[Federal Register Volume 78, Number 131 (Tuesday, July 9, 2013)]
[Notices]
[Pages 41138-41145]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-16377]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-69910; File No. SR-NYSEArca-2013-48]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change, as Modified by Amendment No. 1
Thereto, To List and Trade Shares of iShares Dow Jones-UBS Roll Select
Commodity Index Trust Pursuant to NYSE Arca Equities Rule 8.200
July 2, 2013.
I. Introduction
On May 1, 2013, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant
[[Page 41139]]
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 (``Shares'') of iShares Dow Jones-UBS Roll Select
Commodity Index Trust (``Trust'') under NYSE Arca Equities Rule 8.200.
On May 3, 2013, the Exchange filed Amendment No. 1 to the proposed rule
change.\3\ The proposed rule change, as modified by Amendment No. 1
thereto, was published for comment in the Federal Register on May 20,
2013.\4\ The Commission received no comments on the proposed rule
change. This order grants approval of the proposed rule change, as
modified by Amendment No. 1 thereto.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange made a technical correction
and clarified that UBS Securities has implemented a fire wall with
respect to its personnel regarding access to information concerning,
among other things, the calculation of the values of the Index, DJ-
UBS CI, and DJ-UBS Roll Select CI (as such terms are defined below).
\4\ See Securities Exchange Act Release No. 69573 (May 14,
2013), 78 FR 29411 (``Notice'').
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II. Description of Proposed Rule Change
The Exchange proposes to list and trade Shares of the Trust
pursuant to NYSE Arca Equities Rule 8.200, Commentary .02.\5\ The
Shares represent beneficial ownership interests in the Trust.\6\ The
Trust is a Delaware statutory trust. The Trust is operated by
iShares(copyright) Delaware Trust Sponsor LLC (``Sponsor''), a Delaware
limited liability company and an indirect subsidiary of BlackRock, Inc.
(``BlackRock''). The Sponsor is a commodity pool operator registered
with the Commodity Futures Trading Commission (``CFTC'') and a member
of the National Futures Association (``NFA''). BlackRock Asset
Management International Inc., a Delaware corporation and an indirect
subsidiary of BlackRock, is the sole member and manager of the Sponsor.
BlackRock Institutional Trust Company, N.A., a national banking
association, an indirect subsidiary of BlackRock, and an affiliate of
the Sponsor, is the trustee of the Trust (``Trustee''). BlackRock Fund
Advisors (``Adviser''),\7\ a California corporation, an indirect
subsidiary of BlackRock, and an affiliate of the Sponsor, serves as the
commodity trading advisor of the Trust, is registered as a commodity
trading advisor with the CFTC, and is a member of the NFA.\8\ State
Street Bank and Trust Company, a trust company organized under the laws
of Massachusetts, is the administrator (``Administrator'') of the
Trust.
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\5\ 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.
\6\ See the pre-effective amendment to the registration
statement on Form S-1 for the Trust, dated February 8, 2013 (File
No. 333-178376) relating to the Shares (``Registration Statement'').
\7\ The Adviser is not a broker-dealer but is affiliated with a
broker-dealer and has implemented a firewall with respect to such
broker-dealer affiliate as well as procedures designed to prevent
the use and dissemination of material, non-public information
regarding the assets of the Trust.
\8\ According to the Sponsor, the Sponsor will be responsible
for the overall management of the Trust and the Trustee will be
responsible for the day-to-day administration of the Trust. The
Adviser will act as the commodity trading advisor for the Trust with
discretionary authority to make determinations with respect to the
Trust's assets, but will not engage in any activities designed to
obtain a profit from, or ameliorate losses caused by, changes to the
level of the underlying index. The Sponsor represents that it will
implement and maintain procedures designed to prevent the use and
dissemination of material, non-public information regarding the
assets of the Trust.
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The investment objective of the Trust will be to seek investment
results that correspond generally, but are not necessarily identical,
to the performance of the Dow Jones-UBS Roll Select Commodity Index
Total Return (``Index''), which reflects the returns on a fully
collateralized investment in the Dow Jones-UBS Roll Select Commodity
Index (``DJ-UBS Roll Select CI''), before the payment of expenses and
liabilities of the Trust. The DJ-UBS Roll Select CI is calculated based
on the same commodities, though not always the same futures contracts,
that are included in the Dow Jones-UBS Commodity Index (``DJ-UBS CI'').
The DJ-UBS CI is a liquidity- and production-weighted index of the
prices of a diversified group of futures contracts on physical
commodities. The DJ-UBS CI forms the base commodities index from which
the DJ-UBS Roll Select CI and the Index are derived.
The assets of the Trust will consist of long positions in Futures
Exchange \9\-traded futures contracts of various expirations (``Index
Futures'') \10\ on the DJ-UBS Roll Select CI, together with cash, U.S.
Treasury securities, or other short-term securities and similar
securities that are eligible as margin deposits for those Index Futures
positions (``Collateral Assets'').\11\ The Trust is expected to roll
out of existing positions and establish new positions in Index Futures
on an ongoing basis.\12\
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\9\ As used herein, ``Futures Exchange'' means the Chicago
Mercantile Exchange (``CME'') or one of the CME Group Inc.'s other
designated contract markets, or any additional or successor
designated contract markets through which the Trust trades Index
Futures (as defined herein). The designated contract markets of the
CME Group Inc. are the CME, Chicago Board of Trade (``CBOT''), New
York Mercantile Exchange Inc. (``NYMEX'') and Commodity Exchange,
Inc. (``COMEX'').
\10\ The Trust's Index Futures will be subject to the rules of
the relevant Futures Exchange, which will initially be CME. The
Index Futures will initially trade on GLOBEX, the CME's electronic
trading system, and are not expected to trade through open outcry on
the floor of the CME.
\11\ The Sponsor represents that the Trust will invest in Index
Futures and Collateral Assets, in a manner consistent with the
Trust's investment objective and not to achieve additional leverage.
\12\ The Index Futures initially held by the Trust will have
quarterly expirations and be listed for trading by the CME.
Subsequent Index Futures held by the Trust may have longer or
shorter expirations, different terms, and may be listed on other
Futures Exchanges.
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In order to collateralize its Index Futures positions and to
reflect the U.S. Treasury component of the Index, the Trust will hold
Collateral Assets, from which it will post margin to its clearing
futures commission merchant (``Clearing FCM''), in an amount equal to
the margin required by the relevant Futures Exchange, and transfer to
its Clearing FCM any additional amounts that may be separately required
by the Clearing FCM.\13\ Any Collateral Assets not required to be
posted as margin with the Clearing FCM will be held in the Trust's
accounts established at its Administrator.
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\13\ When establishing positions in Index Futures, the Trust
will be required to deposit initial margin with a value of
approximately 3% to 10% of the value of each Index Futures position
at the time it is established. These margin requirements are subject
to change from time to time by the Exchange or the Clearing FCM. On
a daily basis, the Trust will be obligated to pay, or entitled to
receive, variation margin in an amount equal to the change in the
daily settlement level of its Index Futures positions.
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The Trust will be a passive investor in Index Futures and the
Collateral Assets held to satisfy applicable margin requirements on
those Index Futures positions. At any time when Index Futures of more
than one expiration date are listed on the Futures Exchange, the
Sponsor will determine, pursuant to the terms of the trust agreement,
which Index Futures of a given expiration will be transferred into or
out of the Trust in connection with either the creation or redemption
of Shares. The Adviser will not engage in any activities designed to
obtain a profit from, or to ameliorate losses caused by, changes in the
level of the Index or the DJ-UBS Roll Select CI or the value of the
Collateral Assets.
The profit or loss on the Trust's Index Futures positions should
correlate with increases and decreases in the value of the DJ-UBS Roll
Select CI, although this correlation is not expected to be exact. The
return on the Index Futures, together with interest on the Collateral
Assets, is expected to result in a total return that corresponds
generally, but is not identical, to the Index.
[[Page 41140]]
The Index, DJ-UBS CI, and DJ-UBS Roll Select CI
The Index reflects the value of the DJ-UBS Roll Select CI together
with the returns on specified U.S. Treasury securities that are deemed
to have been held to collateralize a hypothetical long position in the
futures contracts comprising the DJ-UBS Roll Select CI.
The DJ-UBS Roll Select CI is calculated based on the same
commodities, though not always the same futures contracts, that are
included in the DJ-UBS CI, which is a liquidity- and production-
weighted index of the prices of a diversified group of futures
contracts on physical commodities. The DJ-UBS Roll Select CI seeks to
minimize the effect of contango and maximize the effect of
backwardation by selecting replacement futures contracts that exhibit
the most backwardation or least contango among those eligible futures
contracts with delivery months of up to 273 calendar days until
expiration.\14\
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\14\ Markets for futures contracts can exhibit
``backwardation,'' which means that futures contracts with distant
delivery months are priced lower than those with nearer delivery
months, or can exhibit ``contango,'' which means that futures
contracts with distant delivery months are priced higher than those
with nearer delivery months.
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The DJ-UBS Roll Select CI incorporates the economic effect of
``rolling'' the futures contracts included in the applicable index and
the DJ-UBS CI reflects the economic effect of ``rolling'' futures
contracts into front-month futures contracts. ``Rolling'' a futures
contract means closing out a position in an expiring futures contract
and establishing an equivalent position in a new futures contract on
the same commodity.
The DJ-UBS Roll Select CI differs from the DJ-UBS CI in that it
does not roll into the futures contract with the nearest designated
delivery month. Rather, the DJ-UBS Roll Select CI rolls into those
eligible futures contracts with delivery months of up to 273 calendar
days until expiration that exhibit the most backwardation or that
exhibit the least contango.
The DJ-UBS Roll Select CI, the DJ-UBS CI, and the Index are
administered, calculated, and published by UBS Securities LLC (``UBS
Securities'') and DJI Opco, LLC, a wholly-owned subsidiary of S&P Dow
Jones Indices LLC (``S&P Dow Jones Indices'' and, together with UBS
Securities, ``Index Co-Sponsors'').\15\
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\15\ According to the Sponsor, S&P Dow Jones Indices and its
subsidiary DJI Opco, LLC are not broker-dealers and UBS Securities
is a broker-dealer. UBS Securities has implemented a fire wall with
respect to its personnel regarding access to information concerning
the composition and/or changes to the Index, DJ-UBS CI, and DJ-UBS
Roll Select CI and the calculation of the values of the foregoing
indexes, and will be subject to procedures designed to prevent the
use and dissemination of material, non-public information regarding
the Index, DJ-UBS CI, and DJ-UBS Roll Select CI. The Index Co-
Sponsors have implemented and maintain procedures designed to
prevent the use and dissemination of material, non-public
information regarding the DJ-UBS Roll Select CI, the DJ-UBS CI, and
the Index.
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The DJ-UBS CI
The DJ-UBS CI, on which the DJ-UBS Roll Select CI is based, was
created by AIG International Inc. in 1998 and acquired by UBS
Securities in May 2009, at which time UBS Securities and Dow Jones
entered into a joint marketing agreement to market the DJ-UBS CI and
related indices. Dow Jones subsequently assigned its interest in the
joint marketing agreement to CME Indexes. The Index Co-Sponsors are
together responsible for calculating the DJ-UBS CI and related indices
and sub-indices, including the Index and the DJ-UBS Roll Select CI.
The DJ-UBS CI is a benchmark index composed of futures contracts on
the underlying physical commodities, the selection and weighting of
which are currently determined based on the five-year average of the
trading volume, adjusted by the historic U.S. dollar value of the
futures contract designated for inclusion in the DJ-UBS CI, and the
five-year average of production figures, adjusted by the historic U.S.
dollar value of the futures contract designated for inclusion in the
DJ-UBS CI. For each of the included commodities, specified futures
contracts with specified delivery dates are designated for inclusion in
the DJ-UBS CI. The DJ-UBS CI is reweighted and rebalanced annually, on
a price-percentage basis, to reflect changes in trading volume and
production figures.
The DJ-UBS CI reflects the increased or decreased return associated
with ``rolling'' futures contracts. The DJ-UBS CI reflects the economic
impact of the roll process by reducing the weights applied to expiring
futures contracts while correspondingly increasing the weights applied
to the futures contracts that are replacing such expiring futures
contracts. This roll simulation is generally conducted at the beginning
of each month over the course of five business days, lasting from the
sixth business day until the tenth business day of each month. The DJ-
UBS CI conducts its roll simulations each month by rolling out of the
designated futures contracts expiring in that month and rolling into
those designated futures contracts with the next closest designated
delivery month.
The DJ-UBS Roll Select CI
The DJ-UBS Roll Select CI implements its rolling methodology by
selecting from the eligible contracts for each commodity on its
applicable ``contract selection date,'' the contract that exhibits the
greatest amount of backwardation or least amount of contango, on an
annualized basis, relative to the contract with the immediately
preceding delivery date on the same commodity. This is accomplished by
first dividing the price of each eligible contract from the price of
the contract immediately preceding such eligible contract, to determine
the percentage difference between the two prices. Because this price
difference may be affected by the relative time between the eligible
contract and its immediately preceding contract, this price difference
is multiplied by 365 and divided by the number of actual days between
the delivery dates of the two contracts, to arrive at a measure of the
relative annualized contango/backwardation, referred to as the
``annualized spread,'' exhibited between the eligible contract and the
contract immediately preceding it. Based on a comparison of these
annualized spreads, the eligible contract that has the highest
annualized spread relative to its immediately preceding contract is the
one selected as the contract for the DJ-UBS Roll Select CI to establish
new positions in. This roll selection process generally occurs every
month on the fourth business day of the month, subject to changes or
adjustments to this process implemented by the Index Co-Sponsors.
The Index Futures in which the Trust will invest will be based on
the DJ-UBS Roll Select CI. The DJ-UBS Roll Select CI is a version of
the DJ-UBS CI that tries to mitigate the effects of contango arising
from the rolling process. Rather than incorporating the economic effect
of rolling into futures contracts with the next closest designated
delivery month, the DJ-UBS Roll Select CI incorporates the economic
effect of rolling into applicable futures contracts that exhibit the
least contango or, if applicable, the most backwardation, in each case
relative to the contracts of the immediately preceding delivery month.
Because the DJ-UBS Roll Select CI utilizes a different designated
contract selection process than the DJ-UBS CI, the futures contracts
comprising the DJ-UBS Roll Select CI at any particular time may have
different delivery months than those comprising the DJ-UBS CI, and the
levels of the DJ-UBS Roll Select CI and the DJ-UBS CI may
correspondingly differ. In addition, as a
[[Page 41141]]
result of this difference in rolling processes, both the performance of
the DJ-UBS Roll Select CI and the DJ-UBS CI and the dollar-value
weights of their respective underlying futures contracts are expected
to differ over time.
Determination of DJ-UBS CI Index Constituents
The Index Co-Sponsors have established a two-tier oversight
structure for the DJ-UBS CI, the DJ-UBS Roll Select CI, and the Index
comprised of the ``Supervisory Committee'' and the ``Advisory
Committee.'' \16\ The composition of the DJ-UBS CI is determined by UBS
Securities each year under the supervision of, and in accordance with
the procedures adopted by, the Supervisory Committee. The final
composition of the DJ-UBS CI for each calendar year is subject to the
approval of the Supervisory Committee in consultation with the Advisory
Committee, and once this approval has been obtained, the new
composition of the DJ-UBS CI is publicly announced, and takes effect in
the month of January of the relevant calendar year.
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\16\ The Supervisory Committee and the Advisory Committee are
subject to procedures designed to prevent the improper use and
dissemination of material, non-public information regarding the
Index, DJ-UBS Roll Select CI, and DJ-UBS CI.
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The relative weight of a commodity eligible for inclusion in the
DJ-UBS CI, or its commodity index percentage (``CIP''), is initially
determined based on (i) the relative production percentages of the
commodities eligible for inclusion in the DJ-UBS CI and (ii) the
relative liquidity of the futures contracts that have been designated
as the eligible reference contracts for those commodities. This initial
CIP calculation is then adjusted to give effect to caps and floors on
such CIPs and to adjust the weights for gold and silver, the relative
production numbers of which, according to the Dow Jones-UBS Commodity
Index\SM\ Handbook, last published by the Index Co-Sponsors as of May
2012, understate their economic significance.
The commodities and related designated futures contracts currently
included in the DJ-UBS CI and their respective final CIPs for 2013 are
as follows:
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Designated CIP** Trading hours
Commodity contract Exchange* Units (percent) (E.T.) ***
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Aluminum..................... High Grade LME............. 25 metric tons. 4.913 First session:
Primary 6:55AM to
Aluminum. 7:00AM, 7:55AM
to 8:00AM;
second
session:
10:15AM to
10:20AM,
10:55AM to
11:00AM.
Coffee....................... Coffee ``C''.... ICE Futures U.S. 37,500 lbs..... 2.442 3:30AM to
2:00PM.
Copper....................... Copper.......... COMEX........... 25,000 lbs..... 7.277 6:00PM to
5:15PM Next
Day.
Corn......................... Corn............ CBOT............ 5,000 bushels.. 7.053 Sun-Fri: 8:00PM
to 8:45AM Next
Day; Mon-Fri:
9:30AM to
2:15PM.
Cotton....................... Cotton.......... ICE Futures U.S. 50,000 lbs..... 1.766 9:00PM to
2:30PM Next
Day.
Crude Oil.................... Light, Sweet NYMEX........... 1,000 barrels.. 9.206 6:00PM to
Crude Oil. 5:15PM Next
Day.
Brent Crude Oil. ICE Futures U.S. 1,000 barrels.. 5.794 8:00PM to
6:00PM Next
Day.
Gold......................... Gold............ COMEX........... 100 troy oz.... 10.819 6:00PM to
5:15PM Next
Day.
Heating Oil.................. Heating Oil..... NYMEX........... 42,000 gallons. 3.519 6:00PM to
5:15PM Next
Day.
Live Cattle.................. Live Cattle..... CME............. 40,000 lbs..... 3.283 Mon: 10:05AM to
5:00PM; Tue-
Thurs: 6:00PM
to 5:00PM Next
Day; Fri:
6:00PM to
2:55PM Next
Day.
Lean Hogs.................... Lean Hogs....... CME............. 40,000 lbs..... 1.900 Mon: 10:05AM to
5:00PM; Tue-
Thurs: 6:00PM
to 5:00PM Next
Day; Fri:
6:00PM to
2:55PM Next
Day.
Natural Gas.................. Henry Hub NYMEX........... 10,000 mmbtu... 10.424 6:00PM to
Natural Gas. 5:15PM Next
Day.
Nickel....................... Primary Nickel.. LME............. 6 metric tons.. 2.244 First session:
6:15AM to
6:20AM, 8:00AM
to 8:05AM;
second
session:
10:25AM to
10:30AM,
11:05AM to
11:10AM.
Silver....................... Silver.......... COMEX........... 5000 troy oz... 3.898 6:00PM to
5:15PM Next
Day.
Soybeans..................... Soybeans........ CBOT............ 5,000 bushels.. 5.495 Sun-Fri: 8:00PM
to 8:45AM Next
Day; Mon-Fri:
9:30AM to
2:15PM.
Soybean Meal................. Soybean Meal.... CBOT............ 100 short tons. 2.607 Sun-Fri: 8:00PM
to 8:45AM Next
Day.
Soybean Oil.................. Soybean Oil..... CBOT............ 60,000 lbs..... 2.743 Mon-Fri: 9:30AM
to 2:15PM; Sun-
Fri: 8:00PM to
8:45AM Next
Day; Mon-Fri:
9:30AM to
2:15PM.
Sugar........................ World Sugar No. ICE Futures U.S. 112,000 lbs.... 3.884 2:30AM to
11. 2:00PM.
Unleaded Gasoline............ Reformulated NYMEX........... 42,000 gallons. 3.461 6:00PM to
Blendstock for 5:15PM Next
Oxygen Blending. Day.
Wheat (Chicago).............. Soft Wheat...... CBOT............ 5,000 bushels.. 3.433 Sun-Fri: 8:00PM
to 8:45AM Next
Day; Mon-Fri:
9:30AM to
2:15PM.
[[Page 41142]]
Wheat (Kansas)............... Hard Red Winter KCBOT........... 5,000 bushels.. 1.321 Sun-Fri: 8:00PM
Wheat. to 8:45AM Next
Day; Mon-Fri:
9:30AM to
2:15PM.
Zinc......................... Special High LME............. 25 metric tons. 2.519 First session:
Grade Zinc. 7:10AM to
7:15AM, 7:50AM
to 7:55AM;
second
session:
10:05AM to
10:10AM,
10:45AM to
10:50AM.
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* ``LME'' refers to the London Metal Exchange, and ``ICE Futures U.S.'' refers to ICE Futures U.S., Inc.
** Rounded to the nearest thousandth of a percentage. May not total to 100 due to rounding.
*** Trading hours for the CME, CBOT, NYMEX, and COMEX represent weekday electronic trading hours through CME
Globex (electronic platform). Trading hours for LME represent ring trading times during each of first and
second sessions; excludes kerb trading times.
Calculation of the Index, DJ-UBS CI, and DJ-UBS Roll Select CI
The level of the DJ-UBS CI was set to be equal to 100 as of
December 31, 1990. Subsequent levels of the DJ-UBS CI are determined by
multiplying the level of the DJ-UBS CI as of the previous day by a
fraction equal to (i) the weighted average value (``WAV'') of the DJ-
UBS CI as of the current day divided by (ii) the WAV of the DJ-UBS CI
as of the previous day, subject to adjustment for roll periods as
described below. The WAV of the DJ-UBS CI on any given day is
calculated by summing the products of the settlement prices of the
designated futures contracts for each commodity multiplied by the
commodity index multiplier (``CIM'') of such designated contract.
The CIMs of the designated contracts in the DJ-UBS CI are
determined annually, generally on the fourth business day of each year
(the date of such determination, ``CIM Determination Date''). On the
CIM Determination Date, initial CIMs (``ICIMs'') are calculated for
each designated contract by multiplying such designated contract's CIP
by 1,000, then dividing such product by the designated contract's
settlement price as of the CIM Determination Date. To determine the
final CIM for each designated contract for the new year, each ICIM is
multiplied by an adjustment factor, which is a fraction equal to (i)
the WAV of the DJ-UBS CI as of the CIM Determination Date, as
calculated using the CIMs from the prior year, divided by (ii) 1,000.
This adjustment factor is intended to preserve WAV continuity from one
year to the next.
During roll periods, which generally occur during the sixth through
tenth business days of each month, the level of the DJ-UBS CI is
calculated using a blended WAV formula that reflects the fact that the
DJ-UBS CI is rolling out of expiring contracts and into replacement
contracts. The WAV associated with the existing index components (``Old
WAV'') begins weighted at 100% as of the business day preceding the
roll period and decreases by 20% on each subsequent business day until
reduced to zero; it has no further effect on the level of the DJ-UBS CI
by the fifth business day of such roll period. The WAV associated with
the new index components (``New WAV'') begins weighted at 0% as of the
business day preceding the roll period and increases by 20% on each
subsequent business day such that by the fifth business day of such
roll period, the level of the DJ-UBS CI is determined based entirely on
the New WAV.
Accordingly, during a roll period, the level of the DJ-UBS CI on
any given day can be calculated as the product of the level of the DJ-
UBS CI as of the previous day, multiplied by a fraction equal to: (i)
Old WAV x (1-0.2n) + New WAV x (0.2n), using the Old WAV and New WAV
values as of such day, divided by (ii) Old WAV x (1-0.2n) + New WAV x
(0.2n), using the Old WAV and New WAV values as of the previous day.
The variable ``n'' in this equation represents the number of business
days that have elapsed for such roll period through and including the
relevant date of determination. According to the Registration
Statement, the DJ-UBS Roll Select CI will be calculated using the same
general methodology as the DJ-UBS CI and using the same CIPs and CIMs
used in connection with calculating the DJ-UBS CI. However, because the
roll process for the DJ-UBS Roll Select CI is different from that of
the DJ-UBS CI, its constituent futures contracts may differ from those
included in the DJ-UBS CI. This difference is expected to cause the
dollar-value weights and the weighted average value of the futures
contracts included in each index to differ over time, and, as a result,
cause the performance of the two indices to diverge.
The Index combines the returns of the DJ-UBS Roll Select CI with
the returns of the most recent weekly auction high rate for three-month
U.S. Treasury bills, as reported on the Web site http://publicdebt.treas.gov/AI/OFBills under the column headed ``Discount Rate
%'' published by the Bureau of the Public Debt of the U.S. Treasury, or
any successor source. The level of the Index, which was set at a
hypothetical level of 100 as of December 31, 1990, can be calculated on
any given day as the product of the level of the Index as of the
previous day, multiplied by the sum of (i) 1.00 plus (ii) the positive
or negative percentage return on the DJ-UBS Roll Select CI on such day
plus (iii) the daily return based on the auction high rate for three-
month U.S. Treasury bills described above.
Additional information regarding the composition of the Index, DJ-
UBS Roll Select CI, DJ-UBS CI and their index methodologies is included
in the Registration Statement and at the Index Co-Sponsors' Web site,
www.djindexes.com.\17\
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\17\ See supra note 6.
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A more detailed description of the Shares, the Trust, the Index,
and the Index Futures, as well as of the investment strategies and
risks, creation and redemption procedures, and fees, among other
things, is included in the Notice and the Registration Statement, as
applicable.\18\
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\18\ See supra notes 4 and 6.
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III. Discussion and Commission's Findings
After careful review, the Commission finds that the proposed rule
change, as modified by Amendment No. 1 thereto, is consistent with the
requirements of Section 6 of the Act \19\ and the rules and regulations
thereunder applicable to a national securities exchange.\20\ In
particular, the Commission finds that the proposed rule change, as
modified by Amendment No. 1 thereto, is
[[Page 41143]]
consistent with Section 6(b)(5) of the Act,\21\ 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 Trust
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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\19\ 15 U.S.C. 78f.
\20\ 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).
\21\ 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,\22\ 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 intraday, closing
prices, and settlement prices of the Index Futures held by the Trust
and the futures contracts included in the Index, DJ-UBS Roll Select CI,
and DJ-UBS CI are or will be readily available from the Web sites of
the relevant futures exchanges, automated quotation systems, published
or other public sources, or on-line information services such as
Bloomberg or Reuters. The relevant futures exchanges also provide
delayed futures information on current and past trading sessions and
market news free of charge on their respective Web sites. The specific
contract specifications for the Index Futures and for the underlying
futures contracts in the Index, DJ-UBS Roll Select CI, and DJ-UBS CI
are also available on such Web sites, as well as other financial
informational sources. Information regarding the Collateral Assets will
be available from the applicable exchanges and market data vendors.
Further, the Trust will provide Web site disclosure of portfolio
holdings daily and will include, as applicable, the composite value of
the total portfolio; the name, quantity, price, and market value of
each Index Future and Collateral Asset, and the characteristics of such
Index Futures and Collateral Assets; and the amount of cash held in the
Trust's portfolio. This Web site disclosure of the portfolio
composition of the Trust 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. The intra-day indicative value (``IIV'')
\23\ per Share of the Trust will be widely disseminated by one or more
major market data vendors at least every 15 seconds during the Core
Trading Session (from 9:30 a.m. E.T. to 4:00 p.m. E.T.).\24\ In
addition, the Index Co-Sponsors will calculate and publish the value of
the Index, the DJ-UBS Roll Select CI, and DJ-UBS CI continuously on
each business day, with such values updated at least every 15 seconds
during the Core Trading Session and disseminated by S&P Dow Jones
Indices to market data vendors. The contents and percentage weighting
of the Index, the DJ-UBS Roll Select CI, and DJ-UBS CI, will be
available at the Index Co-Sponsors' Web site, www.djindexes.com, and
distributed to third-party data providers. The Trustee will determine
the net asset value per Share (``NAV'') as of 4:00 p.m. E.T. on each
business day on which the Exchange is open for regular trading or as
soon as practicable after that time.\25\ The NAV will be disseminated
to all market participants at the same time. The Exchange will make
available on its Web site daily trading volume of the Shares and the
closing prices of the Shares.
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\22\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\23\ The IIV will be based on the prior day's final NAV per
Share, adjusted every 15 seconds during the Core Trading Session to
reflect the continuous price changes of the Trust's Index Futures
and other holdings. In addition, although not likely, circumstances
may arise in which the NYSE Arca Core Trading Session is in
progress, but trading in Index Futures is not occurring. Such
circumstances may result from reasons including, but not limited to,
the applicable Futures Exchange having a separate holiday schedule
than the NYSE Arca or closing prior to the close of the NYSE Arca,
price fluctuation limits being reached in an Index Future, or the
applicable Futures Exchange imposing any other suspension or
limitation on trading in an Index Future. In such instances, the
value of the applicable Index Futures held by the Trust would be
static or priced by the Trust at the applicable early cut-off time
of the Futures Exchange trading the applicable Index Future.
Moreover, any cash held by the Trust for collateralization purposes
will be invested in Collateral Assets that do not have market
exposure, such that their value would not change throughout the
trading day. As such, during such periods, the disseminated IIV for
the Trust will be static.
\24\ According to the Exchange, several major market data
vendors display and/or make widely available IIVs published on CTA
or other data feeds.
\25\ The Trustee will value the Trust's long positions in Index
Futures on the basis of that day's settlement prices for the Index
Futures held by the Trust, as announced by the applicable Futures
Exchange. The value of the Trust's positions in any particular Index
Future will equal the product of (a) the number of such Index
Futures of such expiration owned by the Trust, (b) the settlement
price of such Index Futures on the date of calculation and (c) the
multiplier of such Index Futures. If there is no announced
settlement price for a particular Index Future contract on a
business day, the Trustee will use the most recently announced
settlement price unless the Trustee, in consultation with the
Sponsor, determines that such price is inappropriate as a basis for
valuation. The daily settlement prices for the Index Futures
initially held by the Trust will be established by the CME shortly
after the close of trading for such Index Futures, which is
generally 2:40 p.m. E.T. The Trustee will value all other holdings
of the Trust at (a) current market value, if quotations for such
property are readily available, or (b) fair value, as reasonably
determined by the Trustee, if the current market value cannot be
determined. Once the value of the Index Futures and interest earned
on the Trust's Collateral Assets has been determined, the Trustee
will subtract all accrued expenses and liabilities of the Trust as
of the time of calculation in order to calculate the net asset value
of the Trust. The Trustee will determine the NAV by dividing the net
asset value of the Trust by the number of Shares outstanding at the
time the calculation is made. Any changes to NAV that may result
from creation and redemption activity occurring on any business day
will not be reflected in NAV until the following business day.
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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 IIV, the Index value, or the value of the Index
Futures occurs. If the interruption 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
may halt trading in the Shares if trading is not occurring in the Index
Futures, or if other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present.\26\ The
Exchange states that it has a general policy prohibiting the
distribution of material, non-public information by its
[[Page 41144]]
employees. The Exchange states that the Sponsor will implement and
maintain procedures designed to prevent the use and dissemination of
material, non-public information regarding the assets of the Trust. The
Exchange states that the Adviser is not a broker-dealer but is
affiliated with a broker-dealer and has implemented a firewall with
respect to such broker-dealer affiliate as well as procedures designed
to prevent the use and dissemination of material, non-public
information regarding the assets of the Trust. The Exchange states that
S&P Dow Jones Indices and its subsidiary DJI Opco, LLC are not broker-
dealers, and that UBS Securities is a broker-dealer and has implemented
a fire wall with respect to its personnel regarding access to
information concerning the composition and/or changes to the Index, DJ-
UBS CI, and DJ-UBS Roll Select CI and the calculation of the values of
the foregoing indexes, and will be subject to procedures designed to
prevent the use and dissemination of material, non-public information
regarding the Index, DJ-UBS CI, and DJ-UBS Roll Select CI. The Exchange
states that the Index Co-Sponsors have implemented and maintain
procedures designed to prevent the use and dissemination of material,
non-public information regarding the DJ-UBS Roll Select CI, the DJ-UBS
CI, and the Index. The Exchange states that the Supervisory Committee
and the Advisory Committee are subject to procedures designed to
prevent the use and dissemination of material, non-public information
regarding the Index, DJ-UBS Roll Select CI, and DJ-UBS CI. Moreover,
the trading of the Shares will be subject to NYSE Arca Equities Rule
8.200, Commentary .02(e), which sets forth certain restrictions on
Equity Trading Permit (``ETP'') Holders \27\ acting as registered
Market Makers \28\ in Trust Issued Receipts to facilitate surveillance.
The Commission notes that the Financial Industry Regulatory Authority
(``FINRA''), on behalf of the Exchange,\29\ will communicate as needed
regarding trading in the Shares with other markets that are members of
the Intermarket Surveillance Group (``ISG'') or with which the Exchange
has in place a comprehensive surveillance sharing agreement.\30\
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\26\ With respect to trading halts, the Exchange may consider
all relevant factors in exercising its discretion to halt or suspend
trading in the Shares. Trading in the Shares will be subject to
trading halts caused by extraordinary market volatility pursuant to
the Exchange's ``circuit breaker'' rule 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.
\27\ See NYSE Arca Equities Rule 1.1(n) (defining ETP Holder).
\28\ See NYSE Arca Equities Rule 1.1(v) (defining Market Maker).
\29\ The Exchange states that, while FINRA surveils trading on
the Exchange pursuant to a regulatory services agreement, the
Exchange is responsible for FINRA's performance under this
regulatory services agreement.
\30\ The Exchange states that CME, CBOT, NYMEX, and ICE Futures
U.S. are members of ISG, and that the Exchange may obtain market
surveillance information with respect to transactions occurring on
the COMEX pursuant to the ISG memberships of CME and NYMEX. In
addition, the Exchange states that it has entered into a
comprehensive surveillance sharing agreement with the LME that
applies with respect to trading in futures contracts currently
included in the DJ-UBS CI and DJ-UBS Roll Select CI.
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The Commission notes that, prior to the commencement of trading,
the Exchange will inform its ETP Holders of the suitability
requirements of NYSE Arca Equities Rule 9.2(a) in an Information
Bulletin.\31\ Specifically, the Exchange will remind ETP Holders that,
in recommending transactions in these securities, they must have a
reasonable basis to believe that (1) the recommendation is suitable for
a customer given reasonable inquiry concerning the customer's
investment objectives, financial situation, needs, and any other
information known by such member, and (2) the customer can evaluate the
special characteristics, and is able to bear the financial risks, of an
investment in the Shares. In connection with the suitability
obligation, the Information Bulletin will also provide that members
must make reasonable efforts to obtain the following information: (a)
The customer's financial status; (b) the customer's tax status; (c) the
customer's investment objectives; and (d) such other information used
or considered to be reasonable by such member or registered
representative in making recommendations to the customer.
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\31\ NYSE Arca Equities Rule 9.2(a) provides that an ETP Holder,
before recommending a transaction in any security, must have
reasonable grounds to believe that the recommendation is suitable
for the customer based on any facts disclosed by the customer as to
its other security holdings and as to its financial situation and
needs. Further, the rule provides, with a limited exception, that
prior to the execution of a transaction recommended to a non-
institutional customer, the ETP Holder must make reasonable efforts
to obtain information concerning the customer's financial status,
tax status, investment objectives, and any other information that
such ETP Holder believes would be useful to make a recommendation.
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FINRA has issued a regulatory notice providing guidance to firms
about the supervision of complex products, as described in FINRA
Regulatory Notice 12-03 (January 2012) (``FINRA Regulatory Notice'').
While the FINRA Regulatory Notice does not provide a definition of what
constitutes a ``complex product,'' it does identify characteristics
that may make a product ``complex'' for purposes of determining whether
the product should be subject to heightened supervisory and compliance
procedures.\32\ The Trust's characteristics may raise issues similar to
those raised in the FINRA Regulatory Notice. Therefore, the Exchange
has represented that the Information Bulletin will state that ETP
Holders that carry customer accounts should follow the FINRA Regulatory
Notice with respect to suitability.
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\32\ See FINRA Regulatory Notice, at 3-4.
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The Exchange represents 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 the Exchange's proposal to list and trade the Shares, the
Exchange has made representations, including that:
(1) The Trust will meet the initial and continued listing
requirements applicable to Trust Issued Receipts in NYSE Arca Equities
Rule 8.200 and Commentary .02 thereto.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) The trading in the Shares will be subject to the existing
trading surveillances, administered by FINRA on behalf of the Exchange,
which are designed to detect violations of Exchange rules and
applicable federal securities laws, and that these procedures 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) 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 IIV will not be calculated or publicly
disseminated; (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 IIV is disseminated; (e) that a
static IIV will be disseminated, between the close of trading on the
applicable futures exchange and the close of the NYSE Arca Core Trading
Session; (f) the requirement that ETP Holders deliver a prospectus to
investors purchasing newly issued Shares prior to or
[[Page 41145]]
concurrently with the confirmation of a transaction; and (g) trading
information. The Information Bulletin will also advise ETP Holders of
their suitability obligations with respect to recommended transactions
to customers in the Shares, and will state that ETP Holders that carry
customer accounts should follow the FINRA Regulatory Notice with
respect to suitability.
(5) With respect to application of Rule 10A-3 under the Act,\33\
the Trust relies on the exception contained in Rule 10A-3(c)(7).\34\
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\33\ 17 CFR 240.10A-3.
\34\ 17 CFR 240.10A-3(c)(7).
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(6) The Sponsor represents that the Trust will invest in Index
Futures and Collateral Assets in a manner consistent with the Trust's
investment objective and not to achieve additional leverage.
(7) With respect to Index Futures traded on exchanges, not more
than 10% of the weight of such Index Futures in the aggregate shall
consist of futures contracts whose principal trading market (a) is not
a member of ISG or (b) is a market with which the Exchange does not
have a comprehensive surveillance sharing agreement, provided that, so
long as the Exchange may obtain market surveillance information with
respect to transactions occurring on the COMEX pursuant to the ISG
memberships of CME and NYMEX, futures contracts whose principal trading
market is COMEX shall not be subject to the prohibition in (a) above.
(8) A minimum of 100,000 Shares of the Trust will be outstanding at
the commencement of trading on the Exchange.
This approval order is based on all of the Exchange's representations
and description of the Trust, including those set forth above and in
the Notice.\35\
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\35\ The Commission notes that it does not regulate the market
for futures in which the Trust plans to take positions, which is the
responsibility of the 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, as modified by Amendment No. 1 thereto, is consistent with
Section 6(b)(5) of the Act \36\ and the rules and regulations
thereunder applicable to a national securities exchange.
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\36\ 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,\37\ that the proposed rule change (SR-NYSEArca-2013-48), as
modified by Amendment No. 1 thereto, be, and it hereby is, approved.
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\37\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\38\
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\38\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-16377 Filed 7-8-13; 8:45 am]
BILLING CODE 8011-01-P