Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto Relating to the Listing and Trading of Shares of Eight Funds of the ProShares Trust Based on International Equity Indexes, 45837-45845 [E7-15936]
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Federal Register / Vol. 72, No. 157 / Wednesday, August 15, 2007 / Notices
open market and in general to protect
investors and the public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the forgoing rule change does
not: (1) Significantly affect the
protection of investors or the public
interest; (2) impose any significant
burden on competition; and (3) become
operative for 30 days after the date of
this filing, or such shorter time as the
Commission may designate, it has
become effective pursuant to Section
19(b)(3)(A) of the Act 10 and Rule 19b–
4(f)(6) thereunder.11
A proposed rule change filed under
19b–4(f)(6) normally may not become
operative prior to 30 days after the date
of filing.12 However, Rule 19b–
4(f)(6)(iii) 13 permits the Commission to
designate a shorter time if such action
is consistent with the protection of
investors and the public interest. The
Exchange has requested that the
Commission waive the 30-day operative
delay. The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest
because the proposal raises no new
regulatory issues and is consistent with
similar rules of the NYSE and Phlx. For
this reason, the Commission designates
the proposed rule change to be operative
upon filing with the Commission.14
10 15
U.S.C. 78s(b)(3)(A).
CFR 240.19b–4(f)(6).
12 17 CFR 240.19b–4(f)(6)(iii). In addition, Rule
19b–4(f)(6)(iii) requires that a self-regulatory
organization submit to the Commission written
notice of its intent to file the proposed rule change,
along with a brief description and text of the
proposed rule change, at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has requested the
Commission to waive this five-day pre-filing notice
requirement. The Commission hereby grants this
request.
13 Id.
14 For the purposes only of waiving the 30-day
operative delay, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
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11 17
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At any time within 60 days of the
filing of such proposed rule change the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors
or otherwise in furtherance of the
purposes of the Act.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Amex–2007–78 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–Amex–2007–78. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of the filing also will be available
for inspection and copying at the
principal office of Amex. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
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45837
should refer to File Number SR–Amex–
2007–78 and should be submitted on or
before September 5, 2007.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.15
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–15934 Filed 8–14–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–56223; File No. SR–Amex–
2007–60]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing of a Proposed Rule Change
and Amendment No. 1 Thereto
Relating to the Listing and Trading of
Shares of Eight Funds of the
ProShares Trust Based on
International Equity Indexes
August 8, 2007.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 15,
2007, the American Stock Exchange LLC
(‘‘Amex’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
substantially prepared by the Exchange
(‘‘Exchange Notice’’). On July 27, 2007,
Amex submitted Amendment No. 1 to
the proposed rule change. The
Commission is publishing this notice to
solicit comments on the proposed rule
change, as amended, from interested
persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade the shares (‘‘Shares’’) of eight
funds of the ProShares Trust (‘‘Trust’’) 3
based on four international equity
indexes. The text of the proposed rule
change is available at the Exchange, the
Commission’s Public Reference Room,
and https://www.amex.com.
15 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 The Trust is registered as a business trust under
the Delaware Corporate Code.
1 15
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Federal Register / Vol. 72, No. 157 / Wednesday, August 15, 2007 / Notices
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
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1. Purpose
Amex Rules 1000A–AEMI and
1001A—1005A provide standards for
the listing of Index Fund Shares, which
are securities issued by an open-end
management investment company for
exchange trading. These securities are
registered under the Investment
Company Act of 1940 (‘‘1940 Act’’), as
well as under the Act. Index Fund
Shares are defined in Amex Rule
1000A–AEMI(b)(1) generally as
securities based on a portfolio of stocks
or fixed income securities that seek to
provide investment results that
correspond generally to the price and
yield of a specified foreign or domestic
stock index or fixed income securities
index. Amex Rule 1000A–AEMI(b)(2)
permits the Exchange to list and trade
Index Fund Shares that seek to provide
investment results that exceed the
performance of an underlying securities
index by a specified multiple or that
seek to provide investment results that
correspond to a specified multiple of the
inverse or opposite of the index’s
performance.4
The Exchange proposes to list under
Amex Rule 1000A–AEMI the Shares of
eight new funds of the Trust that are
designated as Short Funds (the ‘‘Short
Funds’’) and UltraShort Funds (the
‘‘UltraShort Funds,’’ and together with
the Short Funds, collectively referred to
as the ‘‘Funds’’).5 Each of the Funds will
4 See Amex Rule 1000A—AEMI(b)(2)(iii) and
Commentary .02 thereto (providing that the listing
and trading of Index Fund Shares under paragraph
(b)(2) thereof cannot be approved by the Exchange
pursuant to Rule 19b–4(e) under the Act (17 CFR
240.19b–4(e)).
5 A list of the proposed Funds is set forth in
Exhibit A to the Exchange Notice. The Commission
has approved the listing and trading of certain Short
Funds and UltraShort Funds based on a variety of
underlying indexes. See Securities Exchange Act
Release Nos. 55117 (January 17, 2007), 72 FR 3442
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have a distinct investment objective by
attempting, on a daily basis, to
correspond to a specified multiple of the
inverse performance of a particular
equity securities index as described
below. The Funds will be based on the
following benchmark indexes: (1) MSCI
Emerging Markets Index; (2) MSCI Japan
Index; (3) MSCI EAFE Index; and (4)
FTSE/Xinhua 25 Index (each
individually an ‘‘Underlying Index,’’
and all indexes collectively the
‘‘Underlying Indexes’’).6
Specifically, the Exchange proposes to
list and trade Shares of the Short Funds
that seek daily investment results,
before fees and expenses, that
correspond to the inverse or opposite of
the daily performance (¥100%) of the
Underlying Indexes. If each of these
Short Funds is successful in meeting its
objective, the net asset value (‘‘NAV’’) of
the Shares of each Short Fund should
increase approximately as much, on a
percentage basis, as the respective
Underlying Index loses when the prices
of the securities in the Underlying Index
decline on a given day, or should
decrease approximately as much as the
respective Underlying Index gains when
the prices of the securities in the
Underlying Index rise on a given day,
before fees and expenses.
The Exchange also proposes to list
and trade Shares of the UltraShort
Funds that seek daily investment
results, before fees and expenses, that
correspond to twice the inverse or
opposite (¥200%) of the daily
(January 25, 2007) (SR–Amex–2006–101)
(approving the listing and trading of shares of funds
of the Trust based on certain underlying indexes);
54040 (June 23, 2006), 71 FR 37629 (June 30, 2006)
(SR–Amex–2006–41) (approving the listing and
trading of shares of funds of the Trust based on
certain underlying indexes); and 52553 (October 3,
2005), 70 FR 59100 (October 11, 2005) (SR–Amex–
2004–62) (approving the listing and trading of
shares of funds of the xtraShares Trust based on
certain underlying indexes).
6 The Statement of Additional Information
(‘‘SAI’’) for the Funds discloses that each Fund
reserves the right to substitute a different
Underlying Index. Substitutions can occur if an
Underlying Index becomes unavailable, no longer
serves the investment needs of shareholders, the
Fund experiences difficulty in achieving
investment results that correspond to the applicable
Underlying Index, or for any other reason
determined in good faith by the Board (as defined
herein). In such instance, the substitute index
would attempt to measure the same general market
as the then current Underlying Index. Consistent
with applicable law, shareholders would be notified
(either directly or through their respective
intermediary) if a Fund’s Underlying Index is
replaced. In such case, the continued listing
standards under Amex Rule 1002A would apply.
See Amex Rule 1002A(b)(i)(B) (providing that the
Exchange will consider the suspension of trading
in, or removal from listing of, a series of Index Fund
Shares if, among other circumstances, the
Underlying Index or portfolio is replaced with a
new index or portfolio, subject to certain
exceptions).
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performance of the Underlying Indexes.
If each of these UltraShort Funds is
successful in meeting its objective, the
NAV of the Shares of each UltraShort
Fund should increase approximately
twice as much, on a percentage basis, as
the respective Underlying Index loses
when the prices of the securities in the
Underlying Index decline on a given
day, or should decrease approximately
twice as much as the respective
Underlying Index gains when the prices
of the securities in the Underlying Index
rise on a given day, before fees and
expenses.
ProShare Advisors LLC is the
investment advisor (the ‘‘Advisor’’) to
each Fund. The Advisor is registered
under the Investment Advisers Act of
1940.7 While the Advisor will manage
each Fund, the Trust’s Board of Trustees
(the ‘‘Board’’) will have overall
responsibility for the Funds’ operations.
The composition of the Board is, and
will be, in compliance with the
requirements of Section 10 of the 1940
Act.8 SEI Investments Distribution
Company (the ‘‘Distributor’’), a brokerdealer registered under the Act, will act
as the distributor and principal
underwriter of the Shares. JPMorgan
Chase Bank, N.A. will act as the index
receipt agent (the ‘‘Index Receipt
Agent’’) for which it will receive fees.
The Index Receipt Agent will be
responsible for the processing,
clearance, and settlement of purchase
and redemption orders through the
facilities of the Depository Trust
Company (‘‘DTC’’) and the National
Securities Clearing Corporation
(‘‘NSCC’’) on behalf of the Trust.9 The
Index Receipt Agent will also be
responsible for the coordination and
transmission of files and purchase and
redemption orders between the
Distributor and the NSCC.
7 The Trust, Advisor, and Distributor
(‘‘Applicants’’) have filed with the Commission an
application to amend the order under the 1940 Act
(the ‘‘Application’’) for the purpose of exempting
the Funds of the Trust from various provisions of
the 1940 Act. See Investment Company Act Release
No. 27609 (December 22, 2006), 72 FR 162 (January
3, 2007) (File No. 812–13329) (providing
notification of an application for an order under
Section 6(c) of the 1940 Act for an exemption from
Sections 2(a)(32), 5(a)(1), 22(d), and 24(d) of the
1940 Act and Rule 22c–1 under the 1940 Act, and
under Sections 6(c) and 17(b) of the Act for an
exemption from Sections 17(a)(1) and (a)(2) of the
1940 Act).
8 See 15 U.S.C. 80a–10 (setting forth certain
restrictions and requirements with respect to
affiliations or interest of directors, officers, and
employees of registered investment companies).
9 E-mail from Nyieri Nazarian, Assistant General
Counsel, Amex, to Edward Cho, Special Counsel,
Division of Market Regulation, Commission, dated
July 30, 2007 (clarifying the responsibilities of the
Index Receipt Agent) (‘‘Amex Confirmation’’).
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Shares of the Funds issued by the
Trust will be a class of exchange-traded
securities that represent an interest in
the portfolio of a particular Fund. The
Shares will be registered in book-entry
form only, and the Trust will not issue
individual share certificates. DTC or its
nominee will be the record or registered
owner of all outstanding Shares.
Beneficial ownership of Shares will be
shown on the records of DTC or DTC
participants.
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Underlying Indexes
While the Exchange proposes to list
and trade the Shares of the Funds
pursuant to Section 19(b)(1) of the Act,
the Exchange represents that the
Underlying Index components comply
with the generic listing standards set
forth in Commentary .02 to Amex Rule
1000A–AEMI.
MSCI Emerging Markets Index. The
MSCI Emerging Markets Index is a free
float-adjusted, market capitalization
index that is designed to measure equity
market performance in the global
emerging markets. MSCI (https://
www.msci.com) administers this
Underlying Index exclusively, the
component securities of which must
meet objective criteria for inclusion. The
MSCI Emerging Markets Index aims to
capture 85% of the publicly available
total market capitalization in each
emerging market included in such
Underlying Index. The MSCI Emerging
Markets Index is rebalanced quarterly,
and its value is calculated in U.S.
dollars on a real-time basis and
disseminated every 60 seconds from 8
p.m. to 5 p.m. Eastern Time (‘‘ET’’) the
following day. As of June 2007, this
Underlying Index consisted of 698
components, and the three largest stocks
by weight were Samsung Electronics Co.
Ltd., Anglo American Plc, and Taiwan
Semiconductor Manufacturing
Company Ltd.10 The MSCI Emerging
Markets Index consists of the following
25 emerging market country indices:
Argentina, Brazil, Chile, China,
Colombia, Czech Republic, Egypt,
Hungary, India, Indonesia, Israel,
Jordan, Korea, Malaysia, Mexico,
Morocco, Pakistan, Peru, Philippines,
Poland, Russia, South Africa, Taiwan,
Thailand, and Turkey. The Commission
has previously approved the listing and
trading of an exchange-traded fund
based on the MSCI Emerging Markets
Index.11
10 Amex Confirmation (confirming the name of
Taiwan Semiconductor Manufacturing Company
Ltd.).
11 See Securities Exchange Act Release No. 44900
(October 25, 2001), 66 FR 55712 (November 2, 2001)
(SR–Amex–2001–45) (approving the listing and
trading of shares of funds of iShares, Inc. based on
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MSCI Japan Index. The MSCI Japan
Index seeks to measure the performance
of the Japanese equity market. The MCSI
Japan Index is a capitalization-weighted
index whose component securities are
adjusted for available float and must
meet objective criteria for inclusion in
the Underlying Index. The MSCI Japan
Index aims to capture 85% of the
publicly available total market
capitalization in Japan. The MSCI Japan
Index is rebalanced quarterly, and its
value is calculated in U.S. dollars on a
real-time basis and disseminated every
60 seconds from 8 p.m. to 2 a.m. ET.12
As of May 31, 2007, this Underlying
Index, which is comprised of stocks
traded primarily on the Tokyo Stock
Exchange, consisted of 321 components,
and the three largest stocks by weight
were Toyota Motor Corp., Sony Corp.,
and NTT DoCoMo Inc. The calculation
method weights stocks in the
Underlying Index by their beginning-ofperiod market capitalization. Share
prices are ‘‘swept clean’’ daily and
adjusted for any rights issues, stock
dividends, or splits. This Underlying
Index is calculated in local currency
and in U.S. dollars, without dividends
and with gross dividends reinvested.
Prices used to calculate the MSCI Japan
Index are the official closing prices on
the Tokyo Stock Exchange and other
Japanese exchanges on which the equity
securities comprising this Underlying
Index are listed and primarily traded.13
To calculate the applicable foreign
currency exchange rate, MSCI uses WM/
Reuters Closing Spot Rates. Under
exceptional circumstances, MSCI may
elect to use an alternative exchange rate
for any country if the WM/Reuters
Closing Spot Rate is believed not to be
representative for the given currency on
a particular day.
certain foreign stock indexes, including the MSCI
Emerging Markets (Free) Index), as corrected by
Securities Exchange Act Release No. 44990 (October
25, 2001), 66 FR 56869 (November 13, 2001) (SR–
Amex–2001–45) (correcting the Release Number
from 44900 to 44990).
12 Commentary .02(b)(ii) to Amex Rule 1000A–
AEMI provides that if an Underlying Index value
does not change during some or all of the period
when trading is occurring on the Exchange (for
example, for indexes of non-U.S. component stocks
because of time zone differences or holidays in the
countries where such indexes’ component stocks
trade), then the last official calculated Underlying
Index value must remain available throughout
Exchange trading hours. As a result, the Exchange
states that, for such an Underlying Index, the value
that will be disseminated during Amex trading
hours would be static.
13 Amex Confirmation (noting that the official
closing prices used to calculate the MSCI Japan
Index value would be taken from the Tokyo Stock
Exchange and other Japanese exchanges on which
certain equity securities comprising the MSCI Japan
Index primarily trade).
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45839
The MSCI Japan Index is calculated
by MSCI for each trading day in the
Japanese foreign exchange market based
on official closing prices in such
exchange market. For each trading day,
MSCI publicly disseminates this
Underlying Index value for the previous
day’s close. The MSCI Japan Index is
reported periodically in major financial
publications and also is available
through vendors of financial
information. The Commission has
previously approved the listing and
trading of an exchange-traded fund
based on the MSCI Japan Index.14
MSCI EAFE Index. The MSCI EAFE
Index is a free float-adjusted, market
capitalization index that is designed to
measure equity market performance in
the developed markets of Europe,
Australasia, and the Far East. The MSCI
EAFE Index is a capitalization-weighted
index whose component securities are
adjusted for available float and must
meet objective criteria for inclusion in
the Underlying Index. The MSCI EAFE
Index aims to capture 85% of the
publicly available total market
capitalization in each developed market
included in the MSCI EAFE Index. The
MSCI EAFE Index is rebalanced
quarterly, and its value is calculated in
U.S. dollars on a real-time basis and
disseminated every 60 seconds from 10
p.m. to 12:30 p.m. ET.15 As of June
2007, this Underlying Index consisted of
1021 components, and the three largest
stocks by weight were BP Plc,
Glaxosmithkline Plc, and Novartis Ag.
The MSCI EAFE Index consists of the
following 21 developed market country
indices: Australia, Austria, Belgium,
Denmark, Finland, France, Germany,
Greece, Hong Kong, Ireland, Italy, Japan,
the Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden,
Switzerland, and the United Kingdom.
The Commission has previously
approved the listing and trading on the
Amex of an exchange-traded fund based
on the MSCI EAFE Index.16
14 See Securities Exchange Act Release No. 36947
(March 8, 1996), 61 FR 10606 (March 14, 1996) (SR–
Amex–95–43) (approving the listing and trading of
Index Fund Shares based on the MSCI Japan Index,
among other indexes). The Exchange represents that
shares of the iShares MSCI Japan Index Fund (EWJ)
are currently traded on the Exchange.
15 See supra note 12. The Exchange states that
between the start of trading on Amex to 12:30 p.m.
ET, the MSCI EAFE Index value will be updated
and disseminated every 60 seconds; however, from
12:30 p.m. ET to the close of Amex trading at 4:15
p.m. ET, the Exchange represents that only the last
official calculated value will be available.
16 See Securities Exchange Act Release No. 44700
(August 14, 2001), 66 FR 43927 (August 21, 2001)
(SR–Amex–2001–34) (approving the listing and
trading of shares of a fund based on the MSCI EAFE
Index, among other indexes). The Exchange states
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Federal Register / Vol. 72, No. 157 / Wednesday, August 15, 2007 / Notices
FTSE/Xinhua China 25 Index. The
FTSE/Xinhua China 25 Index consists of
25 of the largest and most liquid
Chinese stocks (Red Chip and H
shares) 17 listed and trading on HKSE.
The component securities of the FTSE/
Xinhua China 25 Index are weighted
based on the free-float adjusted total
market value of the shares so that
securities with higher total market
values generally have a higher
representation in this Underlying Index.
The component securities are screened
for liquidity, and weightings are capped
to avoid over-concentration in any one
stock. The inception date of this
Underlying Index was March 2001. The
FTSE/Xinhua China 25 Index is rulebased and is monitored by a governing
committee that is responsible for
conducting a quarterly review of the
constituent securities of the Underlying
Index and for making changes to the
Underlying Index in accordance with
this Underlying Index’s procedures.18
The FTSE/Xinhua China 25 Index is
rebalanced quarterly, and its value is
calculated in U.S. dollars on a real-time
basis and disseminated every 60
seconds from 9:15 p.m. to 4 a.m. ET.19
The Commission has previously
approved the listing and trading of an
exchange-traded fund based on the
FTSE/Xinhua China 25 Index.20
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Investment Objective of the Funds
The Short Funds will seek daily
investment results, before fees and
expenses, of the inverse or opposite
that the shares of the iShares MSCI EAFE Index
Fund (EFA) are currently traded on the Exchange.
17 The Exchange states that ‘‘H shares’’ are
securities of companies incorporated in mainland
China and nominated by the Chinese government
for listing and trading on the Hong Kong Stock
Exchange (‘‘HKSE’’). They are quoted and traded in
Hong Kong dollars (‘‘HKD’’). The only Chinese
investors permitted to trade H shares are those who
are approved by the Chinese government; however
there are no such restrictions on international
investors. ‘‘Red Chips’’ are securities of companies
incorporated in Hong Kong that trade on HKSE and
are quoted in HKD. The constituents are
substantially owned, directly or indirectly, by
Chinese state-owned enterprises. The only Chinese
investors permitted to trade Red Chips are those
who are approved by the Chinese government;
however, there are no such restrictions on
international investors.
18 Amex Confirmation (confirming that the
governing committee is responsible for such duties).
19 See supra note 12.
20 See Securities Exchange Act Release No. 50505
(October 8, 2004), 69 FR 61280 (October 15, 2004)
(SR–NYSE–2004–55) (approving the listing and
trading of shares of the iShares FTSE/Xinhua China
25 Index Fund). The Exchange states that the shares
of the iShares FTSE/Xinhua China 25 Index Fund
(FXI) are currently traded on the Exchange. See
Securities Exchange Act Release No. 50800
(December 6, 2004), 69 FR 72228 (December 13,
2004) (SR–Amex–2004–85) (approving the trading
of shares of the iShares FTSE/Xinhua China 25
Index Fund pursuant to unlisted trading privileges).
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(¥100%) of the applicable Underlying
Index, and the UltraShort Funds will
seek daily investment results, before
fees and expenses, of twice the inverse
or opposite (¥200%) of the daily
performance of the applicable
Underlying Index. Each of these Funds
will not invest directly in the
component securities of the relevant
Underlying Index, but instead will
create short exposure to such
Underlying Index. Each Fund will rely
on establishing positions in certain
financial instruments 21 that provide, on
a daily basis, the inverse or opposite of,
or twice the inverse or opposite of, as
the case may be, the performance of the
relevant Underlying Index. Normally,
100% of the value of the portfolios of
each Fund will be devoted to Financial
Instruments and certain money market
instruments.22
While the Advisor will attempt to
minimize any ‘‘tracking error’’ between
the investment results of a particular
Fund and the performance (and
specified multiple thereof) or the
inverse performance (and specified
multiple thereof) of its Underlying
Index, certain factors may tend to cause
the investment results of a Fund to vary
from such relevant Underlying Index or
specified multiple thereof.23 The Funds
are expected to be highly inversely
correlated to each applicable
21 The financial instruments to be held by any of
the Funds may include stock index futures
contracts, options on futures contracts, options on
securities and indices, equity caps, collars and
floors, as well as swap agreements, forward
contracts, repurchase agreements, and reverse
repurchase agreements (the ‘‘Financial
Instruments’’).
22 Money market instruments include (1) U.S.
government securities and (2) repurchase
agreements that (a) Are held by the Funds and (b)
will be eligible investments in accordance with
Rule 2a–7 under the 1940 Act (17 CFR 270.2a–7)
(the ‘‘Money Market Instruments’’).
23 The Exchange states that several factors may
cause a Fund to vary from the relevant Underlying
Index and investment objective including: (1) A
Fund’s expenses, including brokerage fees (which
may be increased by high portfolio turnover) and
the cost of the investment techniques employed by
that Fund; (2) less than all of the securities in the
benchmark Underlying Index being held by a Fund
and securities not included in the benchmark
Underlying Index being held by a Fund; (3) an
imperfect correlation between the performance of
instruments held by a Fund, such as futures
contracts, and the performance of the underlying
securities in the cash market; (4) bid-ask spreads
(the effect of which may be increased by portfolio
turnover); (5) holding instruments traded in a
market that has become illiquid or disrupted; (6) a
Fund’s Share prices being rounded to the nearest
cent; (7) changes to the benchmark Underlying
Index that are not disseminated in advance; (8) the
need to conform a Fund’s portfolio holdings to
comply with investment restrictions or policies or
regulatory or tax law requirements; and (9) early
and unanticipated closings of the markets on which
the holdings of a Fund trade, resulting in the
inability of the Fund to execute intended portfolio
transactions.
PO 00000
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Underlying Index and investment
objective (¥0.85 or greater).24 In each
case, the Funds are expected to have a
daily tracking error of less than 5% (500
basis points) relative to the specified
multiple or inverse multiple of the
performance of the relevant Underlying
Index.
The Portfolio Investment Methodology
The Advisor will seek to establish an
investment exposure in each portfolio
corresponding to each Fund’s
investment objective based on its
‘‘Portfolio Investment Methodology,’’ as
described below. The Exchange states
that the Portfolio Investment
Methodology is a mathematical model
based on well-established principles of
finance that are widely used by
investment practitioners, including
conventional index fund managers.
As set forth in the Application, the
Portfolio Investment Methodology was
designed to determine for each Fund the
portfolio investments needed to achieve
its stated investment objectives. The
Portfolio Investment Methodology takes
into account a variety of specified
criteria and data, the most important of
which are: (1) Net assets (taking into
account creations and redemptions) in
each Fund’s portfolio at the end of each
trading day; (2) the amount of required
exposure to the Underlying Index; and
(3) the positions in Financial
Instruments and/or Money Market
Instruments at the beginning of each
trading day. The Advisor will then
mathematically determine the end-ofday positions to establish the required
amount of exposure to the Underlying
Index (the ‘‘Solution’’), which will
consist of equity securities, Financial
Instruments, and/or Money Market
Instruments. The difference between the
start-of-day positions and the required
end-of-day positions is the actual
amount of Financial Instruments and/or
Money Market Instruments that must be
bought or sold for the day. The Solution
represents the required exposure and,
when necessary, is converted into an
order or orders to be filled that same
day.
Generally, portfolio trades effected
pursuant to the Solution are reflected in
the NAV on the first business day (T+1)
after the date the relevant trade is made.
Therefore, the NAV calculated for a
24 Correlation is the strength of the relationship
between (1) The change in a Fund’s NAV and (2)
the change in the benchmark Underlying Index
(investment objective). The statistical measure of
correlation is known as the ‘‘correlation
coefficient.’’ A correlation coefficient of +1
indicates a perfect positive correlation, while a
value of ¥1 indicates a perfect negative (inverse)
correlation. A value of zero would mean that there
is no correlation between the two variables.
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Fund on a given day should reflect the
trades executed pursuant to the prior
day’s Solution. For example, trades
pursuant to the Solution calculated on
a Monday afternoon are executed on
behalf of the Fund in question on that
day. These trades will then be reflected
in the NAV for that Fund that is
calculated as of 4 p.m. ET on Tuesday.
The timeline for the Portfolio
Investment Methodology is as follows.
Authorized Participants (‘‘APs’’ or
‘‘Authorized Participants’’) 25 have a 3
p.m. ET cut-off for orders submitted by
telephone, facsimile, and other
electronic means of communication and
a 4 p.m. ET cut-off for orders received
via mail.26 Orders are received by the
Distributor and relayed to the Advisor
within ten minutes. The Advisor will
know by 3:10 p.m. ET the number of
creation/redemption orders by APs for
that day. Orders are then placed at
approximately 3:40 p.m. ET as marketon-close orders. At 4 p.m. ET, the
Advisor will again look at the exposure
to make sure that the orders placed are
consistent with the Solution, and, as
described above, the Advisor will
execute any other transactions in
Financial Instruments to assure that the
Fund’s exposure is consistent with the
Solution.
Description of Investment Techniques
ebenthall on PROD1PC69 with NOTICES
In attempting to achieve its individual
investment objectives, a Fund may
invest its assets in Financial
Instruments and Money Market
Instruments. The Funds generally will
not invest in equity securities, but rather
will hold only Financial Instruments
and Money Market Instruments. To the
extent applicable, each Fund will
comply with the requirements of the
1940 Act with respect to ‘‘cover’’ for
Financial Instruments and, thus, may
hold a significant portion of its assets in
liquid instruments in segregated
accounts.
Each Fund may engage in transactions
in futures contracts on designated
contract markets where such contracts
trade and will only purchase and sell
futures contracts traded on a U.S.
futures exchange or board of trade. Each
Fund will comply with the
requirements of Rule 4.5 of the
regulations promulgated by the
25 An Authorized Participant is: (1) Either (a) a
broker-dealer or other participant in the continuous
net settlement system of the NSCC, or (b) a DTC
participant; and (2) a party to a participant
agreement with the Distributor.
26 The Exchange states that AP orders by mail are
exceedingly rare.
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15:00 Aug 14, 2007
Jkt 211001
Commodity Futures Trading
Commission (‘‘CFTC’’).27
Each Fund may enter into swap
agreements and/or forward contracts for
the purposes of attempting to gain
exposure to its corresponding
Underlying Index without actually
transacting such securities. The
Exchange states that the counterparties
to the swap agreements and/or forward
contracts will be major broker-dealers
and banks. The creditworthiness of each
potential counterparty is assessed by the
Advisor’s credit committee pursuant to
guidelines approved by the Board.
Existing counterparties are reviewed
periodically by the Board. Each Fund
may also enter into repurchase and
reverse repurchase agreements with
terms of less than one year and will only
enter into such agreements with (1)
Members of the Federal Reserve System,
(2) primary dealers in U.S. government
securities, or (3) major broker-dealers.
Each Fund may also invest in Money
Market Instruments, in pursuit of its
investment objectives, as ‘‘cover’’ for
Financial Instruments, as described
above, or to earn interest.
The Trust will adopt certain
fundamental policies consistent with
the 1940 Act, and each Fund will be
classified as ‘‘non-diversified’’ under
the 1940 Act. Each Fund, however,
intends to maintain the required level of
diversification and otherwise conduct
its operations so as to qualify as a
‘‘regulated investment company’’ or
‘‘RIC’’ for purposes of the Internal
Revenue Code to relieve the Trust and
the Funds of any liability for Federal
income tax to the extent that its earnings
are distributed to shareholders.28
Availability of Information About the
Shares and Underlying Indexes
The Trust’s Internet Web site (https://
www.proshares.com), which is and will
be publicly accessible at no charge, will
contain the following information for
each Fund’s Shares: (a) The prior
business day’s closing NAV, the
reported closing price, and a calculation
of the premium or discount of such
price in relation to the closing NAV; (b)
data for a period covering at least the
four previous calendar quarters (or the
life of a Fund, if shorter) indicating how
frequently each Fund’s Shares traded at
27 The Exchange states that CFTC Rule 4.5
provides an exclusion for investment companies
registered under the 1940 Act from the definition
of the term ‘‘commodity pool operator’’ upon the
filing of a notice of eligibility with the National
Futures Association.
28 See Exchange Notice n.15 (providing a
description of the Internal Revenue Code
requirements pertaining to RICs). The Exchange
Notice is available at Amex’s Web site (https://
www.amex.com).
PO 00000
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45841
a premium or discount to NAV based on
the daily closing price and the closing
NAV, and the magnitude of such
premiums and discounts; (c) its
prospectus and/or product description;
and (d) other quantitative information,
such as daily trading volume. The
prospectus and/or product description
for each Fund will inform investors that
the Trust’s Web site has information
about the premiums and discounts at
which the Fund’s Shares have traded.29
Amex will disseminate for each Fund
on a daily basis by means of the
Consolidated Tape Association (‘‘CT’’)
and CQ High Speed Lines information
with respect to an Indicative Intra-Day
Value ( ‘‘IIV’’) (as defined and discussed
herein), recent NAV, number of Shares
outstanding, and the estimated cash
amount and total cash amount per
Creation Unit (as defined herein). The
Exchange will make available on its
Web site at https://www.amex.com daily
trading volume, the closing prices, the
NAV, and the final dividend amounts to
be paid for each Fund.
Each Fund’s total portfolio
composition will be disclosed on the
Web site of the Trust or another relevant
Web site as determined by the Trust
and/or the Exchange. Web site
disclosure of portfolio holdings will be
made daily and will include, as
applicable, the specific types of
Financial Instruments and
characteristics of such Financial
Instruments and the cash equivalents
and amount of cash held in the portfolio
of each Fund.30 This Web site disclosure
of the portfolio composition of each
Fund and the disclosure by the Advisor
of the ‘‘IIV File’’ (as described herein)
and the portfolio composition file or
‘‘PCF’’ (as described herein) will occur
at the same time.31 Therefore, the same
29 The Exchange states that the Application
requests relief from Section 24(d) of the 1940 Act
(15 U.S.C. 80a–24(d)), which would permit dealers
to sell Shares in the secondary market
unaccompanied by a statutory prospectus when
prospectus delivery is not required by the Securities
Act of 1933. Additionally, if a product description
is being provided in lieu of a prospectus,
Commentary .06 of Amex Rule 1000A–AEMI
requires that Amex members and member
organizations provide to all purchasers of a series
of Index Fund Shares a written description of the
terms and characteristics of such securities, in a
form prepared by the open-end management
investment company issuing such securities, not
later than the time of confirmation of the first
transaction in such series is delivered to such
purchaser. Furthermore, any sales material will
reference the availability of such circular and the
prospectus.
30 Amex Confirmation (confirming the
information that will be disclosed on the Trust’s
Web site).
31 Id. (confirming that the portfolio information
contained in the Trust’s public Web site will be
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portfolio information (including accrued
expenses and dividends) will be
provided on the public Web site, as well
as in the IIV File and PCF provided to
Authorized Participants. The format of
the public Web site disclosure and the
IIV File and PCF will differ because the
public Web site will list all portfolio
holdings, while the IIV File and PCF
will similarly provide the portfolio
holdings, but in a format appropriate for
Authorized Participants, i.e., the exact
components of a Creation Unit.32
Accordingly, each investor will have
access to the current portfolio
composition of each Fund through the
Trust’s Internet Web site and/or at the
Exchange’s Web site.
Beneficial owners of Shares (the
‘‘Beneficial Owners’’) will receive all of
the statements, notices, and reports
required under the 1940 Act and other
applicable laws. They will receive, for
example, annual and semi-annual Fund
reports, written statements
accompanying dividend payments,
proxy statements, annual notifications
detailing the tax status of Fund
distributions, and Form 1099–DIVs.
Some of these documents will be
provided to Beneficial Owners by their
brokers, while others will be provided
by the Fund through the brokers.
The daily closing value and the
percentage change in the daily closing
value for each Underlying Index will be
publicly available on various Internet
Web sites, and data regarding each
Underlying Index will be available from
the respective Underlying Index
provider. Several independent data
vendors also package and disseminate
Underlying Index data in various valueadded formats (including vendors
displaying both securities and
Underlying Index levels and vendors
displaying Underlying Index levels
only). The value of each Underlying
Index will be updated intra-day on a
real-time basis as its individual
component securities change in price.
These intra-day values of each
Underlying Index will be disseminated
at least every 60 seconds throughout the
trading day 33 by Amex or another
organization authorized by the relevant
Underlying Index provider.
ebenthall on PROD1PC69 with NOTICES
Creation and Redemption of Shares
Each Fund will issue and redeem
Shares only in aggregations of at least
75,000 (each aggregation a ‘‘Creation
Unit’’). Purchasers of Creation Units
available at the same time the IIV File and PCF are
disclosed by the Advisor).
32 The composition will be used to calculate the
NAV later that day.
33 See supra notes 12 and 15 and accompanying
text.
VerDate Aug<31>2005
15:00 Aug 14, 2007
Jkt 211001
will be able to separate the Creation
Units into individual Shares. Once the
number of Shares in a Creation Unit is
determined, it will not change thereafter
(except in the event of a stock split or
similar revaluation). The initial value of
a Share for each Fund is expected to be
in the range of $50–$250.
Creation Unit aggregations of the
Funds will be purchased at NAV, plus
a transaction fee. A purchaser will make
a cash payment by 12 p.m. ET on the
third business day following the date on
which the request was made (T+3) or
earlier. Purchasers of the Shares in
Creation Unit aggregations must satisfy
certain creditworthiness criteria
established by the Advisor and
approved by the Board, as provided in
the participation agreement between the
Trust and Authorized Participants.
Creation Unit aggregations of the Shares
will be redeemable for an all-cash
payment equal to the NAV, less a
transaction fee.
The Trust will create a PCF for each
Fund, which will be transmitted to
NSCC before the open of business the
next business day. The information in
the PCF will be available to all
participants in the NSCC system.
Because the NSCC’s system for the
receipt and dissemination to its
participants of the PCF is not currently
capable of processing information with
respect to Financial Instruments, the
Advisor has developed an ‘‘IIV File’’ to
disclose the Funds’ holdings of
Financial Instruments.34 The IIV File
will contain for each Fund information
sufficient by itself or in connection with
the PCF and other available information
for market participants to calculate a
Fund’s IIV and effectively arbitrage such
Fund.
For example, the following
information would be provided in the
IIV File for a Fund holding Financial
Instruments, such as swaps and futures
contracts: (A) The notional value of the
swaps held by such Fund (together with
an indication of the Underlying Index
on which such swap is based and
whether the Fund’s position is long or
short); (B) the most recent valuation of
the swaps held by the Fund; (C) the
notional value of any futures contracts
(together with an indication of the
Underlying Index on which such
contract is based, whether the Fund’s
34 The Trust or the Advisor will post the IIV File
to a password-protected Internet Web site before the
opening of business on each business day, and all
Authorized Participants and the Exchange will have
access to a password and the Web site containing
the IIV File. The Funds, however, will disclose each
business day to the public identical information,
but in a format appropriate to public investors, at
the same time the Funds disclose the IIV File and
PCF, as applicable, to industry participants.
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Fmt 4703
Sfmt 4703
position is long or short, and the
contract’s expiration date) held by the
Fund; (D) the number of futures
contracts held by the Fund (together
with an indication of the Underlying
Index on which such contract is based,
whether the Fund’s position is long or
short, and the contract’s expiration
date); (E) the most recent valuation of
the futures contracts held by the Fund;
(F) the total assets and total shares
outstanding of each Fund; and (G) a
‘‘net other assets’’ figure reflecting
expenses and income of the Fund to be
accrued during and through the
following business day and
accumulated gains or losses on the
Fund’s Financial Instruments through
the end of the business day immediately
preceding the publication of the IIV
File. To the extent that any Fund holds
cash or cash equivalents about which
information is not available in a PCF,
information regarding such Fund’s cash
and cash equivalent positions will be
disclosed in the IIV File for such Fund.
The information in the IIV File will be
sufficient for participants in the NSCC
system to calculate the IIV for the Funds
during the following business day.
The Shares of the Funds will be
purchased and redeemed entirely for
cash. The use of an all-cash payment for
the purchase and redemption of
Creation Unit aggregations of the Shares
is due to the limited transferability of
Financial Instruments. The IIV File
published before the open of business
on a business day will permit NSCC
participants to calculate (by means of
calculating the IIV) the amount of cash
required to create a Creation Unit and
the amount of cash that will be paid
upon redemption of a Creation Unit, for
each Fund for that business day. All
Authorized Participants who are NSCC
participants and the Exchange will have
access to the Web site containing the IIV
File. The IIV File will reflect trades
made on behalf of a Fund and the
creation/redemption orders for that
business day. Accordingly, by
approximately 7 p.m. ET, Authorized
Participants will know the composition
of a Fund’s portfolio for the next trading
day.
The Exchange believes that Shares
will not trade at a material discount or
premium to the underlying securities
held by a Fund based on potential
arbitrage opportunities. The arbitrage
process, which provides the opportunity
to profit from differences in prices of the
same or similar securities, increases the
efficiency of the markets and serves to
prevent potentially manipulative efforts.
If the price of a Share deviates enough
from the Creation Unit, on a per share
basis, to create a material discount or
E:\FR\FM\15AUN1.SGM
15AUN1
Federal Register / Vol. 72, No. 157 / Wednesday, August 15, 2007 / Notices
premium, an arbitrage opportunity is
created allowing the arbitrageur to
either buy Shares at a discount,
immediately cancel them in exchange
for the Creation Unit, and sell the
underlying securities in the cash market
at a profit, or sell Shares short at a
premium and buy the Creation Unit in
exchange for the Shares to deliver
against the short position. In both
instances, the arbitrageur locks in a
profit, and the markets move back into
line.35
ebenthall on PROD1PC69 with NOTICES
Dividends and Distributions
Dividends, if any, from net
investment income will be declared and
paid at least annually by each Fund in
the same manner as by other open-end
investment companies. Each Fund may
pay dividends on a semi-annual or more
frequent basis. Distributions of realized
securities gains, if any, generally will be
declared and paid once a year.
Dividends and other distributions on
the Shares of each Fund will be
distributed, on a pro rata basis to
Beneficial Owners of such Shares.
Dividend payments will be made
through DTC and DTC participants to
Beneficial Owners then of record with
proceeds received from each Fund.
The Trust will not make the DTC
book-entry Dividend Reinvestment
Service (the ‘‘Dividend Reinvestment
Service’’) available for use by Beneficial
Owners for reinvestment of their cash
proceeds, but certain individual brokers
may make a Dividend Reinvestment
Service available to Beneficial Owners.
The SAI will inform investors of this
fact and direct interested investors to
contact such investor’s broker to
ascertain the availability and a
description of such a service through
such broker. The SAI will also caution
interested Beneficial Owners that they
should note that each broker may
require investors to adhere to specific
procedures and timetables in order to
participate in the service, and such
investors should ascertain from their
broker such necessary details. Shares
acquired pursuant to such service will
be held by the Beneficial Owners in the
35 In their Application, the Applicants stated that
they do not believe that all-cash payments for
creations/redemptions will affect arbitrage
efficiency. This is because the Applicants believe it
makes little difference to an arbitrageur whether
Creation Unit aggregations are purchased in
exchange for a basket of securities or cash. The
important function of the arbitrageur is to bid the
Share price of any Fund up or down until it
converges with the NAV. Applicants note that this
can occur regardless of whether the arbitrageur is
allowed to create in cash or with a basket of
securities. In either case, the arbitrageur can
effectively hedge a position in a Fund in a variety
of ways, including the use of market-on-close
contracts to buy or sell the Financial Instruments.
VerDate Aug<31>2005
15:00 Aug 14, 2007
Jkt 211001
same manner and subject to the same
terms and conditions as those for
original ownership of Shares. Brokerage
commissions, charges, and other costs,
if any, incurred in purchasing Shares in
the secondary market with the cash
from the distributions generally will be
an expense borne by the individual
Beneficial Owners participating in
reinvestment through such service.
Dissemination of Indicative Intra-Day
Value (IIV)
In order to provide updated
information relating to each Fund for
use by investors, professionals, and
persons wishing to create or redeem
Shares, the Exchange will disseminate
through the facilities of the CT (1)
Continuously throughout the trading
day, the market value of a Share, and (2)
at least every 15 seconds throughout
Amex’s trading day, a calculation of the
IIV,36 as calculated by the Exchange (the
‘‘IIV Calculator’’). The Exchange states
that comparing these two figures helps
an investor to determine whether, and
to what extent, the Shares may be
selling at a premium or a discount to
NAV.
The IIV is designed to provide
investors with a reference value that can
be used in connection with other related
market information. The IIV does not
necessarily reflect the precise
composition of the current portfolio
held by each Fund at a particular point
in time. Therefore, the IIV on a perShare basis disseminated during Amex
trading hours should not be viewed as
a real-time update of the NAV of a
particular Fund, which is calculated
only once a day. While the IIV that will
be disseminated by Amex is expected to
be close to the most recently calculated
Fund NAV on a per-Share basis, it is
possible that the value of the portfolio
held by a Fund may diverge from the IIV
during any trading day. In such case, the
IIV will not precisely reflect the value
of the Fund portfolio.
The IIV Calculator will disseminate
the IIV throughout the trading day for
each Fund by: (1) Calculating the markto-market gains or losses from the
Fund’s total return equity swap
exposure based on the percentage
change to the Underlying Index and the
previous day’s notional values of the
swap contracts, if any, held by such
Fund (which previous day’s notional
value will be provided by the Trust); (2)
calculating the mark-to-market gains or
36 The IIV is also referred to by other issuers as
an ‘‘Estimated NAV,’’ ‘‘Underlying Trading Value,’’
‘‘Indicative Optimized Portfolio Value (IOPV),’’ and
‘‘Intraday Indicative Value’’ in various places such
as the prospectus and marketing materials for
different exchange-traded funds.
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45843
losses from futures, options, and other
Financial Instrument positions by taking
the difference between the current value
of those positions held by the Fund, if
any (as provided by the Trust), and the
previous day’s value of such positions;
(3) adding the values from (1) and (2)
above to an estimated cash amount
provided by the Trust (which cash
amount will include the swap costs) to
arrive at a value; and (4) dividing that
value calculated in (3) above by the total
number of Shares outstanding (as
provided by the Trust) to obtain current
IIV.
Criteria for Initial and Continued Listing
The Shares are subject to the criteria
for initial and continued listing of Index
Fund Shares under Amex Rule 1002A.
A minimum of two Creation Units (at
least 150,000 Shares) will be required to
be outstanding at the start of trading.
This minimum number of Shares
required to be outstanding at the start of
trading will be comparable to
requirements that have been applied to
previously listed series of Index Fund
Shares. The Exchange believes that the
proposed minimum number of Shares
outstanding at the start of trading is
sufficient to provide market liquidity.
The Exchange, pursuant to Amex Rule
1002A(a)(ii), will obtain a
representation from the Trust (for each
Fund), prior to listing, that the NAV per
share for each Fund will be calculated
daily and made available to all market
participants at the same time. The
Exchange represents that the Trust is
required to comply with Rule 10A–3
under the Act 37 for the initial and
continued listing of the Shares.
Amex Trading Rules and Trading Halts
The Shares are equity securities
subject to Amex rules governing the
trading of equity securities.38 In
addition, Amex Rule 154–AEMI(c)(ii) 39
and Commentary .04 to Amex Rule
190 40 apply to Index Fund Shares listed
on the Exchange, including the Shares.
37 17 CFR 240.10A–3 (setting forth listing
standards relating to audit committees).
38 Amex Confirmation (clarifying Amex trading
rules applicable to the Shares).
39 Amex Rule 154–AEMI(c)(ii) 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 Amex Rule 950–ANTE(f) and
Commentary thereto), the price of which is
derivatively priced based upon another security or
index of securities, may be elected by a quotation.
The Exchange has designated Index Fund Shares,
including the Shares, as eligible for this treatment.
40 Commentary .04 states that nothing in Amex
Rule 190(a) should be construed to restrict a
specialist registered in a security issued by an
investment company from purchasing and
redeeming the listed security or securities that can
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In addition to other factors that may
be relevant, the Exchange may consider
factors such as those set forth in Amex
Rule 918C(b) in exercising its discretion
to halt or suspend trading in Index Fund
Shares. These factors include, but are
not limited to, (1) The extent to which
trading is not occurring in securities
comprising an Underlying Index and/or
the Financial Instruments of a Fund, or
(2) whether other unusual conditions or
circumstances detrimental to the
maintenance of a fair and orderly
market are present. In the case of
Financial Instruments held by a Fund,
the Exchange represents that a
notification procedure will be
implemented so that timely notice from
the Advisor is received by the Exchange
when a particular Financial Instrument
is in default or shortly to be in default.
Notification from the Advisor will be
made by phone, facsimile, or e-mail.
The Exchange would then determine on
a case-by-case basis whether a default of
a particular Financial Instrument
justifies a trading halt of the Shares.
Trading in Shares of the Funds will also
be halted if the circuit breaker
parameters under Amex Rule 117 have
been reached.
Amex Rule 1002A(b)(ii) sets forth the
trading halt parameters with respect to
Index Fund Shares. If the IIV or the
Underlying Index value applicable to
that series of Index Fund Shares is not
being disseminated as required, the
Exchange may halt trading during the
day in which the interruption to the
dissemination of the IIV or the
Underlying Index value occurs. If the
interruption to the dissemination of the
IIV or the Underlying Index value
persists past the trading day in which it
occurred, the Exchange will halt trading
no later than the beginning of the
trading day following the interruption.
Information Circular
ebenthall on PROD1PC69 with NOTICES
The Exchange, in an Information
Circular to Exchange members and
member organizations, prior to the
commencement of trading, will inform
members and member organizations
regarding the application of
Commentary .06 of Amex Rule 1000A–
AEMI to the Funds. The Information
Circular will further inform members
and member organizations of the
prospectus and/or product description
delivery requirements that apply to the
Funds.41
be subdivided or converted into the listed security
from the issuer as appropriate to facilitate the
maintenance of a fair and orderly market.
41 The Exchange states that the any product
description used in reliance on Section 24(d) of the
1940 Act (15 U.S.C. 80a–24(d)) will comply with all
representations and conditions set forth in the
Application. See supra note 29.
VerDate Aug<31>2005
17:55 Aug 14, 2007
Jkt 211001
The Information Circular will also
provide guidance with regard to
member firm compliance
responsibilities when effecting
transactions in the Shares and
highlighting the special risks and
characteristics of the Funds and Shares
as well as applicable Exchange rules. In
particular, the Information Circular will
set forth the requirements relating to
Commentary .05 to Amex Rule 411
(Duty to Know and Approve
Customers). Specifically, the
Information Circular will remind
members of their obligations in
recommending transactions in the
Shares so that members have a
reasonable basis to believe that (1) The
recommendation is suitable for a
customer given reasonable inquiry
concerning the customer’s investment
objectives, financial situation, needs,
and any other information known by
such member, and (2) that the customer
can evaluate the special characteristics,
and is able to bear the financial risks, of
such investment. In connection with the
suitability obligation, the Information
Circular will also provide that members
make reasonable efforts to obtain the
following information: (a) The
customer’s financial status; (b) the
customer’s tax status; (c) the customer’s
investment objectives; and (d) such
other information used or considered to
be reasonable by such member or
registered representative in making
recommendations to the customer. In
addition, the Information Circular will
disclose that the procedures for
purchases and redemptions of Shares in
Creation Units are described in each
Fund’s prospectus and SAI, and that
Shares are not individually redeemable,
but are redeemable only in Creation
Unit aggregations or multiples thereof.
Surveillance
The Exchange represents that its
surveillance procedures are adequate to
properly monitor the trading of the
Shares. Specifically, Amex will rely on
its existing surveillance procedures
governing Index Fund Shares. In
addition, the Exchange also has a
general policy prohibiting the
distribution of material, non-public
information by its employees.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
Act,42 in general, and furthers the
objectives of Section 6(b)(5),43 in
particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
42 15
43 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00122
Fmt 4703
Sfmt 4703
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in regulating, clearing,
settling, processing information with
respect to, and facilitating transactions
in securities, and, in general, to protect
investors and the public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes the proposed
rule change will impose no burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange states that no written
comments were solicited or received
with respect to the proposed rule
change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
As the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which Amex consents, the
Commission will:
A. By order approve such proposed
rule change, or
B. Institute proceedings to determine
whether the proposed rule change
should be disapproved.
The Commission is considering
granting accelerated approval of the
proposed rule change at the end of a 15day comment period.44
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml ); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–Amex–2007–60 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
44 In the Exchange Notice, Amex requested
accelerated approval of this proposed rule change
prior to the 30th day after the date of publication
of the notice of the filing thereof.
E:\FR\FM\15AUN1.SGM
15AUN1
Federal Register / Vol. 72, No. 157 / Wednesday, August 15, 2007 / Notices
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–Amex–2007–60. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml ). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of the filing also will be available
for inspection and copying at the
principal office of the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–Amex–2007–60 and should
be submitted on or before August 30,
2007.
For the Commission, by the Division of
Market Regulation, pursuant to delegated
authority.45
Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7–15936 Filed 8–14–07; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
ebenthall on PROD1PC69 with NOTICES
[Release No. 34–56226; File No. SR–BSE–
2007–35]
Self-Regulatory Organizations; Boston
Stock Exchange, Inc; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change Relating to the
Market Opening Procedures of the
Rules of the Boston Options Exchange
August 8, 2007.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
45 17
CFR 200.30–3(a)(12).
VerDate Aug<31>2005
15:00 Aug 14, 2007
Jkt 211001
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 3,
2007, the Boston Stock Exchange, Inc.
(‘‘BSE’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been
substantially prepared by the Exchange.
The Exchange filed the proposal as a
‘‘non-controversial’’ proposed rule
change pursuant to Section
19(b)(3)(A)(iii) of the Act 3 and Rule
19b–4(f)(6) thereunder.4 The
Commission is publishing this notice to
solicit comments on the proposed rule
from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The BSE is proposing to amend
Chapter V, Section 9(e) of the rules of
the Boston Options Exchange (‘‘BOX’’)
to establish a permanent market opening
procedure and to also define the
relationship between the opening of an
underlying stock in its primary market
and the opening of the option on BOX
during such times when the underlying
stock’s primary market has not opened.
The text of the proposed rule change is
available on the BSE’s Web site at
https://www.bostonoptions.com, at BSE’s
principle office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
On February 4, 2004, the Commission
approved the market opening
guidelines, as set forth in the BOX
Rules, on a pilot basis through August
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(iii).
4 17 CFR 240.19b–4(f)(6).
2 17
PO 00000
Frm 00123
Fmt 4703
Sfmt 4703
45845
6, 2004 5 and has since extended the
Pilot Program through August 6, 2007.6
The purpose of this rule filing is to
make these market opening guidelines
permanent. The Exchange proposes to
make its market opening guidelines
permanent since they have successfully
opened the market since BOX’s
inception.7
In addition, the purpose of this rule
filing is also to define the relationship
between the opening of the underlying
stock in its primary market and the
opening of the option on BOX during
such times when the underlying stock’s
primary market has not opened.8 The
BSE seeks to establish a process that
allows for BOX to have the proper
flexibility to open its market in an
option in the morning when all other
option Exchanges are open for trading
and BOX rules currently do not allow
for the opening of said options.
In establishing this process, the BSE
seeks to delegate to the Exchange the
authority to decide whether BOX should
open the market in an option when the
underlying stock has not opened in the
primary market, and all other Exchanges
are trading the option. The Exchange
presently has no express authority
within the BOX Rules to authorize said
opening of the market. The BSE seeks to
establish this process to allow BOX to
have the same authority as other
Exchanges,9 to eliminate a competitive
disadvantage and to provide additional
liquidity and competitive quotes into
the marketplace. Specifically, the
Exchange will delay opening an option
until the underlying security has
opened unless the Exchange determines
that the interests of a fair and orderly
market are best served by opening
trading in the option.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
5 See Securities Exchange Act Release No. 49192
(February 4, 2004), 69 FR 7051 (February 12, 2004)
(SR–BSE–2004–05).
6 See Securities Exchange Act Release Nos. 50163
(August 6, 2004) 69 FR 50230 (August 13, 2004)
(SR–BSE–2004–28); 52166 (July 29, 2005), 70 FR
44957 (August 4, 2005) (SR–BSE–2005–34); 54507
(September 26, 2006) 71 FR 58020 (October 2, 2006)
(SR–BSE–2006–36); and 54467 (September 18,
2006) 71 FR 55530 (September 22, 2006) (SR–BSE–
2006–37).
7 The BOX market first opened on February 6,
2004.
8 The proposed rule will deem an underlying
security to have opened on the primary market
when the primary market has reported a transaction
in the underlying security, or disseminated opening
quotations for the underlying security and not given
an indication of a delayed opening, whichever
occurs first.
9 See ISE Rules 701(b)(2) and 701(b)(3).
E:\FR\FM\15AUN1.SGM
15AUN1
]]>Agencies
[Federal Register Volume 72, Number 157 (Wednesday, August 15, 2007)]
[Notices]
[Pages 45837-45845]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-15936]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56223; File No. SR-Amex-2007-60]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of a Proposed Rule Change and Amendment No. 1 Thereto
Relating to the Listing and Trading of Shares of Eight Funds of the
ProShares Trust Based on International Equity Indexes
August 8, 2007.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on June 15, 2007, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been substantially prepared by the
Exchange (``Exchange Notice''). On July 27, 2007, Amex submitted
Amendment No. 1 to the proposed rule change. The Commission is
publishing this notice to solicit comments on the proposed rule change,
as amended, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade the shares (``Shares'') of
eight funds of the ProShares Trust (``Trust'') \3\ based on four
international equity indexes. The text of the proposed rule change is
available at the Exchange, the Commission's Public Reference Room, and
https://www.amex.com.
---------------------------------------------------------------------------
\3\ The Trust is registered as a business trust under the
Delaware Corporate Code.
---------------------------------------------------------------------------
[[Page 45838]]
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
Amex Rules 1000A-AEMI and 1001A--1005A provide standards for the
listing of Index Fund Shares, which are securities issued by an open-
end management investment company for exchange trading. These
securities are registered under the Investment Company Act of 1940
(``1940 Act''), as well as under the Act. Index Fund Shares are defined
in Amex Rule 1000A-AEMI(b)(1) generally as securities based on a
portfolio of stocks or fixed income securities that seek to provide
investment results that correspond generally to the price and yield of
a specified foreign or domestic stock index or fixed income securities
index. Amex Rule 1000A-AEMI(b)(2) permits the Exchange to list and
trade Index Fund Shares that seek to provide investment results that
exceed the performance of an underlying securities index by a specified
multiple or that seek to provide investment results that correspond to
a specified multiple of the inverse or opposite of the index's
performance.\4\
---------------------------------------------------------------------------
\4\ See Amex Rule 1000A--AEMI(b)(2)(iii) and Commentary .02
thereto (providing that the listing and trading of Index Fund Shares
under paragraph (b)(2) thereof cannot be approved by the Exchange
pursuant to Rule 19b-4(e) under the Act (17 CFR 240.19b-4(e)).
---------------------------------------------------------------------------
The Exchange proposes to list under Amex Rule 1000A-AEMI the Shares
of eight new funds of the Trust that are designated as Short Funds (the
``Short Funds'') and UltraShort Funds (the ``UltraShort Funds,'' and
together with the Short Funds, collectively referred to as the
``Funds'').\5\ Each of the Funds will have a distinct investment
objective by attempting, on a daily basis, to correspond to a specified
multiple of the inverse performance of a particular equity securities
index as described below. The Funds will be based on the following
benchmark indexes: (1) MSCI Emerging Markets Index; (2) MSCI Japan
Index; (3) MSCI EAFE Index; and (4) FTSE/Xinhua 25 Index (each
individually an ``Underlying Index,'' and all indexes collectively the
``Underlying Indexes'').\6\
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\5\ A list of the proposed Funds is set forth in Exhibit A to
the Exchange Notice. The Commission has approved the listing and
trading of certain Short Funds and UltraShort Funds based on a
variety of underlying indexes. See Securities Exchange Act Release
Nos. 55117 (January 17, 2007), 72 FR 3442 (January 25, 2007) (SR-
Amex-2006-101) (approving the listing and trading of shares of funds
of the Trust based on certain underlying indexes); 54040 (June 23,
2006), 71 FR 37629 (June 30, 2006) (SR-Amex-2006-41) (approving the
listing and trading of shares of funds of the Trust based on certain
underlying indexes); and 52553 (October 3, 2005), 70 FR 59100
(October 11, 2005) (SR-Amex-2004-62) (approving the listing and
trading of shares of funds of the xtraShares Trust based on certain
underlying indexes).
\6\ The Statement of Additional Information (``SAI'') for the
Funds discloses that each Fund reserves the right to substitute a
different Underlying Index. Substitutions can occur if an Underlying
Index becomes unavailable, no longer serves the investment needs of
shareholders, the Fund experiences difficulty in achieving
investment results that correspond to the applicable Underlying
Index, or for any other reason determined in good faith by the Board
(as defined herein). In such instance, the substitute index would
attempt to measure the same general market as the then current
Underlying Index. Consistent with applicable law, shareholders would
be notified (either directly or through their respective
intermediary) if a Fund's Underlying Index is replaced. In such
case, the continued listing standards under Amex Rule 1002A would
apply. See Amex Rule 1002A(b)(i)(B) (providing that the Exchange
will consider the suspension of trading in, or removal from listing
of, a series of Index Fund Shares if, among other circumstances, the
Underlying Index or portfolio is replaced with a new index or
portfolio, subject to certain exceptions).
---------------------------------------------------------------------------
Specifically, the Exchange proposes to list and trade Shares of the
Short Funds that seek daily investment results, before fees and
expenses, that correspond to the inverse or opposite of the daily
performance (-100%) of the Underlying Indexes. If each of these Short
Funds is successful in meeting its objective, the net asset value
(``NAV'') of the Shares of each Short Fund should increase
approximately as much, on a percentage basis, as the respective
Underlying Index loses when the prices of the securities in the
Underlying Index decline on a given day, or should decrease
approximately as much as the respective Underlying Index gains when the
prices of the securities in the Underlying Index rise on a given day,
before fees and expenses.
The Exchange also proposes to list and trade Shares of the
UltraShort Funds that seek daily investment results, before fees and
expenses, that correspond to twice the inverse or opposite (-200%) of
the daily performance of the Underlying Indexes. If each of these
UltraShort Funds is successful in meeting its objective, the NAV of the
Shares of each UltraShort Fund should increase approximately twice as
much, on a percentage basis, as the respective Underlying Index loses
when the prices of the securities in the Underlying Index decline on a
given day, or should decrease approximately twice as much as the
respective Underlying Index gains when the prices of the securities in
the Underlying Index rise on a given day, before fees and expenses.
ProShare Advisors LLC is the investment advisor (the ``Advisor'')
to each Fund. The Advisor is registered under the Investment Advisers
Act of 1940.\7\ While the Advisor will manage each Fund, the Trust's
Board of Trustees (the ``Board'') will have overall responsibility for
the Funds' operations. The composition of the Board is, and will be, in
compliance with the requirements of Section 10 of the 1940 Act.\8\ SEI
Investments Distribution Company (the ``Distributor''), a broker-dealer
registered under the Act, will act as the distributor and principal
underwriter of the Shares. JPMorgan Chase Bank, N.A. will act as the
index receipt agent (the ``Index Receipt Agent'') for which it will
receive fees. The Index Receipt Agent will be responsible for the
processing, clearance, and settlement of purchase and redemption orders
through the facilities of the Depository Trust Company (``DTC'') and
the National Securities Clearing Corporation (``NSCC'') on behalf of
the Trust.\9\ The Index Receipt Agent will also be responsible for the
coordination and transmission of files and purchase and redemption
orders between the Distributor and the NSCC.
---------------------------------------------------------------------------
\7\ The Trust, Advisor, and Distributor (``Applicants'') have
filed with the Commission an application to amend the order under
the 1940 Act (the ``Application'') for the purpose of exempting the
Funds of the Trust from various provisions of the 1940 Act. See
Investment Company Act Release No. 27609 (December 22, 2006), 72 FR
162 (January 3, 2007) (File No. 812-13329) (providing notification
of an application for an order under Section 6(c) of the 1940 Act
for an exemption from Sections 2(a)(32), 5(a)(1), 22(d), and 24(d)
of the 1940 Act and Rule 22c-1 under the 1940 Act, and under
Sections 6(c) and 17(b) of the Act for an exemption from Sections
17(a)(1) and (a)(2) of the 1940 Act).
\8\ See 15 U.S.C. 80a-10 (setting forth certain restrictions and
requirements with respect to affiliations or interest of directors,
officers, and employees of registered investment companies).
\9\ E-mail from Nyieri Nazarian, Assistant General Counsel,
Amex, to Edward Cho, Special Counsel, Division of Market Regulation,
Commission, dated July 30, 2007 (clarifying the responsibilities of
the Index Receipt Agent) (``Amex Confirmation'').
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[[Page 45839]]
Shares of the Funds issued by the Trust will be a class of
exchange-traded securities that represent an interest in the portfolio
of a particular Fund. The Shares will be registered in book-entry form
only, and the Trust will not issue individual share certificates. DTC
or its nominee will be the record or registered owner of all
outstanding Shares. Beneficial ownership of Shares will be shown on the
records of DTC or DTC participants.
Underlying Indexes
While the Exchange proposes to list and trade the Shares of the
Funds pursuant to Section 19(b)(1) of the Act, the Exchange represents
that the Underlying Index components comply with the generic listing
standards set forth in Commentary .02 to Amex Rule 1000A-AEMI.
MSCI Emerging Markets Index. The MSCI Emerging Markets Index is a
free float-adjusted, market capitalization index that is designed to
measure equity market performance in the global emerging markets. MSCI
(https://www.msci.com) administers this Underlying Index exclusively,
the component securities of which must meet objective criteria for
inclusion. The MSCI Emerging Markets Index aims to capture 85% of the
publicly available total market capitalization in each emerging market
included in such Underlying Index. The MSCI Emerging Markets Index is
rebalanced quarterly, and its value is calculated in U.S. dollars on a
real-time basis and disseminated every 60 seconds from 8 p.m. to 5 p.m.
Eastern Time (``ET'') the following day. As of June 2007, this
Underlying Index consisted of 698 components, and the three largest
stocks by weight were Samsung Electronics Co. Ltd., Anglo American Plc,
and Taiwan Semiconductor Manufacturing Company Ltd.\10\ The MSCI
Emerging Markets Index consists of the following 25 emerging market
country indices: Argentina, Brazil, Chile, China, Colombia, Czech
Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea,
Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia,
South Africa, Taiwan, Thailand, and Turkey. The Commission has
previously approved the listing and trading of an exchange-traded fund
based on the MSCI Emerging Markets Index.\11\
---------------------------------------------------------------------------
\10\ Amex Confirmation (confirming the name of Taiwan
Semiconductor Manufacturing Company Ltd.).
\11\ See Securities Exchange Act Release No. 44900 (October 25,
2001), 66 FR 55712 (November 2, 2001) (SR-Amex-2001-45) (approving
the listing and trading of shares of funds of iShares, Inc. based on
certain foreign stock indexes, including the MSCI Emerging Markets
(Free) Index), as corrected by Securities Exchange Act Release No.
44990 (October 25, 2001), 66 FR 56869 (November 13, 2001) (SR-Amex-
2001-45) (correcting the Release Number from 44900 to 44990).
---------------------------------------------------------------------------
MSCI Japan Index. The MSCI Japan Index seeks to measure the
performance of the Japanese equity market. The MCSI Japan Index is a
capitalization-weighted index whose component securities are adjusted
for available float and must meet objective criteria for inclusion in
the Underlying Index. The MSCI Japan Index aims to capture 85% of the
publicly available total market capitalization in Japan. The MSCI Japan
Index is rebalanced quarterly, and its value is calculated in U.S.
dollars on a real-time basis and disseminated every 60 seconds from 8
p.m. to 2 a.m. ET.\12\ As of May 31, 2007, this Underlying Index, which
is comprised of stocks traded primarily on the Tokyo Stock Exchange,
consisted of 321 components, and the three largest stocks by weight
were Toyota Motor Corp., Sony Corp., and NTT DoCoMo Inc. The
calculation method weights stocks in the Underlying Index by their
beginning-of-period market capitalization. Share prices are ``swept
clean'' daily and adjusted for any rights issues, stock dividends, or
splits. This Underlying Index is calculated in local currency and in
U.S. dollars, without dividends and with gross dividends reinvested.
Prices used to calculate the MSCI Japan Index are the official closing
prices on the Tokyo Stock Exchange and other Japanese exchanges on
which the equity securities comprising this Underlying Index are listed
and primarily traded.\13\ To calculate the applicable foreign currency
exchange rate, MSCI uses WM/Reuters Closing Spot Rates. Under
exceptional circumstances, MSCI may elect to use an alternative
exchange rate for any country if the WM/Reuters Closing Spot Rate is
believed not to be representative for the given currency on a
particular day.
---------------------------------------------------------------------------
\12\ Commentary .02(b)(ii) to Amex Rule 1000A-AEMI provides that
if an Underlying Index value does not change during some or all of
the period when trading is occurring on the Exchange (for example,
for indexes of non-U.S. component stocks because of time zone
differences or holidays in the countries where such indexes'
component stocks trade), then the last official calculated
Underlying Index value must remain available throughout Exchange
trading hours. As a result, the Exchange states that, for such an
Underlying Index, the value that will be disseminated during Amex
trading hours would be static.
\13\ Amex Confirmation (noting that the official closing prices
used to calculate the MSCI Japan Index value would be taken from the
Tokyo Stock Exchange and other Japanese exchanges on which certain
equity securities comprising the MSCI Japan Index primarily trade).
---------------------------------------------------------------------------
The MSCI Japan Index is calculated by MSCI for each trading day in
the Japanese foreign exchange market based on official closing prices
in such exchange market. For each trading day, MSCI publicly
disseminates this Underlying Index value for the previous day's close.
The MSCI Japan Index is reported periodically in major financial
publications and also is available through vendors of financial
information. The Commission has previously approved the listing and
trading of an exchange-traded fund based on the MSCI Japan Index.\14\
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release No. 36947 (March 8,
1996), 61 FR 10606 (March 14, 1996) (SR-Amex-95-43) (approving the
listing and trading of Index Fund Shares based on the MSCI Japan
Index, among other indexes). The Exchange represents that shares of
the iShares MSCI Japan Index Fund (EWJ) are currently traded on the
Exchange.
---------------------------------------------------------------------------
MSCI EAFE Index. The MSCI EAFE Index is a free float-adjusted,
market capitalization index that is designed to measure equity market
performance in the developed markets of Europe, Australasia, and the
Far East. The MSCI EAFE Index is a capitalization-weighted index whose
component securities are adjusted for available float and must meet
objective criteria for inclusion in the Underlying Index. The MSCI EAFE
Index aims to capture 85% of the publicly available total market
capitalization in each developed market included in the MSCI EAFE
Index. The MSCI EAFE Index is rebalanced quarterly, and its value is
calculated in U.S. dollars on a real-time basis and disseminated every
60 seconds from 10 p.m. to 12:30 p.m. ET.\15\ As of June 2007, this
Underlying Index consisted of 1021 components, and the three largest
stocks by weight were BP Plc, Glaxosmithkline Plc, and Novartis Ag. The
MSCI EAFE Index consists of the following 21 developed market country
indices: Australia, Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Hong Kong, Ireland, Italy, Japan, the Netherlands, New
Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and
the United Kingdom. The Commission has previously approved the listing
and trading on the Amex of an exchange-traded fund based on the MSCI
EAFE Index.\16\
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\15\ See supra note 12. The Exchange states that between the
start of trading on Amex to 12:30 p.m. ET, the MSCI EAFE Index value
will be updated and disseminated every 60 seconds; however, from
12:30 p.m. ET to the close of Amex trading at 4:15 p.m. ET, the
Exchange represents that only the last official calculated value
will be available.
\16\ See Securities Exchange Act Release No. 44700 (August 14,
2001), 66 FR 43927 (August 21, 2001) (SR-Amex-2001-34) (approving
the listing and trading of shares of a fund based on the MSCI EAFE
Index, among other indexes). The Exchange states that the shares of
the iShares MSCI EAFE Index Fund (EFA) are currently traded on the
Exchange.
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[[Page 45840]]
FTSE/Xinhua China 25 Index. The FTSE/Xinhua China 25 Index consists
of 25 of the largest and most liquid Chinese stocks (Red Chip and H
shares) \17\ listed and trading on HKSE. The component securities of
the FTSE/Xinhua China 25 Index are weighted based on the free-float
adjusted total market value of the shares so that securities with
higher total market values generally have a higher representation in
this Underlying Index. The component securities are screened for
liquidity, and weightings are capped to avoid over-concentration in any
one stock. The inception date of this Underlying Index was March 2001.
The FTSE/Xinhua China 25 Index is rule-based and is monitored by a
governing committee that is responsible for conducting a quarterly
review of the constituent securities of the Underlying Index and for
making changes to the Underlying Index in accordance with this
Underlying Index's procedures.\18\ The FTSE/Xinhua China 25 Index is
rebalanced quarterly, and its value is calculated in U.S. dollars on a
real-time basis and disseminated every 60 seconds from 9:15 p.m. to 4
a.m. ET.\19\ The Commission has previously approved the listing and
trading of an exchange-traded fund based on the FTSE/Xinhua China 25
Index.\20\
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\17\ The Exchange states that ``H shares'' are securities of
companies incorporated in mainland China and nominated by the
Chinese government for listing and trading on the Hong Kong Stock
Exchange (``HKSE''). They are quoted and traded in Hong Kong dollars
(``HKD''). The only Chinese investors permitted to trade H shares
are those who are approved by the Chinese government; however there
are no such restrictions on international investors. ``Red Chips''
are securities of companies incorporated in Hong Kong that trade on
HKSE and are quoted in HKD. The constituents are substantially
owned, directly or indirectly, by Chinese state-owned enterprises.
The only Chinese investors permitted to trade Red Chips are those
who are approved by the Chinese government; however, there are no
such restrictions on international investors.
\18\ Amex Confirmation (confirming that the governing committee
is responsible for such duties).
\19\ See supra note 12.
\20\ See Securities Exchange Act Release No. 50505 (October 8,
2004), 69 FR 61280 (October 15, 2004) (SR-NYSE-2004-55) (approving
the listing and trading of shares of the iShares FTSE/Xinhua China
25 Index Fund). The Exchange states that the shares of the iShares
FTSE/Xinhua China 25 Index Fund (FXI) are currently traded on the
Exchange. See Securities Exchange Act Release No. 50800 (December 6,
2004), 69 FR 72228 (December 13, 2004) (SR-Amex-2004-85) (approving
the trading of shares of the iShares FTSE/Xinhua China 25 Index Fund
pursuant to unlisted trading privileges).
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Investment Objective of the Funds
The Short Funds will seek daily investment results, before fees and
expenses, of the inverse or opposite (-100%) of the applicable
Underlying Index, and the UltraShort Funds will seek daily investment
results, before fees and expenses, of twice the inverse or opposite (-
200%) of the daily performance of the applicable Underlying Index. Each
of these Funds will not invest directly in the component securities of
the relevant Underlying Index, but instead will create short exposure
to such Underlying Index. Each Fund will rely on establishing positions
in certain financial instruments \21\ that provide, on a daily basis,
the inverse or opposite of, or twice the inverse or opposite of, as the
case may be, the performance of the relevant Underlying Index.
Normally, 100% of the value of the portfolios of each Fund will be
devoted to Financial Instruments and certain money market
instruments.\22\
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\21\ The financial instruments to be held by any of the Funds
may include stock index futures contracts, options on futures
contracts, options on securities and indices, equity caps, collars
and floors, as well as swap agreements, forward contracts,
repurchase agreements, and reverse repurchase agreements (the
``Financial Instruments'').
\22\ Money market instruments include (1) U.S. government
securities and (2) repurchase agreements that (a) Are held by the
Funds and (b) will be eligible investments in accordance with Rule
2a-7 under the 1940 Act (17 CFR 270.2a-7) (the ``Money Market
Instruments'').
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While the Advisor will attempt to minimize any ``tracking error''
between the investment results of a particular Fund and the performance
(and specified multiple thereof) or the inverse performance (and
specified multiple thereof) of its Underlying Index, certain factors
may tend to cause the investment results of a Fund to vary from such
relevant Underlying Index or specified multiple thereof.\23\ The Funds
are expected to be highly inversely correlated to each applicable
Underlying Index and investment objective (-0.85 or greater).\24\ In
each case, the Funds are expected to have a daily tracking error of
less than 5% (500 basis points) relative to the specified multiple or
inverse multiple of the performance of the relevant Underlying Index.
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\23\ The Exchange states that several factors may cause a Fund
to vary from the relevant Underlying Index and investment objective
including: (1) A Fund's expenses, including brokerage fees (which
may be increased by high portfolio turnover) and the cost of the
investment techniques employed by that Fund; (2) less than all of
the securities in the benchmark Underlying Index being held by a
Fund and securities not included in the benchmark Underlying Index
being held by a Fund; (3) an imperfect correlation between the
performance of instruments held by a Fund, such as futures
contracts, and the performance of the underlying securities in the
cash market; (4) bid-ask spreads (the effect of which may be
increased by portfolio turnover); (5) holding instruments traded in
a market that has become illiquid or disrupted; (6) a Fund's Share
prices being rounded to the nearest cent; (7) changes to the
benchmark Underlying Index that are not disseminated in advance; (8)
the need to conform a Fund's portfolio holdings to comply with
investment restrictions or policies or regulatory or tax law
requirements; and (9) early and unanticipated closings of the
markets on which the holdings of a Fund trade, resulting in the
inability of the Fund to execute intended portfolio transactions.
\24\ Correlation is the strength of the relationship between (1)
The change in a Fund's NAV and (2) the change in the benchmark
Underlying Index (investment objective). The statistical measure of
correlation is known as the ``correlation coefficient.'' A
correlation coefficient of +1 indicates a perfect positive
correlation, while a value of -1 indicates a perfect negative
(inverse) correlation. A value of zero would mean that there is no
correlation between the two variables.
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The Portfolio Investment Methodology
The Advisor will seek to establish an investment exposure in each
portfolio corresponding to each Fund's investment objective based on
its ``Portfolio Investment Methodology,'' as described below. The
Exchange states that the Portfolio Investment Methodology is a
mathematical model based on well-established principles of finance that
are widely used by investment practitioners, including conventional
index fund managers.
As set forth in the Application, the Portfolio Investment
Methodology was designed to determine for each Fund the portfolio
investments needed to achieve its stated investment objectives. The
Portfolio Investment Methodology takes into account a variety of
specified criteria and data, the most important of which are: (1) Net
assets (taking into account creations and redemptions) in each Fund's
portfolio at the end of each trading day; (2) the amount of required
exposure to the Underlying Index; and (3) the positions in Financial
Instruments and/or Money Market Instruments at the beginning of each
trading day. The Advisor will then mathematically determine the end-of-
day positions to establish the required amount of exposure to the
Underlying Index (the ``Solution''), which will consist of equity
securities, Financial Instruments, and/or Money Market Instruments. The
difference between the start-of-day positions and the required end-of-
day positions is the actual amount of Financial Instruments and/or
Money Market Instruments that must be bought or sold for the day. The
Solution represents the required exposure and, when necessary, is
converted into an order or orders to be filled that same day.
Generally, portfolio trades effected pursuant to the Solution are
reflected in the NAV on the first business day (T+1) after the date the
relevant trade is made. Therefore, the NAV calculated for a
[[Page 45841]]
Fund on a given day should reflect the trades executed pursuant to the
prior day's Solution. For example, trades pursuant to the Solution
calculated on a Monday afternoon are executed on behalf of the Fund in
question on that day. These trades will then be reflected in the NAV
for that Fund that is calculated as of 4 p.m. ET on Tuesday.
The timeline for the Portfolio Investment Methodology is as
follows. Authorized Participants (``APs'' or ``Authorized
Participants'') \25\ have a 3 p.m. ET cut-off for orders submitted by
telephone, facsimile, and other electronic means of communication and a
4 p.m. ET cut-off for orders received via mail.\26\ Orders are received
by the Distributor and relayed to the Advisor within ten minutes. The
Advisor will know by 3:10 p.m. ET the number of creation/redemption
orders by APs for that day. Orders are then placed at approximately
3:40 p.m. ET as market-on-close orders. At 4 p.m. ET, the Advisor will
again look at the exposure to make sure that the orders placed are
consistent with the Solution, and, as described above, the Advisor will
execute any other transactions in Financial Instruments to assure that
the Fund's exposure is consistent with the Solution.
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\25\ An Authorized Participant is: (1) Either (a) a broker-
dealer or other participant in the continuous net settlement system
of the NSCC, or (b) a DTC participant; and (2) a party to a
participant agreement with the Distributor.
\26\ The Exchange states that AP orders by mail are exceedingly
rare.
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Description of Investment Techniques
In attempting to achieve its individual investment objectives, a
Fund may invest its assets in Financial Instruments and Money Market
Instruments. The Funds generally will not invest in equity securities,
but rather will hold only Financial Instruments and Money Market
Instruments. To the extent applicable, each Fund will comply with the
requirements of the 1940 Act with respect to ``cover'' for Financial
Instruments and, thus, may hold a significant portion of its assets in
liquid instruments in segregated accounts.
Each Fund may engage in transactions in futures contracts on
designated contract markets where such contracts trade and will only
purchase and sell futures contracts traded on a U.S. futures exchange
or board of trade. Each Fund will comply with the requirements of Rule
4.5 of the regulations promulgated by the Commodity Futures Trading
Commission (``CFTC'').\27\
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\27\ The Exchange states that CFTC Rule 4.5 provides an
exclusion for investment companies registered under the 1940 Act
from the definition of the term ``commodity pool operator'' upon the
filing of a notice of eligibility with the National Futures
Association.
---------------------------------------------------------------------------
Each Fund may enter into swap agreements and/or forward contracts
for the purposes of attempting to gain exposure to its corresponding
Underlying Index without actually transacting such securities. The
Exchange states that the counterparties to the swap agreements and/or
forward contracts will be major broker-dealers and banks. The
creditworthiness of each potential counterparty is assessed by the
Advisor's credit committee pursuant to guidelines approved by the
Board. Existing counterparties are reviewed periodically by the Board.
Each Fund may also enter into repurchase and reverse repurchase
agreements with terms of less than one year and will only enter into
such agreements with (1) Members of the Federal Reserve System, (2)
primary dealers in U.S. government securities, or (3) major broker-
dealers. Each Fund may also invest in Money Market Instruments, in
pursuit of its investment objectives, as ``cover'' for Financial
Instruments, as described above, or to earn interest.
The Trust will adopt certain fundamental policies consistent with
the 1940 Act, and each Fund will be classified as ``non-diversified''
under the 1940 Act. Each Fund, however, intends to maintain the
required level of diversification and otherwise conduct its operations
so as to qualify as a ``regulated investment company'' or ``RIC'' for
purposes of the Internal Revenue Code to relieve the Trust and the
Funds of any liability for Federal income tax to the extent that its
earnings are distributed to shareholders.\28\
---------------------------------------------------------------------------
\28\ See Exchange Notice n.15 (providing a description of the
Internal Revenue Code requirements pertaining to RICs). The Exchange
Notice is available at Amex's Web site (https://www.amex.com).
---------------------------------------------------------------------------
Availability of Information About the Shares and Underlying Indexes
The Trust's Internet Web site (https://www.proshares.com), which is
and will be publicly accessible at no charge, will contain the
following information for each Fund's Shares: (a) The prior business
day's closing NAV, the reported closing price, and a calculation of the
premium or discount of such price in relation to the closing NAV; (b)
data for a period covering at least the four previous calendar quarters
(or the life of a Fund, if shorter) indicating how frequently each
Fund's Shares traded at a premium or discount to NAV based on the daily
closing price and the closing NAV, and the magnitude of such premiums
and discounts; (c) its prospectus and/or product description; and (d)
other quantitative information, such as daily trading volume. The
prospectus and/or product description for each Fund will inform
investors that the Trust's Web site has information about the premiums
and discounts at which the Fund's Shares have traded.\29\
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\29\ The Exchange states that the Application requests relief
from Section 24(d) of the 1940 Act (15 U.S.C. 80a-24(d)), which
would permit dealers to sell Shares in the secondary market
unaccompanied by a statutory prospectus when prospectus delivery is
not required by the Securities Act of 1933. Additionally, if a
product description is being provided in lieu of a prospectus,
Commentary .06 of Amex Rule 1000A-AEMI requires that Amex members
and member organizations provide to all purchasers of a series of
Index Fund Shares a written description of the terms and
characteristics of such securities, in a form prepared by the open-
end management investment company issuing such securities, not later
than the time of confirmation of the first transaction in such
series is delivered to such purchaser. Furthermore, any sales
material will reference the availability of such circular and the
prospectus.
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Amex will disseminate for each Fund on a daily basis by means of
the Consolidated Tape Association (``CT'') and CQ High Speed Lines
information with respect to an Indicative Intra-Day Value ( ``IIV'')
(as defined and discussed herein), recent NAV, number of Shares
outstanding, and the estimated cash amount and total cash amount per
Creation Unit (as defined herein). The Exchange will make available on
its Web site at https://www.amex.com daily trading volume, the closing
prices, the NAV, and the final dividend amounts to be paid for each
Fund.
Each Fund's total portfolio composition will be disclosed on the
Web site of the Trust or another relevant Web site as determined by the
Trust and/or the Exchange. Web site disclosure of portfolio holdings
will be made daily and will include, as applicable, the specific types
of Financial Instruments and characteristics of such Financial
Instruments and the cash equivalents and amount of cash held in the
portfolio of each Fund.\30\ This Web site disclosure of the portfolio
composition of each Fund and the disclosure by the Advisor of the ``IIV
File'' (as described herein) and the portfolio composition file or
``PCF'' (as described herein) will occur at the same time.\31\
Therefore, the same
[[Page 45842]]
portfolio information (including accrued expenses and dividends) will
be provided on the public Web site, as well as in the IIV File and PCF
provided to Authorized Participants. The format of the public Web site
disclosure and the IIV File and PCF will differ because the public Web
site will list all portfolio holdings, while the IIV File and PCF will
similarly provide the portfolio holdings, but in a format appropriate
for Authorized Participants, i.e., the exact components of a Creation
Unit.\32\ Accordingly, each investor will have access to the current
portfolio composition of each Fund through the Trust's Internet Web
site and/or at the Exchange's Web site.
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\30\ Amex Confirmation (confirming the information that will be
disclosed on the Trust's Web site).
\31\ Id. (confirming that the portfolio information contained in
the Trust's public Web site will be available at the same time the
IIV File and PCF are disclosed by the Advisor).
\32\ The composition will be used to calculate the NAV later
that day.
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Beneficial owners of Shares (the ``Beneficial Owners'') will
receive all of the statements, notices, and reports required under the
1940 Act and other applicable laws. They will receive, for example,
annual and semi-annual Fund reports, written statements accompanying
dividend payments, proxy statements, annual notifications detailing the
tax status of Fund distributions, and Form 1099-DIVs. Some of these
documents will be provided to Beneficial Owners by their brokers, while
others will be provided by the Fund through the brokers.
The daily closing value and the percentage change in the daily
closing value for each Underlying Index will be publicly available on
various Internet Web sites, and data regarding each Underlying Index
will be available from the respective Underlying Index provider.
Several independent data vendors also package and disseminate
Underlying Index data in various value-added formats (including vendors
displaying both securities and Underlying Index levels and vendors
displaying Underlying Index levels only). The value of each Underlying
Index will be updated intra-day on a real-time basis as its individual
component securities change in price. These intra-day values of each
Underlying Index will be disseminated at least every 60 seconds
throughout the trading day \33\ by Amex or another organization
authorized by the relevant Underlying Index provider.
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\33\ See supra notes 12 and 15 and accompanying text.
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Creation and Redemption of Shares
Each Fund will issue and redeem Shares only in aggregations of at
least 75,000 (each aggregation a ``Creation Unit''). Purchasers of
Creation Units will be able to separate the Creation Units into
individual Shares. Once the number of Shares in a Creation Unit is
determined, it will not change thereafter (except in the event of a
stock split or similar revaluation). The initial value of a Share for
each Fund is expected to be in the range of $50-$250.
Creation Unit aggregations of the Funds will be purchased at NAV,
plus a transaction fee. A purchaser will make a cash payment by 12 p.m.
ET on the third business day following the date on which the request
was made (T+3) or earlier. Purchasers of the Shares in Creation Unit
aggregations must satisfy certain creditworthiness criteria established
by the Advisor and approved by the Board, as provided in the
participation agreement between the Trust and Authorized Participants.
Creation Unit aggregations of the Shares will be redeemable for an all-
cash payment equal to the NAV, less a transaction fee.
The Trust will create a PCF for each Fund, which will be
transmitted to NSCC before the open of business the next business day.
The information in the PCF will be available to all participants in the
NSCC system. Because the NSCC's system for the receipt and
dissemination to its participants of the PCF is not currently capable
of processing information with respect to Financial Instruments, the
Advisor has developed an ``IIV File'' to disclose the Funds' holdings
of Financial Instruments.\34\ The IIV File will contain for each Fund
information sufficient by itself or in connection with the PCF and
other available information for market participants to calculate a
Fund's IIV and effectively arbitrage such Fund.
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\34\ The Trust or the Advisor will post the IIV File to a
password-protected Internet Web site before the opening of business
on each business day, and all Authorized Participants and the
Exchange will have access to a password and the Web site containing
the IIV File. The Funds, however, will disclose each business day to
the public identical information, but in a format appropriate to
public investors, at the same time the Funds disclose the IIV File
and PCF, as applicable, to industry participants.
---------------------------------------------------------------------------
For example, the following information would be provided in the IIV
File for a Fund holding Financial Instruments, such as swaps and
futures contracts: (A) The notional value of the swaps held by such
Fund (together with an indication of the Underlying Index on which such
swap is based and whether the Fund's position is long or short); (B)
the most recent valuation of the swaps held by the Fund; (C) the
notional value of any futures contracts (together with an indication of
the Underlying Index on which such contract is based, whether the
Fund's position is long or short, and the contract's expiration date)
held by the Fund; (D) the number of futures contracts held by the Fund
(together with an indication of the Underlying Index on which such
contract is based, whether the Fund's position is long or short, and
the contract's expiration date); (E) the most recent valuation of the
futures contracts held by the Fund; (F) the total assets and total
shares outstanding of each Fund; and (G) a ``net other assets'' figure
reflecting expenses and income of the Fund to be accrued during and
through the following business day and accumulated gains or losses on
the Fund's Financial Instruments through the end of the business day
immediately preceding the publication of the IIV File. To the extent
that any Fund holds cash or cash equivalents about which information is
not available in a PCF, information regarding such Fund's cash and cash
equivalent positions will be disclosed in the IIV File for such Fund.
The information in the IIV File will be sufficient for participants in
the NSCC system to calculate the IIV for the Funds during the following
business day.
The Shares of the Funds will be purchased and redeemed entirely for
cash. The use of an all-cash payment for the purchase and redemption of
Creation Unit aggregations of the Shares is due to the limited
transferability of Financial Instruments. The IIV File published before
the open of business on a business day will permit NSCC participants to
calculate (by means of calculating the IIV) the amount of cash required
to create a Creation Unit and the amount of cash that will be paid upon
redemption of a Creation Unit, for each Fund for that business day. All
Authorized Participants who are NSCC participants and the Exchange will
have access to the Web site containing the IIV File. The IIV File will
reflect trades made on behalf of a Fund and the creation/redemption
orders for that business day. Accordingly, by approximately 7 p.m. ET,
Authorized Participants will know the composition of a Fund's portfolio
for the next trading day.
The Exchange believes that Shares will not trade at a material
discount or premium to the underlying securities held by a Fund based
on potential arbitrage opportunities. The arbitrage process, which
provides the opportunity to profit from differences in prices of the
same or similar securities, increases the efficiency of the markets and
serves to prevent potentially manipulative efforts. If the price of a
Share deviates enough from the Creation Unit, on a per share basis, to
create a material discount or
[[Page 45843]]
premium, an arbitrage opportunity is created allowing the arbitrageur
to either buy Shares at a discount, immediately cancel them in exchange
for the Creation Unit, and sell the underlying securities in the cash
market at a profit, or sell Shares short at a premium and buy the
Creation Unit in exchange for the Shares to deliver against the short
position. In both instances, the arbitrageur locks in a profit, and the
markets move back into line.\35\
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\35\ In their Application, the Applicants stated that they do
not believe that all-cash payments for creations/redemptions will
affect arbitrage efficiency. This is because the Applicants believe
it makes little difference to an arbitrageur whether Creation Unit
aggregations are purchased in exchange for a basket of securities or
cash. The important function of the arbitrageur is to bid the Share
price of any Fund up or down until it converges with the NAV.
Applicants note that this can occur regardless of whether the
arbitrageur is allowed to create in cash or with a basket of
securities. In either case, the arbitrageur can effectively hedge a
position in a Fund in a variety of ways, including the use of
market-on-close contracts to buy or sell the Financial Instruments.
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Dividends and Distributions
Dividends, if any, from net investment income will be declared and
paid at least annually by each Fund in the same manner as by other
open-end investment companies. Each Fund may pay dividends on a semi-
annual or more frequent basis. Distributions of realized securities
gains, if any, generally will be declared and paid once a year.
Dividends and other distributions on the Shares of each Fund will
be distributed, on a pro rata basis to Beneficial Owners of such
Shares. Dividend payments will be made through DTC and DTC participants
to Beneficial Owners then of record with proceeds received from each
Fund.
The Trust will not make the DTC book-entry Dividend Reinvestment
Service (the ``Dividend Reinvestment Service'') available for use by
Beneficial Owners for reinvestment of their cash proceeds, but certain
individual brokers may make a Dividend Reinvestment Service available
to Beneficial Owners. The SAI will inform investors of this fact and
direct interested investors to contact such investor's broker to
ascertain the availability and a description of such a service through
such broker. The SAI will also caution interested Beneficial Owners
that they should note that each broker may require investors to adhere
to specific procedures and timetables in order to participate in the
service, and such investors should ascertain from their broker such
necessary details. Shares acquired pursuant to such service will be
held by the Beneficial Owners in the same manner and subject to the
same terms and conditions as those for original ownership of Shares.
Brokerage commissions, charges, and other costs, if any, incurred in
purchasing Shares in the secondary market with the cash from the
distributions generally will be an expense borne by the individual
Beneficial Owners participating in reinvestment through such service.
Dissemination of Indicative Intra-Day Value (IIV)
In order to provide updated information relating to each Fund for
use by investors, professionals, and persons wishing to create or
redeem Shares, the Exchange will disseminate through the facilities of
the CT (1) Continuously throughout the trading day, the market value of
a Share, and (2) at least every 15 seconds throughout Amex's trading
day, a calculation of the IIV,\36\ as calculated by the Exchange (the
``IIV Calculator''). The Exchange states that comparing these two
figures helps an investor to determine whether, and to what extent, the
Shares may be selling at a premium or a discount to NAV.
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\36\ The IIV is also referred to by other issuers as an
``Estimated NAV,'' ``Underlying Trading Value,'' ``Indicative
Optimized Portfolio Value (IOPV),'' and ``Intraday Indicative
Value'' in various places such as the prospectus and marketing
materials for different exchange-traded funds.
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The IIV is designed to provide investors with a reference value
that can be used in connection with other related market information.
The IIV does not necessarily reflect the precise composition of the
current portfolio held by each Fund at a particular point in time.
Therefore, the IIV on a per-Share basis disseminated during Amex
trading hours should not be viewed as a real-time update of the NAV of
a particular Fund, which is calculated only once a day. While the IIV
that will be disseminated by Amex is expected to be close to the most
recently calculated Fund NAV on a per-Share basis, it is possible that
the value of the portfolio held by a Fund may diverge from the IIV
during any trading day. In such case, the IIV will not precisely
reflect the value of the Fund portfolio.
The IIV Calculator will disseminate the IIV throughout the trading
day for each Fund by: (1) Calculating the mark-to-market gains or
losses from the Fund's total return equity swap exposure based on the
percentage change to the Underlying Index and the previous day's
notional values of the swap contracts, if any, held by such Fund (which
previous day's notional value will be provided by the Trust); (2)
calculating the mark-to-market gains or losses from futures, options,
and other Financial Instrument positions by taking the difference
between the current value of those positions held by the Fund, if any
(as provided by the Trust), and the previous day's value of such
positions; (3) adding the values from (1) and (2) above to an estimated
cash amount provided by the Trust (which cash amount will include the
swap costs) to arrive at a value; and (4) dividing that value
calculated in (3) above by the total number of Shares outstanding (as
provided by the Trust) to obtain current IIV.
Criteria for Initial and Continued Listing
The Shares are subject to the criteria for initial and continued
listing of Index Fund Shares under Amex Rule 1002A. A minimum of two
Creation Units (at least 150,000 Shares) will be required to be
outstanding at the start of trading. This minimum number of Shares
required to be outstanding at the start of trading will be comparable
to requirements that have been applied to previously listed series of
Index Fund Shares. The Exchange believes that the proposed minimum
number of Shares outstanding at the start of trading is sufficient to
provide market liquidity. The Exchange, pursuant to Amex Rule
1002A(a)(ii), will obtain a representation from the Trust (for each
Fund), prior to listing, that the NAV per share for each Fund will be
calculated daily and made available to all market participants at the
same time. The Exchange represents that the Trust is required to comply
with Rule 10A-3 under the Act \37\ for the initial and continued
listing of the Shares.
---------------------------------------------------------------------------
\37\ 17 CFR 240.10A-3 (setting forth listing standards relating
to audit committees).
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Amex Trading Rules and Trading Halts
The Shares are equity securities subject to Amex rules governing
the trading of equity securities.\38\ In addition, Amex Rule 154-
AEMI(c)(ii) \39\ and Commentary .04 to Amex Rule 190 \40\ apply to
Index Fund Shares listed on the Exchange, including the Shares.
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\38\ Amex Confirmation (clarifying Amex trading rules applicable
to the Shares).
\39\ Amex Rule 154-AEMI(c)(ii) 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 Amex Rule 950-ANTE(f) and Commentary
thereto), the price of which is derivatively priced based upon
another security or index of securities, may be elected by a
quotation. The Exchange has designated Index Fund Shares, including
the Shares, as eligible for this treatment.
\40\ Commentary .04 states that nothing in Amex Rule 190(a)
should be construed to restrict a specialist registered in a
security issued by an investment company from purchasing and
redeeming the listed security or securities that can be subdivided
or converted into the listed security from the issuer as appropriate
to facilitate the maintenance of a fair and orderly market.
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[[Page 45844]]
In addition to other factors that may be relevant, the Exchange may
consider factors such as those set forth in Amex Rule 918C(b) in
exercising its discretion to halt or suspend trading in Index Fund
Shares. These factors include, but are not limited to, (1) The extent
to which trading is not occurring in securities comprising an
Underlying Index and/or the Financial Instruments of a Fund, or (2)
whether other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present. In the case of
Financial Instruments held by a Fund, the Exchange represents that a
notification procedure will be implemented so that timely notice from
the Advisor is received by the Exchange when a particular Financial
Instrument is in default or shortly to be in default. Notification from
the Advisor will be made by phone, facsimile, or e-mail. The Exchange
would then determine on a case-by-case basis whether a default of a
particular Financial Instrument justifies a trading halt of the Shares.
Trading in Shares of the Funds will also be halted if the circuit
breaker parameters under Amex Rule 117 have been reached.
Amex Rule 1002A(b)(ii) sets forth the trading halt parameters with
respect to Index Fund Shares. If the IIV or the Underlying Index value
applicable to that series of Index Fund Shares is not being
disseminated as required, the Exchange may halt trading during the day
in which the interruption to the dissemination of the IIV or the
Underlying Index value occurs. If the interruption to the dissemination
of the IIV or the Underlying Index value persists past the trading day
in which it occurred, the Exchange will halt trading no later than the
beginning of the trading day following the interruption.
Information Circular
The Exchange, in an Information Circular to Exchange members and
member organizations, prior to the commencement of trading, will inform
members and member organizations regarding the application of
Commentary .06 of Amex Rule 1000A-AEMI to the Funds. The Information
Circular will further inform members and member organizations of the
prospectus and/or product description delivery requirements that apply
to the Funds.\41\
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\41\ The Exchange states that the any product description used
in reliance on Section 24(d) of the 1940 Act (15 U.S.C. 80a-24(d))
will comply with all representations and conditions set forth in the
Application. See supra note 29.
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The Information Circular will also provide guidance with regard to
member firm compliance responsibilities when effecting transactions in
the Shares and highlighting the special risks and characteristics of
the Funds and Shares as well as applicable Exchange rules. In
particular, the Information Circular will set forth the requirements
relating to Commentary .05 to Amex Rule 411 (Duty to Know and Approve
Customers). Specifically, the Information Circular will remind members
of their obligations in recommending transactions in the Shares so that
members have a reasonable basis to believe that (1) The recommendation
is suitable for a customer given reasonable inquiry concerning the
customer's investment objectives, financial situation, needs, and any
other information known by such member, and (2) that the customer can
evaluate the special characteristics, and is able to bear the financial
risks, of such investment. In connection with the suitability
obligation, the Information Circular will also provide that members
make reasonable efforts to obtain the following information: (a) The
customer's financial status; (b) the customer's tax status; (c) the
customer's investment objectives; and (d) such other information used
or considered to be reasonable by such member or registered
representative in making recommendations to the customer. In addition,
the Information Circular will disclose that the procedures for
purchases and redemptions of Shares in Creation Units are described in
each Fund's prospectus and SAI, and that Shares are not individually
redeemable, but are redeemable only in Creation Unit aggregations or
multiples thereof.
Surveillance
The Exchange represents that its surveillance procedures are
adequate to properly monitor the trading of the Shares. Specifically,
Amex will rely on its existing surveillance procedures governing Index
Fund Shares. In addition, the Exchange also has a general policy
prohibiting the distribution of material, non-public information by its
employees.
2. Statutory Basis
The proposed rule change is consistent with Section 6(b) of the
Act,\42\ in general, and furthers the objectives of Section
6(b)(5),\43\ in particular, in that it is designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, and, in general, to protect investors and the public
interest.
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\42\ 15 U.S.C. 78f(b).
\43\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange believes the proposed rule change will impose no
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
The Exchange states that no written comments were solicited or
received with respect to the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) As the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which Amex consents, the Commission will:
A. By order approve such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule
change should be disapproved.
The Commission is considering granting accelerated approval of the
proposed rule change at the end of a 15-day comment period.\44\
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\44\ In the Exchange Notice, Amex requested accelerated approval
of this proposed rule change prior to the 30th day after the date of
publication of the notice of the filing thereof.
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IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://
www.sec.gov/rules/sro.shtml ); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-Amex-2007-60 on the subject line.
Paper Comments
Send paper comments in triplicate to Nancy M. Morris,
Secretary,
[[Page 45845]]
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-1090.
All submissions should refer to File Number SR-Amex-2007-60. This file
number should be included on the subject line if e-mail is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml
). Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room, 100 F Street, NE., Washington, DC
20549, on official business days between the hours of 10 a.m. and 3
p.m. Copies of the filing also will be available for inspection and
copying at the principal office of the Exchange. All comments received
will be posted without change; the Commission does not edit personal
identifying information from submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-Amex-2007-60 and should be submitted on
or before August 30, 2007.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\45\
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\45\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-15936 Filed 8-14-07; 8:45 am]
BILLING CODE 8010-01-P
