The Commission finds that the proposal to list and trade the Shares
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the
Act,\20\ which sets forth Congress's finding that it is in the public
interest and appropriate for the protection of investors and the
maintenance of fair and orderly markets to assure the availability to
brokers, dealers, and investors of information with respect to
quotations for, and transactions in, securities. Quotation and last-
sale information for the Shares will be available via the Consolidated
Tape Association (``CTA'') high-speed line. The daily closing Index
level and the percentage change in the daily closing Index level for
the Index and each Sub-Index will be publicly available from one or
more major market data vendors. Data regarding the Index and each Sub-
Index, updated every 15 seconds during the NYSE Arca Core Trading
Session, is also available from Standard & Poor's on a subscription
basis.\21\ In addition, for each Fund, the Indicative Optimized
Portfolio Value (``IOPV'') will be widely disseminated on a per Share
basis by one or more major market data vendors every 15 seconds during
the NYSE Arca Core Trading Session.\22\ The IOPV will be updated during
the NYSE Arca Core Trading Session when applicable Futures Exchanges
are trading any Futures Contracts held by the Funds. However, the IOPV
that will be disseminated between 2 p.m. E.T. and the close of the NYSE
Arca Core Trading Session will be impacted by static values for certain
Futures Contracts.\23\ The NAV for the Funds linked to the DFI and DFFI
will be calculated and disseminated daily by the Administrator at 3
p.m. E.T., and the NAV for the Fund linked to the DCFI will be
calculated and disseminated daily at 2:30 p.m. E.T. The Trust will
provide Web site disclosure of portfolio holdings daily and will
include, as applicable, the names, notional value (in U.S. dollars) and
number of Futures Contracts or units of swaps held by a Fund, if any,
cash equivalents and the amount of cash held in the portfolio of each
Fund. Moreover, the Web site for the Funds and/or the Exchange will
contain the following information: (a) The current NAV per Share and
the prior business day's NAV per Share; (b) calculation of the premium
or discount of the closing market price against the NAV per Share; (c)
the prospectus; and (d) other applicable quantitative information. The
Exchange also will disseminate on a daily basis via the CTA information
with respect to the recent NAV and Shares outstanding and make
available on its Web site daily trading volume of the Shares, closing
prices of the Shares, and the NAV per Share. The intra-day, closing,
and settlement prices of the Futures Contracts will also be readily
available, as applicable, from the respective Futures Exchanges.\24\
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\20\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\21\ In addition, several independent data vendors package and
disseminate Index and Sub-Index data in various value-added formats.
Data regarding the Index Components is available from the Web sites
of the Futures Exchanges. Data regarding the commodities, currencies
and Treasury securities underlying the Index Components is publicly
available from various financial information service providers.
\22\ According to the Exchange, several major market data
vendors display and/or make widely available IOPVs published on CTA
or other data feeds. For each Fund, the IOPV will be calculated by
using the prior day's closing NAV of such Fund as a base and
updating throughout the trading day changes in the value of each
Fund's holdings.
\23\ The value of the IOPV will be based on the underlying
Futures Contracts. Once a particular Futures Contract closes for
trading, a static value for that Futures Contract will be used to
calculate the IOPV.
\24\ See supra note 7.
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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. If the Exchange becomes aware that the NAV with respect to the
Shares is not disseminated to all market participants at the same time,
it will halt trading in the Shares until such time as the NAV is
available to all market participants. Further, the Exchange represents
that it may halt trading during the day in which an interruption to the
dissemination of the IOPV, the level of the Index (or Sub-Index), or
the value of the underlying Futures Contracts occurs. If the
interruption to the dissemination of the IOPV, the level of the Index
(or Sub-Index), or the value of the underlying Futures Contracts
persists past the trading day in which it occurred, the Exchange will
halt trading no later than the beginning of the trading day following
the interruption. The Exchange also may halt trading in the Shares if
unusual conditions or circumstances detrimental to the maintenance of a
fair and orderly market are present.\25\ Public Web site disclosure of
the portfolio composition of the Funds will occur at the same time as
the disclosure by the Sponsor of the portfolio composition to
Authorized Participants, so that all market participants are provided
portfolio composition information at the same time. Therefore, the same
portfolio information will be provided on the public Web site as well
as in electronic files provided to Authorized Participants.
Accordingly, the Exchange represents that each investor will have
[[Page 7225]]
access to the current portfolio composition of the Funds through the
Funds' Web site and/or at the Exchange's Web site. In addition, the
Commission notes that Standard & Poor's is not a broker-dealer, is not
affiliated with a broker-dealer, and has implemented procedures
designed to prevent the use and dissemination of material, non-public
information regarding the Index and Sub-Indexes. Lastly, the Exchange
states that it has a general policy prohibiting the distribution of
material, non-public information by its employees, and trading of the
Shares will be subject to NYSE Arca Equities Rule 8.200, Commentary
.02(e), which sets forth certain restrictions on ETP Holders \26\
acting as registered Market Makers \27\ in Trust Issued Receipts to
facilitate surveillance.
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\25\ With respect to trading halts, the Exchange may consider
all relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Funds. Trading in the Shares of the
Funds will be subject to halts caused by extraordinary market
volatility pursuant to the Exchange's circuit breaker rules in NYSE
Arca Equities Rule 7.12. Trading also may be halted because of
market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable.
\26\ See NYSE Arca Equities Rule 1.1(n) (defining ETP Holder).
\27\ See NYSE Arca Equities Rule 1.1(u) (defining Market Maker).
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The Exchange has represented that the Shares are deemed to be
equity securities, thus rendering trading in the Shares subject to the
Exchange's existing rules governing the trading of equity securities.
In support of this proposal, the Exchange has made representations,
including:
(1) The Funds will be subject to the criteria in NYSE Arca Equities
Rule 8.200 and Commentary .02 thereto for initial and continued listing
of the Shares.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) The Exchange's surveillance procedures applicable to derivative
products, including Trust Issued Receipts, are adequate to properly
monitor Exchange trading of the Shares in all trading sessions and to
deter and detect violations of Exchange rules and applicable federal
securities laws.
(4) The Exchange can obtain market surveillance information,
including customer identity information, with respect to transactions
occurring on the Futures Exchanges, all of which are members of the
Intermarket Surveillance Group (``ISG''). For components traded on
exchanges, not more than 10% of the weight of a Fund's portfolio in the
aggregate shall consist of components whose principal trading market is
not a member of ISG or is a market with which the Exchange does not
have a comprehensive surveillance sharing agreement.
(5) Prior to the commencement of trading, the Exchange will inform
its ETP Holders in an Information Bulletin of the special
characteristics and risks associated with trading the Shares.
Specifically, the Information Bulletin will discuss the following: (a)
The risks involved in trading the Shares during the Opening and Late
Trading Sessions when an updated IOPV will not be calculated or
publicly disseminated, as well as during the Core Trading Session when
the IOPV may be based in part on static underlying values; (b) the
procedures for purchases and redemptions of Shares in Creation Baskets
and Redemption Baskets (and that Shares are not individually
redeemable); (c) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (d) how
information regarding the IOPV is disseminated; (e) the requirement
that ETP Holders deliver a prospectus to investors purchasing newly
issued Shares prior to or concurrently with the confirmation of a
transaction; and (f) trading information.
(6) The anticipated minimum number of Shares for each Fund to be
outstanding at the start of trading will be 100,000 Shares.
(7) For the initial and continued listing of the Shares, the Funds
must be in compliance with NYSE Arca Equities Rule 5.3 and Rule 10A-3
under the Act.\28\
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\28\ 17 CFR 240.10A-3.
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(8) The Exchange will obtain a representation (prior to listing the
Shares of each Fund) from the Trust that the NAV per Share will be
calculated daily and made available to all market participants at the
same time.
This approval order is based on the Exchange's representations.\29\
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\29\ The Commission notes that it does not regulate the market
for futures in which the Fund plans to take positions, which is the
responsibility of the Commodity Futures Trading Commission
(``CFTC''). The CFTC has the authority to set limits on the
positions that any person may take in futures. These limits may be
directly set by the CFTC or by the markets on which the futures are
traded. The Commission has no role in establishing position limits
on futures, even though such limits could impact an exchange-traded
product that is under the jurisdiction of the Commission.
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For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act \30\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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\30\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\31\ that the proposed rule change (SR-NYSEArca-2011-94) be, and it
hereby is, approved.
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\31\ 15 U.S.C. 78s(b)(2).
\32\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\32\
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-3152 Filed 2-9-12; 8:45 am]
BILLING CODE 8011-01-P