Self-Regulatory Organizations; American Stock Exchange LLC; Order Approving Proposed Rule Change and Amendment Nos. 1 and 2 Thereto Relating to the Listing and Trading of Units of the United States Oil Fund, LP, 17510-17519 [E6-4971]
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Federal Register / Vol. 71, No. 66 / Thursday, April 6, 2006 / Notices
reallocations made within the calendar
year or Variable Contract year for
purposes of determining whether the
number of reallocations that may be
made pursuant to the Frequent Trading
Policies has been exceeded, or that may
be made without incurring
administrative or transfer fees, if any,
under the relevant Variable Contract.
Alternately, Affected Contractholders
may withdraw amounts held in any
Affected Subaccount at any time during
the Free Transfer Period in accordance
with the terms and conditions of the
relevant Variable Contract. The Free
Transfer Period commences upon a date
declared in the Substitution Notice
(which will be thirty days prior to the
Effective Date) and will last for 30 days
after the Effective Date.
(d) The Substitution will be effected
at the net asset value of the shares in
conformity with Section 22(c) of the
1940 Act and Rule 22c–1 thereunder,
without the imposition of any transfer
or similar charge by Applicants.
(e) The Substitution will take place at
relative net asset value without change
in the amount or value of any Variable
Contract held by Affected
Contractholders. Affected
Contractholders will not incur any fees
or charges as a result of the Substitution,
nor will their rights or the obligations of
the PL Insurers under such Variable
Contracts be altered in any way. In
addition, the PL Insurers will not
increase the Variable Contract fees and
charges specified in the Variable
Contracts for a period of at least two
years following the Substitution.
(f) The Substitution will be effected in
such a manner that Applicants believe
will continue to fulfill Affected
Contractholders’ objectives and risk
expectations, because, according to
Applicants, the investment objectives of
the Substitute Portfolio are substantially
similar to those of the Replaced
Portfolio.
(g) No brokerage commissions, fees or
other remuneration will be paid by the
Replaced Portfolio or the Substitute
Portfolio or Affected Contractholders in
connection with the Substitution.
(h) The Substitution will not alter in
any way the annuity, life or tax benefits
afforded under the Variable Contracts
held by any Affected Contractholder.
(i) The PL Insurers will send to their
Affected Contractholders within five (5)
business days of the Effective Date a
copy of the Post-Substitution
Confirmation confirming the
transactions effected on behalf of the
respective Affected Contractholder with
regard to the Substitution.
Conditions:
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Applicants agree that the proposed
Substitution and related transaction will
not be completed unless all of the
following conditions are met:
1. The Commission shall have issued
an order approving the Substitution
under Section 26(c) of the 1940 Act.
2. Each Affected Contractholder will
have been sent a copy of (i) a
supplement informing shareholders of
this Application; (ii) a prospectus for
the Substitute Portfolio, (iii) a
Substitution Notice setting forth the
scheduled Effective Date and advising
Affected Contractholders of their right,
if they so choose, to reallocate or
withdraw amounts allocated to the
Affected Subaccount under their
Variable Contract at any time during the
sixty-day Free Transfer Period, in
accordance with the terms and
conditions of their Variable Contract;
and (iv) within five business days of the
Effective Date, a Post-Substitution
Confirmation confirming the
transactions effected on behalf of the
respective Affected Contractholder with
regard to the Substitution.
3. The PL Insurers shall have satisfied
themselves that (i) the Variable
Contracts allow the substitution of
investment company shares in the
manner contemplated by the
Substitution and related transactions
described herein; (ii) the transactions
can be consummated as described in
this Application under applicable
insurance laws; and (iii) any regulatory
requirements in each jurisdiction where
the Variable Contracts are qualified for
sale, have been complied with to the
extent necessary to complete the
transactions.
4. Pacific Life and Select Fund have
entered into an Expense Limitation
Agreement, with respect to the
Substitute Portfolio, whereby Pacific
Life will reimburse the Substitute
Portfolio an amount necessary to ensure
that net operating expenses do not
exceed an annual rate of 1.01% during
a two-year period from the date the
Substitution occurs. Separate Account
expenses will not be increased during
this two-year period for Affected
Contractholders.
5. Pacific Life will amend its advisory
agreement with the Substitute Portfolio
to reflect that in the event that the
Master Fund level advisory fees and
12b–1 fees exceed 95 basis points,
Pacific Life will subsidize any fees in
excess of this amount for the life of the
Substitute Portfolio or until the fee is
changed pursuant to a shareholder vote.
Conclusion:
Applicants submit that, for all reasons
stated above, the proposed Substitution
is consistent with the protection of
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investors and the purposes fairly
intended by the policy and provisions of
the 1940 Act, and that the requested
order should be granted.
For the Commission, by the Division of
Investment Management, under delegated
authority.
Nancy M. Morris,
Secretary.
[FR Doc. E6–5016 Filed 4–5–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53582; File No. SR–Amex–
2005–127]
Self-Regulatory Organizations;
American Stock Exchange LLC; Order
Approving Proposed Rule Change and
Amendment Nos. 1 and 2 Thereto
Relating to the Listing and Trading of
Units of the United States Oil Fund, LP
March 31, 2006.
I. Introduction
On December 6, 2005, the American
Stock Exchange LLC (‘‘Amex’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’) the proposed rule
change pursuant to Section 19(b)(1) of
the Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder.2
On January 20, 2006, the Exchange filed
Amendment No. 1 to the proposed rule
change.3 On February 15, 2006, the
Exchange filed Amendment No. 2 to the
proposed rule change.4 The proposed
rule change, as amended by
Amendment Nos. 1 and 2, was
published for comment in the Federal
Register on February 24, 2006.5 The
Commission received no comments on
the proposal. This order approves the
proposed rule change, as amended by
Amendment Nos. 1 and 2.
II. Description of the Proposal
The Exchange proposes to add new
Rules 1500 et seq. to permit the listing
and trading of units in a partnership
that is a commodity pool under the
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Partial Amendment dated, January 20, 2006
(‘‘Amendment No. 1’’). In Amendment No. 1, the
Amex made clarifying changes to the ‘‘purpose’’
section of the proposed rule change.
4 See Partial Amendment dated, February 15,
2006 (‘‘Amendment No. 2’’), which made technical
and clarifying changes to the ‘‘purpose’’ section of
the proposed rule change.
5 See Securities Exchange Act Release No. 53324
(February 16, 2006), 71 FR 9614 (February 24,
2006)(‘‘USOF Notice’’).
2 17
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Commodity Exchange Act (‘‘CEA’’) 6
that are designed to track a specified
commodity or index of commodities by
holding any combination of investments
(i) comprised of or based on futures
contracts, options on futures contracts,
forward contracts, swaps, and over-thecounter (‘‘OTC’’) contracts for
commodities or based on price changes
in commodities, and (ii) in securities
that may be required to satisfy margin
or collateral requirements associated
with investments in the financial
instruments listed in item (i) above.
Pursuant to these proposed rules, the
Amex proposes to list and trade units
(the ‘‘Units’’) of the United States Oil
Fund, LP (‘‘USOF’’ or the
‘‘Partnership’’). The Units represent
ownership of a fractional undivided
beneficial interest in the net assets of
USOF.
USOF, a Delaware limited
partnership, is a commodity pool.7 It is
operated by Victoria Bay Asset
Management, LLC, a single member
Delaware limited liability company (the
‘‘General Partner’’ or ‘‘Victoria Bay’’),
which is wholly owned by Wainwright
Holdings, Inc. The General Partner was
formed for the specific purpose of
managing and controlling USOF and has
registered as a Commodity Pool
Operator (‘‘CPO’’) with the Commodity
Futures Trading Commission (‘‘CFTC’’)
and become a member of the National
Futures Association (‘‘NFA’’).8
The investment objective of the USOF
is for its net asset value (‘‘NAV’’) 9 to
reflect the performance of the spot price
of West Texas Intermediate light, sweet
crude oil delivered to Cushing,
Oklahoma (the ‘‘WTI light, sweet crude
oil’’),10 as represented by the
performance of the price of the
‘‘Benchmark Oil Futures Contract,’’ 11
less the expense of operation of USOF.
The ‘‘Benchmark Oil Futures Contract’’
is the near-month (i.e., spot month)
future contract for delivery of WTI light,
sweet crude oil traded on the New York
Mercantile Exchange (‘‘NYMEX’’).12 The
Exchange states that an investment in
the Units will allow both retail and
institutional investors to easily gain
exposure to the crude oil market in a
cost-effective manner.
The assets of USOF will consist of
futures contracts for light, sweet crude
oil and other petroleum based fuels that
are traded on the NYMEX or other U.S.
and foreign exchanges 13 (collectively,
‘‘Oil Futures Contracts’’). USOF will
also purchase other oil interests, such as
cash-settled options on Oil Futures
Contracts, forward contracts for oil, and
OTC transactions that are based on the
price of oil, other petroleum-based fuels,
and indices based on the foregoing
(collectively, ‘‘Other Oil Interests’’) (Oil
Futures Contracts and Other Oil
Interests are collectively referred to as
‘‘Oil Interests.’’) The Oil Interests for
light, sweet crude oil and other
petroleum based fuels in which USOF
will invest are based on domestic oil,
(WTI light, sweet crude), international
oil (Brent Crude Oil), heating oil,
natural gas, and gasoline. A description
of these commodities and the primary
trading market for futures contracts
based on such commodities is set out in
the USOF Notice.14
USOF will also invest in short term
obligations of the United States
Government (‘‘Treasuries’’) to be used to
satisfy its current or future margin and
collateral requirements and to otherwise
6 The offering of the Units of the Partnership is
registered with the Commission under the
Securities Act of 1933.
7 The Exchange states that USOF is not an
investment company as defined in Section 3(a) of
the Investment Company Act of 1940.
8 Telephone conversation between Jeffrey Burns,
Senior Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division of
Market Regulation (‘‘Division’’), Commission, and
Johnna B. Dumler, Attorney, Division, Commission,
on February 15, 2006. Additional information about
the management and structure of USOF is found in
the USOF Notice, supra note 5.
9 NAV is the total assets, less total liabilities of
USOF, determined on the basis of generally
accepted accounting principles. NAV per Unit is
the NAV of USOF divided by the number of
outstanding Units.
10 The types of crude oil are typically described
by a combination of their physical attributes and
their place of origin. A few of these types of crude
oil are widely traded and their prices serve as
benchmarks in determining the spot and forward
prices of the other types of crude oil. The three
most important types of crude oil that are used as
benchmarks are the light, sweet crude from the
United States known as ‘‘West Texas Intermediate,’’
a light, sweet crude from Europe’s North Sea known
as ‘‘Brent Crude,’’ and a medium crude oil from the
Middle East known as ‘‘Dubai Crude.’’ These three
types of crude oil are the ones used most frequently
in the trading of listed futures contracts, listed
options, and non-exchange listed derivative
contracts based on crude oil.
11 Telephone conversation between Florence E.
Harmon, Senior Special Counsel, Division,
Commission, and Cliff Weber, Senior Vice
President, Amex, on March 24, 2006.
12 The Exchange will file a Form 19b–4 to obtain
Commission approval for the continued listing and
trading of the Units should the General Partner
change the Benchmark Oil Futures Contract from
this NYMEX WTI light, sweet crude oil futures
contract. Telephone conversation between Jeffrey
Burns, Senior Associate General Counsel, Amex,
Florence Harmon, Senior Special Counsel, Division,
Commission, and Johnna B. Dumler, Attorney,
Division, Commission, on February 13, 2006.
13 USOF will primarily purchase WTI light, sweet
crude Oil Futures Contracts traded on the NYMEX,
but may also purchase Oil Futures Contracts on
other exchanges, including the Intercontinental
Exchange, formerly known as the International
Petroleum Exchange, which operates its futures
business through ICE Futures (‘‘ICE Futures’’), and
the Singapore Oil Exchange.
14 See USOF Notice, supra note 5.
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17511
satisfy its obligations with respect to its
investments in Oil Interests.
Commodity-Based Trust Shares are
trust issued receipts (‘‘TIRs’’) based on
the value of an underlying commodity
or index of commodities held by a
trust.15 Because of USOF’s structure as
a partnership and the nature of its
investments, the current CommodityBased Trust Shares rules (Amex Rules
1200A et seq.) do not specifically permit
the Exchange to list this product. This
proposal seeks to expand the ability of
the Exchange to list and/or trade
securities based on a portfolio of
underlying investments that may not be
‘‘securities’’ in circumstances where the
issuer is a partnership, organized as a
commodities pool under the CEA.
Under proposed Amex Rule 1501, the
Exchange would be able to list and trade
the Units issued by USOF. For units
issued by other commodity-based
partnerships or other types of units
issued by USOF, if any, the Exchange
will submit a filing pursuant to Section
19(b) of the Act, subject to the review
and approval of the Commission. The
Exchange submits that the Units will
conform to the initial and continued
listing criteria under proposed Amex
Rule 1502.16
Information about the liquidity,
depth, and pricing mechanisms of the
international oil market, operation of
the USOF, and descriptions of the Units
of USOF follows below.17
Description of the Oil Market
The Exchange states that crude oil is
the world’s most actively traded
commodity. The investment objective of
USOF is to track the spot month futures
contracts for WTI light, sweet crude
traded on the NYMEX, and thus USOF
will primarily purchase WTI light,
sweet crude Oil Futures Contracts
traded on the NYMEX. The Oil Futures
Contracts for light, sweet crude oil that
15 See Securities Exchange Act Release No. 51446
(March 29, 2005), 70 FR 17272 (April 5, 2005). The
Exchange listed and traded the iShares COMEX
Gold Trust under Amex Rule 1200A as the first
Commodity Based Trust Share. Recently, the
Exchange commenced the trading of shares of the
streetTRACKS Gold Trust (GLD) pursuant to
Amex Rule 1000B on an unlisted trading privileges
(‘‘UTP’’) basis. See also Securities Exchange Act
Release No. 53105 (January 11, 2006), 71 FR 3129
(January 19, 2006) (order approving listing and
trading of DB Commodity Index Tracking Fund).
16 Proposed Amex Rule 1502 for listing the Units
is substantially similar to current Amex Rule 1202A
relating to Commodity-Based Trust Shares. As set
forth in the section ‘‘Initial and Continued Listing’’
of proposed Amex Rule 1502, the minimum number
of Units required to be outstanding at the time of
trading will be 100,000. This section of the
proposed rule specifically details the initial and
continued listing standards for the Units.
17 Further information about the USOF is
provided in the USOF Notice, supra note 5.
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are traded on the NYMEX are the
world’s most liquid forum for crude oil
trading, as well as the most liquid
futures contracts on a physical
commodity. Due to the liquidity and
price transparency of Oil Futures
Contracts, they are used as a principal
international pricing benchmark. Oil
Futures Contracts for WTI light, sweet
crude oil trade on the NYMEX in units
of 1,000 U.S. barrels (42,000 gallons)
and, if not closed out before maturity,
will result in delivery of the oil to
Cushing, Oklahoma, which is also
accessible to the world market by two
major interstate petroleum pipeline
systems.18
Futures Regulation
The CEA 19 governs the regulation of
commodity interest transactions,
markets, and intermediaries. The CFTC
administers the CEA. Among other
things, the CEA provides that the
trading of commodity interest contracts
generally must be upon exchanges
designated as contract markets or
derivatives transaction execution
facilities and that all trading on those
exchanges must be done by or through
exchange members. Commodity interest
trading between sophisticated persons
may be traded on a trading facility not
regulated by the CFTC. As a general
matter, the Exchange states that trading
in spot contracts, forward contracts,
options on forward contracts or options
on commodities, or swap contracts
between eligible contract participants is
not within the jurisdiction of the CFTC
and may therefore be effectively
unregulated.
The Exchange states that non-U.S.
futures exchanges differ in certain
respects from their U.S. counterparts.
Importantly, non-U.S. futures exchanges
are not subject to regulation by the
CFTC, but rather are regulated by their
home country regulator. In contrast to
U.S. designated contract markets, some
non-U.S. exchanges are principals’
markets, where trades remain the
liability of the traders involved, and the
exchange or an affiliated clearing
organization, if any, does not become
substituted for any party. Due to the
absence of a clearing system, the
Exchange states that such exchanges are
significantly more susceptible to
disruptions. Further, participants in
such markets must often satisfy
themselves as to the individual
creditworthiness of each entity with
which they enter into a trade. Trading
on non-U.S. exchanges is often in the
18 In practice, few Oil Futures Contracts result in
delivery of the underlying oil.
19 7 U.S.C. 1 et seq.
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currency of the exchange’s home
jurisdiction. Consequently, USOF may
be subject to the additional risk of
fluctuations in the exchange rate
between such currencies and U.S.
dollars and the possibility that exchange
controls could be imposed in the future.
Investment Strategy
In connection with tracking the price
of the Benchmark Oil Futures Contract,
the General Partner will endeavor to
place USOF’s trades in Oil Futures
Contracts and Other Oil Interests and
otherwise manage USOF’s investments
so that ‘‘A’’ will be within ±10 percent
of ‘‘B’’, where:
• A is the average daily change in
USOF’s NAV for any period of 30
successive valuation days, i.e., any day
as of which USOF calculates its NAV;
and
• B is the average daily change in the
price of the Benchmark Oil Futures
Contract over the same period.
Therefore, USOF’s investment
objective is to manage its assets so that
the average daily change in the NAV for
any period of 30 successive valuation
days will be within 10% of the average
daily change in the price of the
Benchmark Oil Futures Contract over
the same period.20
The Exchange believes that market
arbitrage opportunities should cause
USOF’s Unit price to closely track
USOF’s per Unit NAV, which is targeted
at the current Benchmark Oil Futures
Contract. The price of the Benchmark
Oil Futures Contract has closely tracked
the spot price of WTI light, sweet crude
oil over time.21 Accordingly, the
General Partner expects that the price of
USOF’s Units on the Exchange will
closely track the spot price of a barrel
of WTI light, sweet crude oil, less
USOF’s expenses.
Investments
USOF believes that it will be able to
use a combination of Oil Futures
Contracts and Other Oil Interests to
manage the portfolio to achieve its
investment objective of tracking the
price of the Benchmark Oil Futures
Contract. USOF further anticipates that
the exact mix of Oil Futures Contracts
and Other Oil Interests held by the
portfolio will vary over time depending
on, among over things, the amount of
20 Telephone conversation between Jeffrey Burns,
Senior Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division,
Commission, and Johnna B. Dumler, Attorney,
Division, Commission, on February 13, 2006.
21 See Exhibit A attached to the Form 19b–4 filed
by the Exchange, showing the tracking of the
Benchmark Oil Futures Contract and the WTI spot
price.
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invested assets in the portfolio, price
movements of oil, the rules and
regulations of the various futures and
commodities exchanges and trading
platforms that deal in Oil Interests, and
innovations in the Oil Interests
marketplace including both the creation
of new Oil Interest investment vehicles
and the creation of new trading venues
that trade in Oil Interests.
USOF’s total portfolio composition
will be disclosed each business day that
the Amex is open for trading on its Web
site at https://
www.unitedstatesoilfund.com and/or
the Exchange’s Web site at https://
www.amex.com. USOF states that Web
site disclosure of portfolio holdings will
be made daily and will include, as
applicable, the name and value of each
Oil Interest, the specific types of Other
Oil Interests and characteristics of such
Other Oil Interests, Treasuries and
amount of cash held in the portfolio of
USOF.22
Oil Futures Contracts
The principal Oil Interests to be
invested in by USOF are Oil Futures
Contracts. In particular, USOF expects
to purchase futures on the WTI light,
sweet crude oil traded on the NYMEX.
USOF may also purchase futures on
Brent crude oil traded on NYMEX.23
Brent crude oil futures contracts are also
listed on the ICE Futures. In addition to
the commodities and futures exchanges
in New York and London, several other
established futures exchanges currently
offer, or have announced plans to offer,
trading in futures contracts on light,
medium, or heavy crude oils, including
exchanges in Singapore, Tokyo,
Shanghai and Dubai.24
As noted above, the NYMEX futures
contracts on WTI light, sweet crude oil
have historically closely tracked the
investment objective of USOF over both
22 See Amendment No. 1. The public Web site
disclosure of the portfolio composition of USOF
will coincide with the disclosure by the
Administrator on each business day of the NAV for
the Units and the Basket Amount (for orders placed
during the day). Therefore, the same portfolio
information will be provided on the public Web
site, as well as in the facsimile or electronic mail
message to Authorized Purchasers containing the
NAV and Basket Amount (‘‘Daily Dissemination’’).
The format of the public Web site disclosure and
the Daily Dissemination will differ because the
public Web site will list all portfolio holdings,
while the Daily Dissemination will provide the
portfolio holdings in a format appropriate for
Authorized Purchasers, i.e., the exact components
of a Creation Unit.
23 Brent crude oil is the price reference for twothirds of the world’s traded oil.
24 The Exchange has represented that the USOF
will only purchase Oil Futures Contracts on
markets where the Exchange has entered into the
appropriate comprehensive surveillance sharing
arrangements. See infra, note 53.
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the short-term, medium-term, and the
long-term.25 For that reason, USOF
anticipates making significant
investments in the current Benchmark
Oil Futures Contract. The General
Partner submits that Other Oil Futures
Contracts, such as the Brent crude oil
futures contract traded on the NYMEX
and ICE Futures, the Dubai crude oil
futures contract traded in Singapore and
elsewhere, and other NYMEX
petroleum-based futures contracts such
as heating oil and gasoline, have also
tended to track the investment objective
of USOF, though not as closely as the
NYMEX light, sweet crude (WTI) oil
futures contract.26
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Other Oil Interests
In addition to Oil Futures Contracts,
there are also a number of listed options
on Oil Futures Contracts on the
principal commodities and futures
exchanges. These option contracts offer
investors and hedgers another vehicle
for managing exposure to the crude oil
market. USOF may purchase oil-related
listed options on these exchanges in
pursuing its investment objective.
In addition to the Oil Futures
Contracts and related listed options,
there also exists an active OTC market
in derivatives linked to crude oil. These
OTC derivative transactions are
privately-negotiated agreements
between two parties. Unlike most of the
exchange-traded Oil Futures Contracts
or related options, each party to an OTC
contract bears the credit risk that the
counterparty may not be able to perform
its obligations.
Some oil-based derivatives
transactions contain fairly generic terms
and conditions and are available from a
wide range of participants. Other oilbased derivatives have highly
customized terms and conditions and
are not as widely available. Many of
these OTC contracts are cash-settled
forwards for the future delivery of oilor petroleum-based fuels that have
terms similar to the Oil Futures
Contracts. Others take the form of
‘‘swaps’’ in which the two parties
exchange cash flows based on predetermined formulas tied to the price of
oil as determined by the spot, forward,
or futures markets. USOF may enter into
OTC derivative contracts whose value
will be tied to changes in the difference
between the WTI spot price, the price of
Oil Futures Contracts traded on
25 See
supra note 21 and text accompanying note
12.
26 See Exhibit B attached to the Form 19b–4 filed
by the Exchange, tracking the NYMEX futures
contracts on light, sweet crude oil, heating oil,
natural gas and gasoline from November 17, 1995
to November 11, 2005.
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NYMEX, and the prices of non-NYMEX
Oil Futures Contracts that may be
invested in by USOF.
To protect itself from the credit risk
that arises in connection with such
contracts, USOF will enter into
agreements with each counterparty that
provide for the netting of its overall
exposure to its counterparty and/or
provide collateral or other credit
support to address USOF’s exposure.27
The counterparties to an OTC contract
will generally be major broker-dealers
and banks or their affiliates, though
certain institutions, such as large energy
companies or other institutions active in
oil commodities markets, may also be
counterparties. The creditworthiness of
each potential counterparty will be
assessed by the General Partner. The
General Partner will assess or review, as
appropriate, the creditworthiness of
each potential or existing counterparty
to an OTC contract pursuant to
guidelines approved by the General
Partner’s Board of Directors.
Furthermore, the General Partner on
behalf of USOF will only enter into OTC
contracts with (a) members of the
Federal Reserve System or foreign banks
with branches regulated by the Federal
Reserve Board; (b) primary dealers in
U.S. government securities; (c) brokerdealers; (d) commodities futures
merchants; or (e) affiliates of the
foregoing. Existing counterparties will
also be reviewed periodically by the
General Partner.
USOF anticipates that the use of
Other Oil Interests, together with its
investments in Oil Futures Contracts,
will produce price and total return
results that closely track the investment
objective of USOF.
Treasuries and Cash
USOF will invest virtually all of its
assets not invested in Oil Interests in
Treasuries, currently anticipated to be
those securities with a remaining
maturity of two years or less. The
Treasuries and any cash will be
available to be used to meet USOF’s
current or potential margin and
collateral requirements with respect to
its investments in Oil Interests. USOF
will not use Treasuries as margin for
new investments unless it has a
sufficient amount of Treasuries and cash
to meet the margin or collateral
27 The agreements published by the International
Swap and Derivatives Association (‘‘ISDA’’) and
used extensively in the OTC derivatives market
provides ‘‘netting’’ provisions. As discussed above,
USOF’s total portfolio composition will be
disclosed, each business day that the Amex is open
for trading, on its Web site at https://
www.unitedstatesoilfund.com and/or the
Exchange’s Web site at https://www.amex.com, with
a valuation assigned to these instruments.
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17513
requirements that may arise due to
changes in the value of its currently
held Oil Interests. Other than in
connection with a redemption of Units,
USOF does not intend to distribute cash
or property to its Unit holders. Interest
earned on Treasuries and cash held by
USOF will be retained by it to pay its
expenses, to make investments to satisfy
its investment objectives, or to satisfy its
margin or collateral requirements.
Impact of Speculative Position Limits
The CFTC and U.S. designated
contract markets, such as the NYMEX,
have speculative position limits or
position limits on the maximum net
long or net short speculative position
that any person or group of persons
under common trading control (other
than a hedger) may hold, own, or
control in commodity interests. Among
the purposes of speculative position
limits is to prevent a corner or squeeze
on a market or undue influence on
prices by any single trader or group of
traders.28
The foregoing speculative position
limits will impact the mix of
investments in Oil Interests by USOF,
with such mix varying depending on the
level of assets held by USOF. The
following example illustrates how the
mix will vary as assets increase,
assuming the spot price of WTI light,
sweet crude oil remains the same:
Assuming the spot price for WTI light,
sweet crude oil and the Unit price were
each $60, USOF anticipates that it
would invest the first $300 million of its
daily net assets only in Oil Futures
Contracts. The majority of those
contracts will consist of the current
Benchmark Oil Futures Contract. At this
level, USOF could purchase 5,000 of
such contacts or 25% of the NYMEX’s
speculative position limit for such
contracts. When daily net assets exceed
$300 million, USOF anticipates that it
will invest the majority of its assets
above that amount in the current
Benchmark Oil Futures Contract with
the balance of its net assets being
invested in a mix of other Oil Futures
Contracts, such as the Brent crude oil
futures contract traded on NYMEX or
the ICE Futures, and Other Oil Interests.
At this level, USOF anticipates that it
28 Most U.S. futures exchanges limit the amount
of fluctuation in some futures contracts or options
on futures contract prices during a single trading
session. These regulations specify what are referred
to as daily price fluctuation limits (i.e., daily limits).
The daily limits establish the maximum amount
that the price of a futures contract or options on a
futures contract may vary either up or down from
the previous day’s settlement price. Once the daily
limit has been reached in a particular futures
contract or options on a futures contract, no trades
may be made at a price beyond the limit.
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would also invest in various OTC
derivative contracts to hedge the shortterm price movements of Oil Futures
Contracts against the current Benchmark
Oil Futures Contract.
Once the daily net assets of the
portfolio exceed approximately $1.2
billion, USOF anticipates that a majority
of all further investments will be made
in Oil Futures Contracts, other than the
current Benchmark Oil Futures
Contract, and in Other Oil Interests.
USOF anticipates that once the daily
net assets of the portfolio exceed
approximately $2.4 billion, the ability of
the portfolio to invest in additional
current Benchmark Oil Futures
Contracts may be sharply limited due to
speculative position limit rules in effect
on the NYMEX. Assuming the current
Benchmark Oil Futures Contract is at
the same price level and half of the
USOF’s assets were then fully invested
in such contracts ($1.2 billion), the
current NYMEX position limits for such
contracts (20,000 contracts) would be
met. Under that scenario, all additional
investments above the $2.4 billion level
would be required to be invested in
other Oil Future Contracts and Other Oil
Interests. USOF anticipates that at or
above the $2.4 billion daily net asset
level, the majority of the total portfolio
holdings would be in other Oil Futures
Contracts or Other Oil Interests.
sroberts on PROD1PC70 with NOTICES
Issuance and Redemption of USOF
Units
There will be two markets for
investors to purchase and sell Units.
New issuances of the Units will be made
only in baskets of 100,000 Units or
multiples thereof (a ‘‘Basket’’). USOF
will issue and redeem Baskets of the
Units on a continuous basis by or
through participants who have entered
into authorized purchaser agreements
(‘‘Authorized Purchaser Agreement’’
and each such participant, an
‘‘Authorized Purchaser’’) 29 with the
General Partner, at the NAV per Unit
next determined after an order to
purchase the Units in a Basket is
received in proper form. Baskets may be
issued and redeemed on any Business
day (defined as any day other than a day
29 An ‘‘Authorized Purchaser’’ is a person, who at
the time of submitting to the General Partner an
order to create or redeem one or more Baskets: (i)
Is a registered broker-dealer or other market
participants, such as banks and other financial
institutions, that are exempt from broker-dealer
registration; (ii) is a DTC Participant; and (iii) has
in effect a valid Authorized Participant Agreement.
Telephone conversation between Jeffrey Burns,
Senior Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division,
Commission, and Johnna B. Dumler, Attorney,
Division, Commission, on February 13, 2006
(clarifying that the reference to ‘‘trustee’’ in this
sentence should be changed to ‘‘General Partner’’).
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Jkt 208001
on which the Amex, the NYMEX or the
New York Stock Exchange is closed for
regular trading) through the Marketing
Agent in exchange for cash and/or
Treasuries, which the Custodian
receives from Authorized Purchasers or
transfers to Authorized Purchasers, in
each case on behalf of USOF. Baskets
are then separable upon issuance into
identical Units that will be listed and
traded on the Exchange as equity
securities.30
Baskets will be issued in exchange for
Treasuries and/or cash in an amount
equal to the NAV per Unit times
100,000 Units (the ‘‘Basket Amount’’).
Authorized Purchasers that wish to
purchase a Basket must transfer the
Basket Amount to the Administrator
(the ‘‘Deposit Amount’’). Authorized
Purchasers that wish to redeem a Basket
will receive an amount of Treasuries
and cash in exchange for each Basket
surrendered in an amount equal to the
NAV per Basket (the ‘‘Redemption
Amount’’).
On each business day, the
Administrator will make available prior
to the opening of trading on the
Exchange, the estimated Basket Amount
for the creation of a Basket based on the
prior day’s NAV.31 The Exchange will
disseminate at least every 15 seconds
throughout the trading day, via the
facilities of the Consolidated Tape
Association (‘‘CTA’’), an amount
representing, on a per Unit basis, the
current indicative value of the Basket
Amount (See ‘‘Indicative Partnership
Value’’ below). Shortly after 4 p.m.
Eastern Time (‘‘ET’’), the Administrator
will determine the NAV for USOF as
described below. At or about 4 p.m. ET
on each business day, the Administrator
will determine the Actual Basket
Amount (‘‘Actual Basket Amount’’) for
orders placed by Authorized Purchasers
received before 12 p.m. ET that day.32
30 The Exchange expects that the number of
outstanding Units will increase and decrease as a
result of creations and redemptions of Baskets.
31 Amex clarified that it intended for this
sentence to indicate that the Administrator will
make available an ‘‘estimated’’ Basket Amount prior
to the opening of trading on the Exchange, rather
than the Actual Basket Amount (as described
below), which will not be available until shortly
after the close of trading on each business day.
Additionally, such information (NAV, Actual
Basket Amount, Estimated Basket Amount, daily
disclosure of portfolio holdings) will be available to
all market participants at the same time to avoid
any informational advantage. Telephone
conversation between Jeffrey Burns, Senior
Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division,
Commission, and Johnna B. Dumler, Attorney,
Division, Commission, on February 8, 2006.
32 See Amendment No. 2, supra note 4. See also
‘‘Calculation and Payment of Deposit Amount’’ and
‘‘Calculation and Payment of Redemption
Amount,’’ infra.
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Thus, although Authorized Purchasers
place orders to purchase Units during
the trading day until 12 p.m. ET, the
Actual Basket Amount is determined as
of 4 p.m. ET.
Shortly after 4 p.m. ET on each
business day, the Administrator, Amex,
and the General Partner will
disseminate the NAV for the Units and
the Actual Basket Amount (for orders
placed during the day). The Basket
Amount and the NAV are
communicated by the Administrator to
all Authorized Purchasers via facsimile
or electronic mail message. The Amex
will also disclose the NAV and the
Actual Basket Amount on its Web site
at https://www.amex.com.33 On each day
that the Amex is open for regular
trading, the Administrator will adjust
the Deposit Amount as appropriate to
reflect the prior day’s Partnership NAV
and accrued expenses. The
Administrator will then determine the
Deposit Amount for a given business
day.
Calculation of USOF’s NAV
The Administrator will calculate NAV
as follows: (1) Determine the current
value of USOF assets and (2) subtract
the liabilities of USOF. The NAV will be
calculated at 4 p.m. ET using the
settlement value 34 of Oil Futures
Contracts traded on the NYMEX as of
the close of open-outcry trading on the
NYMEX at 2:30 p.m. ET,35 and for the
value of other Oil Futures Interests and
Treasuries, the value of such
investments as of the earlier of 4 p.m.
ET or the close of trading on the New
York Stock Exchange. The NAV is
calculated by including any unrealized
profit or loss on Oil Futures Contracts
and other Oil Interests and any other
credit or debit accruing to USOF but
unpaid or not received by USOF. The
NAV is then used to compute all fees
(including the management and
administrative fees) that are calculated
from the value of Partnership assets.
The Administrator will calculate the
NAV per unit by dividing the NAV by
the number of Units outstanding.
When calculating NAV for USOF, the
Administrator will value Oil Futures
Contracts based on the closing
settlement prices quoted on the relevant
commodities and futures exchange and
obtained from various market data
33 See
supra, note 32.
Rule 6.52 of the NYMEX Rulebook.
35 Telephone conversation between Jeffrey Burns,
Senior Associate General Counsel, Amex, Florence
Harmon, Senior Special Counsel, Division,
Commission, and Johnna B. Dumler, Attorney,
Division, Commission, on February 8, 2006.
34 See
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vendors such as Bloomberg or Reuters.36
The value of the Other Oil Interests for
purposes of determining the NAV will
be valued based upon the determination
of the Administrator as to their fair
market value. Certain types of Other Oil
Interests, such as listed options on
futures contracts, have closing prices
that are available from the exchange
upon which they are traded or from
various market data vendors. If available
from an exchange, Other Oil Interests
will be valued based on the last sale
price on the exchange or market where
traded. If a contract fails to trade, the
value shall be the most recent bid
quotation from the third-party source.
Other types of Other Oil Interests,
such as crude oil forward contracts do
not trade on established exchanges, but
typically have prices that are widely
available from third-party sources. The
Administrator may make use of such
third-party sources in calculating a fair
market value of these Other Oil
Interests.
Certain types of Other Oil Interests,
such as ‘‘swaps,’’ also do not have
established exchanges upon which they
trade and may not have readily available
price quotes from third parties. Swaps
and other similar derivative or
contractual-type instruments will be
first valued at a price provided by a
single broker or dealer, typically the
counterparty. If no such price is
available, the contract will be valued at
the price at which the counterparty to
such contract would repurchase the
instrument or terminate the contract. In
determining the fair market value of
such derivative contracts, the
Administrator may make use of quotes
from other providers of similar
derivatives. If these are not available,
the Administrator may calculate a fair
market value of the derivative contract
based on the terms of the contract and
the movement of the underlying price
factors of the contract.
sroberts on PROD1PC70 with NOTICES
Calculation and Payment of the Deposit
Amount
The Deposit Amount of Treasuries
and cash will be in the same proportion
to the total net assets of USOF as the
number of Units to be created is in
proportion to the total number of Units
outstanding. The General Partner will
determine the requirements for the
Treasuries that may be included in the
Deposit Amount and will disseminate
these requirements prior to the start of
each business day. The amount of cash
36 The Amex confirmed that the pricing for the
NAV also will be derived from the NYMEX futures
contract nearest to settlement (spot month) for WTI
light, sweet crude.
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19:52 Apr 05, 2006
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that is required is the difference
between the aggregate market value of
the Treasuries required to be included
in the Deposit Amount as of 4 p.m. ET
on the date of purchase and the total
required deposit.
All purchase orders must be received
by the Marketing Agent by 12 p.m. ET.
Delivery of the Deposit Amount, i.e.,
Treasuries and cash, to the
Administrator must occur by the third
Business day following the purchase
order date.37 Thus, the General Partner
will disseminate shortly after 4 p.m. ET
the amount of Treasuries and cash to be
deposited with the Custodian for each
Basket (100,000 Units) order properly
submitted by Authorized Purchasers by
12 p.m. ET that business day, (e.g., the
Actual Basket Amount).
Calculation and Payment of the
Redemption Amount
The Units will not be individually
redeemable but will only be redeemable
in Baskets. To redeem, an Authorized
Purchaser will be required to
accumulate enough Units to constitute a
Basket (i.e., 100,000 Units). An
Authorized Purchaser redeeming a
Basket will receive the Redemption
Amount.
Upon the surrender of the Units and
payment of applicable redemption
transaction fee,38 taxes or charges, the
Custodian will deliver to the redeeming
Authorized Purchaser the Redemption
Amount. The Redemption Amount of
Treasuries and cash will be in the same
proportion to the total net assets of
USOF as the number of Units to be
redeemed is in proportion to the total
number of Units outstanding. The
General Partner will determine the
Treasuries to be included in the
Redemption Amount. The amount of
cash that is required is the difference
between the aggregate market value of
the Treasuries required to be included
in the Redemption Amount calculated
as of 4:00 p.m. ET on the date of
redemption and the total Redemption
Amount. All redemption orders must be
received by the Marketing Agent by
12:00 p.m. ET on the date redemption
is requested. Delivery of the Basket to be
redeemed to the Custodian and payment
of Redemption Amount will occur by
the third business day (T+3) following
the redemption order date.
The Exchange believes that the Units
will not trade at a material discount or
premium to a Unit’s NAV based on
37 Authorized
Purchasers are required to pay a
transaction fee of $1,000 for each order to create one
or more Baskets.
38 Authorized Purchasers are required to pay a
transaction fee of $1,000 for each order to redeem
one or more Baskets.
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17515
potential arbitrage opportunities. Due to
the fact that the Units can be created
and redeemed only in Baskets at the
NAV, the Exchange submits that
arbitrage opportunities should provide a
mechanism to mitigate the effect of any
premiums or discounts that may exist
from time to time.
Dissemination and Availability of
Information
Oil Futures Contracts
The daily settlement prices for the
NYMEX traded Oil Futures Contracts
held by USOF are publicly available on
the NYMEX Web site at https://
www.nymex.com. The Exchange’s Web
site at https://www.amex.com will also
include a hyperlink to the NYMEX Web
site for the purpose of disclosing futures
contract pricing. In addition, various
market data vendors and news
publications publish futures prices and
related data. The Exchange represents
that quote and last sale information for
the Oil Futures Contracts are widely
disseminated through a variety of
market data vendors worldwide,
including Bloomberg and Reuters. Thus,
last sale information for the Benchmark
Oil Futures Contract will be updated
and disseminated at least every 15
seconds in accordance with the
continued listing standards by one or
more major market data vendors during
the time the Units trade on Amex.39
From 2:30 p.m. ET to the opening of
NYMEX ACCESS at 3:15 p.m. ET, the
pricing for the Benchmark Oil Futures
Contract will not be updated. The
Exchange further represents that realtime futures data is available by
subscription from Reuters and
Bloomberg. The NYMEX also provides
delayed futures information on current
and past trading sessions and market
news free of charge on its Web site. The
specific contract specifications for the
Oil Futures Contracts are also available
on the NYMEX Web site and the ICE
Futures Web site at https://www.the
ice.com.
USOF Units
The Web site for USOF, which will be
publicly accessible at no charge, will
include the following information: (1)
The prior business day’s NAV and the
reported closing price; (2) the mid-point
of the bid-ask price 40 in relation to the
NAV as of the time the NAV is
calculated (the ‘‘Bid-Ask Price’’); (3)
39 Telephone conversation between Florence E.
Harmon, Senior Special Counsel, Division,
Commission, and Cliff Weber, Senior Vice
President, Amex, on March 24, 2006.
40 The Bid-Ask Price of Units is determined using
the highest bid and lowest offer as of the time of
calculation of the NAV.
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calculation of the premium or discount
of such price against such NAV; (4) 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;
(5) the prospectus and the most recent
periodic reports filed with the
Commission or required by the CFTC;
and (6) other applicable quantitative
information. In addition, information on
USOF’s daily portfolio holdings will be
available on its Web site at https://
www.unitedstatesoilfund.com and will
be equally accessible to investors and
Authorized Purchasers.41
As described above, the NAV for
USOF will be calculated and
disseminated daily. The Amex also
intends to disseminate for USOF on a
daily basis by means of CTA/CQ High
Speed Lines information with respect to
the Indicative Partnership Value (as
discussed below), recent NAV, Units
outstanding, the estimated Basket
Amount and the Deposit Amount (e.g.,
the Actual Basket Amount). The
Exchange will also make available on its
Web site daily trading volume, closing
prices and the NAV. The closing price
and settlement prices of the Oil Futures
Contracts held by USOF are also readily
available from the NYMEX, automated
quotation systems, published or other
public sources, or on-line information
services such as Bloomberg or Reuters.
In addition, the Exchange will provide
a hyperlink on its Web site at https://
www.amex.com to USOF’s Web site.
sroberts on PROD1PC70 with NOTICES
Indicative Partnership Value
The Exchange will disseminate
through the facilities of the CTA an
updated Indicative Partnership Value
(the ‘‘Indicative Partnership Value’’) per
Unit basis at least every 15 seconds
during the regular Amex trading hours
of 9:30 a.m. to 4:15 p.m. ET. The
Indicative Partnership Value will be
calculated based on the Treasuries and
cash required for creations and
redemptions (i.e., NAV per limit x
100,000) adjusted to reflect the price
changes of the current Benchmark Oil
Futures Contract.
The Indicative Partnership Value will
not reflect price changes to the price of
the current Benchmark Oil Futures
Contract between the close of openoutcry trading of these oil futures
contract on the NYMEX at 2:30 p.m. ET
and the open of trading on the NYMEX
ACCESS market at 3:15 p.m. ET.42 The
41 See
Amendment No. 1, supra note 3.
ACCESS(r), an electronic trading
system, is open for price discovery on the NYMEX
light, sweet crude oil futures contract each Monday
42 NYMEX
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Indicative Partnership Value after 3:15
p.m. ET will reflect changes to the
current Benchmark Oil Futures Contract
as provided for through NYMEX
ACCESS. The value of a Unit may
accordingly be influenced by the nonconcurrent trading hours of the Amex
and NYMEX. While the Units will trade
on the Amex from 9:30 a.m. to 4:15 p.m.
ET, the current Benchmark Oil Futures
Contract will trade, in open-outcry, on
the NYMEX from 10:00 a.m. ET to 2:30
p.m. ET and NYMEX ACCESS from 3:15
p.m. ET through the following morning
9:30 a.m. ET.
The Exchange represents that while
the NYMEX (open outcry) is open for
trading, the Indicative Partnership
Value can be expected to closely
approximate the value per unit of the
Basket Amount. However, during Amex
trading hours when the Oil Futures
Contracts have ceased trading, spreads
and resulting premiums or discounts
may widen, and therefore, increase the
difference between the price of the
Units and the NAV of the Units. The
Exchange believes that dissemination of
the Indicative Partnership Value based
on the cash amount required for a
Basket provides additional information
that is not otherwise available to the
public and is useful to professionals and
investors in connection with the Units
trading on the Exchange or the creation
or redemption of the Units.
Criteria for Initial and Continued
Exchange Listing
USOF will be subject to the criteria in
proposed Amex Rule 1502 for initial
and continued listing of the Units.
These continued listing criteria provide
for the delisting or removal from listing
of the Units under any of the following
circumstances:
• Following the initial twelve month
period from the date of commencement
of trading of the Units: (i) If USOF has
more than 60 days remaining until
termination and there are fewer than 50
record and/or beneficial holders of the
Units for 30 or more consecutive trading
days; (ii) if USOF has fewer than 50,000
Units issued and outstanding; or (iii) if
the market value of all Units issued and
outstanding is less than $1,000,000.
• If the value of the underlying spot
commodity or Oil Futures Contract is no
longer calculated or available on at least
a 15-second delayed basis or the
Exchange stops providing a hyperlink
on its Web site to any such investment
commodity or asset value.
through Thursday at 3:15 p.m. ET through the
following morning at 9:30 a.m. ET, and from 7:00
p.m. Sunday night until Monday morning 9:30 a.m.
ET.
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• The Indicative Partnership Value is
no longer made available on at least a
15-second delayed basis.
• If such other event shall occur or
condition exists which in the opinion of
the Exchange makes further dealings on
the Exchange inadvisable.
A minimum of 100,000 Units will be
required to be outstanding at the start of
trading.43 It is anticipated that the initial
price of a Unit will be approximately
$67.00 based upon the WTI light, sweet
crude oil spot price on March 30,
2006.44 USOF expects that the initial
Authorized Purchaser will purchase the
initial Basket of 100,000 Units at the
initial offering price per Unit equal to
the closing price of the expiration
month light, sweet crude (WTI) oil
futures contract listed on the NYMEX
on the first Business day prior to the
launch date. On the date of the public
offering and thereafter, USOF will
continuously issue Units in Baskets of
100,000 Units to Authorized Purchasers
at NAV. The Exchange believes that the
anticipated minimum number of Units
outstanding at the start of trading is
sufficient to provide adequate market
liquidity and to further USOF’s
objective to seek to provide a simple
and cost effective means of accessing
the commodity futures markets.
The Exchange represents that it
prohibits the initial and/or continued
listing of any security that is not in
compliance with Rule 10A–3 under the
Act.45
Original and Annual Listing Fees
The Amex original listing fee
applicable to the listing of USOF is
$5,000. In addition, the annual listing
fee applicable under Section 141 of the
Amex Company Guide will be based on
the year-end aggregate number of Units
in all series of USOF outstanding at the
end of each calendar year.
Trading Rules
The Units 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
43 Telephone conversation between Florence E.
Harmon, Senior Special Counsel, Division,
Commission, and Cliff Weber, Senior Vice
President, Amex, on March 29, 2006.
44 Telephone conversation between Jeffrey Burns,
Associate General Counsel, Amex, and Florence E.
Harmon, Senior Special Counsel, Division,
Commission, on March 31, 2006. As of March 30,
2006, the settlement spot price was $67.15 for a
barrel of oil. The exact price of a Unit will be
determined on the date of launch. Id.
45 The Exchange represents that the listed issuer
of the USOF Units qualifies for the exemption in
Rule 10A–3(c)(7) of the Act.
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and customer suitability (Amex Rule
411). Initial equity margin requirements
of 50% will apply to transactions in the
Units. Units will trade on the Amex
until 4:15 p.m. ET each business day
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.
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 priced
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 Units as eligible for this
treatment.46
The Units 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 Units
made in connection with the creation
and redemption of Units will not be
subject to the prohibitions of Amex Rule
190, which generally prohibits business
transactions between a specialist (or its
member organization) and a company
(or its officers, directors, or 10%
stockholder) in which the specialist is
registered.47 Unless exemptive or noaction relief is available, the Units will
be subject to the short sale rule, Rule
10a–1 under the Act and Regulation
SHO.48 If exemptive or no-action relief
is provided, the Exchange will issue a
notice detailing the terms of the
exemption or relief. The Units 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 Units into parity with
the underlying commodity or
commodities and/or futures contract
price. Commentary .01 to Amex Rule
sroberts on PROD1PC70 with NOTICES
46 See
Securities Exchange Act Release No. 29063
(April 10, 1991), 56 FR 15652 (April 17, 1991) at
note 8, regarding the Exchange’s designation of
equity derivative securities as eligible for such
treatment under Amex Rule 154, Commentary
.04(c).
47 See Commentary .05 to Amex Rule 190.
48 USOF expects to seek relief, in the near future,
from the Commission in connection with the
trading of the Units from the operation of the short
sale rule, Rule 10a–1 under the Act, no-action relief
from Regulation SHO, and other no-action or
exemptive relief from the Act.
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19:52 Apr 05, 2006
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1503 sets forth this limited exception to
Amex Rule 170.
The Amex proposes Rule 1503 to
address potential conflicts of interest in
connection with acting as a specialist in
the Units. Specifically, Amex Rule 1503
provides that the prohibitions in Amex
Rule 175(c) apply to a specialist in the
Units 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
Units on another market center, in the
underlying asset, related futures or
options or any other related derivative.
Amex Rule 1504(a) provides that the
member organization acting as specialist
in the Units is obligated to conduct all
trading in the Units in its specialist
account, subject to only the ability to
have one or more investment accounts,
all of which must be reported to the
Exchange (See Rule 170).
Moreover, Amex Rule 1504(b)
requires that the specialist in the Units
make available to the Exchange
information relating to its transactions
or the transactions of any member,
member organization, limited partner,
officer or approved person thereof,
registered or non-registered employee
affiliated with such entity for its or their
own accounts in the underlying
physical asset or commodity, related
futures or options on futures, or any
other related derivatives.49 Finally,
Amex Rule 1504(c) prohibits the
specialist registered as such in the Units
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 physical asset or
commodity, futures or options on
futures, or any other related derivatives.
Trading Halts
Prior to the commencement of
trading, the Exchange will issue an
Information Circular (described below)
49 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.
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17517
to members informing them of, among
other things, Exchange policies
regarding trading halts in the Units.
First, the Information 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
Information Circular will advise that, in
addition to the parameters set forth in
Amex Rule 117, the Exchange will halt
trading in the Units if trading in the
current Benchmark Oil Futures Contract
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
represents that it will cease trading the
Units if the conditions in Amex Rule
1202(d)(2)(ii) or (iii) exist (i.e., if there
is a halt or disruption in the
dissemination of the Indicative
Partnership Value and/or underlying
Benchmark Futures Contract (spot
commodity) value).50
Information Circular
The Amex will distribute an
Information Circular to its members in
connection with the trading of the
Units. The Information Circular, will
discuss the special characteristics of and
risks of trading in the Units.
Specifically, the Information Circular,
among other things, will discuss what
the Units are, how a basket is created
and redeemed, the requirement that
members and member firms deliver a
prospectus to investors purchasing
newly issued Units prior to or
concurrently with the confirmation of a
transaction, applicable Amex rules,
dissemination information regarding the
per unit Indicative Partnership Value,
trading information and applicable
suitability rules. The Information
Circular will also explain that USOF 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, that
the Commission has no jurisdiction over
the trading of WTI light, sweet crude oil,
Brent crude oil, heating oil, gasoline,
50 In the event the Benchmark Oil Futures
Contract value or Indicative Partnership 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,
Florence Harmon, Senior Special Counsel, Division,
Commission and Johnna B. Dumler, Attorney,
Division, Commission on February 8, 2006.
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natural gas or other petroleum-based
fuels, that the CFTC has regulatory
jurisdiction over the trading of oil-based
futures contracts and related options,
and that trading in certain OTC
commodity based derivatives is not
within the jurisdiction of the CFTC and
may therefore be effectively
unregulated.51
The Information Circular will inform
members and member organizations,
prior to commencement of trading, of
the prospectus delivery requirements
applicable to USOF. The Exchange
notes that investors purchasing Units
directly from USOF (by delivery of the
Deposit Amount) will receive a
prospectus. Amex members purchasing
Units from USOF for resale to investors
will deliver a prospectus to such
investors.
The Information Circular will also
notify members and member
organizations about the procedures for
purchases and redemptions of Units in
Baskets, and that Units are not
individually redeemable but are
redeemable only in Baskets or multiples
thereof.
The Information Circular will advise
members of their suitability obligations
with respect to recommended
transactions to customers in the Units
pursuant to Amex Rule 411. The
Information Circular will also discuss
any exemptive or no-action relief, if
granted, by the Commission or the staff
from any rules under the Act. The
Information Circular will disclose that
the NAV for Units will be calculated
shortly after 4:00 p.m. ET each trading
day.
sroberts on PROD1PC70 with NOTICES
Surveillance
The Exchange submits that its
surveillance procedures are adequate to
deter and detect violations of Exchange
rules relating to the trading of the units.
The surveillance procedures for the
Units will be similar to those used for
the iShares() COMEX Gold Trust and
the streetTRACKS() Gold Trust Shares,
as well as other TIRs and exchangetraded funds. In addition, the
surveillance procedures will incorporate
and rely on existing Amex surveillance
procedures governing options and
equities.52
The Exchange currently has in place
a comprehensive surveillance sharing
agreement with the NYMEX for the
purpose of providing information in
connection with trading in or related to
51 Telephone conversation between Jeffrey Burns,
Senior Associate General Counsel, Amex, and
Florence Harmon, Senior Special Counsel, Division,
Commission, on March 31, 2006.
52 Proposed Rule 1504 will aid the Exchange in
conducting appropriate surveillance.
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19:52 Apr 05, 2006
Jkt 208001
futures contracts traded on the NYMEX.
In addition, the Exchange has entered
into a comprehensive surveillance
sharing arrangement with ICE Futures
for the purpose of providing information
in connection with the trading in or
related to futures contracts traded on the
ICE Futures. To the extent that USOF
invests in Oil Interests traded on other
exchanges, the Amex will enter into
comprehensive surveillance sharing
arrangements, acceptable to the
Commission staff, with those particular
exchanges.53
III. 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.54 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,55 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 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
comprehensive surveillance sharing
agreements with the NYMEX and ICE
Futures for the purpose of providing
information in connection with trading
in or related to futures contracts traded
on the NYMEX and the ICE Futures
create the basis for the Amex to monitor
for fraudulent and manipulative
practices in the trading of the Units.
Should the USOF invest in oil
derivatives traded on markets such as
the Singapore Oil Market, the Exchange
represents that it will file a proposed
53 In such event, the Exchange will file a
proposed rule change pursuant to Rule 19b–4 of the
Act, indicating such surveillance arrangements.
Telephone conversation between Jeffrey Burns,
Senior Associate General Counsel, Amex, and
Florence Harmon, Senior Special Counsel, Division,
Commission, on March 29, 2006. See also USOF
Notice, supra note 5, at n.14.
54 In approving this proposed rule change, the
Commission notes that it has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
55 15 U.S.C. 78f(b)(5).
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rule change pursuant to Section 19(b) of
the Act, seeking Commission approval
of the Exchange’s surveillance
arrangement with such market.
Moreover, Amex Rule 1504(b)
requires that specialists handling the
Units provide the Exchange with
necessary information relating to its
transactions and the trading activities of
any member, member organization,
limited partner, officer or approved
person thereof, registered or nonregistered employee affiliated with such
entity in the underlying physical assets
or commodities, related futures
contracts and options thereon or any
other derivative. Furthermore, Amex
Rule 1504(c) prohibits the specialist
registered as such in the Units 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 physical asset or
commodity, futures or options on
futures, or any other related derivatives.
The Commission believes that these
rules provide the Amex with the tools
necessary to adequately surveil trading
in the Units.
B. Dissemination of Information
The Commission believes that
sufficient venues exist for obtaining
reliable information so that investors in
the Units can monitor the underlying
Benchmark Oil Futures Contract market
relative to the NAV of their Units. There
is a considerable amount of oil futures
contract price and information available
through public Web sites and
professional subscription services,
including Bloomberg and Reuters. Other
than from 2:30 p.m. to 3:15 p.m. ET,
quote and last sale information for the
Benchmark Oil Futures Contract will be
updated and disseminated at least every
15 seconds, in accordance with the
continued listing standards, by one or
more major market data vendors during
the time the Units trade on Amex. In
addition, the daily settlement prices for
the NYMEX traded Oil Futures
Contracts held by USOF are publicly
available on the NYMEX Web site at
(https://www.nymex.com) and various
market data vendors, and news
publications publish futures prices and
related data. The NYMEX also provides
delayed futures information on current
and past trading sessions and market
news free of charge on its Web site.
The Commission further notes that
the Web site for USOF, which will
publicly accessible at no charge, will
contain the following information: (1)
The prior business day’s NAV and the
reported closing price; (2) the mid-point
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Federal Register / Vol. 71, No. 66 / Thursday, April 6, 2006 / Notices
of the bid-ask price 56 in relation to the
NAV as of the time the NAV is
calculated (the ‘‘Bid-Ask Price’’); (3)
calculation of the premium or discount
of such price against such NAV; (4) 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;
(5) the prospectus and the most recent
periodic reports filed with the
Commission or required by the CFTC;
and (6) other applicable quantitative
information. In addition, information on
USOF’s daily portfolio holdings will be
available on its Web site at (https://
www.unitedstatesoilfund.com) and will
be equally accessible to investors and
Authorized Purchasers.
In addition, the NAV for the USOF
will be calculated and disseminated on
a daily basis. The Exchange represents
that it intends to disseminate for USOF
on a daily basis by means of CTA/CQ
High Speed Lines information with
respect to the Indicative Partnership
Value, recent NAV, Units outstanding,
the estimated Basket Amount and the
Actual Basket Amount. The Exchange
will also make available on its Web site
(https://www.amex.com) daily trading
volume, closing prices and the NAV.
The Commission believes that the wide
availability of information about the
Units the Oil Futures Contracts held by
the USOF and NAV will facilitate
transparency with respect to the
proposed Units and diminish the risk of
manipulation or unfair informational
advantage.
sroberts on PROD1PC70 with NOTICES
C. Listing and Trading
The Commission finds that the
Exchange’s proposed rules and
procedures for the listing and trading of
the proposed Units are consistent with
the Act. The Units 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 Units should
help to maintain a minimum level of
liquidity and therefore minimize the
potential for manipulation of the Units.
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
56 The Bid-Ask Price of Units is determined using
the highest bid and lowest offer as of the time of
calculation of the NAV.
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19:52 Apr 05, 2006
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17519
Units, including their prospectus
delivery obligations.
Chicago Board Options Exchange, Inc.
IV. Conclusion
Margins
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act, that the
proposed rule change (SR–Amex–2005–
127), as amended, be, and it hereby is,
approved.
Rule 12.4. Portfolio Margin for Index
and Equity Options, and Cross-Margin
for Index Options
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.57
Nancy M. Morris,
Secretary.
[FR Doc. E6–4971 Filed 4–5–06; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–53576; File No. SR–CBOE–
2006–14]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of
Proposed Rule Change Relating to
Customer Portfolio Margining
Requirements
March 30, 2006.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Exchange Act’’ or ‘‘Act’’),1 and Rule
19b–4 thereunder,2 notice is hereby
given that on February 2, 2006, the
Chicago Board Options Exchange,
Incorporated (‘‘CBOE’’ or the
‘‘Exchange’’) filed with the Securities
and Exchange Commission (the
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
CBOE is proposing to broaden its Rule
12.4—Portfolio Margin and CrossMargin for Index Options—to allow
portfolio margining of listed equity
options, narrow-based index options,
and security futures, as well as certain
OTC instruments. The text of the
proposed rule change is below.
Additions are in italics. Deletions are in
brackets.
*
*
*
*
*
57 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Chapter XII
As an alternative to the transaction /
position specific margin requirements
set forth in Rule 12.3 of this Chapter 12,
members may require margin for listed[,
broad-based U.S.] index and equity
options (defined below as a ‘‘listed
option’’), options on exchange traded
funds, security futures products, index
warrants, [and] underlying instruments
and unlisted derivatives (as defined
below) in accordance with the portfolio
margin requirements contained in this
Rule 12.4.
In addition, members, provided they
are a Futures Commission Merchant
(‘‘FCM’’) and are either a clearing
member of a futures clearing
organization or have an affiliate that is
a clearing member of a futures clearing
organization, are permitted under this
Rule 12.4 to combine a customer’s
related instruments (as defined below),
listed index options, options on
exchange traded funds [and listed,
broad-based U.S. index options], index
warrants, [and ]underlying instruments
and unlisted derivatives and compute a
margin requirement (‘‘cross-margin’’) on
a portfolio margin basis. Members must
confine cross-margin positions to a
portfolio margin account dedicated
exclusively to cross-margining.
Application of the portfolio margin
and cross-margining provisions of this
Rule 12.4 to IRA accounts is prohibited.
(a) Definitions.
(1) The term ‘‘listed option’’ shall
mean any option traded on a registered
national securities exchange or
automated facility of a registered
national securities association.
(2) The term ‘‘security future’’ means
a contract of sale for future delivery of
a single security or of a narrow-based
security index, including any interest
therein or based on the value thereof, to
the extent that that term is defined in
Section 3(a)(55) of the Securities
Exchange Act of 1934.
(3) The term ‘‘security futures
product’’ means a security future, or an
option on any security future.
([2]4) The term ‘‘unlisted
derivative[option]’’ means any equitybased (or equity index-based) unlisted
option, forward contract or swap that
can be priced by a model approved by
a ‘‘DEA’’ covering the same underlying
instrument[ not included in the
definition of listed option].
E:\FR\FM\06APN1.SGM
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]]>Agencies
[Federal Register Volume 71, Number 66 (Thursday, April 6, 2006)]
[Notices]
[Pages 17510-17519]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-4971]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-53582; File No. SR-Amex-2005-127]
Self-Regulatory Organizations; American Stock Exchange LLC; Order
Approving Proposed Rule Change and Amendment Nos. 1 and 2 Thereto
Relating to the Listing and Trading of Units of the United States Oil
Fund, LP
March 31, 2006.
I. Introduction
On December 6, 2005, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change pursuant to Section 19(b)(1)
of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4
thereunder.\2\ On January 20, 2006, the Exchange filed Amendment No. 1
to the proposed rule change.\3\ On February 15, 2006, the Exchange
filed Amendment No. 2 to the proposed rule change.\4\ The proposed rule
change, as amended by Amendment Nos. 1 and 2, was published for comment
in the Federal Register on February 24, 2006.\5\ The Commission
received no comments on the proposal. This order approves the proposed
rule change, as amended by Amendment Nos. 1 and 2.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Partial Amendment dated, January 20, 2006 (``Amendment
No. 1''). In Amendment No. 1, the Amex made clarifying changes to
the ``purpose'' section of the proposed rule change.
\4\ See Partial Amendment dated, February 15, 2006 (``Amendment
No. 2''), which made technical and clarifying changes to the
``purpose'' section of the proposed rule change.
\5\ See Securities Exchange Act Release No. 53324 (February 16,
2006), 71 FR 9614 (February 24, 2006)(``USOF Notice'').
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II. Description of the Proposal
The Exchange proposes to add new Rules 1500 et seq. to permit the
listing and trading of units in a partnership that is a commodity pool
under the
[[Page 17511]]
Commodity Exchange Act (``CEA'') \6\ that are designed to track a
specified commodity or index of commodities by holding any combination
of investments (i) comprised of or based on futures contracts, options
on futures contracts, forward contracts, swaps, and over-the-counter
(``OTC'') contracts for commodities or based on price changes in
commodities, and (ii) in securities that may be required to satisfy
margin or collateral requirements associated with investments in the
financial instruments listed in item (i) above. Pursuant to these
proposed rules, the Amex proposes to list and trade units (the
``Units'') of the United States Oil Fund, LP (``USOF'' or the
``Partnership''). The Units represent ownership of a fractional
undivided beneficial interest in the net assets of USOF.
---------------------------------------------------------------------------
\6\ The offering of the Units of the Partnership is registered
with the Commission under the Securities Act of 1933.
---------------------------------------------------------------------------
USOF, a Delaware limited partnership, is a commodity pool.\7\ It is
operated by Victoria Bay Asset Management, LLC, a single member
Delaware limited liability company (the ``General Partner'' or
``Victoria Bay''), which is wholly owned by Wainwright Holdings, Inc.
The General Partner was formed for the specific purpose of managing and
controlling USOF and has registered as a Commodity Pool Operator
(``CPO'') with the Commodity Futures Trading Commission (``CFTC'') and
become a member of the National Futures Association (``NFA'').\8\
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\7\ The Exchange states that USOF is not an investment company
as defined in Section 3(a) of the Investment Company Act of 1940.
\8\ Telephone conversation between Jeffrey Burns, Senior
Associate General Counsel, Amex, Florence Harmon, Senior Special
Counsel, Division of Market Regulation (``Division''), Commission,
and Johnna B. Dumler, Attorney, Division, Commission, on February
15, 2006. Additional information about the management and structure
of USOF is found in the USOF Notice, supra note 5.
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The investment objective of the USOF is for its net asset value
(``NAV'') \9\ to reflect the performance of the spot price of West
Texas Intermediate light, sweet crude oil delivered to Cushing,
Oklahoma (the ``WTI light, sweet crude oil''),\10\ as represented by
the performance of the price of the ``Benchmark Oil Futures Contract,''
\11\ less the expense of operation of USOF. The ``Benchmark Oil Futures
Contract'' is the near-month (i.e., spot month) future contract for
delivery of WTI light, sweet crude oil traded on the New York
Mercantile Exchange (``NYMEX'').\12\ The Exchange states that an
investment in the Units will allow both retail and institutional
investors to easily gain exposure to the crude oil market in a cost-
effective manner.
---------------------------------------------------------------------------
\9\ NAV is the total assets, less total liabilities of USOF,
determined on the basis of generally accepted accounting principles.
NAV per Unit is the NAV of USOF divided by the number of outstanding
Units.
\10\ The types of crude oil are typically described by a
combination of their physical attributes and their place of origin.
A few of these types of crude oil are widely traded and their prices
serve as benchmarks in determining the spot and forward prices of
the other types of crude oil. The three most important types of
crude oil that are used as benchmarks are the light, sweet crude
from the United States known as ``West Texas Intermediate,'' a
light, sweet crude from Europe's North Sea known as ``Brent Crude,''
and a medium crude oil from the Middle East known as ``Dubai
Crude.'' These three types of crude oil are the ones used most
frequently in the trading of listed futures contracts, listed
options, and non-exchange listed derivative contracts based on crude
oil.
\11\ Telephone conversation between Florence E. Harmon, Senior
Special Counsel, Division, Commission, and Cliff Weber, Senior Vice
President, Amex, on March 24, 2006.
\12\ The Exchange will file a Form 19b-4 to obtain Commission
approval for the continued listing and trading of the Units should
the General Partner change the Benchmark Oil Futures Contract from
this NYMEX WTI light, sweet crude oil futures contract. Telephone
conversation between Jeffrey Burns, Senior Associate General
Counsel, Amex, Florence Harmon, Senior Special Counsel, Division,
Commission, and Johnna B. Dumler, Attorney, Division, Commission, on
February 13, 2006.
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The assets of USOF will consist of futures contracts for light,
sweet crude oil and other petroleum based fuels that are traded on the
NYMEX or other U.S. and foreign exchanges \13\ (collectively, ``Oil
Futures Contracts''). USOF will also purchase other oil interests, such
as cash-settled options on Oil Futures Contracts, forward contracts for
oil, and OTC transactions that are based on the price of oil, other
petroleum-based fuels, and indices based on the foregoing
(collectively, ``Other Oil Interests'') (Oil Futures Contracts and
Other Oil Interests are collectively referred to as ``Oil Interests.'')
The Oil Interests for light, sweet crude oil and other petroleum based
fuels in which USOF will invest are based on domestic oil, (WTI light,
sweet crude), international oil (Brent Crude Oil), heating oil, natural
gas, and gasoline. A description of these commodities and the primary
trading market for futures contracts based on such commodities is set
out in the USOF Notice.\14\
---------------------------------------------------------------------------
\13\ USOF will primarily purchase WTI light, sweet crude Oil
Futures Contracts traded on the NYMEX, but may also purchase Oil
Futures Contracts on other exchanges, including the Intercontinental
Exchange, formerly known as the International Petroleum Exchange,
which operates its futures business through ICE Futures (``ICE
Futures''), and the Singapore Oil Exchange.
\14\ See USOF Notice, supra note 5.
---------------------------------------------------------------------------
USOF will also invest in short term obligations of the United
States Government (``Treasuries'') to be used to satisfy its current or
future margin and collateral requirements and to otherwise satisfy its
obligations with respect to its investments in Oil Interests.
Commodity-Based Trust Shares are trust issued receipts (``TIRs'')
based on the value of an underlying commodity or index of commodities
held by a trust.\15\ Because of USOF's structure as a partnership and
the nature of its investments, the current Commodity-Based Trust Shares
rules (Amex Rules 1200A et seq.) do not specifically permit the
Exchange to list this product. This proposal seeks to expand the
ability of the Exchange to list and/or trade securities based on a
portfolio of underlying investments that may not be ``securities'' in
circumstances where the issuer is a partnership, organized as a
commodities pool under the CEA.
---------------------------------------------------------------------------
\15\ See Securities Exchange Act Release No. 51446 (March 29,
2005), 70 FR 17272 (April 5, 2005). The Exchange listed and traded
the iShares[reg] COMEX Gold Trust under Amex Rule 1200A as the first
Commodity Based Trust Share. Recently, the Exchange commenced the
trading of shares of the streetTRACKS[reg] Gold Trust (GLD) pursuant
to Amex Rule 1000B on an unlisted trading privileges (``UTP'')
basis. See also Securities Exchange Act Release No. 53105 (January
11, 2006), 71 FR 3129 (January 19, 2006) (order approving listing
and trading of DB Commodity Index Tracking Fund).
---------------------------------------------------------------------------
Under proposed Amex Rule 1501, the Exchange would be able to list
and trade the Units issued by USOF. For units issued by other
commodity-based partnerships or other types of units issued by USOF, if
any, the Exchange will submit a filing pursuant to Section 19(b) of the
Act, subject to the review and approval of the Commission. The Exchange
submits that the Units will conform to the initial and continued
listing criteria under proposed Amex Rule 1502.\16\
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\16\ Proposed Amex Rule 1502 for listing the Units is
substantially similar to current Amex Rule 1202A relating to
Commodity-Based Trust Shares. As set forth in the section ``Initial
and Continued Listing'' of proposed Amex Rule 1502, the minimum
number of Units required to be outstanding at the time of trading
will be 100,000. This section of the proposed rule specifically
details the initial and continued listing standards for the Units.
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Information about the liquidity, depth, and pricing mechanisms of
the international oil market, operation of the USOF, and descriptions
of the Units of USOF follows below.\17\
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\17\ Further information about the USOF is provided in the USOF
Notice, supra note 5.
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Description of the Oil Market
The Exchange states that crude oil is the world's most actively
traded commodity. The investment objective of USOF is to track the spot
month futures contracts for WTI light, sweet crude traded on the NYMEX,
and thus USOF will primarily purchase WTI light, sweet crude Oil
Futures Contracts traded on the NYMEX. The Oil Futures Contracts for
light, sweet crude oil that
[[Page 17512]]
are traded on the NYMEX are the world's most liquid forum for crude oil
trading, as well as the most liquid futures contracts on a physical
commodity. Due to the liquidity and price transparency of Oil Futures
Contracts, they are used as a principal international pricing
benchmark. Oil Futures Contracts for WTI light, sweet crude oil trade
on the NYMEX in units of 1,000 U.S. barrels (42,000 gallons) and, if
not closed out before maturity, will result in delivery of the oil to
Cushing, Oklahoma, which is also accessible to the world market by two
major interstate petroleum pipeline systems.\18\
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\18\ In practice, few Oil Futures Contracts result in delivery
of the underlying oil.
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Futures Regulation
The CEA \19\ governs the regulation of commodity interest
transactions, markets, and intermediaries. The CFTC administers the
CEA. Among other things, the CEA provides that the trading of commodity
interest contracts generally must be upon exchanges designated as
contract markets or derivatives transaction execution facilities and
that all trading on those exchanges must be done by or through exchange
members. Commodity interest trading between sophisticated persons may
be traded on a trading facility not regulated by the CFTC. As a general
matter, the Exchange states that trading in spot contracts, forward
contracts, options on forward contracts or options on commodities, or
swap contracts between eligible contract participants is not within the
jurisdiction of the CFTC and may therefore be effectively unregulated.
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\19\ 7 U.S.C. 1 et seq.
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The Exchange states that non-U.S. futures exchanges differ in
certain respects from their U.S. counterparts. Importantly, non-U.S.
futures exchanges are not subject to regulation by the CFTC, but rather
are regulated by their home country regulator. In contrast to U.S.
designated contract markets, some non-U.S. exchanges are principals'
markets, where trades remain the liability of the traders involved, and
the exchange or an affiliated clearing organization, if any, does not
become substituted for any party. Due to the absence of a clearing
system, the Exchange states that such exchanges are significantly more
susceptible to disruptions. Further, participants in such markets must
often satisfy themselves as to the individual creditworthiness of each
entity with which they enter into a trade. Trading on non-U.S.
exchanges is often in the currency of the exchange's home jurisdiction.
Consequently, USOF may be subject to the additional risk of
fluctuations in the exchange rate between such currencies and U.S.
dollars and the possibility that exchange controls could be imposed in
the future.
Investment Strategy
In connection with tracking the price of the Benchmark Oil Futures
Contract, the General Partner will endeavor to place USOF's trades in
Oil Futures Contracts and Other Oil Interests and otherwise manage
USOF's investments so that ``A'' will be within 10 percent
of ``B'', where:
A is the average daily change in USOF's NAV for any period
of 30 successive valuation days, i.e., any day as of which USOF
calculates its NAV; and
B is the average daily change in the price of the
Benchmark Oil Futures Contract over the same period.
Therefore, USOF's investment objective is to manage its assets so
that the average daily change in the NAV for any period of 30
successive valuation days will be within 10% of the average daily
change in the price of the Benchmark Oil Futures Contract over the same
period.\20\
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\20\ Telephone conversation between Jeffrey Burns, Senior
Associate General Counsel, Amex, Florence Harmon, Senior Special
Counsel, Division, Commission, and Johnna B. Dumler, Attorney,
Division, Commission, on February 13, 2006.
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The Exchange believes that market arbitrage opportunities should
cause USOF's Unit price to closely track USOF's per Unit NAV, which is
targeted at the current Benchmark Oil Futures Contract. The price of
the Benchmark Oil Futures Contract has closely tracked the spot price
of WTI light, sweet crude oil over time.\21\ Accordingly, the General
Partner expects that the price of USOF's Units on the Exchange will
closely track the spot price of a barrel of WTI light, sweet crude oil,
less USOF's expenses.
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\21\ See Exhibit A attached to the Form 19b-4 filed by the
Exchange, showing the tracking of the Benchmark Oil Futures Contract
and the WTI spot price.
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Investments
USOF believes that it will be able to use a combination of Oil
Futures Contracts and Other Oil Interests to manage the portfolio to
achieve its investment objective of tracking the price of the Benchmark
Oil Futures Contract. USOF further anticipates that the exact mix of
Oil Futures Contracts and Other Oil Interests held by the portfolio
will vary over time depending on, among over things, the amount of
invested assets in the portfolio, price movements of oil, the rules and
regulations of the various futures and commodities exchanges and
trading platforms that deal in Oil Interests, and innovations in the
Oil Interests marketplace including both the creation of new Oil
Interest investment vehicles and the creation of new trading venues
that trade in Oil Interests.
USOF's total portfolio composition will be disclosed each business
day that the Amex is open for trading on its Web site at https://
www.unitedstatesoilfund.com and/or the Exchange's Web site at https://
www.amex.com. USOF states that Web site disclosure of portfolio
holdings will be made daily and will include, as applicable, the name
and value of each Oil Interest, the specific types of Other Oil
Interests and characteristics of such Other Oil Interests, Treasuries
and amount of cash held in the portfolio of USOF.\22\
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\22\ See Amendment No. 1. The public Web site disclosure of the
portfolio composition of USOF will coincide with the disclosure by
the Administrator on each business day of the NAV for the Units and
the Basket Amount (for orders placed during the day). Therefore, the
same portfolio information will be provided on the public Web site,
as well as in the facsimile or electronic mail message to Authorized
Purchasers containing the NAV and Basket Amount (``Daily
Dissemination''). The format of the public Web site disclosure and
the Daily Dissemination will differ because the public Web site will
list all portfolio holdings, while the Daily Dissemination will
provide the portfolio holdings in a format appropriate for
Authorized Purchasers, i.e., the exact components of a Creation
Unit.
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Oil Futures Contracts
The principal Oil Interests to be invested in by USOF are Oil
Futures Contracts. In particular, USOF expects to purchase futures on
the WTI light, sweet crude oil traded on the NYMEX. USOF may also
purchase futures on Brent crude oil traded on NYMEX.\23\ Brent crude
oil futures contracts are also listed on the ICE Futures. In addition
to the commodities and futures exchanges in New York and London,
several other established futures exchanges currently offer, or have
announced plans to offer, trading in futures contracts on light,
medium, or heavy crude oils, including exchanges in Singapore, Tokyo,
Shanghai and Dubai.\24\
As noted above, the NYMEX futures contracts on WTI light, sweet
crude oil have historically closely tracked the investment objective of
USOF over both
[[Page 17513]]
the short-term, medium-term, and the long-term.\25\ For that reason,
USOF anticipates making significant investments in the current
Benchmark Oil Futures Contract. The General Partner submits that Other
Oil Futures Contracts, such as the Brent crude oil futures contract
traded on the NYMEX and ICE Futures, the Dubai crude oil futures
contract traded in Singapore and elsewhere, and other NYMEX petroleum-
based futures contracts such as heating oil and gasoline, have also
tended to track the investment objective of USOF, though not as closely
as the NYMEX light, sweet crude (WTI) oil futures contract.\26\
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\23\ Brent crude oil is the price reference for two-thirds of
the world's traded oil.
\24\ The Exchange has represented that the USOF will only
purchase Oil Futures Contracts on markets where the Exchange has
entered into the appropriate comprehensive surveillance sharing
arrangements. See infra, note 53.
\25\ See supra note 21 and text accompanying note 12.
\26\ See Exhibit B attached to the Form 19b-4 filed by the
Exchange, tracking the NYMEX futures contracts on light, sweet crude
oil, heating oil, natural gas and gasoline from November 17, 1995 to
November 11, 2005.
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Other Oil Interests
In addition to Oil Futures Contracts, there are also a number of
listed options on Oil Futures Contracts on the principal commodities
and futures exchanges. These option contracts offer investors and
hedgers another vehicle for managing exposure to the crude oil market.
USOF may purchase oil-related listed options on these exchanges in
pursuing its investment objective.
In addition to the Oil Futures Contracts and related listed
options, there also exists an active OTC market in derivatives linked
to crude oil. These OTC derivative transactions are privately-
negotiated agreements between two parties. Unlike most of the exchange-
traded Oil Futures Contracts or related options, each party to an OTC
contract bears the credit risk that the counterparty may not be able to
perform its obligations.
Some oil-based derivatives transactions contain fairly generic
terms and conditions and are available from a wide range of
participants. Other oil-based derivatives have highly customized terms
and conditions and are not as widely available. Many of these OTC
contracts are cash-settled forwards for the future delivery of oil-or
petroleum-based fuels that have terms similar to the Oil Futures
Contracts. Others take the form of ``swaps'' in which the two parties
exchange cash flows based on pre-determined formulas tied to the price
of oil as determined by the spot, forward, or futures markets. USOF may
enter into OTC derivative contracts whose value will be tied to changes
in the difference between the WTI spot price, the price of Oil Futures
Contracts traded on NYMEX, and the prices of non-NYMEX Oil Futures
Contracts that may be invested in by USOF.
To protect itself from the credit risk that arises in connection
with such contracts, USOF will enter into agreements with each
counterparty that provide for the netting of its overall exposure to
its counterparty and/or provide collateral or other credit support to
address USOF's exposure.\27\ The counterparties to an OTC contract will
generally be major broker-dealers and banks or their affiliates, though
certain institutions, such as large energy companies or other
institutions active in oil commodities markets, may also be
counterparties. The creditworthiness of each potential counterparty
will be assessed by the General Partner. The General Partner will
assess or review, as appropriate, the creditworthiness of each
potential or existing counterparty to an OTC contract pursuant to
guidelines approved by the General Partner's Board of Directors.
Furthermore, the General Partner on behalf of USOF will only enter into
OTC contracts with (a) members of the Federal Reserve System or foreign
banks with branches regulated by the Federal Reserve Board; (b) primary
dealers in U.S. government securities; (c) broker-dealers; (d)
commodities futures merchants; or (e) affiliates of the foregoing.
Existing counterparties will also be reviewed periodically by the
General Partner.
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\27\ The agreements published by the International Swap and
Derivatives Association (``ISDA'') and used extensively in the OTC
derivatives market provides ``netting'' provisions. As discussed
above, USOF's total portfolio composition will be disclosed, each
business day that the Amex is open for trading, on its Web site at
https://www.unitedstatesoilfund.com and/or the Exchange's Web site at
https://www.amex.com, with a valuation assigned to these instruments.
---------------------------------------------------------------------------
USOF anticipates that the use of Other Oil Interests, together with
its investments in Oil Futures Contracts, will produce price and total
return results that closely track the investment objective of USOF.
Treasuries and Cash
USOF will invest virtually all of its assets not invested in Oil
Interests in Treasuries, currently anticipated to be those securities
with a remaining maturity of two years or less. The Treasuries and any
cash will be available to be used to meet USOF's current or potential
margin and collateral requirements with respect to its investments in
Oil Interests. USOF will not use Treasuries as margin for new
investments unless it has a sufficient amount of Treasuries and cash to
meet the margin or collateral requirements that may arise due to
changes in the value of its currently held Oil Interests. Other than in
connection with a redemption of Units, USOF does not intend to
distribute cash or property to its Unit holders. Interest earned on
Treasuries and cash held by USOF will be retained by it to pay its
expenses, to make investments to satisfy its investment objectives, or
to satisfy its margin or collateral requirements.
Impact of Speculative Position Limits
The CFTC and U.S. designated contract markets, such as the NYMEX,
have speculative position limits or position limits on the maximum net
long or net short speculative position that any person or group of
persons under common trading control (other than a hedger) may hold,
own, or control in commodity interests. Among the purposes of
speculative position limits is to prevent a corner or squeeze on a
market or undue influence on prices by any single trader or group of
traders.\28\
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\28\ Most U.S. futures exchanges limit the amount of fluctuation
in some futures contracts or options on futures contract prices
during a single trading session. These regulations specify what are
referred to as daily price fluctuation limits (i.e., daily limits).
The daily limits establish the maximum amount that the price of a
futures contract or options on a futures contract may vary either up
or down from the previous day's settlement price. Once the daily
limit has been reached in a particular futures contract or options
on a futures contract, no trades may be made at a price beyond the
limit.
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The foregoing speculative position limits will impact the mix of
investments in Oil Interests by USOF, with such mix varying depending
on the level of assets held by USOF. The following example illustrates
how the mix will vary as assets increase, assuming the spot price of
WTI light, sweet crude oil remains the same: Assuming the spot price
for WTI light, sweet crude oil and the Unit price were each $60, USOF
anticipates that it would invest the first $300 million of its daily
net assets only in Oil Futures Contracts. The majority of those
contracts will consist of the current Benchmark Oil Futures Contract.
At this level, USOF could purchase 5,000 of such contacts or 25% of the
NYMEX's speculative position limit for such contracts. When daily net
assets exceed $300 million, USOF anticipates that it will invest the
majority of its assets above that amount in the current Benchmark Oil
Futures Contract with the balance of its net assets being invested in a
mix of other Oil Futures Contracts, such as the Brent crude oil futures
contract traded on NYMEX or the ICE Futures, and Other Oil Interests.
At this level, USOF anticipates that it
[[Page 17514]]
would also invest in various OTC derivative contracts to hedge the
short-term price movements of Oil Futures Contracts against the current
Benchmark Oil Futures Contract.
Once the daily net assets of the portfolio exceed approximately
$1.2 billion, USOF anticipates that a majority of all further
investments will be made in Oil Futures Contracts, other than the
current Benchmark Oil Futures Contract, and in Other Oil Interests.
USOF anticipates that once the daily net assets of the portfolio
exceed approximately $2.4 billion, the ability of the portfolio to
invest in additional current Benchmark Oil Futures Contracts may be
sharply limited due to speculative position limit rules in effect on
the NYMEX. Assuming the current Benchmark Oil Futures Contract is at
the same price level and half of the USOF's assets were then fully
invested in such contracts ($1.2 billion), the current NYMEX position
limits for such contracts (20,000 contracts) would be met. Under that
scenario, all additional investments above the $2.4 billion level would
be required to be invested in other Oil Future Contracts and Other Oil
Interests. USOF anticipates that at or above the $2.4 billion daily net
asset level, the majority of the total portfolio holdings would be in
other Oil Futures Contracts or Other Oil Interests.
Issuance and Redemption of USOF Units
There will be two markets for investors to purchase and sell Units.
New issuances of the Units will be made only in baskets of 100,000
Units or multiples thereof (a ``Basket''). USOF will issue and redeem
Baskets of the Units on a continuous basis by or through participants
who have entered into authorized purchaser agreements (``Authorized
Purchaser Agreement'' and each such participant, an ``Authorized
Purchaser'') \29\ with the General Partner, at the NAV per Unit next
determined after an order to purchase the Units in a Basket is received
in proper form. Baskets may be issued and redeemed on any Business day
(defined as any day other than a day on which the Amex, the NYMEX or
the New York Stock Exchange is closed for regular trading) through the
Marketing Agent in exchange for cash and/or Treasuries, which the
Custodian receives from Authorized Purchasers or transfers to
Authorized Purchasers, in each case on behalf of USOF. Baskets are then
separable upon issuance into identical Units that will be listed and
traded on the Exchange as equity securities.\30\
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\29\ An ``Authorized Purchaser'' is a person, who at the time of
submitting to the General Partner an order to create or redeem one
or more Baskets: (i) Is a registered broker-dealer or other market
participants, such as banks and other financial institutions, that
are exempt from broker-dealer registration; (ii) is a DTC
Participant; and (iii) has in effect a valid Authorized Participant
Agreement. Telephone conversation between Jeffrey Burns, Senior
Associate General Counsel, Amex, Florence Harmon, Senior Special
Counsel, Division, Commission, and Johnna B. Dumler, Attorney,
Division, Commission, on February 13, 2006 (clarifying that the
reference to ``trustee'' in this sentence should be changed to
``General Partner'').
\30\ The Exchange expects that the number of outstanding Units
will increase and decrease as a result of creations and redemptions
of Baskets.
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Baskets will be issued in exchange for Treasuries and/or cash in an
amount equal to the NAV per Unit times 100,000 Units (the ``Basket
Amount''). Authorized Purchasers that wish to purchase a Basket must
transfer the Basket Amount to the Administrator (the ``Deposit
Amount''). Authorized Purchasers that wish to redeem a Basket will
receive an amount of Treasuries and cash in exchange for each Basket
surrendered in an amount equal to the NAV per Basket (the ``Redemption
Amount'').
On each business day, the Administrator will make available prior
to the opening of trading on the Exchange, the estimated Basket Amount
for the creation of a Basket based on the prior day's NAV.\31\ The
Exchange will disseminate at least every 15 seconds throughout the
trading day, via the facilities of the Consolidated Tape Association
(``CTA''), an amount representing, on a per Unit basis, the current
indicative value of the Basket Amount (See ``Indicative Partnership
Value'' below). Shortly after 4 p.m. Eastern Time (``ET''), the
Administrator will determine the NAV for USOF as described below. At or
about 4 p.m. ET on each business day, the Administrator will determine
the Actual Basket Amount (``Actual Basket Amount'') for orders placed
by Authorized Purchasers received before 12 p.m. ET that day.\32\ Thus,
although Authorized Purchasers place orders to purchase Units during
the trading day until 12 p.m. ET, the Actual Basket Amount is
determined as of 4 p.m. ET.
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\31\ Amex clarified that it intended for this sentence to
indicate that the Administrator will make available an ``estimated''
Basket Amount prior to the opening of trading on the Exchange,
rather than the Actual Basket Amount (as described below), which
will not be available until shortly after the close of trading on
each business day. Additionally, such information (NAV, Actual
Basket Amount, Estimated Basket Amount, daily disclosure of
portfolio holdings) will be available to all market participants at
the same time to avoid any informational advantage. Telephone
conversation between Jeffrey Burns, Senior Associate General
Counsel, Amex, Florence Harmon, Senior Special Counsel, Division,
Commission, and Johnna B. Dumler, Attorney, Division, Commission, on
February 8, 2006.
\32\ See Amendment No. 2, supra note 4. See also ``Calculation
and Payment of Deposit Amount'' and ``Calculation and Payment of
Redemption Amount,'' infra.
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Shortly after 4 p.m. ET on each business day, the Administrator,
Amex, and the General Partner will disseminate the NAV for the Units
and the Actual Basket Amount (for orders placed during the day). The
Basket Amount and the NAV are communicated by the Administrator to all
Authorized Purchasers via facsimile or electronic mail message. The
Amex will also disclose the NAV and the Actual Basket Amount on its Web
site at https://www.amex.com.\33\ On each day that the Amex is open for
regular trading, the Administrator will adjust the Deposit Amount as
appropriate to reflect the prior day's Partnership NAV and accrued
expenses. The Administrator will then determine the Deposit Amount for
a given business day.
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\33\ See supra, note 32.
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Calculation of USOF's NAV
The Administrator will calculate NAV as follows: (1) Determine the
current value of USOF assets and (2) subtract the liabilities of USOF.
The NAV will be calculated at 4 p.m. ET using the settlement value \34\
of Oil Futures Contracts traded on the NYMEX as of the close of open-
outcry trading on the NYMEX at 2:30 p.m. ET,\35\ and for the value of
other Oil Futures Interests and Treasuries, the value of such
investments as of the earlier of 4 p.m. ET or the close of trading on
the New York Stock Exchange. The NAV is calculated by including any
unrealized profit or loss on Oil Futures Contracts and other Oil
Interests and any other credit or debit accruing to USOF but unpaid or
not received by USOF. The NAV is then used to compute all fees
(including the management and administrative fees) that are calculated
from the value of Partnership assets. The Administrator will calculate
the NAV per unit by dividing the NAV by the number of Units
outstanding.
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\34\ See Rule 6.52 of the NYMEX Rulebook.
\35\ Telephone conversation between Jeffrey Burns, Senior
Associate General Counsel, Amex, Florence Harmon, Senior Special
Counsel, Division, Commission, and Johnna B. Dumler, Attorney,
Division, Commission, on February 8, 2006.
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When calculating NAV for USOF, the Administrator will value Oil
Futures Contracts based on the closing settlement prices quoted on the
relevant commodities and futures exchange and obtained from various
market data
[[Page 17515]]
vendors such as Bloomberg or Reuters.\36\ The value of the Other Oil
Interests for purposes of determining the NAV will be valued based upon
the determination of the Administrator as to their fair market value.
Certain types of Other Oil Interests, such as listed options on futures
contracts, have closing prices that are available from the exchange
upon which they are traded or from various market data vendors. If
available from an exchange, Other Oil Interests will be valued based on
the last sale price on the exchange or market where traded. If a
contract fails to trade, the value shall be the most recent bid
quotation from the third-party source.
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\36\ The Amex confirmed that the pricing for the NAV also will
be derived from the NYMEX futures contract nearest to settlement
(spot month) for WTI light, sweet crude.
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Other types of Other Oil Interests, such as crude oil forward
contracts do not trade on established exchanges, but typically have
prices that are widely available from third-party sources. The
Administrator may make use of such third-party sources in calculating a
fair market value of these Other Oil Interests.
Certain types of Other Oil Interests, such as ``swaps,'' also do
not have established exchanges upon which they trade and may not have
readily available price quotes from third parties. Swaps and other
similar derivative or contractual-type instruments will be first valued
at a price provided by a single broker or dealer, typically the
counterparty. If no such price is available, the contract will be
valued at the price at which the counterparty to such contract would
repurchase the instrument or terminate the contract. In determining the
fair market value of such derivative contracts, the Administrator may
make use of quotes from other providers of similar derivatives. If
these are not available, the Administrator may calculate a fair market
value of the derivative contract based on the terms of the contract and
the movement of the underlying price factors of the contract.
Calculation and Payment of the Deposit Amount
The Deposit Amount of Treasuries and cash will be in the same
proportion to the total net assets of USOF as the number of Units to be
created is in proportion to the total number of Units outstanding. The
General Partner will determine the requirements for the Treasuries that
may be included in the Deposit Amount and will disseminate these
requirements prior to the start of each business day. The amount of
cash that is required is the difference between the aggregate market
value of the Treasuries required to be included in the Deposit Amount
as of 4 p.m. ET on the date of purchase and the total required deposit.
All purchase orders must be received by the Marketing Agent by 12
p.m. ET. Delivery of the Deposit Amount, i.e., Treasuries and cash, to
the Administrator must occur by the third Business day following the
purchase order date.\37\ Thus, the General Partner will disseminate
shortly after 4 p.m. ET the amount of Treasuries and cash to be
deposited with the Custodian for each Basket (100,000 Units) order
properly submitted by Authorized Purchasers by 12 p.m. ET that business
day, (e.g., the Actual Basket Amount).
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\37\ Authorized Purchasers are required to pay a transaction fee
of $1,000 for each order to create one or more Baskets.
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Calculation and Payment of the Redemption Amount
The Units will not be individually redeemable but will only be
redeemable in Baskets. To redeem, an Authorized Purchaser will be
required to accumulate enough Units to constitute a Basket (i.e.,
100,000 Units). An Authorized Purchaser redeeming a Basket will receive
the Redemption Amount.
Upon the surrender of the Units and payment of applicable
redemption transaction fee,\38\ taxes or charges, the Custodian will
deliver to the redeeming Authorized Purchaser the Redemption Amount.
The Redemption Amount of Treasuries and cash will be in the same
proportion to the total net assets of USOF as the number of Units to be
redeemed is in proportion to the total number of Units outstanding. The
General Partner will determine the Treasuries to be included in the
Redemption Amount. The amount of cash that is required is the
difference between the aggregate market value of the Treasuries
required to be included in the Redemption Amount calculated as of 4:00
p.m. ET on the date of redemption and the total Redemption Amount. All
redemption orders must be received by the Marketing Agent by 12:00 p.m.
ET on the date redemption is requested. Delivery of the Basket to be
redeemed to the Custodian and payment of Redemption Amount will occur
by the third business day (T+3) following the redemption order date.
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\38\ Authorized Purchasers are required to pay a transaction fee
of $1,000 for each order to redeem one or more Baskets.
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The Exchange believes that the Units will not trade at a material
discount or premium to a Unit's NAV based on potential arbitrage
opportunities. Due to the fact that the Units can be created and
redeemed only in Baskets at the NAV, the Exchange submits that
arbitrage opportunities should provide a mechanism to mitigate the
effect of any premiums or discounts that may exist from time to time.
Dissemination and Availability of Information
Oil Futures Contracts
The daily settlement prices for the NYMEX traded Oil Futures
Contracts held by USOF are publicly available on the NYMEX Web site at
https://www.nymex.com. The Exchange's Web site at https://www.amex.com
will also include a hyperlink to the NYMEX Web site for the purpose of
disclosing futures contract pricing. In addition, various market data
vendors and news publications publish futures prices and related data.
The Exchange represents that quote and last sale information for the
Oil Futures Contracts are widely disseminated through a variety of
market data vendors worldwide, including Bloomberg and Reuters. Thus,
last sale information for the Benchmark Oil Futures Contract will be
updated and disseminated at least every 15 seconds in accordance with
the continued listing standards by one or more major market data
vendors during the time the Units trade on Amex.\39\ From 2:30 p.m. ET
to the opening of NYMEX ACCESS at 3:15 p.m. ET, the pricing for the
Benchmark Oil Futures Contract will not be updated. The Exchange
further represents that real-time futures data is available by
subscription from Reuters and Bloomberg. The NYMEX also provides
delayed futures information on current and past trading sessions and
market news free of charge on its Web site. The specific contract
specifications for the Oil Futures Contracts are also available on the
NYMEX Web site and the ICE Futures Web site at https://www.the ice.com.
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\39\ Telephone conversation between Florence E. Harmon, Senior
Special Counsel, Division, Commission, and Cliff Weber, Senior Vice
President, Amex, on March 24, 2006.
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USOF Units
The Web site for USOF, which will be publicly accessible at no
charge, will include the following information: (1) The prior business
day's NAV and the reported closing price; (2) the mid-point of the bid-
ask price \40\ in relation to the NAV as of the time the NAV is
calculated (the ``Bid-Ask Price''); (3)
[[Page 17516]]
calculation of the premium or discount of such price against such NAV;
(4) 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;
(5) the prospectus and the most recent periodic reports filed with the
Commission or required by the CFTC; and (6) other applicable
quantitative information. In addition, information on USOF's daily
portfolio holdings will be available on its Web site at https://
www.unitedstatesoilfund.com and will be equally accessible to investors
and Authorized Purchasers.\41\
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\40\ The Bid-Ask Price of Units is determined using the highest
bid and lowest offer as of the time of calculation of the NAV.
\41\ See Amendment No. 1, supra note 3.
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As described above, the NAV for USOF will be calculated and
disseminated daily. The Amex also intends to disseminate for USOF on a
daily basis by means of CTA/CQ High Speed Lines information with
respect to the Indicative Partnership Value (as discussed below),
recent NAV, Units outstanding, the estimated Basket Amount and the
Deposit Amount (e.g., the Actual Basket Amount). The Exchange will also
make available on its Web site daily trading volume, closing prices and
the NAV. The closing price and settlement prices of the Oil Futures
Contracts held by USOF are also readily available from the NYMEX,
automated quotation systems, published or other public sources, or on-
line information services such as Bloomberg or Reuters. In addition,
the Exchange will provide a hyperlink on its Web site at https://
www.amex.com to USOF's Web site.
Indicative Partnership Value
The Exchange will disseminate through the facilities of the CTA an
updated Indicative Partnership Value (the ``Indicative Partnership
Value'') per Unit basis at least every 15 seconds during the regular
Amex trading hours of 9:30 a.m. to 4:15 p.m. ET. The Indicative
Partnership Value will be calculated based on the Treasuries and cash
required for creations and redemptions (i.e., NAV per limit x 100,000)
adjusted to reflect the price changes of the current Benchmark Oil
Futures Contract.
The Indicative Partnership Value will not reflect price changes to
the price of the current Benchmark Oil Futures Contract between the
close of open-outcry trading of these oil futures contract on the NYMEX
at 2:30 p.m. ET and the open of trading on the NYMEX ACCESS market at
3:15 p.m. ET.\42\ The Indicative Partnership Value after 3:15 p.m. ET
will reflect changes to the current Benchmark Oil Futures Contract as
provided for through NYMEX ACCESS. The value of a Unit may accordingly
be influenced by the non-concurrent trading hours of the Amex and
NYMEX. While the Units will trade on the Amex from 9:30 a.m. to 4:15
p.m. ET, the current Benchmark Oil Futures Contract will trade, in
open-outcry, on the NYMEX from 10:00 a.m. ET to 2:30 p.m. ET and NYMEX
ACCESS from 3:15 p.m. ET through the following morning 9:30 a.m. ET.
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\42\ NYMEX ACCESS(r), an electronic trading system, is open for
price discovery on the NYMEX light, sweet crude oil futures contract
each Monday through Thursday at 3:15 p.m. ET through the following
morning at 9:30 a.m. ET, and from 7:00 p.m. Sunday night until
Monday morning 9:30 a.m. ET.
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The Exchange represents that while the NYMEX (open outcry) is open
for trading, the Indicative Partnership Value can be expected to
closely approximate the value per unit of the Basket Amount. However,
during Amex trading hours when the Oil Futures Contracts have ceased
trading, spreads and resulting premiums or discounts may widen, and
therefore, increase the difference between the price of the Units and
the NAV of the Units. The Exchange believes that dissemination of the
Indicative Partnership Value based on the cash amount required for a
Basket provides additional information that is not otherwise available
to the public and is useful to professionals and investors in
connection with the Units trading on the Exchange or the creation or
redemption of the Units.
Criteria for Initial and Continued Exchange Listing
USOF will be subject to the criteria in proposed Amex Rule 1502 for
initial and continued listing of the Units. These continued listing
criteria provide for the delisting or removal from listing of the Units
under any of the following circumstances:
Following the initial twelve month period from the date of
commencement of trading of the Units: (i) If USOF has more than 60 days
remaining until termination and there are fewer than 50 record and/or
beneficial holders of the Units for 30 or more consecutive trading
days; (ii) if USOF has fewer than 50,000 Units issued and outstanding;
or (iii) if the market value of all Units issued and outstanding is
less than $1,000,000.
If the value of the underlying spot commodity or Oil
Futures Contract is no longer calculated or available on at least a 15-
second delayed basis or the Exchange stops providing a hyperlink on its
Web site to any such investment commodity or asset value.
The Indicative Partnership Value is no longer made
available on at least a 15-second delayed basis.
If such other event shall occur or condition exists which
in the opinion of the Exchange makes further dealings on the Exchange
inadvisable.
A minimum of 100,000 Units will be required to be outstanding at
the start of trading.\43\ It is anticipated that the initial price of a
Unit will be approximately $67.00 based upon the WTI light, sweet crude
oil spot price on March 30, 2006.\44\ USOF expects that the initial
Authorized Purchaser will purchase the initial Basket of 100,000 Units
at the initial offering price per Unit equal to the closing price of
the expiration month light, sweet crude (WTI) oil futures contract
listed on the NYMEX on the first Business day prior to the launch date.
On the date of the public offering and thereafter, USOF will
continuously issue Units in Baskets of 100,000 Units to Authorized
Purchasers at NAV. The Exchange believes that the anticipated minimum
number of Units outstanding at the start of trading is sufficient to
provide adequate market liquidity and to further USOF's objective to
seek to provide a simple and cost effective means of accessing the
commodity futures markets.
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\43\ Telephone conversation between Florence E. Harmon, Senior
Special Counsel, Division, Commission, and Cliff Weber, Senior Vice
President, Amex, on March 29, 2006.
\44\ Telephone conversation between Jeffrey Burns, Associate
General Counsel, Amex, and Florence E. Harmon, Senior Special
Counsel, Division, Commission, on March 31, 2006. As of March 30,
2006, the settlement spot price was $67.15 for a barrel of oil. The
exact price of a Unit will be determined on the date of launch. Id.
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The Exchange represents that it prohibits the initial and/or
continued listing of any security that is not in compliance with Rule
10A-3 under the Act.\45\
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\45\ The Exchange represents that the listed issuer of the USOF
Units qualifies for the exemption in Rule 10A-3(c)(7) of the Act.
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Original and Annual Listing Fees
The Amex original listing fee applicable to the listing of USOF is
$5,000. In addition, the annual listing fee applicable under Section
141 of the Amex Company Guide will be based on the year-end aggregate
number of Units in all series of USOF outstanding at the end of each
calendar year.
Trading Rules
The Units 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
[[Page 17517]]
and customer suitability (Amex Rule 411). Initial equity margin
requirements of 50% will apply to transactions in the Units. Units will
trade on the Amex until 4:15 p.m. ET each business day 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.
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 priced 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 Units as eligible for this treatment.\46\
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\46\ See Securities Exchange Act Release No. 29063 (April 10,
1991), 56 FR 15652 (April 17, 1991) at note 8, 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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The Units 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 Units made in connection with the
creation and redemption of Units will not be subject to the
prohibitions of Amex Rule 190, which generally prohibits business
transactions between a specialist (or its member organization) and a
company (or its officers, directors, or 10% stockholder) in which the
specialist is registered.\47\ Unless exemptive or no-action relief is
available, the Units will be subject to the short sale rule, Rule 10a-1
under the Act and Regulation SHO.\48\ If exemptive or no-action relief
is provided, the Exchange will issue a notice detailing the terms of
the exemption or relief. The Units 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 Units into parity with the underlying commodity or
commodities and/or futures contract price. Commentary .01 to Amex Rule
1503 sets forth this limited exception to Amex Rule 170.
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\47\ See Commentary .05 to Amex Rule 190.
\48\ USOF expects to seek relief, in the near future, from the
Commission in connection with the trading of the Units from the
operation of the short sale rule, Rule 10a-1 under the Act, no-
action relief from Regulation SHO, and other no-action or exemptive
relief from the Act.
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The Amex proposes Rule 1503 to address potential conflicts of
interest in connection with acting as a specialist in the Units.
Specifically, Amex Rule 1503 provides that the prohibitions in Amex
Rule 175(c) apply to a specialist in the Units 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 Units on another
market center, in the underlying asset, related futures or options or
any other related derivative.
Amex Rule 1504(a) provides that the member organization acting as
specialist in the Units is obligated to conduct all trading in the
Units in its specialist account, subject to only the ability to have
one or more investment accounts, all of which must be reported to the
Exchange (See Rule 170).
Moreover, Amex Rule 1504(b) requires that the specialist in the
Units make available to the Exchange information relating to its
transactions or the transactions of any member, member organization,
limited partner, officer or approved person thereof, registered or non-
registered employee affiliated with such entity for its or their own
accounts in the underlying physical asset or commodity, related futures
or options on futures, or any other related derivatives.\49\ Finally,
Amex Rule 1504(c) prohibits the specialist registered as such in the
Units 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
physical asset or commodity, futures or options on futures, or any
other related derivatives.
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\49\ 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.
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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
Units. First, the Information 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 Information
Circular will advise that, in addition to the parameters set forth in
Amex Rule 117, the Exchange will halt trading in the Units if trading
in the current Benchmark Oil Futures Contract 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
represents that it will cease trading the Units if the conditions in
Amex Rule 1202(d)(2)(ii) or (iii) exist (i.e., if there is a halt or
disruption in the dissemination of the Indicative Partnership Value
and/or underlying Benchmark Futures Contract (spot commodity)
value).\50\
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\50\ In the event the Benchmark Oil Futures Contract value or
Indicative Partnership 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, Florence Harmon, Senior Special Counsel, Division,
Commission and Johnna B. Dumler, Attorney, Division, Commission on
February 8, 2006.
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Information Circular
The Amex will distribute an Information Circular to its members in
connection with the trading of the Units. The Information Circular,
will discuss the special characteristics of and risks of trading in the
Units. Specifically, the Information Circular, among other things, will
discuss what the Units are, how a basket is created and redeemed, the
requirement that members and member firms deliver a prospectus to
investors purchasing newly issued Units prior to or concurrently with
the confirmation of a transaction, applicable Amex rules, dissemination
information regarding the per unit Indicative Partnership Value,
trading information and applicable suitability rules. The Information
Circular will also explain that USOF 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, that the
Commission has no jurisdiction over the trading of WTI light, sweet
crude oil, Brent crude oil, heating oil, gasoline,
[[Page 17518]]
natural gas or other petroleum-based fuels, that the CFTC has
regulatory jurisdiction over the trading of oil-based futures contracts
and related options, and that trading in certain OTC commodity based
derivatives is not within the jurisdiction of the CFTC and may
therefore be effectively unregulated.\51\
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\51\ Telephone conversation between Jeffrey Burns, Senior
Associate General Counsel, Amex, and Florence Harmon, Senior Special
Counsel, Division, Commission, on March 31, 2006.
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The Information Circular will inform members and member
organizations, prior to commencement of trading, of the prospectus
delivery requirements applicable to USOF. The Exchange notes that
investors purchasing Units directly from USOF (by delivery of the
Deposit Amount) will receive a prospectus. Amex members purchasing
Units from USOF for resale to investors will deliver a prospectus to
such investors.
The Information Circular will also notify members and member
organizations about the procedures for purchases and redemptions of
Units in Baskets, and that Units are not individually redeemable but
are redeemable only in Baskets or multiples thereof.
The Information Circular will advise members of their suitability
obligations with respect to recommended transactions to customers in
the Units pursuant to Amex Rule 411. The Information Circular will also
discuss any exemptive or no-action relief, if granted, by the
Commission or the staff from a
