Self-Regulatory Organizations; American Stock Exchange LLC; Order Approving Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to the Listing and Trading of Shares of Funds of the Rydex ETF Trust, 61915-61919 [E7-21503]

Download as PDF Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices Filing Date: The application was filed on October 11, 2007. Applicant’s Address: 427 Bedford Rd., Pleasantville, NY 10570. Van Kampen World Portfolio Series Trust [File No. 811–6220] Summary: Applicant seeks an order declaring that it has ceased to be an investment company. On April 11, 2001, applicant made a liquidating distribution to its shareholders, based on net asset value. Expenses of the $44,000 incurred in connection with the liquidation were paid by applicant. Filing Date: The application was filed on October 12, 2007. Applicant’s Address: 522 Fifth Ave., New York, NY 10036. Alpha Hedge Fund, Inc. [File No. 811–21577] Summary: Applicant seeks an order declaring that it has ceased to be an investment company. On October 15, 2007, applicant made a liquidating distribution to its shareholders, based on net asset value. Expenses of less than $5,000 incurred in connection with the liquidation were paid by Adams Asset Advisors, LLC, applicant’s investment adviser. Filing Date: The application was filed on October 16, 2007. Applicant’s Address: 8150 N. Central Expressway #101, Dallas, TX 75206. Baron Capital Funds Trust [File No. 811–8505] mstockstill on PROD1PC66 with NOTICES Summary: Applicant seeks an order declaring that it has ceased to be an investment company. On June 5, 2007, Applicant made distributions of its assets to its shareholders in connection with its merger with LVIP Baron Growth Opportunities Fund, a series of Lincoln Variable Insurance Products Trust. Expenses of approximately $ 475,913 incurred in connection with the merger were paid by applicant’s adviser, BAMCO, Inc., and the acquiring fund’s sponsor, The Lincoln National Life Insurance Company, or one of its affiliates. Filing Dates: The application was filed on July 12, 2007, and amended on October 19, 2007 and October 24, 2007. Applicant’s Address: 767 Fifth Avenue, 49th Floor, New York, NY 10153. its assets to its shareholders in connection with the merger of its portfolios with certain series (‘‘Acquiring Portfolios’’) of the Lincoln Variable Insurance Products Trust. Expenses of approximately $1,090,882 incurred in connection with the merger were paid by Lincoln National Life Insurance Company, Janus Capital Management LLC, an investment adviser of one of the Acquiring Portfolios, and some of the Acquiring Portfolios (i.e., LVIP Growth and Income Fund, the LVIP Bond Fund, the LVIP S&P 500 Fund, the LVIP Delaware Managed Fund, and the LVIP Small-Cap Index Fund). Filing Dates: The application was filed on July 26, 2007, and amended on October 19, 2007. Applicant’s Address: One Granite Place, Concord, NH 03301. PFL Variable Life Account A [File No. 811–9579] Summary: Applicant, a unit investment trust, seeks an order declaring that it has ceased to be an investment company. On May 1, 2006, applicant made a liquidating distribution to its sole shareholder, based on net asset value. Applicant incurred no expenses in connection with the liquidation. Filing Dates: The application was filed on December 22, 2006, and amended on September 27, 2007. Applicant’s Address: 4333 Edgewood Road, NE., Cedar Rapids, Iowa 52499. For the Commission, by the Division of Investment Management, pursuant to delegated authority. Nancy M. Morris, Secretary. [FR Doc. E7–21485 Filed 10–31–07; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–56713; File No. SR–Amex– 2007–74] Self-Regulatory Organizations; American Stock Exchange LLC; Order Approving Proposed Rule Change, as Modified by Amendment No. 1 Thereto, Relating to the Listing and Trading of Shares of Funds of the Rydex ETF Trust Jefferson Pilot Variable Fund, Inc. October 29, 2007. [File No. 811–4161] I. Introduction Summary: Applicant seeks an order declaring that it has ceased to be an investment company. On April 27, 2007, Applicant made distributions of On July 13, 2007, the American Stock Exchange LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) a VerDate Aug<31>2005 19:40 Oct 31, 2007 Jkt 214001 PO 00000 Frm 00061 Fmt 4703 Sfmt 4703 61915 proposed rule change pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’)1 and Rule 19b–4 thereunder.2 On July 31, 2007, Amex filed Amendment No. 1 to the proposed rule change. The proposed rule change, as amended, was published for comment in the Federal Register on August 14, 2007 for a 15-day comment period.3 The Commission received one comment letter regarding the proposal.4 This order approves the proposed rule change, as modified by Amendment No. 1. II. Description of the Proposal 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, 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.5 The Exchange proposes to list and trade under Amex Rule 1000A–AEMI shares (the ‘‘Shares’’) of forty-five new funds of the Rydex ETF Trust (the ‘‘Trust’’) that are designated as the Rydex Leveraged Funds (the ‘‘Leveraged Funds’’), Rydex Inverse Funds (the ‘‘Inverse Funds’’), and Rydex Leveraged Inverse Funds (the ‘‘Leveraged Inverse Funds,’’ and together with the Leveraged Funds and Inverse Funds, collectively, the ‘‘Funds’’). Each of the 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 56218 (August 7, 2007), 72 FR 45469 (‘‘Notice’’). 4 See letter to Nancy M. Morris, Secretary, Commission, from Melanie C. Maloney, Dickstein Shapiro LLP on behalf of ProFund Advisors LLC and ProShare Advisors LLC, dated August 28, 2007 (‘‘ProFunds Letter’’). 5 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 may not be approved by the Exchange pursuant to Rule 19b–4(e) under the Act (17 CFR 240.19b–4(e)). 2 17 E:\FR\FM\01NON1.SGM 01NON1 61916 Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices mstockstill on PROD1PC66 with NOTICES Funds has a distinct investment objective by attempting, on a daily basis, to correspond to a specified multiple of the performance, or the inverse performance, of a particular equity securities index. The Funds will be based on the following benchmark indexes: (1) The S&P 500 Index; (2) the S&P MidCap 400 Index; (3) the S&P Small Cap 600 Index; (4) the Russell 1000 Index; (5) the Russell 2000 Index; (6) the Russell 3000 Index; (7) the S&P 500 Consumer Discretionary Index; (8) the S&P 500 Consumer Staples Index; (9) the S&P 500 Energy Index; (10) the S&P 500 Financials Index; (11) the S&P 500 HealthCare Index; (12) the S&P 500 Industrials Index; (13) the S&P 500 Information Technology Index; (14) the S&P 500 Materials Index; and (15) the S&P 500 Utilities Index (each individually, an ‘‘Underlying Index,’’ and all Underlying Indexes collectively, the ‘‘Underlying Indexes’’).6 The Leveraged Funds will seek daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the corresponding Underlying Indexes. The net asset value (‘‘NAV’’) of the Shares of each of these Leveraged Funds, if successful in meeting its objective, should increase, on a percentage basis, approximately twice as much as the respective Fund’s Underlying Index gains when the prices of the securities in such Underlying Index increase on a given day, and should decrease approximately twice as much as the respective Underlying Index loses when such prices decline on a given day. The Inverse Funds will 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 Inverse Funds is successful in meeting its objective, the NAV of the Shares of each Inverse 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 6 A detailed discussion of each of the Underlying Indexes, the investment objective of the Funds, the portfolio investment methodology, and the investment techniques, can be found in the Notice. See Notice, supra note 3, 72 FR at 45471–45474. See also 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). VerDate Aug<31>2005 19:40 Oct 31, 2007 Jkt 214001 the prices of the securities in the Underlying Index rise on a given day. The Leveraged Inverse Funds will seek daily investment results, before fees and expenses, that correspond to twice the inverse (¥200%) of the daily performance of the Underlying Indexes. If each of these Leveraged Inverse Funds is successful in meeting its objective, the NAV of the Shares of each Leveraged Inverse 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. Rydex Investments is the investment advisor (the ‘‘Advisor’’) to each Fund and is registered under the Investment Advisers Act of 1940. While the Advisor will manage each Fund, the Trust’s Board of Trustees (the ‘‘Board’’) will have overall responsibility for the Funds’’ operations. Rydex Distributors, Inc. (the ‘‘Distributor’’), a broker-dealer registered under the Act, will act as the distributor and principal underwriter of the Shares. State Street Bank & Trust will act as the index receipt agent (the ‘‘Index Receipt Agent’’) for which it will receive fees and will be responsible for transmitting the Deposit List (as defined below) to the National Securities Clearing Corporation (‘‘NSCC’’) and for the processing, clearance, and settlement of purchase and redemption orders through the facilities of the Depository Trust Company (‘‘DTC’’) and NSCC on behalf of the Trust. 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. Availability of Information About the Shares and Underlying Indexes Quotations and last-sale information for the Shares will be disseminated through the facilities of the Consolidated Tape Association (‘‘CT’’).7 In addition, to provide updated information relating to each Fund for use by investors, professionals, and persons wishing to create or redeem Shares, the Exchange will calculate and disseminate through the CT and Consolidated Quote High Speed Lines an Indicative Intra-Day Value (‘‘IIV’’) at least every 15 seconds throughout 7 E-mail from Nyieri Nazarian, Assistant General Counsel, Amex, to Edward Cho, Special Counsel, Division of Market Regulation, Commission, dated August 22, 2007 (confirming the information to be disseminated through the facilities of the CT). PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 Amex’s trading day,8 the market value of a Share for each Fund, the most recent NAV for each Fund, the number of Shares outstanding for each Fund, and the estimated cash amount and total cash amount per Creation Unit (as defined below). The Exchange will make available on its Web site daily trading volume, the closing prices, the NAV, and the final dividend amounts to be paid for each Fund. In addition, the value of each Underlying Index will be updated intraday 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 15 seconds throughout the trading day by Amex or another organization authorized by the relevant 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 Trust’s Internet Web site (http:// www.rydexinvestments.com) will contain the following information for each Fund’s Shares: (1) 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; (2) 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; (3) its prospectus and product description; and (4) other quantitative information, such as daily trading volume. The prospectus and/or product description for each Fund will inform investors that the Trust’s Internet Web site has information about the premiums and discounts at which the Fund’s Shares have traded. Each Fund’s total portfolio composition will be disclosed on the Web site of the Trust or another Internet Web site as determined by the Trust and/or the Exchange. The Trust will provide Web site disclosure of each Fund’s portfolio holdings daily and will include, as applicable, the names and number of Shares held of each specific equity security, the specific types of 8 A detailed discussion of the calculation methodology of the IIV for each of the Funds can be found in the Notice. See Notice, supra note 3, 72 FR at 45477. E:\FR\FM\01NON1.SGM 01NON1 Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices Financial Instruments 9 and characteristics of such Financial Instruments, and the cash equivalents and amount of cash held in the portfolio of each Fund. This public Web site disclosure of the portfolio composition of each Fund and the disclosure by the Advisor of the ‘‘IIV File’’ (as described below) and the portfolio composition file, or ‘‘PCF,’’ will occur at the same time. Therefore, the same portfolio information (including accrued expenses and dividends) will be provided on the public Web site(s), as well as in the IIV File and PCF provided to Authorized Participants.10 Creation and Redemption of Shares 11 mstockstill on PROD1PC66 with NOTICES Each Fund will issue and redeem Shares only in aggregations of at least 50,000 (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 of the Funds is expected to be in the range of $50–$250. At the end of each business day, the Trust will prepare the list of names and the required number of Shares of each Deposit Security (as defined below) to be included in the next trading day’s Creation Unit for each Leveraged Fund (the ‘‘Deposit List’’). The Trust will then add to the Deposit List the cash information effective as of the close of business on that business day and create a PCF for each Fund, which will be transmitted to NSCC before the opening 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,’’ 9 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’’). See Notice, supra note 3, 72 FR at 45472 n.22. 10 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. See Notice, supra note 3, 72 FR at 45473 n.26. 11 A detailed discussion of the procedures for creating and redeeming Shares with respect to each of the Funds, including a description of the relevant transaction fees, can be found in the Notice. See Notice, supra note 3, 72 FR at 45474–45476. VerDate Aug<31>2005 19:40 Oct 31, 2007 Jkt 214001 which it will use to disclose the Funds’ holdings of Financial Instruments. The IIV File will contain, for each Leveraged Fund (to the extent that it holds Financial Instruments) and Inverse and Leveraged Inverse 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 value such Fund. The IIV File, together with the applicable information in the PCF in the case of Leveraged Funds, will also be the basis for the next business day’s NAV calculation. Under normal circumstances, the Leveraged Funds will be created and redeemed either entirely for cash and/or for a deposit basket of equity securities (‘‘Deposit Securities’’), plus a ‘‘Balancing Amount.’’ The Deposit Securities and the Balancing Amount collectively are referred to as the ‘‘Creation Deposit.’’ The Balancing Amount is a cash payment designed to ensure that the value of a Creation Deposit is identical to the value of the Creation Unit. The Balancing Amount is an amount equal to the difference between the NAV of a Creation Unit and the market value of the Deposit Securities.12 Under normal circumstances, the Inverse and Leveraged Inverse Funds will be created and redeemed entirely for cash. The IIV File published before the open of business on a business day will, however, 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 Inverse and Leveraged Inverse Fund for that business day. 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 100,000 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 12 While not typical, if the market value of the Deposit Securities is greater than the NAV of a Creation Unit, then the Balancing Amount will be a negative number, in which case the Balancing Amount will be paid by the Leveraged Fund to the purchaser, rather than vice-versa. PO 00000 Frm 00063 Fmt 4703 Sfmt 4703 61917 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 13 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. The Exchange states that Amex Rule 154– AEMI(c)(ii) 14 and Commentary .04 to Amex Rule 190 15 apply to Index Fund Shares listed on the Exchange, including the Shares. 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 13 17 CFR 240.10A–3 (setting forth listing standards relating to audit committees). 14 Amex Rule 154–AEMI(c)(ii) provides that stop and stop limit orders to buy or sell a security, the price of which is derivatively priced based upon another security or index of securities, may be elected by a quotation. The Exchange states that the Shares are eligible for this treatment. 15 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. E:\FR\FM\01NON1.SGM 01NON1 61918 Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices mstockstill on PROD1PC66 with NOTICES 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. 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 VerDate Aug<31>2005 19:40 Oct 31, 2007 Jkt 214001 Fund’s prospectus, 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. III. Comment Letter The Commission received one comment letter, submitted on behalf of ProFund Advisors LLC and ProShare Advisors LLC (collectively referred to as ‘‘ProFunds’’), which asserted that the listing and trading of the Shares of the Funds by the Exchange would infringe on ProFunds’ intellectual property rights. In particular, ProFunds believes that it has a proprietary interest, through a pending patent application, in the process and system for calculating an intra-day indicative value relating to leveraged and inverse exchange traded funds to be purportedly used by the Trust. As a result, the commenter requested that the Commission institute proceedings to disapprove the proposed rule change.16 IV. Discussion and Commission Findings After careful review, the Commission finds that the proposed rule change is consistent with the requirements of the Act and the rules and regulations thereunder applicable to a national securities exchange.17 In particular, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,18 which requires that the rules of an exchange be designed, among other things, to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission notes that it has previously approved the original listing and trading of various fund shares that seek to provide investment results that correspond to a specified multiple of the performance, or the inverse of the performance, of an 16 See ProFunds Letter at 1–2, supra note 4. approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 18 15 U.S.C. 78f(b)(5). 17 In PO 00000 Frm 00064 Fmt 4703 Sfmt 4703 underlying portfolio of securities.19 The Commission also notes that it has previously approved the listing and trading of exchange-traded funds based on each of the Underlying Indexes.20 The Commission further believes that the proposal is consistent with Section 11A(a)(1)(C)(iii) of the Act,21 which sets forth Congress’ finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities. As described above, quotations and last-sale information for the Shares will be disseminated over the CT. In addition, the Exchange will calculate and disseminate through the CT the IIV per Share for each Fund at least every 15 seconds throughout Amex’s trading day, as well as other information regarding the value of the Shares. The value of each Underlying Index will also be updated intra-day on a real-time basis as its individual component securities change in price and will be disseminated at least every 15 seconds throughout the trading day. Finally, the Trust’s Web site will include important information for each Fund’s Shares. Furthermore, the Commission believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately. The Commission notes that the Exchange will obtain a representation from the 19 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 other 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). 20 See Securities Exchange Act Release Nos. 31591 (December 11, 1992), 57 FR 60253 (December 18, 1992) (SR–Amex–92–18) (approving the listing and trading of portfolio depository receipts (‘‘PDRs’’), including receipts based on the S&P 500 Index); 35534 (March 24, 1995), 60 FR 16686 (March 31, 1995) (SR–Amex–94–52) (approving the listing and trading of PDRs based on the S&P 400 Midcap Index); 35532 (March 24, 1995), 60 FR 16518 (March 30, 1995) (SR–CBOE–94–43) (approving the listing and trading of options on the S&P SmallCap 600 Index); 53191 (January 30, 2006), 71 FR 6111 (February 6, 2006) (SR–Amex–2005– 061) (approving the listing and trading of options on the Russell Indexes, including the Russell 1000, 2000, and 3000 Indexes); and 40749 (December 4, 1998), 63 FR 68483 (December 11, 1998) (SR– Amex–98–29) (approving the listing and trading of certain Select SPDR exchange-traded funds). 21 15 U.S.C. 78k–1(a)(1)(C)(iii). E:\FR\FM\01NON1.SGM 01NON1 mstockstill on PROD1PC66 with NOTICES Federal Register / Vol. 72, No. 211 / Thursday, November 1, 2007 / Notices 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.22 In addition, the Exchange represents that the Web site disclosure of the portfolio composition of each Fund and the disclosure by the Advisor of the IIV File and the PCF will occur at the same time. Moreover, Commentary .02(b) to Amex Rule 1000A–AEMI provides for ‘‘fire wall’’ procedures with respect to personnel who have access to information concerning changes and adjustments to the Underlying Index and the implementation of procedures to prevent the use and dissemination of material non-public information regarding the Underlying Index. Further, Commentary .09 to Amex Rule 1000A–AEMI sets forth restrictions on members or persons associated with members who have knowledge of the terms and conditions of certain orders (the execution of which are imminent) to enter, based on such knowledge, an order to buy or sell a Share that is the subject of such orders, an order to buy or sell the overlying option class, or an order to buy or sell any related instrument. The Commission also believes that the Exchange’s trading halt rules are reasonably designed to prevent trading in the Shares when transparency is impaired. Amex Rule 1002A(b)(ii) provides that the Exchange will halt trading in the Shares if the circuit breaker parameters of Amex Rule 117 have been reached. In exercising its discretion to halt or suspend trading in the Shares, the Exchange may consider factors such as those set forth in Amex Rule 918C(b) and other relevant factors. In addition, Amex Rule 1002A(b)(ii) provides that, 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. The Commission further believes that the trading rules and procedures to which the Shares will be subject pursuant to this proposal are consistent with the Act. The Exchange has represented that the Shares are equity securities subject to Amex’s rules 22 See Amex Rule 1002A(a)(ii). VerDate Aug<31>2005 19:40 Oct 31, 2007 Jkt 214001 governing the trading of equity securities. In support of this proposal, the Exchange has made the following representations: (1) The Exchange’s 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. (2) Prior to the commencement of trading, the Exchange will inform its members and member organizations in an Information Circular regarding the application of Commentary .06 to Amex Rule 1000A–AEMI to the Funds and the prospectus and/or product description delivery requirements that apply to the Funds. 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 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 that Shares are not individually redeemable, but are redeemable only in Creation Unit aggregations or multiples thereof. This approval order is based on the Exchange’s representations. Finally, the Commission believes that the commenter’s concerns over its proprietary interest in the process and system for calculating an intra-day indicative value relating to leveraged and inverse exchange traded funds to be purportedly used by the Trust do not preclude the Commission from approving the proposed rule change. Specifically, to the extent that the commenter’s argument raises a claim of misappropriation or infringement of a protected property right, the Commission believes it is inappropriate for the Commission to attempt to resolve these issues in a proceeding involving the approval of a proposed rule change by a national securities exchange under the federal securities laws. To take such delaying action whenever a third party claim is asserted could stifle Commission review of new products proposed by self-regulatory organizations. The plain language of the U.S. securities laws does not suggest that Congress intended that the Commission attempt, in the context of an approval proceeding for a securities product, to resolve intellectual property right claims that can be pursued PO 00000 Frm 00065 Fmt 4703 Sfmt 4703 61919 elsewhere.23 Accordingly, the commenter’s assertions do not form a basis for the Commission to either disapprove or delay approval of the Exchanges’ proposals.24 V. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,25 that the proposed rule change (SR–Amex–2007– 74), as modified by Amendment No. 1 thereto, be, and it hereby is, approved. By the Commission. Nancy M. Morris, Secretary. [FR Doc. E7–21503 Filed 10–31–07; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–56698; File No. SR–CHX– 2007–23] Self-Regulatory Organizations; Chicago Stock Exchange, Inc.; Notice of Filing of Proposed Rule Change to Allow the Exchange to Open at 8:30 a.m. October 24, 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 October 2, 2007, the Chicago Stock Exchange, Inc. (‘‘CHX’’ or ‘‘Exchange’’) filed with 23 The Commission notes that Congress has enacted an elaborate statutory framework for the establishment, preservation, and protection of intellectual property rights and has established specific federal agencies to administer these laws. Separate state causes of action also may be available to the holders of these proprietary rights as well. The Commission is not required by the Act to make, and has not made, a legal determination of proprietary claims flowing from the Trust’s application of the process and system for calculating an intraday indicative value for the Shares of each Fund. This is not to say, however, that the Commission might not separately have a federal interest in the outcome of any proceeding challenging a new product or be willing to express a view regarding such a proceeding in the event a subsequent action provides the Commission opportunity to address these matters, e.g., to protect investors and the public interest. 24 See Securities Exchange Act Release Nos. 36070 (August 9, 1995), 60 FR 42205 (August 15, 1995) (SR–Amex–94–55 and SR–CBOE–95–01) (order approving the listing and trading of warrants on the Deutscher Aktien Index by Amex and the Chicago Board Options Exchange, Incorporated (‘‘CBOE’’)); 28475 (September 27, 1990), 55 FR 40492 (October 3, 1990) (SR–Amex–89–16) (order approving the trading by Amex of options on the Japan Index); and 26709 (April 11, 1989), 54 FR 15280 (April 17, 1989) (SR–Phlx–88–07; SR–Amex– 88–10; and SR–CBOE–88–09) (order approving the listing of index participations by Amex, CBOE, and the Philadelphia Stock Exchange, Inc.). 25 15 U.S.C. 78s(b)(2). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. E:\FR\FM\01NON1.SGM 01NON1

Agencies

[Federal Register Volume 72, Number 211 (Thursday, November 1, 2007)]
[Notices]
[Pages 61915-61919]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-21503]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56713; File No. SR-Amex-2007-74]


Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Approving Proposed Rule Change, as Modified by Amendment No. 1 Thereto, 
Relating to the Listing and Trading of Shares of Funds of the Rydex ETF 
Trust

October 29, 2007.

I. Introduction

    On July 13, 2007, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'')\1\ and Rule 19b-4 
thereunder.\2\ On July 31, 2007, Amex filed Amendment No. 1 to the 
proposed rule change. The proposed rule change, as amended, was 
published for comment in the Federal Register on August 14, 2007 for a 
15-day comment period.\3\ The Commission received one comment letter 
regarding the proposal.\4\ This order approves the proposed rule 
change, as modified by Amendment No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 56218 (August 7, 
2007), 72 FR 45469 (``Notice'').
    \4\ See letter to Nancy M. Morris, Secretary, Commission, from 
Melanie C. Maloney, Dickstein Shapiro LLP on behalf of ProFund 
Advisors LLC and ProShare Advisors LLC, dated August 28, 2007 
(``ProFunds Letter'').
---------------------------------------------------------------------------

II. Description of the Proposal

    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, 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.\5\
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    \5\ 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 may not 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 and trade under Amex Rule 1000A-AEMI 
shares (the ``Shares'') of forty-five new funds of the Rydex ETF Trust 
(the ``Trust'') that are designated as the Rydex Leveraged Funds (the 
``Leveraged Funds''), Rydex Inverse Funds (the ``Inverse Funds''), and 
Rydex Leveraged Inverse Funds (the ``Leveraged Inverse Funds,'' and 
together with the Leveraged Funds and Inverse Funds, collectively, the 
``Funds''). Each of the

[[Page 61916]]

Funds has a distinct investment objective by attempting, on a daily 
basis, to correspond to a specified multiple of the performance, or the 
inverse performance, of a particular equity securities index.
    The Funds will be based on the following benchmark indexes: (1) The 
S&P 500 Index; (2) the S&P MidCap 400 Index; (3) the S&P Small Cap 600 
Index; (4) the Russell 1000 Index; (5) the Russell 2000 Index; (6) the 
Russell 3000 Index; (7) the S&P 500 Consumer Discretionary Index; (8) 
the S&P 500 Consumer Staples Index; (9) the S&P 500 Energy Index; (10) 
the S&P 500 Financials Index; (11) the S&P 500 HealthCare Index; (12) 
the S&P 500 Industrials Index; (13) the S&P 500 Information Technology 
Index; (14) the S&P 500 Materials Index; and (15) the S&P 500 Utilities 
Index (each individually, an ``Underlying Index,'' and all Underlying 
Indexes collectively, the ``Underlying Indexes'').\6\
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    \6\ A detailed discussion of each of the Underlying Indexes, the 
investment objective of the Funds, the portfolio investment 
methodology, and the investment techniques, can be found in the 
Notice. See Notice, supra note 3, 72 FR at 45471-45474. See also 
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).
---------------------------------------------------------------------------

    The Leveraged Funds will seek daily investment results, before fees 
and expenses, that correspond to twice (200%) the daily performance of 
the corresponding Underlying Indexes. The net asset value (``NAV'') of 
the Shares of each of these Leveraged Funds, if successful in meeting 
its objective, should increase, on a percentage basis, approximately 
twice as much as the respective Fund's Underlying Index gains when the 
prices of the securities in such Underlying Index increase on a given 
day, and should decrease approximately twice as much as the respective 
Underlying Index loses when such prices decline on a given day.
    The Inverse Funds will 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 Inverse 
Funds is successful in meeting its objective, the NAV of the Shares of 
each Inverse 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.
    The Leveraged Inverse Funds will seek daily investment results, 
before fees and expenses, that correspond to twice the inverse (-200%) 
of the daily performance of the Underlying Indexes. If each of these 
Leveraged Inverse Funds is successful in meeting its objective, the NAV 
of the Shares of each Leveraged Inverse 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.
    Rydex Investments is the investment advisor (the ``Advisor'') to 
each Fund and is registered under the Investment Advisers Act of 1940. 
While the Advisor will manage each Fund, the Trust's Board of Trustees 
(the ``Board'') will have overall responsibility for the Funds'' 
operations. Rydex Distributors, Inc. (the ``Distributor''), a broker-
dealer registered under the Act, will act as the distributor and 
principal underwriter of the Shares. State Street Bank & Trust will act 
as the index receipt agent (the ``Index Receipt Agent'') for which it 
will receive fees and will be responsible for transmitting the Deposit 
List (as defined below) to the National Securities Clearing Corporation 
(``NSCC'') and for the processing, clearance, and settlement of 
purchase and redemption orders through the facilities of the Depository 
Trust Company (``DTC'') and NSCC on behalf of the Trust. 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.

Availability of Information About the Shares and Underlying Indexes

    Quotations and last-sale information for the Shares will be 
disseminated through the facilities of the Consolidated Tape 
Association (``CT'').\7\ In addition, to provide updated information 
relating to each Fund for use by investors, professionals, and persons 
wishing to create or redeem Shares, the Exchange will calculate and 
disseminate through the CT and Consolidated Quote High Speed Lines an 
Indicative Intra-Day Value (``IIV'') at least every 15 seconds 
throughout Amex's trading day,\8\ the market value of a Share for each 
Fund, the most recent NAV for each Fund, the number of Shares 
outstanding for each Fund, and the estimated cash amount and total cash 
amount per Creation Unit (as defined below). The Exchange will make 
available on its Web site daily trading volume, the closing prices, the 
NAV, and the final dividend amounts to be paid for each Fund.
---------------------------------------------------------------------------

    \7\ E-mail from Nyieri Nazarian, Assistant General Counsel, 
Amex, to Edward Cho, Special Counsel, Division of Market Regulation, 
Commission, dated August 22, 2007 (confirming the information to be 
disseminated through the facilities of the CT).
    \8\ A detailed discussion of the calculation methodology of the 
IIV for each of the Funds can be found in the Notice. See Notice, 
supra note 3, 72 FR at 45477.
---------------------------------------------------------------------------

    In addition, 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 15 seconds throughout the trading day by 
Amex or another organization authorized by the relevant 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 Trust's Internet Web site (http://www.rydexinvestments.com) 
will contain the following information for each Fund's Shares: (1) 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; (2) 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; (3) its prospectus and product 
description; and (4) other quantitative information, such as daily 
trading volume. The prospectus and/or product description for each Fund 
will inform investors that the Trust's Internet Web site has 
information about the premiums and discounts at which the Fund's Shares 
have traded.
    Each Fund's total portfolio composition will be disclosed on the 
Web site of the Trust or another Internet Web site as determined by the 
Trust and/or the Exchange. The Trust will provide Web site disclosure 
of each Fund's portfolio holdings daily and will include, as 
applicable, the names and number of Shares held of each specific equity 
security, the specific types of

[[Page 61917]]

Financial Instruments \9\ and characteristics of such Financial 
Instruments, and the cash equivalents and amount of cash held in the 
portfolio of each Fund. This public Web site disclosure of the 
portfolio composition of each Fund and the disclosure by the Advisor of 
the ``IIV File'' (as described below) and the portfolio composition 
file, or ``PCF,'' will occur at the same time. Therefore, the same 
portfolio information (including accrued expenses and dividends) will 
be provided on the public Web site(s), as well as in the IIV File and 
PCF provided to Authorized Participants.\10\
---------------------------------------------------------------------------

    \9\ 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''). See Notice, supra note 3, 72 FR at 45472 n.22.
    \10\ 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. See Notice, supra note 
3, 72 FR at 45473 n.26.
---------------------------------------------------------------------------

Creation and Redemption of Shares \11\
---------------------------------------------------------------------------

    \11\ A detailed discussion of the procedures for creating and 
redeeming Shares with respect to each of the Funds, including a 
description of the relevant transaction fees, can be found in the 
Notice. See Notice, supra note 3, 72 FR at 45474-45476.
---------------------------------------------------------------------------

    Each Fund will issue and redeem Shares only in aggregations of at 
least 50,000 (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 of the Funds is expected to be in the range of $50-$250.
    At the end of each business day, the Trust will prepare the list of 
names and the required number of Shares of each Deposit Security (as 
defined below) to be included in the next trading day's Creation Unit 
for each Leveraged Fund (the ``Deposit List''). The Trust will then add 
to the Deposit List the cash information effective as of the close of 
business on that business day and create a PCF for each Fund, which 
will be transmitted to NSCC before the opening 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,'' which it will use to disclose the Funds' 
holdings of Financial Instruments. The IIV File will contain, for each 
Leveraged Fund (to the extent that it holds Financial Instruments) and 
Inverse and Leveraged Inverse 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 value such Fund. 
The IIV File, together with the applicable information in the PCF in 
the case of Leveraged Funds, will also be the basis for the next 
business day's NAV calculation.
    Under normal circumstances, the Leveraged Funds will be created and 
redeemed either entirely for cash and/or for a deposit basket of equity 
securities (``Deposit Securities''), plus a ``Balancing Amount.'' The 
Deposit Securities and the Balancing Amount collectively are referred 
to as the ``Creation Deposit.'' The Balancing Amount is a cash payment 
designed to ensure that the value of a Creation Deposit is identical to 
the value of the Creation Unit. The Balancing Amount is an amount equal 
to the difference between the NAV of a Creation Unit and the market 
value of the Deposit Securities.\12\ Under normal circumstances, the 
Inverse and Leveraged Inverse Funds will be created and redeemed 
entirely for cash. The IIV File published before the open of business 
on a business day will, however, 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 Inverse and Leveraged Inverse 
Fund for that business day.
---------------------------------------------------------------------------

    \12\ While not typical, if the market value of the Deposit 
Securities is greater than the NAV of a Creation Unit, then the 
Balancing Amount will be a negative number, in which case the 
Balancing Amount will be paid by the Leveraged Fund to the 
purchaser, rather than vice-versa.
---------------------------------------------------------------------------

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 100,000 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 \13\ for the initial and continued 
listing of the Shares.
---------------------------------------------------------------------------

    \13\ 17 CFR 240.10A-3 (setting forth listing standards relating 
to audit committees).
---------------------------------------------------------------------------

Amex Trading Rules and Trading Halts

    The Shares are equity securities subject to Amex rules governing 
the trading of equity securities. The Exchange states that Amex Rule 
154-AEMI(c)(ii) \14\ and Commentary .04 to Amex Rule 190 \15\ apply to 
Index Fund Shares listed on the Exchange, including the Shares.
---------------------------------------------------------------------------

    \14\ Amex Rule 154-AEMI(c)(ii) provides that stop and stop limit 
orders to buy or sell a security, the price of which is derivatively 
priced based upon another security or index of securities, may be 
elected by a quotation. The Exchange states that the Shares are 
eligible for this treatment.
    \15\ 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.
---------------------------------------------------------------------------

    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

[[Page 61918]]

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.
    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 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.

III. Comment Letter

    The Commission received one comment letter, submitted on behalf of 
ProFund Advisors LLC and ProShare Advisors LLC (collectively referred 
to as ``ProFunds''), which asserted that the listing and trading of the 
Shares of the Funds by the Exchange would infringe on ProFunds' 
intellectual property rights. In particular, ProFunds believes that it 
has a proprietary interest, through a pending patent application, in 
the process and system for calculating an intra-day indicative value 
relating to leveraged and inverse exchange traded funds to be 
purportedly used by the Trust. As a result, the commenter requested 
that the Commission institute proceedings to disapprove the proposed 
rule change.\16\
---------------------------------------------------------------------------

    \16\ See ProFunds Letter at 1-2, supra note 4.
---------------------------------------------------------------------------

IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\17\ In particular, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act,\18\ which 
requires that the rules of an exchange be designed, among other things, 
to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. The Commission notes that it has previously approved 
the original listing and trading of various fund shares that seek to 
provide investment results that correspond to a specified multiple of 
the performance, or the inverse of the performance, of an underlying 
portfolio of securities.\19\ The Commission also notes that it has 
previously approved the listing and trading of exchange-traded funds 
based on each of the Underlying Indexes.\20\
---------------------------------------------------------------------------

    \17\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
    \19\ 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 other 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).
    \20\ See Securities Exchange Act Release Nos. 31591 (December 
11, 1992), 57 FR 60253 (December 18, 1992) (SR-Amex-92-18) 
(approving the listing and trading of portfolio depository receipts 
(``PDRs''), including receipts based on the S&P 500 Index); 35534 
(March 24, 1995), 60 FR 16686 (March 31, 1995) (SR-Amex-94-52) 
(approving the listing and trading of PDRs based on the S&P 400 
Midcap Index); 35532 (March 24, 1995), 60 FR 16518 (March 30, 1995) 
(SR-CBOE-94-43) (approving the listing and trading of options on the 
S&P SmallCap 600 Index); 53191 (January 30, 2006), 71 FR 6111 
(February 6, 2006) (SR-Amex-2005-061) (approving the listing and 
trading of options on the Russell Indexes, including the Russell 
1000, 2000, and 3000 Indexes); and 40749 (December 4, 1998), 63 FR 
68483 (December 11, 1998) (SR-Amex-98-29) (approving the listing and 
trading of certain Select SPDR exchange-traded funds).
---------------------------------------------------------------------------

    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\21\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. As described above, quotations and last-sale information 
for the Shares will be disseminated over the CT. In addition, the 
Exchange will calculate and disseminate through the CT the IIV per 
Share for each Fund at least every 15 seconds throughout Amex's trading 
day, as well as other information regarding the value of the Shares. 
The value of each Underlying Index will also be updated intra-day on a 
real-time basis as its individual component securities change in price 
and will be disseminated at least every 15 seconds throughout the 
trading day. Finally, the Trust's Web site will include important 
information for each Fund's Shares.
---------------------------------------------------------------------------

    \21\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    Furthermore, the Commission believes that the proposal to list and 
trade the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately. 
The Commission notes that the Exchange will obtain a representation 
from the

[[Page 61919]]

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.\22\ In addition, the Exchange represents 
that the Web site disclosure of the portfolio composition of each Fund 
and the disclosure by the Advisor of the IIV File and the PCF will 
occur at the same time. Moreover, Commentary .02(b) to Amex Rule 1000A-
AEMI provides for ``fire wall'' procedures with respect to personnel 
who have access to information concerning changes and adjustments to 
the Underlying Index and the implementation of procedures to prevent 
the use and dissemination of material non-public information regarding 
the Underlying Index. Further, Commentary .09 to Amex Rule 1000A-AEMI 
sets forth restrictions on members or persons associated with members 
who have knowledge of the terms and conditions of certain orders (the 
execution of which are imminent) to enter, based on such knowledge, an 
order to buy or sell a Share that is the subject of such orders, an 
order to buy or sell the overlying option class, or an order to buy or 
sell any related instrument.
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    \22\ See Amex Rule 1002A(a)(ii).
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    The Commission also believes that the Exchange's trading halt rules 
are reasonably designed to prevent trading in the Shares when 
transparency is impaired. Amex Rule 1002A(b)(ii) provides that the 
Exchange will halt trading in the Shares if the circuit breaker 
parameters of Amex Rule 117 have been reached. In exercising its 
discretion to halt or suspend trading in the Shares, the Exchange may 
consider factors such as those set forth in Amex Rule 918C(b) and other 
relevant factors. In addition, Amex Rule 1002A(b)(ii) provides that, 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.
    The Commission further believes that the trading rules and 
procedures to which the Shares will be subject pursuant to this 
proposal are consistent with the Act. The Exchange has represented that 
the Shares are equity securities subject to Amex's rules governing the 
trading of equity securities.
    In support of this proposal, the Exchange has made the following 
representations:
    (1) The Exchange's 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.
    (2) Prior to the commencement of trading, the Exchange will inform 
its members and member organizations in an Information Circular 
regarding the application of Commentary .06 to Amex Rule 1000A-AEMI to 
the Funds and the prospectus and/or product description delivery 
requirements that apply to the Funds. 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 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 that Shares are not individually redeemable, but 
are redeemable only in Creation Unit aggregations or multiples thereof.
    This approval order is based on the Exchange's representations.
    Finally, the Commission believes that the commenter's concerns over 
its proprietary interest in the process and system for calculating an 
intra-day indicative value relating to leveraged and inverse exchange 
traded funds to be purportedly used by the Trust do not preclude the 
Commission from approving the proposed rule change. Specifically, to 
the extent that the commenter's argument raises a claim of 
misappropriation or infringement of a protected property right, the 
Commission believes it is inappropriate for the Commission to attempt 
to resolve these issues in a proceeding involving the approval of a 
proposed rule change by a national securities exchange under the 
federal securities laws. To take such delaying action whenever a third 
party claim is asserted could stifle Commission review of new products 
proposed by self-regulatory organizations. The plain language of the 
U.S. securities laws does not suggest that Congress intended that the 
Commission attempt, in the context of an approval proceeding for a 
securities product, to resolve intellectual property right claims that 
can be pursued elsewhere.\23\ Accordingly, the commenter's assertions 
do not form a basis for the Commission to either disapprove or delay 
approval of the Exchanges' proposals.\24\
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    \23\ The Commission notes that Congress has enacted an elaborate 
statutory framework for the establishment, preservation, and 
protection of intellectual property rights and has established 
specific federal agencies to administer these laws. Separate state 
causes of action also may be available to the holders of these 
proprietary rights as well. The Commission is not required by the 
Act to make, and has not made, a legal determination of proprietary 
claims flowing from the Trust's application of the process and 
system for calculating an intraday indicative value for the Shares 
of each Fund. This is not to say, however, that the Commission might 
not separately have a federal interest in the outcome of any 
proceeding challenging a new product or be willing to express a view 
regarding such a proceeding in the event a subsequent action 
provides the Commission opportunity to address these matters, e.g., 
to protect investors and the public interest.
    \24\ See Securities Exchange Act Release Nos. 36070 (August 9, 
1995), 60 FR 42205 (August 15, 1995) (SR-Amex-94-55 and SR-CBOE-95-
01) (order approving the listing and trading of warrants on the 
Deutscher Aktien Index by Amex and the Chicago Board Options 
Exchange, Incorporated (``CBOE'')); 28475 (September 27, 1990), 55 
FR 40492 (October 3, 1990) (SR-Amex-89-16) (order approving the 
trading by Amex of options on the Japan Index); and 26709 (April 11, 
1989), 54 FR 15280 (April 17, 1989) (SR-Phlx-88-07; SR-Amex-88-10; 
and SR-CBOE-88-09) (order approving the listing of index 
participations by Amex, CBOE, and the Philadelphia Stock Exchange, 
Inc.).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\25\ that the proposed rule change (SR-Amex-2007-74), as modified 
by Amendment No. 1 thereto, be, and it hereby is, approved.
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    \25\ 15 U.S.C. 78s(b)(2).

    By the Commission.
Nancy M. Morris,
Secretary.
[FR Doc. E7-21503 Filed 10-31-07; 8:45 am]
BILLING CODE 8011-01-P