Self-Regulatory Organizations; American Stock Exchange LLC; Order Granting Accelerated Approval of a Proposed Rule Change and Amendment Nos. 1 and 2 Thereto and Notice of Filing and Order Granting Accelerated Approval of Amendment Nos. 3 and 4 Thereto Relating to the Listing and Trading of the DB Commodity Index Tracking Fund, 3129-3137 [E6-515]
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Federal Register / Vol. 71, No. 12 / Thursday, January 19, 2006 / Notices
12(d) of the Securities Exchange Act of
1934 (‘‘Act’’) 1 and Rule 12d2–2(d)
thereunder,2 to withdraw its common
stock, $.001 par value (‘‘Security’’), from
listing and registration on the American
Stock Exchange LLC (‘‘Amex’’).
On December 23, 2005, the Board of
Directors (‘‘Board’’) of the Issuer
approved resolutions to withdraw the
Security from listing and registration on
Amex and to list the Security on the
Nasdaq National Market (‘‘Nasdaq’’).
The Issuer stated in its application that
the Board is taking such action because
after considering, among other things,
the capital market alternatives, the
Board believes, it is advisable and in the
best interests of the Issuer and its
stockholders to list its Security on
Nasdaq and to withdraw the Security
from listing on Amex.
The Issuer stated in its application
that it has met the requirements of
Amex Rule 18 by complying with all
applicable laws in effect in the State of
Delaware, in which it is incorporated,
and provided written notice of
withdrawal to Amex.
The Issuer’s application relates solely
to withdrawal of the Security from
listing on Amex and from registration
under Section 12(b) of the Act,3 and
shall not affect its obligation to be
registered under Section 12(g) of the
Act.4
Any interested person may, on or
before February 8, 2006, comment on
the facts bearing upon whether the
application has been made in
accordance with the rules of Amex, and
what terms, if any, should be imposed
by the Commission for the protection of
investors. All comment letters may be
submitted by either of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/delist.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include the
File Number 1–13955 or;
sroberts on PROD1PC70 with NOTICES
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number 1–13955. This file number
should be included on the subject line
if e-mail is used. To help us process and
1 15
U.S.C. 78l(d).
CFR 240.12d2–2(d).
3 15 U.S.C. 78l(b).
4 15 U.S.C. 78l(g).
16:38 Jan 18, 2006
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.5
Nancy M. Morris,
Secretary.
[FR Doc. E6–517 Filed 1–18–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[File No. 500–1]
In the Matter of Smart Online, Inc.;
Order of Suspension of Trading
January 17, 2006.
It appears to the Securities and
Exchange Commission that there is a
lack of current and accurate information
concerning the securities of Smart
Online, Inc. (‘‘SOLN’’) because of
possible manipulative conduct
occurring in the market for the
company’s stock.
The Commission is of the opinion that
the public interest and the protection of
investors require a suspension of trading
in the securities of the above-listed
company.
Therefore, it is ordered, pursuant to
section 12(k) of the Securities Exchange
Act of 1934, that trading in the abovelisted company is suspended for the
period from 9:30 a.m. EST, on January
17, 2006 through 11:59 p.m. EST, on
January 30, 2006.
By the Commission.
J. Lynn Taylor,
Assistant Secretary.
[FR Doc. 06–519 Filed 1–17–06; 11:16 am]
BILLING CODE 8010–01–P
2 17
VerDate Aug<31>2005
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s Internet Web site
(https://www.sec.gov/rules/delist.shtml).
Comments are also available for public
inspection and copying in the
Commission’s Public Reference Room.
All comments received will be posted
without change; we do not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
The Commission, based on the
information submitted to it, will issue
an order granting the application after
the date mentioned above, unless the
Commission determines to order a
hearing on the matter.
5 17
Jkt 208001
PO 00000
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53105; File No. SR–Amex–
2005–059]
Self-Regulatory Organizations;
American Stock Exchange LLC; Order
Granting Accelerated Approval of a
Proposed Rule Change and
Amendment Nos. 1 and 2 Thereto and
Notice of Filing and Order Granting
Accelerated Approval of Amendment
Nos. 3 and 4 Thereto Relating to the
Listing and Trading of the DB
Commodity Index Tracking Fund
January 11, 2006.
I. Introduction
On May 27, 2005, the American Stock
Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’),
pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
list and trade the DB Commodity Index
Tracking Fund under new Commentary
.07 to Amex Rule 1202. On September
15, 2005, the Amex filed Amendment
No. 1 to the proposed rule change. On
November 15, 2005, the Amex filed
Amendment No. 2 to the proposed rule
change. The proposed rule change, as
amended by Amendment Nos. 1 and 2,
was published for comment in the
Federal Register on December 16, 2005
for a 15-day comment period, which
ended on January 3, 2006.3 The
Commission received no comments on
the proposal. On January 5, 2006, the
Amex filed Amendment No. 3 to the
proposed rule change.4 On January 11,
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 52940
(December 12, 2005), 70 FR 74850.
4 In Amendment No. 3, the Amex: (1) Added
language to clarify that the composition of the Index
may be adjusted in the event that the Index Sponsor
is not able to obtain information necessary from the
relevant futures exchanges to calculate the daily
and/or closing prices for the Index commodities; (2)
stated that, in connection with adjustments to the
Index, if futures prices are not available, the Index
Sponsor will typically use the prior day’s futures
price and that, in exceptional cases, the Index
Sponsor may employ a ‘‘fair value’’ price; (3) stated
that, in the case of a temporary disruption in
connection with the trading of the futures contracts
comprising the Index, the Exchange believes that it
is unnecessary for a filing pursuant to Section 19(b)
under the Exchange Act to be submitted to the
Commission and represented that if the use of a
prior day’s price or ‘‘fair value’’ pricing for an Index
commodity or commodities is more than of a
temporary nature, a rule filing will be submitted
pursuant to Section 19(b) of the Exchange Act; (4)
represented that, if a successor or substitute Index
is used by the Managing Owner, the Exchange will
file a proposed rule change pursuant to Rule 19b–
2 17
CFR 200.30–3(a)(1).
Frm 00081
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3129
Continued
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E:\FR\FM\19JAN1.SGM
19JAN1
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Federal Register / Vol. 71, No. 12 / Thursday, January 19, 2006 / Notices
2006, the Amex filed Amendment No. 4
to the proposed rule change.5 This order
grants accelerated approval of the
proposed rule change, as amended by
Amendment Nos. 1 and 2.
Simultaneously, the Commission is
providing notice of filing of, granting
accelerated approval of, and soliciting
comments from interested persons on
Amendment Nos. 3 and 4.
sroberts on PROD1PC70 with NOTICES
II. Description of the Proposal
The Exchange proposes to add new
Commentary .07 to Amex Rule 1202 for
the purpose of permitting the listing and
trading of Trust Issued Receipts
(‘‘TIRs’’) where the trust holds shares
(‘‘Investment Shares’’) that are issued by
a trust, partnership, commodity pool, or
other similar entity that holds
investments in any combination of
securities, futures contracts, options on
futures contracts, swaps, forward
contracts, commodities or portfolios of
investments. For each separate
Investment Share, the Exchange would
submit a filing pursuant to Section 19(b)
of the Act. The Shares will conform to
the initial and continued listing criteria
under proposed Commentary .07(d) to
Amex Rule 1202.6 In its proposal, the
Amex initially proposes to list and trade
the shares (the ‘‘Shares’’) of a specific
trust, DB Commodity Index Tracking
Fund (the ‘‘Fund’’), that invests in the
securities of a commodity pool.
The Fund will invest substantially all
of its assets in the common units of
beneficial interests of DB Commodity
Index Tracking Master Fund (the
‘‘Master Fund’’). The Master Fund is a
trust created under Delaware law that
will consist primarily of futures
contracts on the commodities
comprising the Deutsche Bank Liquid
Commodity IndexTM—Excess Return
(the ‘‘DBLCI’’ or ‘‘Index’’). Both the
Fund and the Master Fund are
commodity pools operated by DB
Commodity Services LLC (the
‘‘Managing Owner’’).7 The Managing
Owner will be registered as a
4 under the Exchange Act to address, among other
things, the listing and trading characteristics of the
successor or substitute index and the Exchange’s
surveillance procedures applicable to the successor
or substitute index; and (5) requested accelerated
approval of Amendment No. 3.
5 In Amendment No. 4, the Amex amended the
rule text to require that the Index value will be
disseminated through one or more major market
data vendors at least every 15 seconds during the
time the Shares trade on Amex.
6 Proposed Commentary .07(d) to Rule 1202 for
listing the Shares is substantially similar to current
Rule 1202A relating to Commodity-Based Trust
Shares.
7 The Exchange stated that the Fund is not a
registered investment company under the
Investment Company Act of 1940 (‘‘1940 Act’’) and
is not required to register under the 1940 Act.
VerDate Aug<31>2005
16:38 Jan 18, 2006
Jkt 208001
commodity pool operator and
commodity trading advisor with the
Commodity Futures Trading
Commission (‘‘CFTC’’) and a member of
the National Futures Association
(‘‘NFA’’).
The Managing Owner will serve as the
commodity pool operator and
commodity trading advisor of the Fund
and the Master Fund. In this particular
case, the Managing Owner of the Master
Fund will manage only the futures
contracts in order to track the
performance of the Index. The Master
Fund may also include U.S. Treasury
securities for margin purposes and other
high credit quality short-term fixed
income securities.
III. Index Description
DBLCI is intended to reflect the
performance of certain commodities.
The Index tracks the performance of
futures contracts on crude oil, heating
oil, aluminum, gold, corn and wheat,
and the notional amounts of each
commodity included in the Index are
approximately in proportion to
historical levels of the world’s
production and supplies of such
commodities. The sponsor of the Index
is Deutsche Bank AG London (‘‘DB
London’’).
The Index value is calculated by DB
London during the trading day on the
basis of the most recently reported trade
price for the relevant futures contract
relating to each of the Index
commodities. Therefore, the market
value of each Index commodity during
the trading day will be equal to the
number of futures contracts of each
commodity represented in the Index
multiplied by the real-time futures
contract price (i.e., the most recently
reported trade price).8 The Index value
will be calculated and disseminated at
least every 15 seconds during the period
the Shares trade on the Exchange. The
closing level of the Index is calculated
by DB London on the basis of closing
prices for the applicable futures
contracts relating to each of the Index
commodities and applying such prices
to the relevant notional amount. For
each Index commodity, the market
value will be equal to the number of
futures contracts represented in the
Index multiplied by the futures contract
closing price. The Index includes
provisions for the replacement of
expiring futures contracts. This
replacement takes place over a period of
time in order to lessen the impact on the
market for such Index commodity. Such
8 Quote information and last sale information is
available from the applicable futures markets and
from data vendors.
PO 00000
Frm 00082
Fmt 4703
Sfmt 4703
replacements occur monthly (other than
in November) during the first week of
the month in the case of futures
contracts relating to crude oil and
heating oil and annually in November in
the case of futures contracts relating to
aluminum, gold, corn and wheat.
The Index is adjusted annually in
November to rebalance its composition
to ensure that each of the Index
commodities are weighted in the same
proportion that such commodities were
weighted on December 1, 1988 (the
‘‘Base Date’’). The Index has been
calculated back to the Base Date. On the
Base Date, the closing level was 100.
The following table reflects the index
base weights (‘‘Index Base Weights’’) of
each Index commodity on the Base Date:
Index commodity
Index
base
weight
(%)
Crude Oil ..........................................
Heating Oil ........................................
Aluminum ..........................................
Gold ..................................................
Corn ..................................................
Wheat ...............................................
35.00
20.00
12.50
10.00
11.25
11.25
Closing Level on Base Date .....
100.00
The composition 9 of the Index may
be adjusted in the event that the Index
Sponsor is not able to obtain
information necessary from the relevant
futures exchanges to calculate the daily
and/or closing prices for the Index
commodities. If futures prices are not
available, the Index Sponsor will
typically use the prior day’s futures
price. In exceptional cases (such as
when a daily price limit is reached on
a futures exchange), the Index Sponsor
may employ a ‘‘fair value’’ price (i.e.,
the price for unwinding the futures
position by dealers OTC).10 In the case
of a temporary disruption in connection
with the trading of the futures contracts
comprising the Index, the Exchange
believes that it is unnecessary for a
filing pursuant to Section 19(b) under
the Exchange Act to be submitted to the
9 The Exchange represents that should the Index
Sponsor replace or delete the current Index
components, the Exchange will submit a rule filing,
for Commission approval, pursuant to Section 19(b)
of the Exchange Act. Telephone conversation
between Jeffrey Burns, Associate General Counsel,
Amex, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation,
Commission, on January 10, 2006.
10 The Exchange notes that this is similar to the
case for index options when prices are unavailable
or unreliable. Article XVII, Section 4 of OCC’s ByLaws permits it to use the prior day’s closing price
to fix an index option’s exercise settlement value.
In addition, OCC may also use the next day’s
opening price, a price or value at such other time
as determined by OCC or an average of prices or
values as determined by OCC.
E:\FR\FM\19JAN1.SGM
19JAN1
Federal Register / Vol. 71, No. 12 / Thursday, January 19, 2006 / Notices
Commission. However, the Exchange
represents that if the use of a prior day’s
price or ‘‘fair value’’ pricing for an Index
commodity or commodities is more than
of a temporary nature, a rule filing will
be submitted pursuant to Section 19(b)
of the Exchange Act.
The Managing Owner has represented
that it will seek to arrange to have the
Index calculated and disseminated on a
daily basis through a third party if DB
London ceases to calculate and
disseminate the Index. If, however, the
Managing Owner is unable to arrange
the calculation and dissemination of the
Index (or a Successor Index), the
Exchange will undertake to delist the
Shares.11
sroberts on PROD1PC70 with NOTICES
IV. Commodity Futures Contracts and
Related Options
The Index Sponsor will calculate each
day the closing level of the Index on the
basis of the closing prices for the futures
contracts on the relevant primary
markets, indicated below.
Crude Oil. Crude oil is the world’s
most actively traded commodity. The
Light Sweet Crude Oil futures contract
traded on the New York Mercantile
Exchange (‘‘NYMEX’’) is the world’s
most liquid forum for crude oil trading,
as well as the world’s most liquid
futures contract on a physical
commodity.12 Due to the excellent
liquidity and price transparency of the
futures contract, it is used as a principal
international pricing benchmark.
Heating Oil. The heating oil futures
contract, listed and traded at the
NYMEX, trades in units of 42,000
gallons (1,000 barrels) and is based on
delivery in New York harbor, the
principal cash market center.13 The
11 If the Index is discontinued or suspended,
Managing Owner, in its sole discretion, may
substitute the Index with an index substantially
similar to the discontinued or suspended Index (the
‘‘Successor Index’’). The Successor Index may be
calculated and/or published by any other third
party. The Exchange represents that if a successor
or substitute Index is used by the Managing Owner,
the Exchange will file a proposed rule change
pursuant to Rule 19b–4 under the Exchange Act to
address, among other things, the listing and trading
characteristics of the successor or substitute index
and the Exchange’s surveillance procedures
applicable to the successor or substitute index. See
also infra note 32 and accompanying text.
12 In 2004, ADTV on NYMEX for futures contracts
on light sweet crude oil were 212,382 (with each
contract representing 1,000 barrels); ADTV through
August 2005 was 241,673. Annual contracts traded
on NYMEX on light sweet crude oil in 2004 were
52.8 million; annual contracts traded through
August 2005 were 40.6 million.
13 In 2004, ADTV on NYMEX for futures contracts
on heating oil were 51,745 (with each contract
representing 1,000 barrels); ADTV through August
2005 was 52,413. Annual contracts traded on
NYMEX on heating oil in 2004 were 12.8 million;
annual contracts traded through August 2005 were
8.8 million.
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16:38 Jan 18, 2006
Jkt 208001
heating oil futures contract is also used
to hedge diesel fuel and jet fuel, both of
which trade in the cash market at an
often stable premium to the heating oil
futures contract.
Gold. NYMEX is the world’s largest
physical commodity futures exchange
and the dominant market for the trading
of energy and precious metals.14
Aluminum. Aluminum is the most
heavily produced and consumed nonferrous metal in the world. Its low
density and malleability has been
recognized and championed by the
industrial world. In 2001, world
primary refined production totaled over
24 million tonnes. The total turnover for
the London Metal Exchange (‘‘LME’’)
primary aluminum futures and options
in 2001 was over 25 million lots or 625
million tonnes. The LME has the most
liquid aluminum contracts in the
world.15
Corn. Corn futures are traded on the
Chicago Board of Trade (‘‘CBOT’’) with
a unit of trading of 5,000 bushels.16
Wheat. Wheat futures are traded on
the CBOT with a unit of trading of 5,000
bushels.17
V. Structure of the Fund
Fund. The Fund is a statutory trust
formed pursuant to the Delaware
Statutory Trust Act and will issue units
of beneficial interest or shares that
represent units of fractional undivided
beneficial interest in and ownership of
the Fund. Unless terminated earlier, the
Fund will expire on December 31, 2055.
The investment objective of the Fund is
to reflect the performance of the DBLCI
less the expenses of the operation of the
Fund and the Master Fund. The Fund
will pursue its investment objective by
investing substantially all of its assets in
14 In 2004, ADTV on NYMEX for futures contracts
on gold were 60,079 (with each contract
representing 100 troy ounces); ADTV through
August 2005 was 61,085. Annual contracts traded
on NYMEX on gold in 2004 were 14.9 million;
annual contracts traded through August 2005 were
10.2 million.
15 In 2004, ADTV on LME for futures contracts on
aluminum were 116,004 (with each contract
representing 25 tonnes); ADTV through August
2005 was 113,743. Annual contracts traded on LME
on aluminum in 2004 were 29.2 million; annual
contracts traded through August 2005 were 18.9
million.
16 In 2004, ADTV on CBOT for futures contracts
on corn were 95,390 (with each contract
representing 5,000 bushels); ADTV through August
2005 was 120,237. Annual contracts traded on
CBOT on corn in 2004 were 24.038 million; annual
contracts traded through August 2005 were 20.19
million.
17 In 2004, ADTV on CBOT for futures contracts
on wheat were 31,568 (with each contract
representing 5,000 bushels); ADTV through August
2005 was 41,249. Annual contracts traded on CBOT
on wheat in 2004 were 7.95 million; annual
contracts traded through August 2005 were 6.92
million.
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
3131
the Master Fund. The Fund will hold no
investment assets other than Master
Fund Units.18 Each Share will correlate
with a Master Fund share issued by the
Master Fund and held by the Fund.
Master Fund. The Master Fund is a
statutory trust formed pursuant to the
Delaware Statutory Trust Act and will
issue units of beneficial interest or
shares that represent units of fractional
undivided beneficial interest in and
ownership of the Master Fund. Unless
terminated earlier, the Master Fund will
expire on December 31, 2055. The
investment objective of the Master Fund
is to reflect the performance of the
DBLCI less the expenses of the
operations of the Fund and the Master
Fund. The Master Fund will pursue its
investment objective by investing
primarily in a portfolio of futures
contracts on the commodities
comprising the DBLCI. In addition, the
Master Fund will also hold cash and
U.S. Treasury securities for deposit with
futures commission merchants
(‘‘FCMs’’) as margin and other high
credit quality short-term fixed income
securities.
Trustee. Wilmington Trust Company
is the trustee of the Fund and the Master
Fund. The trustee has delegated to the
Managing Owner the power and
authority to manage and operate the
day-to-day affairs of the Fund and the
Master Fund.
Managing Owner. The Managing
Owner is a Delaware limited liability
company that will be registered with the
CFTC as a commodity pool operator and
commodity trading advisor and is an
affiliate of Deutsche Bank AG, the
sponsor of the Fund and Master Fund.
The Managing Owner will serve as the
commodity pool operator and
commodity trading advisor of the Fund
and the Master Fund and will manage
and control all aspects of the business
of the Funds.
Clearing Broker. Deutsche Bank
Securities, Inc., the Clearing Broker, is
an affiliate of the Managing Owner and
is registered with the CFTC as an FCM.
The Clearing Broker will execute and
clear each of the Master Fund’s futures
contract transactions and will perform
certain administrative services for the
Master Fund.
Administrator. The Bank of New York
is the administrator for both the Fund
and the Master Fund (the
‘‘Administrator’’). The Administrator
will perform or supervise the
performance of services necessary for
the operation and administration of the
18 See Pre-Effective Amendment No. 4 to the
Fund’s Form S–1, Registration No. 333–125325,
dated October 26, 2005.
E:\FR\FM\19JAN1.SGM
19JAN1
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Federal Register / Vol. 71, No. 12 / Thursday, January 19, 2006 / Notices
Fund and the Master Fund. These
services include, but are not limited to,
investment accounting, financial
reporting, broker and trader
reconciliation, net asset value (‘‘NAV’’)
calculation,19 risk transparency, and
receiving and processing orders from
Authorized Participants (as defined
below), and coordinating the processing
of orders with the Managing Owner and
the Depository Trust Company (‘‘DTC’’).
VI. Product Description
sroberts on PROD1PC70 with NOTICES
A. Creation and Redemption of Shares
Issuances of the Shares will be made
only in baskets of 200,000 Shares or
multiples thereof (the ‘‘Basket
Aggregation’’ or ‘‘Basket’’). The Fund
will issue and redeem the Shares on a
continuous basis, by or through
participants that have entered into
participant agreements (each, an
‘‘Authorized Participant’’) 20 with the
Fund and its Managing Owner at the
NAV per Share determined shortly after
4 p.m. Eastern Time (‘‘ET’’) or the last
to close futures exchanges on which the
Index commodities are traded,
whichever is later, on the business day
on which an order to purchase the
Shares in one or more Baskets is
received in proper form. Following
issuance, the Shares will be traded on
the Exchange similar to other equity
securities. The Shares will be registered
in book entry form through DTC.
The procedures for creating a Basket
are as follows. On any business day, an
Authorized Participant may place an
order with the Distributor, ALPS
Distributors, Inc. (the ‘‘Distributor’’), to
create one or more Baskets. Purchase
orders must be placed by 10 a.m. ET and
are irrevocable. By placing a purchase
order, and prior to delivery of such
Basket(s), an Authorized Participant’s
DTC account will be charged the nonrefundable $500 transaction fee due for
the purchase order, regardless of the
number of Baskets to be created in
connection with such order.
The total payment required to create
a Basket during the continuous offering
period is the cash amount equal to the
NAV per Share times 200,000 Shares
19 NAV is the total assets of the Master Fund less
total liabilities of the Master Fund, determined on
the basis of generally accepted accounting
principles. NAV per Master Fund share is the NAV
of the Master Fund divided by the number of
outstanding Master Fund shares. This will be the
same for the Shares of the Fund because of a oneto-one correlation between the Shares and the
shares of the Master Fund.
20 An ‘‘Authorized Participant’’ is a person, who
at the time of submitting to the trustee an order to
create or redeem one or more Baskets, (i) is a
registered broker-dealer, (ii) is a DTC Participant,
and (iii) has in effect a valid Participant Agreement
with the Fund issuer.
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16:38 Jan 18, 2006
Jkt 208001
(the ‘‘Basket Amount’’) on the purchase
order date. Thus, the Basket Amount
usually will be determined on each
business day by the Administrator
shortly after 4 p.m. ET. Baskets are
issued as of 12 noon ET, on the business
day immediately following the purchase
order date (T+1) at NAV per Share on
the purchase order date if the required
payment has been timely received.
Authorized Participants that have
placed a purchase order to create a
Basket must transfer the Basket Amount
to the Administrator (the ‘‘Cash Deposit
Amount’’) by 10 a.m. the next day.
Authorized Participants that wish to
redeem a Basket will be required to
accumulate enough Shares to constitute
a Basket Aggregation (i.e., 200,000
Shares) and, upon surrender of the
Shares and payment of applicable
redemption transaction fee, taxes or
charges, the Administrator will deliver
to the redeeming Authorized Participant
cash in exchange for each Basket
surrendered in an amount equal to the
NAV per Basket (the ‘‘Cash Redemption
Amount’’). The Shares will not be
individually redeemable but will only
be redeemable in Basket Aggregations.
Because orders to purchase Baskets
must be placed by 10 a.m. ET, but the
total payment required to create a
Basket will not be determined until
shortly after 4 p.m. ET, on the date the
purchase order is properly received,
Authorized Participants will not know
the total amount of the payment
required to create a Basket at the time
they submit an irrevocable purchase
order. The Exchange states that this is
similar to exchange-traded funds and
mutual funds. The Fund’s prospectus
discloses that NAV and the total amount
of the payment required to create a
Basket could rise or fall substantially
between the time an irrevocable
purchase order is submitted and the
time the amount of the purchase order
is determined.
On each business day, the
Administrator will make available
immediately prior to the opening of
trading on the Amex, an estimate of the
Cash Deposit Amount for the creation of
a Basket. The Amex will disseminate
every 15 seconds throughout the trading
day, via the facilities of the
Consolidated Tape Association
(‘‘CTA’’), an amount representing, on a
per Share basis, the current value (intraday) of the Basket Amount (the
‘‘Indicative Fund Value’’). It is
anticipated that the deposit of the Cash
Deposit Amount in exchange for a
Basket will be made primarily by
institutional investors, arbitrageurs, and
the Exchange specialist. Baskets are
then separable upon issuance into
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identical Shares that will be listed and
traded on the Amex.21 The Shares are
expected to be traded on the Exchange
by professionals, as well as institutional
and retail investors. Shares may be
acquired in two (2) ways: (1) Through a
deposit of the Cash Deposit Amount
with the Administrator during normal
business hours by Authorized
Participants, or (2) through a purchase
on the Exchange by investors.
B. Net Asset Value
Shortly after 4 p.m. ET each business
day, the Administrator will determine
the NAV for the Fund and Master Fund,
utilizing the current day’s settlement
value of the particular commodity
futures contracts in the Master Fund’s
portfolio and the value of the Master
Fund’s cash and high-credit quality,
short-term fixed income securities.
However, if a futures contract on a
trading day cannot be liquidated due to
the operation of daily limits or other
rules of an exchange upon which such
futures contract is traded, the settlement
price on the most recent trading day on
which the futures contract could have
been liquidated will be used in
determining the Fund’s and the Master
Fund’s NAV. Accordingly, for both U.S.
and non-U.S. futures contracts, the
Administrator will typically use that
day’s futures settlement price for
determining NAV.
The NAV for the Fund is total assets
of the Master Fund less total liabilities
of the Master Fund. The NAV is
calculated by including any unrealized
profit or loss on futures contracts and
any other credit or debit accruing to the
Master Fund but unpaid or not received
by the Master Fund. This preliminary
NAV is then used to compute all NAVbased fees (including the management
and administrative fees, accrued
through and including the date of
publication) that are calculated from the
value of Master Fund assets. The
Administrator will calculate the NAV
per Share by dividing the NAV by the
number of Shares outstanding. Then
once the final, published NAV is
determined, shortly after 4 p.m. ET each
business day, the Administrator also
will determine the Basket Amount for
orders placed by Authorized
Participants received by 10 a.m. ET that
day.
21 The Shares are separate and distinct from the
shares of the Master Fund. The Master Fund’s assets
will consist of long positions in the futures
contracts on the commodities comprising the
DBLCI. The Exchange expects that the number of
outstanding Shares will increase and decrease from
time to time as a result of creations and
redemptions of Baskets.
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Shortly after 4 p.m. ET each business
day, the Administrator, Amex, and
Managing Owner will disseminate the
NAV for the Shares and the Basket
Amount (for orders placed during the
day). The NAV and the Basket Amount
are available to all market participants
at the same time and will be
disseminated accordingly. The Basket
Amount and the NAV are
communicated by the Administrator to
all Authorized Participants via facsimile
or electronic mail message and will be
publicly available on the Fund’s Web
site at https://www.dbcfund.db.com. The
Amex will also publicly disclose via its
Web site at https://www.amex.com the
NAV and Basket Amount (for orders
placed that day). The Exchange also will
disseminate the Basket Amount by
means of CTA/CQ High Speed Lines.
The Exchange stated that it believes
that the Shares will not trade at a
material discount or premium to NAV
due to potential arbitrage opportunities
in the event of any discrepancy between
the two. Due to the fact that the Shares
can be created and redeemed daily only
in Basket Aggregations at NAV by
Authorized Participants, the Exchange
submitted that arbitrage opportunities
should provide a mechanism to
diminish the effect of any premiums or
discounts that may exist from time to
time.
sroberts on PROD1PC70 with NOTICES
C. Dissemination of the Index and
Underlying Futures Contracts
Information
DB London as the Sponsor of the
Index will publish the value of the
Index at least every fifteen (15) seconds
during Amex trading hours through
Bloomberg, Reuters, and other market
data vendors. In addition, the Index
value will be available on the DB
London (Sponsor) Web site at https://
index.db.com and Fund’s Web site at
https://www.dbcfund.db.com on a twenty
(20) minute delayed basis.22 The closing
Index level will similarly be provided
by DB London and the Fund. In
addition, any adjustments or changes to
the Index will also be provided by DB
London and the Fund on their
respective Web sites.23
22 Amex will provide a hyperlink from its Web
site to the Fund’s Web site (https://
www.dbcfund.db.com) and the DB London Web site
(https://index.db.com). Telephone conversation
between Jeffrey Burns, Associate General Counsel,
Amex, and Florence Harmon, Senior Special
Counsel, Division of Market Regulation,
Commission, on January 11, 2006.
23 The Index Sponsor has in place procedures to
prevent the improper sharing of information
between different affiliates and departments.
Specifically, an information barrier exists between
the personnel within DB London that calculate and
reconstitute the Index and other personnel of the
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Jkt 208001
The closing prices and daily
settlement prices for the futures
contracts held by the Master Fund are
publicly available on the Web sites of
the futures exchanges trading the
particular contracts. The particular
futures exchange for each futures
contract with Web site information is as
follows: (i) Aluminum—London Metal
Exchange (LME) at https://www.lme.com;
(ii) corn and wheat—Chicago Board of
Trade (CBOT) at https://www.cbot.com;
and (iii) crude oil, heating oil and
gold—New York Mercantile Exchange
(NYMEX) at https://www.nymex.com.
The Exchange on its Web site at https://
www.amex.com will include a
hyperlink to the Index Sponsor’s Web
site at https://index.db.com, which will
contain hyperlinks to each of the futures
exchanges Web sites for the purpose of
disclosing futures contract pricing. In
addition, various data vendors and news
publications publish futures prices and
data. The Exchange has represented that
futures quotes and last sale information
for the commodities underlying the
Index are widely disseminated through
a variety of market data vendors
worldwide, including Bloomberg and
Reuters. In addition, the Exchange has
represented that complete real-time data
for such futures is available by
subscription from Reuters and
Bloomberg. The CBOT, LME, and
NYMEX 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
futures contracts are also available from
the futures exchanges on their Web sites
as well as other financial informational
sources.
D. Availability of Information Regarding
the Shares
The Web site for the Fund (https://
www.dbcfund.db.com), which will be
publicly accessible at no charge, will
contain the following information: (a)
The prior business day’s NAV and the
reported closing price; (b) the mid-point
of the bid-ask price 24 in relation to the
NAV as of the time the NAV is
calculated (the ‘‘Bid-Ask Price’’); (c)
Index Sponsor, including but not limited to the
Managing Owner, sales and trading, external or
internal fund managers, and bank personnel who
are involved in hedging the bank’s exposure to
instruments linked to the Index, in order to prevent
the improper sharing of information relating to the
recomposition of the Index. The index is not
calculated by a broker-dealer. Telephone
conversation between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon,
Senior Special Counsel, Division of Market
Regulation, Commission, on January 11, 2006.
24 The bid-ask price of Shares is determined using
the highest bid and lowest offer as of the time of
calculation of the NAV.
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3133
calculation of the premium or discount
of such price against such NAV; (d) data
in chart form displaying the frequency
distribution of discounts and premiums
of the Bid-Ask Price against the NAV,
within appropriate ranges for each of
the four (4) previous calendar quarters;
(e) the prospectus; and (f) other
applicable quantitative information.
As described above, the NAV for the
Fund will be calculated and
disseminated daily. The Amex also
intends to disseminate, during Amex
trading hours, for the Fund on a daily
basis by means of CTA/CQ High Speed
Lines information with respect to the
Indicative Fund Value (as discussed
below), recent NAV, and Shares
outstanding. The Exchange will also
make available on its Web site daily
trading volume, closing prices, and the
NAV.
E. Dissemination of Indicative Fund
Value
As noted above, the Administrator
calculates the NAV of the Fund once
each trading day. In addition, the
Administrator causes to be made
available on a daily basis the Cash
Deposit Amount to be deposited in
connection with the issuance of the
Shares in Basket Aggregations. In
addition, other investors can request
such information directly from the
Administrator.
In order to provide updated
information relating to the Fund for use
by investors, professionals, and persons,
the Exchange will disseminate through
the facilities of CTA an updated
Indicative Fund Value. The Indicative
Fund Value will be disseminated on a
per Share basis at least every 15 seconds
from 9:30 a.m. to 4:15 p.m. ET.25 The
Indicative Fund Value will be
calculated based on the cash required
for creations and redemptions (i.e., NAV
× 200,000) adjusted to reflect the price
changes of the Index commodities
through investments held by the Master
Fund, i.e., futures contracts.
The Indicative Fund Value will not
reflect price changes to the price of an
underlying commodity between the
close of trading of the futures contract
at the relevant futures exchange and the
close of trading on the Amex at 4:15
p.m. ET. The value of a Share may
accordingly be influenced by nonconcurrent trading hours between the
Amex and the various futures exchanges
on which the futures contracts based on
the Index commodities are traded.
25 Telephone conversation between Jeffrey Burns,
Associate General Counsel, Amex, and Kate
Robbins, Attorney, Division of Market Regulation,
Commission, on November 28, 2005.
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While the Shares will trade on the
Amex from 9:30 a.m. to 4:15 p.m. ET,
the table below lists the trading hours
for each of the Index commodities
underlying the futures contracts.
Index commodity
Futures exchange
Aluminum .............................................................................
Gold ......................................................................................
Crude Oil ..............................................................................
Heating Oil ...........................................................................
Corn .....................................................................................
Wheat ...................................................................................
LME .....................................................................................
COMEX ...............................................................................
NYMEX ...............................................................................
NYMEX ...............................................................................
CBOT ..................................................................................
CBOT ..................................................................................
While the market for futures trading
for each of the Index commodities is
open, the Indicative Fund Value can be
expected to closely approximate the
value per Share of the Basket Amount.
However, during Amex trading hours
when the futures contracts have ceased
trading, spreads and resulting premiums
or discounts may widen, and therefore,
increase the difference between the
price of the Shares and the NAV of the
Shares. Indicative Fund Value on a per
Share basis disseminated during Amex
trading hours should not be viewed as
a real time update of the NAV, which is
calculated only once a day.
The Exchange stated that it believes
that dissemination of the Indicative
Fund Value based on the cash amount
required for a Basket Aggregation
provides additional information that is
not otherwise available to the public
and is useful to professionals and
investors in connection with the Shares
trading on the Exchange or the creation
or redemption of the Shares.
sroberts on PROD1PC70 with NOTICES
VII. Criteria for Initial and Continued
Listing
The Fund will be subject to the
criteria in proposed Commentary .07(d)
of Amex Rule 1202 for initial and
continued listing of the Shares. The
proposed continued listing criteria
provides for the delisting or removal
from listing of the Shares under any of
the following circumstances:
• Following the initial twelve month
period from the date of commencement
of trading of the Shares: (i) If the Fund
has more than 60 days remaining until
termination and there are fewer than 50
record and/or beneficial holders of the
Shares for 30 or more consecutive
trading days; (ii) if the Fund has fewer
than 50,000 Shares issued and
outstanding; or (iii) if the market value
of all Shares is less than $1,000,000.
• If the value of the underlying index
or portfolio is no longer calculated or
available on at least a 15-second basis
through one or more major market data
vendors during the time the Shares
trade on the Exchange.
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16:38 Jan 18, 2006
Jkt 208001
• The Indicative Fund Value is no
longer made available on at least a 15second basis.
• If such other event shall occur or
condition exists which in the opinion of
the Exchange makes further dealings on
the Exchange inadvisable.
It is anticipated that a minimum of
2,000,000 Shares will be required to be
outstanding at the start of trading. It is
anticipated that the initial price of a
Share will be approximately $25. The
Fund expects to accept subscriptions for
Shares in Basket Aggregations (i.e., $5
million) from Authorized Participants
during an initial offering period with a
finite term of approximately six (6)
months, subject to earlier termination.
After the initial offering period has
closed and trading commences, the
Fund will then issue Shares in the
normal Basket Aggregations of 200,000
Shares to Authorized Participants. Once
the initial offering period has closed and
trading commences, the Master Fund
will issue shares in Master Fund Baskets
(200,000 shares) to the Fund
continuously at NAV. The Master Fund
will be owned by the Fund and the
Managing Owner.26 Each Share issued
by the Fund will correlate with a Master
Fund share issued by the Master Fund
and held by the Fund. The Exchange
stated that it believes that the
anticipated minimum number of Shares
outstanding at the start of trading is
sufficient to provide adequate market
liquidity and to further the Fund’s
objective to seek to provide a simple
and cost effective means of accessing
the commodity futures markets.
The Exchange has represented that it
prohibits the initial and/or continued
listing of any security that is not in
compliance with Rule 10A–3 under the
Exchange Act.27
26 The Managing Owner will own 1% or less of
the Master Fund and will share pro rata in the
income and expenses of the Master Fund.
27 See Rule 10A–3(c)(7), 17 CFR 240.10A–3(c)(7)
(stating that a listed issuer is not subject to the
requirements of Rule 10A–3 if the issuer is
organized as a trust or other unincorporated
association that does not have a board of directors
and the activities of the issuer are limited to
passively owning or holding securities or other
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Trading hours (ET)
6:55 a.m.–12:00 p.m.
8:20 a.m.–1:30 p.m.
10:00 a.m.–2:30 p.m.
10:05 a.m.–2:30 p.m.
10:30 a.m.–2:15 p.m.
10:30 a.m.–2:15 p.m.
VIII. Trading Rules
The Shares are equity securities
subject to Amex Rules governing the
trading of equity securities, including,
among others, rules governing priority,
parity and precedence of orders,
specialist responsibilities and account
opening and customer suitability (Amex
Rule 411). Initial equity margin
requirements of 50% will apply to
transactions in the Shares. Shares will
trade on the Amex until 4:15 p.m. ET
each business day 28 and will trade in a
minimum price variation of $0.01
pursuant to Amex Rule 127. Trading
rules pertaining to odd-lot trading in
Amex equities (Amex Rule 205) will
also apply.
The Amex original listing fee
applicable to the listing of the Fund is
$5,000. In addition, the annual listing
fee applicable under Section 141 of the
Amex Company Guide will be based
upon the year-end aggregate number of
Shares in all series of the Fund
outstanding at the end of each calendar
year.
Amex Rule 154, Commentary .04(c)
provides that stop and stop limit orders
to buy or sell a security (other than an
option, which is covered by Amex Rule
950(f) and Commentary thereto) the
price of which is derivatively based
upon another security or index of
securities, may with the prior approval
of a Floor Official, be elected by a
quotation, as set forth in Commentary
.04(c)(i–v). The Exchange has
designated the Shares as eligible for this
treatment.29
assets on behalf of or for the benefit of the holders
of the listed securities).
28 Commentary .01, .02, and .03 to Exchange Rule
1200 are applicable to transactions in the Shares,
however, the Shares will trade from 9:30 a.m. to
4:15 p.m. each business day. Telephone
conversation between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon,
Senior Special Counsel, Division of Market
Regulation, Commission, on January 11, 2006.
29 See Securities Exchange Act Release No. 29063
(April 10, 1991), 56 FR 15652 (April 17, 1991) at
note 9, regarding the Exchange’s designation of
equity derivative securities as eligible for such
treatment under Amex Rule 154, Commentary
.04(c).
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Federal Register / Vol. 71, No. 12 / Thursday, January 19, 2006 / Notices
The Shares will be deemed ‘‘Eligible
Securities,’’ as defined in Amex Rule
230, for purposes of the Intermarket
Trading System Plan and therefore will
be subject to the trade through
provisions of Amex Rule 236 which
require that Amex members avoid
initiating trade-throughs for ITS
securities.
Specialist transactions of the Shares
made in connection with the creation
and redemption of Shares will not be
subject to the prohibitions of Amex Rule
190.30 Unless exemptive or no-action
relief is available, the Shares will be
subject to the short sale rule, Rule 10a1 and Regulation SHO under the Act.31
If exemptive or no-action relief is
provided, the Exchange will issue a
notice detailing the terms of the
exemption or relief. The Shares will
generally be subject to the Exchange’s
stabilization rule, Amex Rule 170,
except that specialists may buy on ‘‘plus
ticks’’ and sell on ‘‘minus ticks,’’ in
order to bring the Shares into parity
with the underlying commodity or
commodities and/or futures contract
price. Proposed Commentary .07(f) to
Amex Rule 1202 sets forth this limited
exception to Amex Rule 170 to bring the
Shares into parity with the underlying
Index.
The adoption of Commentary .07(e) to
Amex Rule 1202 relating to certain
specialist prohibitions will address
potential conflicts of interest in
connection with acting as a specialist in
the Shares. Specifically, Commentary
.07(e) provides that the prohibitions in
Amex Rule 175(c) apply to a specialist
in the Shares so that the specialist or
affiliated person may not act or function
as a market maker in an underlying
asset, related futures contract or option
or any other related derivative. An
affiliated person of the specialist
consistent with Amex Rule 193 may be
afforded an exemption to act in a market
making capacity, other than as a
specialist in the Shares on another
market center, in the underlying asset,
related futures or options or any other
related derivative. In particular,
proposed Commentary .07(e) provides
that an approved person of an equity
specialist that has established and
obtained Exchange approval for
procedures restricting the flow of
material, non-public market information
between itself and the specialist
member organization, and any member,
officer, or employee associated
30 See
Commentary .05 to Amex Rule 190.
Fund expects to seek relief, in the near
future, from the Commission in connection with the
trading of the Shares from the operation of certain
Exchange Act Rules.
31 The
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16:38 Jan 18, 2006
Jkt 208001
therewith, may act in a market making
capacity, other than as a specialist in the
Shares on another market center, in the
underlying asset or commodity, related
futures or options on futures, or any
other related derivatives.
Adoption of Commentary .07(g) to
Amex Rule 1202 will also ensure that
specialists handling the Shares provide
the Exchange with all the necessary
information relating to their trading in
physical assets or commodities, related
futures contracts and options thereon or
any other derivative. As a general
matter, the Exchange has regulatory
jurisdiction over its members, member
organizations, and approved persons of
a member organization. The Exchange
also has regulatory jurisdiction over any
person or entity controlling a member
organization, as well as a subsidiary or
affiliate of a member organization that is
in the securities business. A subsidiary
or affiliate of a member organization
that does business only in commodities
or futures contracts would not be
subject to Exchange jurisdiction, but the
Exchange could obtain information
regarding the activities of such
subsidiary or affiliate through
surveillance sharing agreements with
regulatory organizations of which such
subsidiary or affiliate is a member.
IX. Trading Halts
Prior to the commencement of
trading, the Exchange will issue an
Information Circular (described below)
to members informing them of, among
other things, Exchange policies
regarding trading halts in the Shares.
First, the circular will advise that
trading will be halted in the event the
market volatility trading halt parameters
set forth in Amex Rule 117 have been
reached. Second, the circular will
advise that, in addition to the
parameters set forth in Amex Rule 117,
the Exchange will halt trading in the
Shares if trading in the underlying
related futures contract(s) is halted or
suspended. Third, with respect to a halt
in trading that is not specified above,
the Exchange may also consider other
relevant factors and the existence of
unusual conditions or circumstances
that may be detrimental to the
maintenance of a fair and orderly
market. Additionally, the Exchange has
represented that it will cease trading the
Shares if the conditions in Commentary
.07(d)(2)(ii) or (iii) to Amex Rule 1202
exist (i.e., if there is a halt or disruption
in the dissemination of the Indicative
Fund Value and/or underlying Index
value).32
32 In the event the Index value or Indicative Fund
Value is no longer calculated or disseminated, the
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3135
X. Suitability
The Information Circular (described
below) will inform members and
member organizations of the
characteristics of the Fund and of
applicable Exchange rules, as well as of
the requirements of Amex Rule 411
(Duty to Know and Approve
Customers).
The Exchange noted that pursuant to
Amex Rule 411, members and member
organizations are required in connection
with recommending transactions in the
Shares to have a reasonable basis to
believe that a customer is suitable for
the particular investment given
reasonable inquiry concerning the
customer’s investment objectives,
financial situation, needs, and any other
information known by such member.
XI. Information Circular
The Amex will distribute an
Information Circular to its members in
connection with the trading of the
Shares. The Information Circular will
inform members and member
organizations, prior to commencement
of trading, of the prospectus delivery
requirements applicable to the Fund.
The Exchange noted that investors
purchasing Shares directly from the
Fund (by delivery of the Cash Deposit
Amount) will receive a prospectus.
Amex members purchasing Shares from
the Fund for resale to investors will
deliver a prospectus to such investors.
The Information Circular also will
discuss the special characteristics and
risks of trading this type of security.
Specifically, the Information Circular,
among other things, will discuss what
the Shares are, how a Basket is created
and redeemed, the requirement that
members and member firms deliver a
prospectus to investors purchasing the
Shares prior to or concurrently with the
confirmation of a transaction, applicable
Amex rules, dissemination of
information regarding the per Share
Indicative Fund Value, trading
information and applicable suitability
rules. The Information Circular will also
explain that the Fund is subject to
various fees and expenses described in
the registration statement.
The Information Circular will also
reference the fact that there is no
regulated source of last sale information
regarding physical commodities and
that the SEC has no jurisdiction over the
trading of physical commodities such as
Exchange would immediately contact the
Commission to discuss measures that may be
appropriate under the circumstances. Telephone
conversation between Jeffrey Burns, Associate
General Counsel, Amex, and Florence Harmon,
Senior Special Counsel, Division of Market
Regulation, Commission, on November 22, 2005.
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aluminum, gold, crude oil, heating oil,
corn and wheat, or the futures contracts
on which the value of the Shares is
based.
The Information Circular will also
notify members and member
organizations about the procedures for
purchases and redemptions of Shares in
Baskets and that Shares are not
individually redeemable but are
redeemable only in Basket-size
aggregations or multiples thereof. The
Information Circular will also discuss
any relief, if granted, by the Commission
or the staff from any rules under the
Act.
The Information Circular will disclose
that the NAV for Shares will be
calculated shortly after 4 p.m. ET each
trading day and that other information
will be publicly available about the
Shares and underlying Index.
sroberts on PROD1PC70 with NOTICES
XII. Surveillance
The Exchange has represented that its
surveillance procedures are adequate to
monitor Exchange trading of the Shares
and to detect violations of applicable
rules and regulations. Exchange
surveillance procedures applicable to
trading in the proposed Shares will be
similar to those applicable to TIRs,
Portfolio Depository Receipts and Index
Fund Shares currently trading on the
Exchange. The Exchange currently has
in place an Information Sharing
Agreement with the NYMEX and the
CBOT for the purpose of providing
information in connection with trading
in or related to futures contracts traded
on the NYMEX and CBOT, respectively.
The Exchange also noted that the CBOT
is a member of the Intermarket
Surveillance Group (‘‘ISG’’). As a result,
the Exchange has asserted that market
surveillance information is available
from the CBOT, if necessary, due to
regulatory concerns that may arise in
connection with the CBOT futures. In
addition, the Exchange has negotiated a
Memorandum of Understanding with
the LME for the purpose of providing
information in connection with the
trading in or related to futures contracts
traded on the LME.
XIII. Discussion and Commission’s
Findings
After careful consideration, the
Commission finds that the proposed
rule change, as amended, is consistent
with the requirements of the Act and the
rules and regulations thereunder
applicable to a national securities
exchange.33 In particular, the
33 In approving this proposed rule change, the
Commission notes that it has cnsidered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78(c)(f).
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16:38 Jan 18, 2006
Jkt 208001
Commission finds that the proposed
rule change, as amended, is consistent
with the requirements of Section 6(b)(5)
of the Act,34 which requires, among
other things, that the Exchange’s rules
be designed to promote just and
equitable principles of trade, 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.
A. Surveillance
Information sharing agreements with
primary markets trading index
components underlying a derivative
product are an important part of a selfregulatory organization’s ability to
monitor for trading abuses in derivative
products. The Commission believes that
the Exchange’s Information Sharing
Agreement with the NYMEX and the
CBOT and the Exchange’s Memorandum
of Understanding with the LME, along
with the Exchange’s participation in the
ISG, in which the CBOT participates,
and Commentaries .07(e), (g)(1), (g)(2)
and (g)(3) to Amex Rule 1202, create the
basis for the Amex to monitor for
fraudulent and manipulative practices
in the trading of the Shares.
In particular, Commentaries .07(g)(1)
and (g)(2) to Amex Rule 1202 require
that the specialist handling the Shares
provide the Exchange with information
relating to its trading in the Shares and
the accounts of the member organization
acting as specialist, member
organization, or approved person of
such member organization in the Index
components, related futures or options
on futures, or any other related
derivatives. Commentary .07(g)(3) to
Amex Rule 1202 also prohibits the
specialist in the Shares from using any
material nonpublic information received
from any person associated with a
member, member organization or
employee of such person regarding
trading by such person or employee in
the Index commodities, related futures
or options on futures, or any other
related derivatives. In addition,
Commentary .07(e) to Amex Rule 1202
prohibits the specialist in the Shares
from being affiliated with a market
maker in the Index commodities, related
futures or options on futures, or any
other related derivatives, unless
information barriers are in place that
satisfy the requirements of Amex Rule
193. Furthermore, as noted above, the
Exchange has represented that: (i) its
surveillance procedures are adequate to
monitor Exchange trading of the Shares
and to detect violations of applicable
34 15
PO 00000
U.S.C. 78(f)(b)(5).
Frm 00088
Fmt 4703
Sfmt 4703
rules and regulations; and (ii) Exchange
surveillance procedures applicable to
trading in the proposed Shares will be
similar to those applicable to TIRs,
Portfolio Depository Receipts and Index
Fund Shares currently trading on the
Exchange. Accordingly, the Commission
believes that the Amex can adequately
surveil trading in the Shares.
B. Dissemination of Information
The Commission believes that
sufficient venues for obtaining reliable
futures contract price information exist
so that investors in the Shares can
monitor the underlying futures contract
markets relative to the NAV of their
Shares. There is a considerable amount
of futures contract price and market
information available through public
Web sites and professional subscription
services, including Bloomberg and
Reuters. In addition, the futures
exchanges for the futures contracts held
by the Master Fund each have their own
Web sites, which will be able to be
reached directly from hyperlinks on the
Index Sponsor’s Web site (https://
index.db.com).
The Commission notes that
information about the Index is also
widely available. The Index Sponsor,
DB London, will publish the value of
the Index at least every 15 seconds
during Amex trading hours through
Bloomberg, Reuters, and other market
data vendors, and the Fund’s Web site
(https://www.dbcfund.db.com) and the
Index Sponsor’s Web site (https://
index.db.com) will publish the value of
the Index on a 20 minute delayed basis.
The Commission further notes that
information about the Shares will also
be widely available. The Exchange will
disseminate via the CTA/CQ High
Speed Lines the NAV, Basket Amount,
Shares outstanding and the Indicative
Fund Value, which will be disseminated
every 15 seconds during Amex trading
hours, and will display the NAV, Basket
Amount, daily trading volume and
closing prices on the Exchange’s Web
site (https://www.amex.com). In
addition, the NAV and Basket Amount
will be available on the Fund’s Web site
(https://www.dbcfund.db.com). As
described in detail above, the Fund’s
Web site, which will be publicly
accessible at no charge, will contain
useful information, including a copy of
the prospectus. The Commission
believes that the wide availability of
information about the underlying
futures contracts, the Index and the
Shares will facilitate transparency with
respect to the proposed Shares and
diminish the risk of manipulation or
unfair informational advantage.
E:\FR\FM\19JAN1.SGM
19JAN1
Federal Register / Vol. 71, No. 12 / Thursday, January 19, 2006 / Notices
C. Listing and Trading
The Commission finds that the
Exchange’s proposed rules and
procedures for the listing and trading of
the proposed Shares are consistent with
the Act. Shares will trade as equity
securities subject to Amex rules
including, among others, rules
governing priority, parity and
precedence of orders, specialist
responsibilities, account opening and
customer suitability requirements. The
Commission believes that the listing and
delisting criteria for the Shares should
help to maintain a minimum level of
liquidity and therefore minimize the
potential for manipulation of the Shares.
Finally, the Commission notes that the
Information Circular the Exchange will
distribute will inform members and
member organizations about the terms,
characteristics and risks in trading the
Shares, including their prospectus
delivery obligations.
sroberts on PROD1PC70 with NOTICES
D. Accelerated Approval of the
Proposed Rule Change, as Amended by
Amendment Nos. 1 and 2 Thereto, and
Accelerated Approval of Amendment
Nos. 3 and 4 Thereto
The Commission finds good cause for
approving the proposed rule change, as
amended by Amendment Nos. 1 and 2,
prior to the 30th day after the date of
publication of the notice of filing thereof
in the Federal Register. The Exchange
has requested the Commission to
approve the proposal, as amended by
Amendment Nos. 1 and 2, on an
accelerated basis, after a 15-day
comment period, to enable investors to
begin trading the Shares promptly. The
Commission notes that the proposed
rule change, as amended by
Amendment Nos. 1 and 2, was noticed
for a 15-day comment period and no
comments were received. Therefore, the
Commission finds good cause,
consistent with Section 19(b)(2) of the
Act,35 to approve the proposal, as
amended by Amendment Nos. 1 and 2,
on an accelerated basis.
The Commission finds good cause for
approving Amendment Nos. 3 and 4 to
the proposed rule change prior to the
30th day after the date of publication of
the notice of filing thereof in the
Federal Register. The Exchange has
requested the Commission to approve
Amendment Nos. 3 and 4 36 on an
accelerated basis so that approval of the
proposal is not unnecessarily delayed.
35 15
U.S.C. 78s(b)(2).
conversation between Jeffrey Burns,
Associate General Counsel, Amex, and Florence
Harmon, Senior Special Counsel, Division of
Market Regulation, Commission, on January 11,
2006 (requested accelerated approval of
Amendment No. 4).
36 Telephone
VerDate Aug<31>2005
16:38 Jan 18, 2006
Jkt 208001
In Amendment No. 3, the Exchange
made clarifying changes to the purpose
section regarding adjustments to the
Index, specifically indicating the Index
Sponsor will use the prior day’s futures
price or, in exceptional cases, the ‘‘fair
value’’ price if futures prices are not
available. In addition, the Exchange
stated that it would submit a rule filing
pursuant to Section 19(b) of the
Exchange Act if the use of a prior day’s
price or ‘‘fair value’’ pricing for an Index
commodity or commodities is more than
of a temporary nature or if a successor
or substitute Index is used by the
Managing Owner. Amendment No. 4
clarifies that the Index value will be
disseminated through one or more major
market data vendors at least every 15
seconds during the time the Shares
trade on Amex. The Commission notes
that the changes contained in
Amendment Nos. 3 and 4 are necessary
to clarify the proposal. Accordingly, the
Commission finds good cause,
consistent with Section 19(b)(2) of the
Act,37 to approve Amendment Nos. 3
and 4 on an accelerated basis.
XIV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment Nos. 3
and 4 are consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Amex–2005–059 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–9303.
All submissions should refer to File
Number SR–Amex–2005–059. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room. Copies of such filing also will be
available for inspection and copying at
the principal office of the Amex. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–Amex–2005–059 and
should be submitted on or before
February 9, 2006.
XV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act that the
proposed rule change (SR–Amex–2005–
059), as amended by Amendment Nos.
1 and 2, is approved on an accelerated
basis and that Amendment Nos. 3 and
4 thereto are approved on an accelerated
basis.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.38
Nancy M. Morris,
Secretary.
[FR Doc. E6–515 Filed 1–18–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53102; File No. SR–BSE–
2005–48]
Self-Regulatory Organizations; Boston
Stock Exchange, Inc.; Order Granting
Approval of a Proposed Rule Change
and Amendment No. 1 Thereto
Requiring Exchange Members To
Provide Electronic Mail Addresses to
the Exchange
January 11, 2006.
On October 28, 2005, the Boston
Stock Exchange, Inc. (‘‘BSE’’ or
‘‘Exchange’’) 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
require its members to provide
38 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
37 Id.
PO 00000
Frm 00089
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3137
E:\FR\FM\19JAN1.SGM
19JAN1
]]>Agencies
[Federal Register Volume 71, Number 12 (Thursday, January 19, 2006)]
[Notices]
[Pages 3129-3137]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-515]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53105; File No. SR-Amex-2005-059]
Self-Regulatory Organizations; American Stock Exchange LLC; Order
Granting Accelerated Approval of a Proposed Rule Change and Amendment
Nos. 1 and 2 Thereto and Notice of Filing and Order Granting
Accelerated Approval of Amendment Nos. 3 and 4 Thereto Relating to the
Listing and Trading of the DB Commodity Index Tracking Fund
January 11, 2006.
I. Introduction
On May 27, 2005, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission''), pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and
Rule 19b-4 thereunder,\2\ a proposed rule change to list and trade the
DB Commodity Index Tracking Fund under new Commentary .07 to Amex Rule
1202. On September 15, 2005, the Amex filed Amendment No. 1 to the
proposed rule change. On November 15, 2005, the Amex filed Amendment
No. 2 to the proposed rule change. The proposed rule change, as amended
by Amendment Nos. 1 and 2, was published for comment in the Federal
Register on December 16, 2005 for a 15-day comment period, which ended
on January 3, 2006.\3\ The Commission received no comments on the
proposal. On January 5, 2006, the Amex filed Amendment No. 3 to the
proposed rule change.\4\ On January 11,
[[Page 3130]]
2006, the Amex filed Amendment No. 4 to the proposed rule change.\5\
This order grants accelerated approval of the proposed rule change, as
amended by Amendment Nos. 1 and 2. Simultaneously, the Commission is
providing notice of filing of, granting accelerated approval of, and
soliciting comments from interested persons on Amendment Nos. 3 and 4.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 52940 (December 12,
2005), 70 FR 74850.
\4\ In Amendment No. 3, the Amex: (1) Added language to clarify
that the composition of the Index may be adjusted in the event that
the Index Sponsor is not able to obtain information necessary from
the relevant futures exchanges to calculate the daily and/or closing
prices for the Index commodities; (2) stated that, in connection
with adjustments to the Index, if futures prices are not available,
the Index Sponsor will typically use the prior day's futures price
and that, in exceptional cases, the Index Sponsor may employ a
``fair value'' price; (3) stated that, in the case of a temporary
disruption in connection with the trading of the futures contracts
comprising the Index, the Exchange believes that it is unnecessary
for a filing pursuant to Section 19(b) under the Exchange Act to be
submitted to the Commission and represented that if the use of a
prior day's price or ``fair value'' pricing for an Index commodity
or commodities is more than of a temporary nature, a rule filing
will be submitted pursuant to Section 19(b) of the Exchange Act; (4)
represented that, if a successor or substitute Index is used by the
Managing Owner, the Exchange will file a proposed rule change
pursuant to Rule 19b-4 under the Exchange Act to address, among
other things, the listing and trading characteristics of the
successor or substitute index and the Exchange's surveillance
procedures applicable to the successor or substitute index; and (5)
requested accelerated approval of Amendment No. 3.
\5\ In Amendment No. 4, the Amex amended the rule text to
require that the Index value will be disseminated through one or
more major market data vendors at least every 15 seconds during the
time the Shares trade on Amex.
---------------------------------------------------------------------------
II. Description of the Proposal
The Exchange proposes to add new Commentary .07 to Amex Rule 1202
for the purpose of permitting the listing and trading of Trust Issued
Receipts (``TIRs'') where the trust holds shares (``Investment
Shares'') that are issued by a trust, partnership, commodity pool, or
other similar entity that holds investments in any combination of
securities, futures contracts, options on futures contracts, swaps,
forward contracts, commodities or portfolios of investments. For each
separate Investment Share, the Exchange would submit a filing pursuant
to Section 19(b) of the Act. The Shares will conform to the initial and
continued listing criteria under proposed Commentary .07(d) to Amex
Rule 1202.\6\ In its proposal, the Amex initially proposes to list and
trade the shares (the ``Shares'') of a specific trust, DB Commodity
Index Tracking Fund (the ``Fund''), that invests in the securities of a
commodity pool.
---------------------------------------------------------------------------
\6\ Proposed Commentary .07(d) to Rule 1202 for listing the
Shares is substantially similar to current Rule 1202A relating to
Commodity-Based Trust Shares.
---------------------------------------------------------------------------
The Fund will invest substantially all of its assets in the common
units of beneficial interests of DB Commodity Index Tracking Master
Fund (the ``Master Fund''). The Master Fund is a trust created under
Delaware law that will consist primarily of futures contracts on the
commodities comprising the Deutsche Bank Liquid Commodity
IndexTM--Excess Return (the ``DBLCI'' or ``Index''). Both
the Fund and the Master Fund are commodity pools operated by DB
Commodity Services LLC (the ``Managing Owner'').\7\ The Managing Owner
will be registered as a commodity pool operator and commodity trading
advisor with the Commodity Futures Trading Commission (``CFTC'') and a
member of the National Futures Association (``NFA'').
---------------------------------------------------------------------------
\7\ The Exchange stated that the Fund is not a registered
investment company under the Investment Company Act of 1940 (``1940
Act'') and is not required to register under the 1940 Act.
---------------------------------------------------------------------------
The Managing Owner will serve as the commodity pool operator and
commodity trading advisor of the Fund and the Master Fund. In this
particular case, the Managing Owner of the Master Fund will manage only
the futures contracts in order to track the performance of the Index.
The Master Fund may also include U.S. Treasury securities for margin
purposes and other high credit quality short-term fixed income
securities.
III. Index Description
DBLCI is intended to reflect the performance of certain
commodities. The Index tracks the performance of futures contracts on
crude oil, heating oil, aluminum, gold, corn and wheat, and the
notional amounts of each commodity included in the Index are
approximately in proportion to historical levels of the world's
production and supplies of such commodities. The sponsor of the Index
is Deutsche Bank AG London (``DB London'').
The Index value is calculated by DB London during the trading day
on the basis of the most recently reported trade price for the relevant
futures contract relating to each of the Index commodities. Therefore,
the market value of each Index commodity during the trading day will be
equal to the number of futures contracts of each commodity represented
in the Index multiplied by the real-time futures contract price (i.e.,
the most recently reported trade price).\8\ The Index value will be
calculated and disseminated at least every 15 seconds during the period
the Shares trade on the Exchange. The closing level of the Index is
calculated by DB London on the basis of closing prices for the
applicable futures contracts relating to each of the Index commodities
and applying such prices to the relevant notional amount. For each
Index commodity, the market value will be equal to the number of
futures contracts represented in the Index multiplied by the futures
contract closing price. The Index includes provisions for the
replacement of expiring futures contracts. This replacement takes place
over a period of time in order to lessen the impact on the market for
such Index commodity. Such replacements occur monthly (other than in
November) during the first week of the month in the case of futures
contracts relating to crude oil and heating oil and annually in
November in the case of futures contracts relating to aluminum, gold,
corn and wheat.
---------------------------------------------------------------------------
\8\ Quote information and last sale information is available
from the applicable futures markets and from data vendors.
---------------------------------------------------------------------------
The Index is adjusted annually in November to rebalance its
composition to ensure that each of the Index commodities are weighted
in the same proportion that such commodities were weighted on December
1, 1988 (the ``Base Date''). The Index has been calculated back to the
Base Date. On the Base Date, the closing level was 100.
The following table reflects the index base weights (``Index Base
Weights'') of each Index commodity on the Base Date:
------------------------------------------------------------------------
Index
base
Index commodity weight
(%)
------------------------------------------------------------------------
Crude Oil...................................................... 35.00
Heating Oil.................................................... 20.00
Aluminum....................................................... 12.50
Gold........................................................... 10.00
Corn........................................................... 11.25
Wheat.......................................................... 11.25
--------
Closing Level on Base Date................................. 100.00
------------------------------------------------------------------------
The composition \9\ of the Index may be adjusted in the event that
the Index Sponsor is not able to obtain information necessary from the
relevant futures exchanges to calculate the daily and/or closing prices
for the Index commodities. If futures prices are not available, the
Index Sponsor will typically use the prior day's futures price. In
exceptional cases (such as when a daily price limit is reached on a
futures exchange), the Index Sponsor may employ a ``fair value'' price
(i.e., the price for unwinding the futures position by dealers
OTC).\10\ In the case of a temporary disruption in connection with the
trading of the futures contracts comprising the Index, the Exchange
believes that it is unnecessary for a filing pursuant to Section 19(b)
under the Exchange Act to be submitted to the
[[Page 3131]]
Commission. However, the Exchange represents that if the use of a prior
day's price or ``fair value'' pricing for an Index commodity or
commodities is more than of a temporary nature, a rule filing will be
submitted pursuant to Section 19(b) of the Exchange Act.
---------------------------------------------------------------------------
\9\ The Exchange represents that should the Index Sponsor
replace or delete the current Index components, the Exchange will
submit a rule filing, for Commission approval, pursuant to Section
19(b) of the Exchange Act. Telephone conversation between Jeffrey
Burns, Associate General Counsel, Amex, and Florence Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, on
January 10, 2006.
\10\ The Exchange notes that this is similar to the case for
index options when prices are unavailable or unreliable. Article
XVII, Section 4 of OCC's By-Laws permits it to use the prior day's
closing price to fix an index option's exercise settlement value. In
addition, OCC may also use the next day's opening price, a price or
value at such other time as determined by OCC or an average of
prices or values as determined by OCC.
---------------------------------------------------------------------------
The Managing Owner has represented that it will seek to arrange to
have the Index calculated and disseminated on a daily basis through a
third party if DB London ceases to calculate and disseminate the Index.
If, however, the Managing Owner is unable to arrange the calculation
and dissemination of the Index (or a Successor Index), the Exchange
will undertake to delist the Shares.\11\
---------------------------------------------------------------------------
\11\ If the Index is discontinued or suspended, Managing Owner,
in its sole discretion, may substitute the Index with an index
substantially similar to the discontinued or suspended Index (the
``Successor Index''). The Successor Index may be calculated and/or
published by any other third party. The Exchange represents that if
a successor or substitute Index is used by the Managing Owner, the
Exchange will file a proposed rule change pursuant to Rule 19b-4
under the Exchange Act to address, among other things, the listing
and trading characteristics of the successor or substitute index and
the Exchange's surveillance procedures applicable to the successor
or substitute index. See also infra note 32 and accompanying text.
---------------------------------------------------------------------------
IV. Commodity Futures Contracts and Related Options
The Index Sponsor will calculate each day the closing level of the
Index on the basis of the closing prices for the futures contracts on
the relevant primary markets, indicated below.
Crude Oil. Crude oil is the world's most actively traded commodity.
The Light Sweet Crude Oil futures contract traded on the New York
Mercantile Exchange (``NYMEX'') is the world's most liquid forum for
crude oil trading, as well as the world's most liquid futures contract
on a physical commodity.\12\ Due to the excellent liquidity and price
transparency of the futures contract, it is used as a principal
international pricing benchmark.
---------------------------------------------------------------------------
\12\ In 2004, ADTV on NYMEX for futures contracts on light sweet
crude oil were 212,382 (with each contract representing 1,000
barrels); ADTV through August 2005 was 241,673. Annual contracts
traded on NYMEX on light sweet crude oil in 2004 were 52.8 million;
annual contracts traded through August 2005 were 40.6 million.
---------------------------------------------------------------------------
Heating Oil. The heating oil futures contract, listed and traded at
the NYMEX, trades in units of 42,000 gallons (1,000 barrels) and is
based on delivery in New York harbor, the principal cash market
center.\13\ The heating oil futures contract is also used to hedge
diesel fuel and jet fuel, both of which trade in the cash market at an
often stable premium to the heating oil futures contract.
---------------------------------------------------------------------------
\13\ In 2004, ADTV on NYMEX for futures contracts on heating oil
were 51,745 (with each contract representing 1,000 barrels); ADTV
through August 2005 was 52,413. Annual contracts traded on NYMEX on
heating oil in 2004 were 12.8 million; annual contracts traded
through August 2005 were 8.8 million.
---------------------------------------------------------------------------
Gold. NYMEX is the world's largest physical commodity futures
exchange and the dominant market for the trading of energy and precious
metals.\14\
---------------------------------------------------------------------------
\14\ In 2004, ADTV on NYMEX for futures contracts on gold were
60,079 (with each contract representing 100 troy ounces); ADTV
through August 2005 was 61,085. Annual contracts traded on NYMEX on
gold in 2004 were 14.9 million; annual contracts traded through
August 2005 were 10.2 million.
---------------------------------------------------------------------------
Aluminum. Aluminum is the most heavily produced and consumed non-
ferrous metal in the world. Its low density and malleability has been
recognized and championed by the industrial world. In 2001, world
primary refined production totaled over 24 million tonnes. The total
turnover for the London Metal Exchange (``LME'') primary aluminum
futures and options in 2001 was over 25 million lots or 625 million
tonnes. The LME has the most liquid aluminum contracts in the
world.\15\
---------------------------------------------------------------------------
\15\ In 2004, ADTV on LME for futures contracts on aluminum were
116,004 (with each contract representing 25 tonnes); ADTV through
August 2005 was 113,743. Annual contracts traded on LME on aluminum
in 2004 were 29.2 million; annual contracts traded through August
2005 were 18.9 million.
---------------------------------------------------------------------------
Corn. Corn futures are traded on the Chicago Board of Trade
(``CBOT'') with a unit of trading of 5,000 bushels.\16\
---------------------------------------------------------------------------
\16\ In 2004, ADTV on CBOT for futures contracts on corn were
95,390 (with each contract representing 5,000 bushels); ADTV through
August 2005 was 120,237. Annual contracts traded on CBOT on corn in
2004 were 24.038 million; annual contracts traded through August
2005 were 20.19 million.
---------------------------------------------------------------------------
Wheat. Wheat futures are traded on the CBOT with a unit of trading
of 5,000 bushels.\17\
---------------------------------------------------------------------------
\17\ In 2004, ADTV on CBOT for futures contracts on wheat were
31,568 (with each contract representing 5,000 bushels); ADTV through
August 2005 was 41,249. Annual contracts traded on CBOT on wheat in
2004 were 7.95 million; annual contracts traded through August 2005
were 6.92 million.
---------------------------------------------------------------------------
V. Structure of the Fund
Fund. The Fund is a statutory trust formed pursuant to the Delaware
Statutory Trust Act and will issue units of beneficial interest or
shares that represent units of fractional undivided beneficial interest
in and ownership of the Fund. Unless terminated earlier, the Fund will
expire on December 31, 2055. The investment objective of the Fund is to
reflect the performance of the DBLCI less the expenses of the operation
of the Fund and the Master Fund. The Fund will pursue its investment
objective by investing substantially all of its assets in the Master
Fund. The Fund will hold no investment assets other than Master Fund
Units.\18\ Each Share will correlate with a Master Fund share issued by
the Master Fund and held by the Fund.
---------------------------------------------------------------------------
\18\ See Pre-Effective Amendment No. 4 to the Fund's Form S-1,
Registration No. 333-125325, dated October 26, 2005.
---------------------------------------------------------------------------
Master Fund. The Master Fund is a statutory trust formed pursuant
to the Delaware Statutory Trust Act and will issue units of beneficial
interest or shares that represent units of fractional undivided
beneficial interest in and ownership of the Master Fund. Unless
terminated earlier, the Master Fund will expire on December 31, 2055.
The investment objective of the Master Fund is to reflect the
performance of the DBLCI less the expenses of the operations of the
Fund and the Master Fund. The Master Fund will pursue its investment
objective by investing primarily in a portfolio of futures contracts on
the commodities comprising the DBLCI. In addition, the Master Fund will
also hold cash and U.S. Treasury securities for deposit with futures
commission merchants (``FCMs'') as margin and other high credit quality
short-term fixed income securities.
Trustee. Wilmington Trust Company is the trustee of the Fund and
the Master Fund. The trustee has delegated to the Managing Owner the
power and authority to manage and operate the day-to-day affairs of the
Fund and the Master Fund.
Managing Owner. The Managing Owner is a Delaware limited liability
company that will be registered with the CFTC as a commodity pool
operator and commodity trading advisor and is an affiliate of Deutsche
Bank AG, the sponsor of the Fund and Master Fund. The Managing Owner
will serve as the commodity pool operator and commodity trading advisor
of the Fund and the Master Fund and will manage and control all aspects
of the business of the Funds.
Clearing Broker. Deutsche Bank Securities, Inc., the Clearing
Broker, is an affiliate of the Managing Owner and is registered with
the CFTC as an FCM. The Clearing Broker will execute and clear each of
the Master Fund's futures contract transactions and will perform
certain administrative services for the Master Fund.
Administrator. The Bank of New York is the administrator for both
the Fund and the Master Fund (the ``Administrator''). The Administrator
will perform or supervise the performance of services necessary for the
operation and administration of the
[[Page 3132]]
Fund and the Master Fund. These services include, but are not limited
to, investment accounting, financial reporting, broker and trader
reconciliation, net asset value (``NAV'') calculation,\19\ risk
transparency, and receiving and processing orders from Authorized
Participants (as defined below), and coordinating the processing of
orders with the Managing Owner and the Depository Trust Company
(``DTC'').
---------------------------------------------------------------------------
\19\ NAV is the total assets of the Master Fund less total
liabilities of the Master Fund, determined on the basis of generally
accepted accounting principles. NAV per Master Fund share is the NAV
of the Master Fund divided by the number of outstanding Master Fund
shares. This will be the same for the Shares of the Fund because of
a one-to-one correlation between the Shares and the shares of the
Master Fund.
---------------------------------------------------------------------------
VI. Product Description
A. Creation and Redemption of Shares
Issuances of the Shares will be made only in baskets of 200,000
Shares or multiples thereof (the ``Basket Aggregation'' or ``Basket'').
The Fund will issue and redeem the Shares on a continuous basis, by or
through participants that have entered into participant agreements
(each, an ``Authorized Participant'') \20\ with the Fund and its
Managing Owner at the NAV per Share determined shortly after 4 p.m.
Eastern Time (``ET'') or the last to close futures exchanges on which
the Index commodities are traded, whichever is later, on the business
day on which an order to purchase the Shares in one or more Baskets is
received in proper form. Following issuance, the Shares will be traded
on the Exchange similar to other equity securities. The Shares will be
registered in book entry form through DTC.
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\20\ An ``Authorized Participant'' is a person, who at the time
of submitting to the trustee an order to create or redeem one or
more Baskets, (i) is a registered broker-dealer, (ii) is a DTC
Participant, and (iii) has in effect a valid Participant Agreement
with the Fund issuer.
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The procedures for creating a Basket are as follows. On any
business day, an Authorized Participant may place an order with the
Distributor, ALPS Distributors, Inc. (the ``Distributor''), to create
one or more Baskets. Purchase orders must be placed by 10 a.m. ET and
are irrevocable. By placing a purchase order, and prior to delivery of
such Basket(s), an Authorized Participant's DTC account will be charged
the non-refundable $500 transaction fee due for the purchase order,
regardless of the number of Baskets to be created in connection with
such order.
The total payment required to create a Basket during the continuous
offering period is the cash amount equal to the NAV per Share times
200,000 Shares (the ``Basket Amount'') on the purchase order date.
Thus, the Basket Amount usually will be determined on each business day
by the Administrator shortly after 4 p.m. ET. Baskets are issued as of
12 noon ET, on the business day immediately following the purchase
order date (T+1) at NAV per Share on the purchase order date if the
required payment has been timely received.
Authorized Participants that have placed a purchase order to create
a Basket must transfer the Basket Amount to the Administrator (the
``Cash Deposit Amount'') by 10 a.m. the next day. Authorized
Participants that wish to redeem a Basket will be required to
accumulate enough Shares to constitute a Basket Aggregation (i.e.,
200,000 Shares) and, upon surrender of the Shares and payment of
applicable redemption transaction fee, taxes or charges, the
Administrator will deliver to the redeeming Authorized Participant cash
in exchange for each Basket surrendered in an amount equal to the NAV
per Basket (the ``Cash Redemption Amount''). The Shares will not be
individually redeemable but will only be redeemable in Basket
Aggregations.
Because orders to purchase Baskets must be placed by 10 a.m. ET,
but the total payment required to create a Basket will not be
determined until shortly after 4 p.m. ET, on the date the purchase
order is properly received, Authorized Participants will not know the
total amount of the payment required to create a Basket at the time
they submit an irrevocable purchase order. The Exchange states that
this is similar to exchange-traded funds and mutual funds. The Fund's
prospectus discloses that NAV and the total amount of the payment
required to create a Basket could rise or fall substantially between
the time an irrevocable purchase order is submitted and the time the
amount of the purchase order is determined.
On each business day, the Administrator will make available
immediately prior to the opening of trading on the Amex, an estimate of
the Cash Deposit Amount for the creation of a Basket. The Amex will
disseminate every 15 seconds throughout the trading day, via the
facilities of the Consolidated Tape Association (``CTA''), an amount
representing, on a per Share basis, the current value (intra-day) of
the Basket Amount (the ``Indicative Fund Value''). It is anticipated
that the deposit of the Cash Deposit Amount in exchange for a Basket
will be made primarily by institutional investors, arbitrageurs, and
the Exchange specialist. Baskets are then separable upon issuance into
identical Shares that will be listed and traded on the Amex.\21\ The
Shares are expected to be traded on the Exchange by professionals, as
well as institutional and retail investors. Shares may be acquired in
two (2) ways: (1) Through a deposit of the Cash Deposit Amount with the
Administrator during normal business hours by Authorized Participants,
or (2) through a purchase on the Exchange by investors.
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\21\ The Shares are separate and distinct from the shares of the
Master Fund. The Master Fund's assets will consist of long positions
in the futures contracts on the commodities comprising the DBLCI.
The Exchange expects that the number of outstanding Shares will
increase and decrease from time to time as a result of creations and
redemptions of Baskets.
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B. Net Asset Value
Shortly after 4 p.m. ET each business day, the Administrator will
determine the NAV for the Fund and Master Fund, utilizing the current
day's settlement value of the particular commodity futures contracts in
the Master Fund's portfolio and the value of the Master Fund's cash and
high-credit quality, short-term fixed income securities. However, if a
futures contract on a trading day cannot be liquidated due to the
operation of daily limits or other rules of an exchange upon which such
futures contract is traded, the settlement price on the most recent
trading day on which the futures contract could have been liquidated
will be used in determining the Fund's and the Master Fund's NAV.
Accordingly, for both U.S. and non-U.S. futures contracts, the
Administrator will typically use that day's futures settlement price
for determining NAV.
The NAV for the Fund is total assets of the Master Fund less total
liabilities of the Master Fund. The NAV is calculated by including any
unrealized profit or loss on futures contracts and any other credit or
debit accruing to the Master Fund but unpaid or not received by the
Master Fund. This preliminary NAV is then used to compute all NAV-based
fees (including the management and administrative fees, accrued through
and including the date of publication) that are calculated from the
value of Master Fund assets. The Administrator will calculate the NAV
per Share by dividing the NAV by the number of Shares outstanding. Then
once the final, published NAV is determined, shortly after 4 p.m. ET
each business day, the Administrator also will determine the Basket
Amount for orders placed by Authorized Participants received by 10 a.m.
ET that day.
[[Page 3133]]
Shortly after 4 p.m. ET each business day, the Administrator, Amex,
and Managing Owner will disseminate the NAV for the Shares and the
Basket Amount (for orders placed during the day). The NAV and the
Basket Amount are available to all market participants at the same time
and will be disseminated accordingly. The Basket Amount and the NAV are
communicated by the Administrator to all Authorized Participants via
facsimile or electronic mail message and will be publicly available on
the Fund's Web site at https://www.dbcfund.db.com. The Amex will also
publicly disclose via its Web site at https://www.amex.com the NAV and
Basket Amount (for orders placed that day). The Exchange also will
disseminate the Basket Amount by means of CTA/CQ High Speed Lines.
The Exchange stated that it believes that the Shares will not trade
at a material discount or premium to NAV due to potential arbitrage
opportunities in the event of any discrepancy between the two. Due to
the fact that the Shares can be created and redeemed daily only in
Basket Aggregations at NAV by Authorized Participants, the Exchange
submitted that arbitrage opportunities should provide a mechanism to
diminish the effect of any premiums or discounts that may exist from
time to time.
C. Dissemination of the Index and Underlying Futures Contracts
Information
DB London as the Sponsor of the Index will publish the value of the
Index at least every fifteen (15) seconds during Amex trading hours
through Bloomberg, Reuters, and other market data vendors. In addition,
the Index value will be available on the DB London (Sponsor) Web site
at https://index.db.com and Fund's Web site at https://
www.dbcfund.db.com on a twenty (20) minute delayed basis.\22\ The
closing Index level will similarly be provided by DB London and the
Fund. In addition, any adjustments or changes to the Index will also be
provided by DB London and the Fund on their respective Web sites.\23\
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\22\ Amex will provide a hyperlink from its Web site to the
Fund's Web site (https://www.dbcfund.db.com) and the DB London Web
site (https://index.db.com). Telephone conversation between Jeffrey
Burns, Associate General Counsel, Amex, and Florence Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, on
January 11, 2006.
\23\ The Index Sponsor has in place procedures to prevent the
improper sharing of information between different affiliates and
departments. Specifically, an information barrier exists between the
personnel within DB London that calculate and reconstitute the Index
and other personnel of the Index Sponsor, including but not limited
to the Managing Owner, sales and trading, external or internal fund
managers, and bank personnel who are involved in hedging the bank's
exposure to instruments linked to the Index, in order to prevent the
improper sharing of information relating to the recomposition of the
Index. The index is not calculated by a broker-dealer. Telephone
conversation between Jeffrey Burns, Associate General Counsel, Amex,
and Florence Harmon, Senior Special Counsel, Division of Market
Regulation, Commission, on January 11, 2006.
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The closing prices and daily settlement prices for the futures
contracts held by the Master Fund are publicly available on the Web
sites of the futures exchanges trading the particular contracts. The
particular futures exchange for each futures contract with Web site
information is as follows: (i) Aluminum--London Metal Exchange (LME) at
https://www.lme.com; (ii) corn and wheat--Chicago Board of Trade (CBOT)
at https://www.cbot.com; and (iii) crude oil, heating oil and gold--New
York Mercantile Exchange (NYMEX) at https://www.nymex.com. The Exchange
on its Web site at https://www.amex.com will include a hyperlink to the
Index Sponsor's Web site at https://index.db.com, which will contain
hyperlinks to each of the futures exchanges Web sites for the purpose
of disclosing futures contract pricing. In addition, various data
vendors and news publications publish futures prices and data. The
Exchange has represented that futures quotes and last sale information
for the commodities underlying the Index are widely disseminated
through a variety of market data vendors worldwide, including Bloomberg
and Reuters. In addition, the Exchange has represented that complete
real-time data for such futures is available by subscription from
Reuters and Bloomberg. The CBOT, LME, and NYMEX 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 futures contracts are also available
from the futures exchanges on their Web sites as well as other
financial informational sources.
D. Availability of Information Regarding the Shares
The Web site for the Fund (https://www.dbcfund.db.com), which will
be publicly accessible at no charge, will contain the following
information: (a) The prior business day's NAV and the reported closing
price; (b) the mid-point of the bid-ask price \24\ in relation to the
NAV as of the time the NAV is calculated (the ``Bid-Ask Price''); (c)
calculation of the premium or discount of such price against such NAV;
(d) data in chart form displaying the frequency distribution of
discounts and premiums of the Bid-Ask Price against the NAV, within
appropriate ranges for each of the four (4) previous calendar quarters;
(e) the prospectus; and (f) other applicable quantitative information.
---------------------------------------------------------------------------
\24\ The bid-ask price of Shares is determined using the highest
bid and lowest offer as of the time of calculation of the NAV.
---------------------------------------------------------------------------
As described above, the NAV for the Fund will be calculated and
disseminated daily. The Amex also intends to disseminate, during Amex
trading hours, for the Fund on a daily basis by means of CTA/CQ High
Speed Lines information with respect to the Indicative Fund Value (as
discussed below), recent NAV, and Shares outstanding. The Exchange will
also make available on its Web site daily trading volume, closing
prices, and the NAV.
E. Dissemination of Indicative Fund Value
As noted above, the Administrator calculates the NAV of the Fund
once each trading day. In addition, the Administrator causes to be made
available on a daily basis the Cash Deposit Amount to be deposited in
connection with the issuance of the Shares in Basket Aggregations. In
addition, other investors can request such information directly from
the Administrator.
In order to provide updated information relating to the Fund for
use by investors, professionals, and persons, the Exchange will
disseminate through the facilities of CTA an updated Indicative Fund
Value. The Indicative Fund Value will be disseminated on a per Share
basis at least every 15 seconds from 9:30 a.m. to 4:15 p.m. ET.\25\ The
Indicative Fund Value will be calculated based on the cash required for
creations and redemptions (i.e., NAV x 200,000) adjusted to reflect the
price changes of the Index commodities through investments held by the
Master Fund, i.e., futures contracts.
---------------------------------------------------------------------------
\25\ Telephone conversation between Jeffrey Burns, Associate
General Counsel, Amex, and Kate Robbins, Attorney, Division of
Market Regulation, Commission, on November 28, 2005.
---------------------------------------------------------------------------
The Indicative Fund Value will not reflect price changes to the
price of an underlying commodity between the close of trading of the
futures contract at the relevant futures exchange and the close of
trading on the Amex at 4:15 p.m. ET. The value of a Share may
accordingly be influenced by non-concurrent trading hours between the
Amex and the various futures exchanges on which the futures contracts
based on the Index commodities are traded.
[[Page 3134]]
While the Shares will trade on the Amex from 9:30 a.m. to 4:15 p.m. ET,
the table below lists the trading hours for each of the Index
commodities underlying the futures contracts.
----------------------------------------------------------------------------------------------------------------
Index commodity Futures exchange Trading hours (ET)
----------------------------------------------------------------------------------------------------------------
Aluminum............................... LME............................ 6:55 a.m.-12:00 p.m.
Gold................................... COMEX.......................... 8:20 a.m.-1:30 p.m.
Crude Oil.............................. NYMEX.......................... 10:00 a.m.-2:30 p.m.
Heating Oil............................ NYMEX.......................... 10:05 a.m.-2:30 p.m.
Corn................................... CBOT........................... 10:30 a.m.-2:15 p.m.
Wheat.................................. CBOT........................... 10:30 a.m.-2:15 p.m.
----------------------------------------------------------------------------------------------------------------
While the market for futures trading for each of the Index
commodities is open, the Indicative Fund Value can be expected to
closely approximate the value per Share of the Basket Amount. However,
during Amex trading hours when the futures contracts have ceased
trading, spreads and resulting premiums or discounts may widen, and
therefore, increase the difference between the price of the Shares and
the NAV of the Shares. Indicative Fund Value on a per Share basis
disseminated during Amex trading hours should not be viewed as a real
time update of the NAV, which is calculated only once a day.
The Exchange stated that it believes that dissemination of the
Indicative Fund Value based on the cash amount required for a Basket
Aggregation provides additional information that is not otherwise
available to the public and is useful to professionals and investors in
connection with the Shares trading on the Exchange or the creation or
redemption of the Shares.
VII. Criteria for Initial and Continued Listing
The Fund will be subject to the criteria in proposed Commentary
.07(d) of Amex Rule 1202 for initial and continued listing of the
Shares. The proposed continued listing criteria provides for the
delisting or removal from listing of the Shares under any of the
following circumstances:
Following the initial twelve month period from the date of
commencement of trading of the Shares: (i) If the Fund has more than 60
days remaining until termination and there are fewer than 50 record
and/or beneficial holders of the Shares for 30 or more consecutive
trading days; (ii) if the Fund has fewer than 50,000 Shares issued and
outstanding; or (iii) if the market value of all Shares is less than
$1,000,000.
If the value of the underlying index or portfolio is no
longer calculated or available on at least a 15-second basis through
one or more major market data vendors during the time the Shares trade
on the Exchange.
The Indicative Fund Value is no longer made available on
at least a 15-second basis.
If such other event shall occur or condition exists which
in the opinion of the Exchange makes further dealings on the Exchange
inadvisable.
It is anticipated that a minimum of 2,000,000 Shares will be
required to be outstanding at the start of trading. It is anticipated
that the initial price of a Share will be approximately $25. The Fund
expects to accept subscriptions for Shares in Basket Aggregations
(i.e., $5 million) from Authorized Participants during an initial
offering period with a finite term of approximately six (6) months,
subject to earlier termination. After the initial offering period has
closed and trading commences, the Fund will then issue Shares in the
normal Basket Aggregations of 200,000 Shares to Authorized
Participants. Once the initial offering period has closed and trading
commences, the Master Fund will issue shares in Master Fund Baskets
(200,000 shares) to the Fund continuously at NAV. The Master Fund will
be owned by the Fund and the Managing Owner.\26\ Each Share issued by
the Fund will correlate with a Master Fund share issued by the Master
Fund and held by the Fund. The Exchange stated that it believes that
the anticipated minimum number of Shares outstanding at the start of
trading is sufficient to provide adequate market liquidity and to
further the Fund's objective to seek to provide a simple and cost
effective means of accessing the commodity futures markets.
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\26\ The Managing Owner will own 1% or less of the Master Fund
and will share pro rata in the income and expenses of the Master
Fund.
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The Exchange has represented that it prohibits the initial and/or
continued listing of any security that is not in compliance with Rule
10A-3 under the Exchange Act.\27\
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\27\ See Rule 10A-3(c)(7), 17 CFR 240.10A-3(c)(7) (stating that
a listed issuer is not subject to the requirements of Rule 10A-3 if
the issuer is organized as a trust or other unincorporated
association that does not have a board of directors and the
activities of the issuer are limited to passively owning or holding
securities or other assets on behalf of or for the benefit of the
holders of the listed securities).
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VIII. Trading Rules
The Shares are equity securities subject to Amex Rules governing
the trading of equity securities, including, among others, rules
governing priority, parity and precedence of orders, specialist
responsibilities and account opening and customer suitability (Amex
Rule 411). Initial equity margin requirements of 50% will apply to
transactions in the Shares. Shares will trade on the Amex until 4:15
p.m. ET each business day \28\ and will trade in a minimum price
variation of $0.01 pursuant to Amex Rule 127. Trading rules pertaining
to odd-lot trading in Amex equities (Amex Rule 205) will also apply.
---------------------------------------------------------------------------
\28\ Commentary .01, .02, and .03 to Exchange Rule 1200 are
applicable to transactions in the Shares, however, the Shares will
trade from 9:30 a.m. to 4:15 p.m. each business day. Telephone
conversation between Jeffrey Burns, Associate General Counsel, Amex,
and Florence Harmon, Senior Special Counsel, Division of Market
Regulation, Commission, on January 11, 2006.
---------------------------------------------------------------------------
The Amex original listing fee applicable to the listing of the Fund
is $5,000. In addition, the annual listing fee applicable under Section
141 of the Amex Company Guide will be based upon the year-end aggregate
number of Shares in all series of the Fund outstanding at the end of
each calendar year.
Amex Rule 154, Commentary .04(c) provides that stop and stop limit
orders to buy or sell a security (other than an option, which is
covered by Amex Rule 950(f) and Commentary thereto) the price of which
is derivatively based upon another security or index of securities, may
with the prior approval of a Floor Official, be elected by a quotation,
as set forth in Commentary .04(c)(i-v). The Exchange has designated the
Shares as eligible for this treatment.\29\
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\29\ See Securities Exchange Act Release No. 29063 (April 10,
1991), 56 FR 15652 (April 17, 1991) at note 9, regarding the
Exchange's designation of equity derivative securities as eligible
for such treatment under Amex Rule 154, Commentary .04(c).
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[[Page 3135]]
The Shares will be deemed ``Eligible Securities,'' as defined in
Amex Rule 230, for purposes of the Intermarket Trading System Plan and
therefore will be subject to the trade through provisions of Amex Rule
236 which require that Amex members avoid initiating trade-throughs for
ITS securities.
Specialist transactions of the Shares made in connection with the
creation and redemption of Shares will not be subject to the
prohibitions of Amex Rule 190.\30\ Unless exemptive or no-action relief
is available, the Shares will be subject to the short sale rule, Rule
10a-1 and Regulation SHO under the Act.\31\ If exemptive or no-action
relief is provided, the Exchange will issue a notice detailing the
terms of the exemption or relief. The Shares will generally be subject
to the Exchange's stabilization rule, Amex Rule 170, except that
specialists may buy on ``plus ticks'' and sell on ``minus ticks,'' in
order to bring the Shares into parity with the underlying commodity or
commodities and/or futures contract price. Proposed Commentary .07(f)
to Amex Rule 1202 sets forth this limited exception to Amex Rule 170 to
bring the Shares into parity with the underlying Index.
---------------------------------------------------------------------------
\30\ See Commentary .05 to Amex Rule 190.
\31\ The Fund expects to seek relief, in the near future, from
the Commission in connection with the trading of the Shares from the
operation of certain Exchange Act Rules.
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The adoption of Commentary .07(e) to Amex Rule 1202 relating to
certain specialist prohibitions will address potential conflicts of
interest in connection with acting as a specialist in the Shares.
Specifically, Commentary .07(e) provides that the prohibitions in Amex
Rule 175(c) apply to a specialist in the Shares so that the specialist
or affiliated person may not act or function as a market maker in an
underlying asset, related futures contract or option or any other
related derivative. An affiliated person of the specialist consistent
with Amex Rule 193 may be afforded an exemption to act in a market
making capacity, other than as a specialist in the Shares on another
market center, in the underlying asset, related futures or options or
any other related derivative. In particular, proposed Commentary .07(e)
provides that an approved person of an equity specialist that has
established and obtained Exchange approval for procedures restricting
the flow of material, non-public market information between itself and
the specialist member organization, and any member, officer, or
employee associated therewith, may act in a market making capacity,
other than as a specialist in the Shares on another market center, in
the underlying asset or commodity, related futures or options on
futures, or any other related derivatives.
Adoption of Commentary .07(g) to Amex Rule 1202 will also ensure
that specialists handling the Shares provide the Exchange with all the
necessary information relating to their trading in physical assets or
commodities, related futures contracts and options thereon or any other
derivative. As a general matter, the Exchange has regulatory
jurisdiction over its members, member organizations, and approved
persons of a member organization. The Exchange also has regulatory
jurisdiction over any person or entity controlling a member
organization, as well as a subsidiary or affiliate of a member
organization that is in the securities business. A subsidiary or
affiliate of a member organization that does business only in
commodities or futures contracts would not be subject to Exchange
jurisdiction, but the Exchange could obtain information regarding the
activities of such subsidiary or affiliate through surveillance sharing
agreements with regulatory organizations of which such subsidiary or
affiliate is a member.
IX. Trading Halts
Prior to the commencement of trading, the Exchange will issue an
Information Circular (described below) to members informing them of,
among other things, Exchange policies regarding trading halts in the
Shares. First, the circular will advise that trading will be halted in
the event the market volatility trading halt parameters set forth in
Amex Rule 117 have been reached. Second, the circular will advise that,
in addition to the parameters set forth in Amex Rule 117, the Exchange
will halt trading in the Shares if trading in the underlying related
futures contract(s) is halted or suspended. Third, with respect to a
halt in trading that is not specified above, the Exchange may also
consider other relevant factors and the existence of unusual conditions
or circumstances that may be detrimental to the maintenance of a fair
and orderly market. Additionally, the Exchange has represented that it
will cease trading the Shares if the conditions in Commentary
.07(d)(2)(ii) or (iii) to Amex Rule 1202 exist (i.e., if there is a
halt or disruption in the dissemination of the Indicative Fund Value
and/or underlying Index value).\32\
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\32\ In the event the Index value or Indicative Fund Value is no
longer calculated or disseminated, the Exchange would immediately
contact the Commission to discuss measures that may be appropriate
under the circumstances. Telephone conversation between Jeffrey
Burns, Associate General Counsel, Amex, and Florence Harmon, Senior
Special Counsel, Division of Market Regulation, Commission, on
November 22, 2005.
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X. Suitability
The Information Circular (described below) will inform members and
member organizations of the characteristics of the Fund and of
applicable Exchange rules, as well as of the requirements of Amex Rule
411 (Duty to Know and Approve Customers).
The Exchange noted that pursuant to Amex Rule 411, members and
member organizations are required in connection with recommending
transactions in the Shares to have a reasonable basis to believe that a
customer is suitable for the particular investment given reasonable
inquiry concerning the customer's investment objectives, financial
situation, needs, and any other information known by such member.
XI. Information Circular
The Amex will distribute an Information Circular to its members in
connection with the trading of the Shares. The Information Circular
will inform members and member organizations, prior to commencement of
trading, of the prospectus delivery requirements applicable to the
Fund. The Exchange noted that investors purchasing Shares directly from
the Fund (by delivery of the Cash Deposit Amount) will receive a
prospectus. Amex members purchasing Shares from the Fund for resale to
investors will deliver a prospectus to such investors.
The Information Circular also will discuss the special
characteristics and risks of trading this type of security.
Specifically, the Information Circular, among other things, will
discuss what the Shares are, how a Basket is created and redeemed, the
requirement that members and member firms deliver a prospectus to
investors purchasing the Shares prior to or concurrently with the
confirmation of a transaction, applicable Amex rules, dissemination of
information regarding the per Share Indicative Fund Value, trading
information and applicable suitability rules. The Information Circular
will also explain that the Fund is subject to various fees and expenses
described in the registration statement.
The Information Circular will also reference the fact that there is
no regulated source of last sale information regarding physical
commodities and that the SEC has no jurisdiction over the trading of
physical commodities such as
[[Page 3136]]
aluminum, gold, crude oil, heating oil, corn and wheat, or the futures
contracts on which the value of the Shares is based.
The Information Circular will also notify members and member
organizations about the procedures for purchases and redemptions of
Shares in Baskets and that Shares are not individually redeemable but
are redeemable only in Basket-size aggregations or multiples thereof.
The Information Circular will also discuss any relief, if granted, by
the Commission or the staff from any rules under the Act.
The Information Circular will disclose that the NAV for Shares will
be calculated shortly after 4 p.m. ET each trading day and that other
information will be publicly available about the Shares and underlying
Index.
XII. Surveillance
The Exchange has represented that its surveillance procedures are
adequate to monitor Exchange trading of the Shares and to detect
violations of applicable rules and regulations. Exchange surveillance
procedures applicable to trading in the proposed Shares will be similar
to those applicable to TIRs, Portfolio Depository Receipts and Index
Fund Shares currently trading on the Exchange. The Exchange currently
has in place an Information Sharing Agreement with the NYMEX and the
CBOT for the purpose of providing information in connection with
trading in or related to futures contracts traded on the NYMEX and
CBOT, respectively. The Exchange also noted that the CBOT is a member
of the Intermarket Surveillance Group (``ISG''). As a result, the
Exchange has asserted that market surveillance information is available
from the CBOT, if necessary, due to regulatory concerns that may arise
in connection with the CBOT futures. In addition, the Exchange has
negotiated a Memorandum of Understanding with the LME for the purpose
of providing information in connection with the trading in or related
to futures contracts traded on the LME.
XIII. Discussion and Commission's Findings
After careful consideration, the Commission finds that the proposed
rule change, as amended, is consistent with the requirements of the Act
and the rules and regulations thereunder applicable to a national
securities exchange.\33\ In particular, the Commission finds that the
proposed rule change, as amended, is consistent with the requirements
of Section 6(b)(5) of the Act,\34\ which requires, among other things,
that the Exchange's rules be designed to promote just and equitable
principles of trade, 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.
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\33\ In approving this proposed rule change, the Commission
notes that it has cnsidered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78(c)(f).
\34\ 15 U.S.C. 78(f)(b)(5).
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A. Surveillance
Information sharing agreements with primary markets trading index
components underlying a derivative product are an important part of a
self-regulatory organization's ability to monitor for trading abuses in
derivative products. The Commission believes that the Exchange's
Information Sharing Agreement with the NYMEX and the CBOT and the
Exchange's Memorandum of Understanding with the LME, along with the
Exchange's participation in the ISG, in which the CBOT participates,
and Commentaries .07(e), (g)(1), (g)(2) and (g)(3) to Amex Rule 1202,
create the basis for the Amex to monitor for fraudulent and
manipulative practices in the trading of the Shares.
In particular, Commentaries .07(g)(1) and (g)(2) to Amex Rule 1202
require that the specialist handling the Shares provide the Exchange
with information relating to its trading in the Shares and the accounts
of the member organization acting as specialist, member organization,
or approved person of such member organization in the Index components,
related futures or options on futures, or any other related
derivatives. Commentary .07(g)(3) to Amex Rule 1202 also prohibits the
specialist in the Shares from using any material nonpublic information
received from any person associated with a member, member organization
or employee of such person regarding trading by such person or employee
in the Index commodities, related futures or options on futures, or any
other related derivatives. In addition, Commentary .07(e) to Amex Rule
1202 prohibits the specialist in the Shares from being affiliated with
a market maker in the Index commodities, related futures or options on
futures, or any other related derivatives, unless information barriers
are in place that satisfy the requirements of Amex Rule 193.
Furthermore, as noted above, the Exchange has represented that: (i) its
surveillance procedures are adequate to monitor Exchange trading of the
Shares and to detect violations of applicable rules and regulations;
and (ii) Exchange surveillance procedures applicable to trading in the
proposed Shares will be similar to those applicable to TIRs, Portfolio
Depository Receipts and Index Fund Shares currently trading on the
Exchange. Accordingly, the Commission believes that the Amex can
adequately surveil trading in the Shares.
B. Dissemination of Information
The Commission believes that sufficient venues for obtaining
reliable futures contract price information exist so that investors in
the Shares can monitor the underlying futures contract markets relative
to the NAV of their Shares. There is a considerable amount of futures
contract price and market information available through public Web
sites and professional subscription services, including Bloomberg and
Reuters. In addition, the futures exchanges for the futures contracts
held by the Master Fund each have their own Web sites, which will be
able to be reached directly from hyperlinks on the Index Sponsor's Web
site (https://index.db.com).
The Commission notes that information about the Index is also
widely available. The Index Sponsor, DB London, will publish the value
of the Index at least every 15 seconds during Amex trading hours
through Bloomberg, Reuters, and other market data vendors, and the
Fund's Web site (https://www.dbcfund.db.com) and the Index Sponsor's Web
site (https://index.db.com) will publish the value of the Index on a 20
minute delayed basis.
The Commission further notes that information about the Shares will
also be widely available. The Exchange will disseminate via the CTA/CQ
High Speed Lines the NAV, Basket Amount, Shares outstanding and the
Indicative Fund Value, which will be disseminated every 15 seconds
during Amex trading hours, and will display the NAV, Basket Amount,
daily trading volume and closing prices on the Exchange's Web site
(https://www.amex.com). In addition, the NAV and Basket Amount will be
available on the Fund's Web site (https://www.dbcfund.db.com). As
described in detail above, the Fund's Web site, which will be publicly
accessible at no charge, will contain useful information, including a
copy of the prospectus. The Commission believes that the wide
availability of information about the underlying futures contracts, the
Index and the Shares will facilitate transparency with respect to the
proposed Shares and diminish the risk of manipulation or unfair
informational advantage.
[[Page 3137]]
C. Listing and Trading
The Commission finds that the Exchange's proposed rules and
procedures for the listing and trading of the proposed Shares are
consistent with the Act. Shares will trade as equity securities subject
to Amex rules including, among others, rules governing priority, parity
and precedence of orders, specialist responsibilities, account opening
and customer suitability requirements. The Commission believes that the
listing and delisting criteria for the Shares should help to maintain a
minimum level of liquidity and therefore minimize the potential for
manipulation of the Shares. Finally, the Commission notes that the
Information Circular the Exchange will distribute will inform members
and member organizations about the terms, characteristics and risks in
trading the Shares, including their prospectus delivery obligations.
D. Accelerated Approval of the Proposed Rule Change, as Amended by
Amendment Nos. 1 and 2 Thereto, and Accelerated Approval of Amendment
Nos. 3 and 4 Thereto
The Commission finds good cause for approving the proposed rule
change, as amended by Amendment Nos. 1 and 2, prior to the 30th day
after the date of publication of the notice of filing thereof in the
Federal Register. The Exchange has requested the Commission to approve
the proposal, as amended by Amendment Nos. 1 and 2, on an accelerated
basis, after a 15-day comment period, to enable investors to begin
trading the Shares promptly. The Commission notes that the proposed
rule change, as amended by Amendment Nos. 1 and 2, was noticed for a
15-day comment period and no comments were received. Therefore, the
Commission finds good cause, consistent with Section 19(b)(2) of the
Act,\35\ to approve the proposal, as amended by Amendment Nos. 1 and 2,
on an accelerated basis.
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\35\ 15 U.S.C. 78s(b)(2).
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The Commission finds good cause for approving Amendment Nos. 3 and
4 to the proposed rule change prior to the 30th day after the date of
publication of the notice of filing thereof in the Federal Register.
The Exchange has requested the Commission to approve Amendment Nos. 3
and 4 \36\ on an accelerated basis so that approval of the proposal is
not unnecessarily delayed. In Amendment No. 3, the Exchange made
clarifying changes to the purpose section regarding adjustment
