Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change, as Modified by Amendments No. 1 and 2, Relating to the Listing and Trading of Units of the United States Heating Oil Fund, LP and the United States Gasoline Fund, LP, 514-523 [E7-25487]
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514
Federal Register / Vol. 73, No. 2 / Thursday, January 3, 2008 / Notices
Filing Dates: The application was
filed on October 26, 2007, and amended
on November 30, 2007.
Applicant’s Address: 801 41st St.,
Suite 210, Miami, FL 33140.
MetLife Investment Funds, Inc. [File
No. 811–7450]
Summary: Applicant seeks an order
declaring that it has ceased to be an
investment company. On August 16,
2007 the Board of Directors voted to
liquidate the Applicant, and on
November 9, 2007, the Applicant
distributed all of its shares at net asset
value to its shareholders. Expenses of
$35,900 incurred in connection with the
liquidation were paid for by the
Applicant.
Filing Date: The application was filed
on December 11, 2007.
Applicant’s Address: 400 Atrium
Drive, Somerset, NJ 08873–4172.
For the Commission, by the Division of
Investment Management, pursuant to
delegated authority.
Nancy M. Morris,
Secretary.
[FR Doc. E7–25524 Filed 1–2–08; 8:45 am]
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57042; File No. SR–Amex–
2007–70]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing of Proposed Rule Change, as
Modified by Amendments No. 1 and 2,
Relating to the Listing and Trading of
Units of the United States Heating Oil
Fund, LP and the United States
Gasoline Fund, LP
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December 26, 2007.
Pursuant to section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 2 thereunder,
notice is hereby given that on June 29,
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.
On August 16, 2007, the Exchange
submitted Amendment No. 1 to the
proposed rule change. On December 20,
2007, the Exchange submitted
Amendment No. 2 to the proposed rule
change. The Commission is publishing
this notice to solicit comments on the
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade units (a ‘‘Unit’’ or collectively, the
‘‘Units’’) of each of the United States
Heating Oil Fund, LP (‘‘USHO’’) and the
United States Gasoline Fund, LP
(‘‘USG’’) (each, a ‘‘Partnership,’’ and
collectively, the ‘‘Partnerships’’).
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
Amex included statements concerning
the purpose of, and basis for, the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Amex 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
BILLING CODE 8011–01–P
1 15
proposed rule change, as amended, from
interested persons.
1.Purpose
The Exchange proposes to list and
trade the Units issued by USHO (under
the symbol: ‘‘UHN’’) and USG (under
symbol: ‘‘UGA’’) pursuant to Amex
Rules 1500–AEMI and 1501 through
1505. 3 Each Partnership is a commodity
pool that will issue Units that may be
purchased and sold on the Exchange.
The Exchange submits that the Units
will conform to the initial and
continued listing criteria under Rule
1502, 4 specialist prohibitions under
Rule 1503, and the obligations of
specialists under Rule 1504.
Ownership of a Unit represents a
fractional undivided beneficial interest
in each of the net assets of USHO and
USG. Each of the net assets of USHO
and USG will consist of investments in
futures contracts based on heating oil,
gasoline, crude oil, and other
3 Amex Rule 1500–AEMI provides for the listing
of Partnership Units, which are defined as
securities, that are (a) issued by a partnership that
invests in any combination of futures contracts,
options on futures contracts, forward contracts,
commodities, and/or securities; and (b) issued and
redeemed daily in specified aggregate amounts at
net asset value. See Exchange Act Release No.
53582 (March 31, 2006), 71 FR 17510 (April 6,
2006) (SR–Amex–2005–127) (approving Amex
Rules 1500–AEMI and 1501 through 1505 in
conjunction with the listing and trading of Units of
the United States Oil Fund, LP).
4 See section entitled ‘‘Listing and Trading
Rules,’’ infra.
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petroleum-based fuels, and natural gas
that are traded on the New York
Mercantile Exchange (‘‘NYMEX’’),
Intercontinental Exchange (‘‘ICE
Futures’’), or other U.S. and foreign
exchanges (collectively, ‘‘Futures
Contracts’’). In the case of USHO, the
predominant investments are expected
to be based on, or related to, heating oil.
The predominant investments of USG
are expected to be based on, or related
to, gasoline.
USHO may also invest in other
heating-oil-related investments such as
cash-settled options on Futures
Contracts, forward contracts for heating
oil, and over-the-counter (‘‘OTC’’)
contracts that are based on the price of
heating oil, oil and other petroleumbased fuels, Futures Contracts, and
indices based on the foregoing
(collectively, ‘‘Other Heating Oil Related
Investments’’). Futures Contracts and
Other Heating Oil Related Investments
collectively are referred to as ‘‘Heating
Oil Interests.’’
Similarly, USG may also invest in
other gasoline-related investments such
as cash-settled options on Futures
Contracts, forward contracts for
gasoline, and OTC transactions based on
the price of gasoline, oil, and other
petroleum-based fuels, Futures
Contracts, and indices based on the
foregoing (collectively, ‘‘Other GasolineRelated Investments’’). Futures
Contracts and Other Gasoline-Related
Investments collectively are referred to
as ‘‘Gasoline Interests.’’
Each of USHO and USG will invest in
Heating Oil Interests and Gasoline
Interests, respectively, to the fullest
extent possible without being leveraged
or unable to satisfy its current or
potential margin or collateral
obligations. In pursuing this objective,
the primary focus of USHO’s and USG’s
investment manager, Victoria Bay Asset
Management, LLC (‘‘Victoria Bay’’ or
‘‘General Partner’’), will be the
investment in Futures Contracts and the
management of its investments in shortterm obligations of the United States of
two years or less (‘‘Treasuries’’), and
cash and cash equivalents (collectively,
‘‘Cash’’) for margining purposes and as
collateral.
USHO Investment Objective and
Policies
The investment objective of USHO is
for the changes in percentage terms of
a Unit’s net asset value (‘‘NAV’’) to
reflect the changes in percentage terms
of the price of heating oil (also known
as No. 2 fuel) delivered at the New York
harbor, as measured by the changes in
the price of the heating oil futures
contract traded on the NYMEX (the
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‘‘Heating Oil Benchmark Futures
Contract’’), less USHO’s expenses. The
Heating Oil Benchmark Futures contract
employed is the near month expiration
contract, except when the near month
contract is within two weeks of
expiration, in which case it will invest
in the next expiration month.5
The General Partner will attempt to
place USHO’s trades in Heating Oil
Interests and otherwise manage USHO’s
investments so that ‘‘A’’ will be within
plus/minus 10% of ‘‘B’’, where:
• A is the average daily change in
USHO’s NAV for any period of 30
successive valuation days, i.e., any day
as of which USHO calculates its NAV,
and
• B is the average daily change in the
price of the Benchmark Futures Contract
over the same period.
The Exchange states that an
investment in the Units will allow both
retail and institutional investors to
easily gain exposure to the heating oil
market in a cost-effective manner. The
Units are also expected to provide
additional means for diversifying an
investor’s investments or hedging
exposure to changes in heating oil
prices.
The General Partner believes that
market arbitrage opportunities should
cause USHO’s Unit price to closely track
USHO’s per-Unit NAV, which is
targeted at the current Heating Oil
Benchmark Futures Contract.6 USHO
will not be operated in a manner such
that the per-Unit NAV will equal, in
dollar terms, the dollar price of spot
heating oil or any particular futures
contract based on heating oil.
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USG Investment Objective and Policies
The investment objective of USG is
for changes in percentage terms of a
Unit’s NAV to reflect the changes in
percentage terms of the price of
unleaded gasoline (also known as
reformulated gasoline blendstock for
oxygen blending or ‘‘RBOB’’), for
delivery to New York harbor, as
measured by the changes in the price of
the unleaded gasoline futures contract
traded on the NYMEX (the ‘‘Gasoline
Benchmark Futures Contract’’), less
USG’s expenses. The Gasoline
Benchmark Futures Contract employed
is the near month expiration contract,
except when the near month contract is
within two weeks, in which case it will
invest in the next expiration month.7
5 The Benchmark Futures Contracts will be
changed or ‘‘rolled’’ over a four-day period by
selling the near month contract that expires the
following month.
6 See section entitled ‘‘Arbitrage,’’ infra.
7 The Benchmark Futures Contracts will be
changed or ‘‘rolled’’ over a four-day period by
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The General Partner will attempt to
place USG’s trades in Gasoline Interests
and otherwise manage USG’s
investments so that ‘‘A’’ will be within
plus/minus 10% of ‘‘B’’, where:
• A is the average daily change in
USG’s NAV for any period of 30
successive valuation days, i.e., any day
as of which USG calculates its NAV,
and
• B is the average daily change in the
price of the Benchmark Futures Contract
over the same period.
The Exchange states that an
investment in the Units will allow both
retail and institutional investors to
easily gain exposure to the gasoline
market in a cost-effective manner. The
Units are also expected to provide
additional means for diversifying an
investor’s investments or hedging
exposure to changes in gasoline prices.
The General Partner believes that
market arbitrage opportunities should
cause USG’s Unit price to closely track
USG’s per-Unit NAV which is targeted
at the current Gasoline Benchmark
Futures Contract. USG will not be
operated in a manner such that the perUnit NAV will equal, in dollar terms,
the dollar price of spot gasoline or any
particular futures contract based on
gasoline.
Description of the Petroleum-Based
Fuels Market
With respect to each of the following
petroleum-based fuel markets, the
Exchange states as follows:
Heating Oil. Heating oil, also known
as No. 2 fuel oil, accounts for 25% of the
yield of a barrel of crude oil, the second
largest ‘‘cut’’ from oil after gasoline. The
heating oil futures contract, listed and
traded on NYMEX, trades in units of
42,000 gallons (1,000 barrels) and is
based on delivery in New York harbor,
the principal cash market center. The
price of heating oil fluctuates on a
seasonal basis. Cold weather increases
demand and price follows.
Crude Oil. Crude oil is the world’s
most actively traded commodity. The
NYMEX is the world’s most liquid
forum for crude oil trading and has the
most liquid futures contracts on a
physical commodity. Due to the
liquidity and price transparency of oil
Futures Contracts, they are used as a
principal international pricing
benchmark. The oil futures contracts for
WTI light, sweet crude oil trade on the
NYMEX in units of 1,000 U.S. barrels
(42,000 gallons) and, if not closed out
before maturity, will result in delivery
of oil to Cushing, Oklahoma, which is
selling the near month contract that expires the
following month.
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515
also accessible to the world market by
two major interstate petroleum pipeline
systems.
The price of crude oil is established
by the supply and demand conditions in
the global market overall, and more
particularly, in the main refining centers
of Singapore, Northwest Europe, and the
U.S. Gulf Coast. Demand for petroleum
products by consumers, as well as
agricultural, manufacturing, and
transportation industries, determines
demand for crude oil by refiners. Since
the precursors of product demand are
linked to economic activity, crude oil
demand will tend to reflect economic
conditions. However, other factors such
as weather also influence product and
crude oil demand. The price of WTI
light, sweet crude oil has historically
exhibited periods of significant
volatility.
Gasoline. Gasoline is by volume the
largest single refined product sold in the
United States and accounts for almost
half of national oil consumption. The
gasoline Futures Contract, listed and
traded on the NYMEX, trades in units of
42,000 gallons (1,000 barrels) and is
based on delivery at petroleum products
terminals in the New York harbor, the
major East Coast trading center for
imports and domestic shipments from
refineries in the New York harbor area
or from the Gulf Coast refining centers.
The price of gasoline is volatile.
Natural Gas. Natural gas accounts for
almost a quarter of U.S. energy
consumption. The price of natural gas is
established by the supply and demand
conditions in the North American
market, and more particularly, in the
main refining center of the U.S. Gulf
Coast. The natural gas market
essentially constitutes an auction, where
the highest bidder wins the supply.
When markets are ‘‘strong’’ (i.e., when
demand is high and/or supply is low),
the bidder must be willing to pay a
higher premium to capture the supply.
When markets are ‘‘weak’’ (i.e., when
demand is low and/or supply is high),
a bidder may choose not to outbid
competitors, waiting instead for later,
possibly lower-priced, supplies.
Demand for natural gas by consumers,
and the agricultural, manufacturing, and
transportation industries, determines
overall demand for natural gas. Since
the precursors of product demand are
linked to economic activity, natural gas
demand will tend to reflect economic
conditions. However, other factors such
as weather significantly influence
natural gas demand. NYMEX is the
world’s largest physical commodity
futures exchange and the dominant
market for the trading of energy and
precious metals. The NYMEX’s natural
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gas futures contracts trade in units of
10,000 million British thermal units
(‘‘mmBtu’’) and are based on delivery at
the Henry Hub in Louisiana.
Because of the volatility of natural gas
prices, a vigorous basis market has
developed in the pricing relationships
between the Henry Hub and other
important natural gas market centers in
the continental United States and
Canada.
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Structure and Regulation of USHO and
USG
Each of USHO and USG is a Delaware
limited partnership formed in April
2007. USHO is a commodity pool that
will invest in Heating Oil Interests,
while USG is a commodity pool that
will invest in Gasoline Interests. Neither
USHO nor USG is an investment
company as defined in section 3(a) of
the Investment Company Act of 1940.
Both are managed by Victoria Bay, a
single-member Delaware limited
liability company, which is wholly
owned by Wainwright Holdings, Inc.
The General Partner of the Partnerships
is registered as a commodity pool
operator (‘‘CPO’’) with the Commodity
Futures Trading Commission (the
‘‘CFTC’’) and is a member of the
National Futures Association.
Information regarding the
Partnerships and the General Partner, as
well as detailed descriptions of the
manner in which the Units will be
offered and sold, and the investment
strategy of USHO and USG, are included
in their respective registration
statements regarding the offering of the
Units filed with the Commission under
the Securities Act of 1933.8
Clearing Broker. UBS Securities, LLC
(the ‘‘Clearing Broker’’), a CFTCregistered futures commission merchant
(‘‘FCM’’), will execute and clear each
Partnership’s futures contract
transactions and hold the margin related
to its Futures Contracts investments.
The clearing arrangements between the
Clearing Broker and each Partnership
are terminable by the Clearing Broker,
upon notice. In such an instance, the
General Partner may be required to
renegotiate with the current Clearing
Broker, or make arrangements with
other FCMs, if the Partnership(s)
intend(s) to continue trading in Futures
Contracts or Heating Oil Interests and
Gasoline Interests, as appropriate, at the
present level of capacity.
Administrator and Custodian. Under
separate agreements with each
8 See USHO’s Form S–1 filed with the
Commission on April 19, 2007 (File No. 333–
142211); USG’s S–1 filed with the Commission on
April 18, 2007 (File No. 333–142206).
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Partnership, Brown Brothers Harriman
& Co. will serve as each Partnership’s
administrator, registrar, transfer agent,
and custodian (the ‘‘Administrator’’ or
‘‘Custodian’’). The Administrator will
perform or supervise the performance of
services necessary for the operation and
administration of each Partnership.
These services include, but are not
limited to, investment accounting,
financial reporting, broker and trader
reconciliation, calculation of the NAV,
and valuation of Treasuries and cash
equivalents used to purchase or redeem
Units and other Partnership assets or
liabilities. As Custodian, it will: (1)
Receive payments from purchasers of
Creation Baskets; (2) make payments to
Sellers for Redemption Baskets, as
described below; and (3) hold the cash,
cash equivalents and Treasuries, as well
as collateral posted by each
Partnership’s derivatives counterparties,
and will make transfers of margin and
collateral with respect to each
Partnership’s investments to and from
its FCMs or counterparties.
Marketing Agent. ALPS Distributors,
Inc., a registered broker-dealer, will be
the marketing agent for the Partnerships
(‘‘Marketing Agent’’). The Marketing
Agent will continuously offer and
redeem Creation and Redemption
Baskets, respectively, and will receive
and process creation and redemption
orders from Authorized Purchasers (as
defined below) and coordinate the
processing of orders for the creation or
redemption of Units with the General
Partner and the Depository Trust
Company (‘‘DTC’’).
Investment Strategy of USHO
Investments. The General Partner of
USHO believes that it will be able to use
a combination of Futures Contracts and
Other Heating Oil Related Investments
to manage the portfolio to achieve its
investment objective. The General
Partner further anticipates that the exact
mix of Futures Contracts and Other
Heating Oil Related Investments held by
the portfolio will vary over time
depending on, among over things, the
amount of invested assets in the
portfolio, price movements of Heating
Oil, the rules and regulations of the
various futures and commodities
exchanges and trading platforms that
deal in Heating Oil Interests, and
innovations in the Heating Oil Interests’
marketplace, including both the creation
of new Heating Oil Interest investment
vehicles and the creation of new trading
venues that trade in Heating Oil
Interests.
Futures Contracts. The principal
Heating Oil Interests to be invested in
by USHO are Futures Contracts. USHO
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initially expects to purchase the
Benchmark Futures Contract. USHO
may also invest in Futures Contracts in
Heating Oil, crude oil, gasoline, and
other petroleum-based fuels that are
traded on the NYMEX, ICE Futures, or
other U.S. and foreign exchanges.
The Heating Oil Benchmark Futures
Contract has historically closely tracked
the investment objective of USHO over
the short term, medium term and the
long term. For that reason, USHO
anticipates making significant
investments in the Heating Oil
Benchmark Futures Contract. The
General Partner submits that other
Futures Contracts have also tended to
track the investment objective of USHO,
though not as closely as the Heating Oil
Benchmark Futures Contract.
Other Heating Oil Related
Investments. USHO may also purchase
Other Heating Oil Related Investments
such as cash-settled options on Futures
Contracts and forward contracts for
Heating Oil, and participate in OTC
transactions that are based on the price
of Heating Oil, crude oil, natural gas,
and other petroleum-based fuels,
Futures Contracts, and indices based on
the foregoing. Option contracts offer
investors and hedgers another vehicle
for managing exposure to the heating oil
market. USHO may purchase options on
Heating Oil Futures Contracts on the
principal commodities and futures
exchanges in pursuing its investment
objective.
In addition to these listed options,
there also exists an active OTC market
in derivatives linked to Heating Oil.
These OTC derivative contracts are
privately negotiated agreements
between two parties. Unlike Futures
Contracts or related options, each party
to an OTC contract bears the credit risk
that the counterparty may not be able to
perform its obligations. Some OTC
contracts contain fairly generic terms
and conditions and are available from a
wide range of participants, while other
OTC contracts have highly customized
terms and conditions and are not as
widely available. Many OTC contracts
are cash-settled forwards for the future
delivery of Heating Oil or petroleumbased fuels that have terms similar to
the Futures Contracts. Others take the
form of ‘‘swaps’’ in which the two
parties exchange cash flows based on
pre-determined formulas tied to the
price of Heating Oil as determined by
the spot, forward, or futures markets.
USHO may enter into OTC derivative
contracts whose value may be tied to
changes in the difference between the
Heating Oil spot price, the price of
Futures Contracts traded on NYMEX,
and the prices of non-NYMEX Futures
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Contracts that may be invested in by
USHO.
Investment Strategy of USG
Investments. USG believes that it will
be able to use a combination of Futures
Contracts and Other Gasoline Related
Investments to manage the portfolio to
achieve its investment objective. USG
further anticipates that the exact mix of
Futures Contracts and Other Gasoline
Related Investments held by the
portfolio will vary over time depending
on, among other things, the amount of
invested assets in the portfolio, price
movements of Gasoline, the rules and
regulations of the various futures and
commodities exchanges and trading
platforms that deal in Gasoline Interests,
and innovations in the Gasoline
Interests’ marketplace including both
the creation of new Gasoline Interest
investment vehicles and the creation of
new trading venues that trade in
Gasoline Interests.
Futures Contracts. The principal
Gasoline Interests to be invested in by
USG are Futures Contracts. USG
initially expects to purchase the
Gasoline Benchmark Futures Contract.
USG may also invest in Futures
Contracts in crude oil, natural gas,
heating oil, and other petroleum-based
fuels that are traded on the NYMEX, ICE
Futures, or other U.S. and foreign
exchanges.
The Gasoline Benchmark Futures
Contract has historically closely tracked
the investment objective of USG over
the short term, medium term and the
long term. For that reason, USG
anticipates making significant
investments in the Gasoline Benchmark
Futures Contract. The General Partner
submits that other Futures Contracts
have also tended to track the investment
objective of USG, though not as closely
as the Gasoline Benchmark Futures
Contract.
Other Gasoline Related Investments.
USG may also purchase Other Gasoline
Related Investments such as cash-settled
options on Futures Contracts, forward
contracts for gasoline, and OTC
contracts that are based on the price of
gasoline, heating oil, crude oil, natural
gas, and other petroleum-based fuels, as
well as Futures Contracts and indices
based on the foregoing. Option contracts
offer investors and hedgers another
vehicle for managing exposure to the
gasoline market. USG may purchase
options on gasoline Futures Contracts
on the principal commodities and
futures exchanges in pursuing its
investment objective.
In addition to these listed options,
there also exists an active OTC market
in derivatives linked to gasoline. These
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OTC derivative transactions are
privately negotiated agreements
between two parties. Unlike Futures
Contracts or related options, each party
to an OTC contract bears the credit risk
that the counterparty may not be able to
perform its obligations. Some OTC
contracts contain fairly generic terms
and conditions and are available from a
wide range of participants, while other
OTC contracts have highly customized
terms and conditions and are not as
widely available. Many OTC contracts
are cash-settled forwards for the future
delivery of gasoline or petroleum-based
fuels that have terms similar to the
Futures Contracts. Others take the form
of ‘‘swaps’’ in which the two parties
exchange cash flows based on predetermined formulas tied to the price of
gasoline as determined by the spot,
forward, or futures markets. USG may
enter into OTC derivative contracts
whose value will be tied to changes in
the difference between the gasoline spot
price, the price of Futures Contracts
traded on NYMEX, and the prices of
non-NYMEX Futures Contracts that may
be invested in by USG.
Impact of Accountability Levels and
Position Limits
The CFTC and U.S. designated
contract markets such as NYMEX have
established accountability levels and
position limits on the maximum net
long or net short Futures Contracts in
commodity interests that any person or
group of persons under common trading
control and that these limits are
applicable to each of the Partnerships.
Accountability levels and position
limits are intended, among other things,
to prevent a corner or squeeze on a
market or undue influence on prices by
any single trader or group of traders.
The net position is the difference
between an individual or firm’s open
long contracts and open short contracts
in any one commodity.
Most U.S. futures exchanges, such as
NYMEX, also limit the daily price
fluctuation (i.e., daily price limits) for
Futures Contracts. The daily price limits
establish the maximum amount that the
price of a futures contract or an option
on a futures contract may vary either up
or down from the previous day’s
settlement price during a particular
trading session. Once the daily limit has
been reached in a particular futures
contract or option on a futures contract,
no trades may be made at a price
beyond the limit.
The accountability levels for the
Heating Oil Benchmark Futures
Contract, the Gasoline Benchmark
Futures Contract, and other Futures
Contracts traded on NYMEX are not a
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517
fixed ceiling, but rather a threshold
above which the NYMEX may exercise
greater scrutiny and control over an
investor’s positions. The current
accountability level for each of the
Heating Oil Benchmark Futures
Contract and Gasoline Benchmark
Futures Contract is 7,000 contracts. If a
Partnership exceeds this accountability
level for its Benchmark Futures
Contract, NYMEX will monitor the
Partnership’s exposure and ask for
further information on its activities,
including the total size of all positions,
the investment and trading strategy, and
the extent of liquidity resources. If
deemed necessary by NYMEX, it could
also order the Partnership to reduce its
position back to the accountability level.
If NYMEX orders a Partnership to
reduce its position back to the
accountability level, or to an
accountability level that NYMEX deems
appropriate for the Partnership, such an
accountability level may impact the mix
of investments by such Partnership. To
illustrate, assume that the Heating Oil
Benchmark Futures Contract and the
unit price of USHO are each $10, and
that NYMEX has determined that USHO
may not own more than 7,000 contracts.
In such a case, USHO could invest up
to $2.940 billion of its daily net assets
in the Benchmark Futures Contract (i.e.,
$10 per unit multiplied by 42,000 (a
Benchmark Futures Contract is a
contract for 42,000 gallons (1,000
barrels)) multiplied by 7,000 contracts)
before reaching the accountability level
imposed by NYMEX. Once the daily net
assets of the portfolio exceed $2.940
billion in the Heating Oil Benchmark
Futures Contract, the portfolio may not
be able to make any further investments
in the Heating Oil Benchmark Futures
Contract, depending on whether the
NYMEX imposes limits. If NYMEX does
impose limits at the $2.940 billion level
(or another level), USHO anticipates
that it will invest the majority of its
assets above that level in a mix of other
Futures Contracts or Other Heating Oil
Related Investments. The above
example applies equally to USG and the
Gasoline Benchmark Futures Contract.
In addition to accountability levels,
NYMEX imposes position limits on
contracts held in the last few days of
trading in the near month contract. The
Exchange states that it is unlikely that
a Partnership will run up against such
position limits because each
Partnership’s investment strategy is to
exit from the near month contract over
a four day period beginning two weeks
from expiration of the contract.
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Investment Procedures
The General Partner of each of USHO
and USG anticipate that the use of Other
Heating Oil Related Investments and
Other Gasoline Related Investments,
respectively, together with investments
in Futures Contracts, will produce price
and total return results that closely track
each Partnership’s investment objective.
Counterparty Procedures. To protect
itself from the credit risk that arises in
connection with OTC contracts, each
Partnership will enter into agreements
with each counterparty that provide for
the netting of its overall exposure to its
counterparty, and/or provide collateral
or other credit support to address the
Partnership’s exposure. The
counterparties to an OTC contract will
generally be major broker-dealers and
banks or their affiliates, though certain
institutions, such as large energy
companies, or other institutions active
in the gasoline commodities markets,
may also be counterparties. The General
Partner will assess or review, as
appropriate, the creditworthiness of
each potential or existing, as
appropriate, counterparty to an OTC
contract pursuant to guidelines
approved by the General Partner’s board
of directors. Furthermore, the General
Partner, on behalf of each Partnership,
will only enter into OTC contracts with
(a) members of the Federal Reserve
System or foreign banks with branches
regulated by the Federal Reserve Board,
(b) primary dealers in U.S. government
securities, (c) broker-dealers, (d)
commodities futures merchants, or (e)
affiliates of the foregoing.
Cash, Cash Equivalents, and
Treasuries. USHO and USG will invest
virtually all of their assets not invested
in Heating Oil Interests or Gasoline
Interests, respectively, in cash, cash
equivalents, and Treasuries with a
remaining maturity of two years or less.
The cash, cash equivalents, and
Treasuries will be available to be used
to meet each Partnership’s current or
potential margin and collateral
requirements with respect to
investments in Heating Oil Interests or
Gasoline Interests, as appropriate.
Neither Partnership will use cash, cash
equivalents, or Treasuries as margin for
new investments unless it has a
sufficient amount of cash, cash
equivalents or Treasuries to meet the
margin or collateral requirements that
may arise due to changes in the value
of its currently held Heating Oil
Interests or Gasoline Interests. Other
than in connection with a redemption of
Units, each Partnership does not intend
to distribute cash or property to its Unit
holders. Interest earned on cash, cash
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equivalents, and Treasuries held by a
Partnership will be retained by it to pay
its expenses, to make investments to
satisfy its investment objectives, or to
satisfy its margin or collateral
requirements.
The Markets for Partnership Units
There will be two markets for
investors to purchase and sell Units. A
new issuance of the Units will be made
only in a ‘‘Basket’’ of 100,000 Units or
multiples thereof. Each Partnership will
issue and redeem Baskets on a
continuous basis, by or through
participants who have each entered into
an authorized purchaser agreement
(‘‘Authorized Purchaser Agreement’’
and each such participant, an
‘‘Authorized Purchaser’’) 9 with the
General Partner, at the NAV per Unit
next determined after an order to
purchase the Units in a Basket is
received in proper form. A Basket may
be issued and redeemed on any
‘‘business day’’ (defined as any day
other than a day on which the Amex,
NYMEX, or the New York Stock
Exchange is closed for regular trading)
through the Marketing Agent in
exchange for cash and/or Treasuries,
which the Custodian receives from an
Authorized Purchaser or transfers to an
Authorized Purchaser, in each case on
behalf of a Partnership. A Basket is then
separable upon issuance into identical
Units that will be listed and traded on
the Exchange. The Exchange expects
that the number of outstanding Units
will increase and decrease as a result of
creations and redemptions of Baskets.
The Units will thereafter be traded on
the Exchange similar to other equity
securities. Units will be registered in
book-entry form through DTC. Trading
in the Units on the Exchange will be
effected until 4:15 p.m. Eastern time
(‘‘ET’’) each business day. The
minimum trading increment for such
Units will be $0.01.
Each Authorized Purchaser, and each
distributor offering and selling newly
issued Units as part of the distribution
of such Units, is required to comply
with the prospectus delivery and
disclosure requirements of the
Securities Act of 1933, as well as the
requirements of the Commodities
Exchange Act, including the
requirement that prospective investors
provide an acknowledgement of receipt
of such disclosure materials prior to the
payment for any newly issued Units.
9 ‘‘An Authorized Purchaser’’ must be (1) a
registered broker-dealer or other market participant,
such as a bank or other financial institution, that
is exempt from broker-dealer registration; and (2) a
DTC Participant.
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Calculation of Partnership NAV. The
Administrator will calculate NAV as
follows: (1) Determine the current value
of each Partnership’s assets; and (2)
subtract the liabilities of each
Partnership. The NAV will be calculated
shortly after the close of trading on the
Exchange using the settlement value 10
of Futures Contracts traded on the
NYMEX as of the close of open-outcry
trading on the NYMEX at 2:30 p.m. ET,
and for the value of other Heating Oil
Interests or Gasoline Interests,
depending on the Partnership, and
Treasuries and cash equivalents, the
value of such investments as of the
earlier of 4 p.m. ET or the close of
trading on the New York Stock
Exchange. The NAV is calculated by
including any unrealized profit or loss
on Futures Contracts and Other Heating
Oil Related Investments and Other
Gasoline Related Investments, as the
case may be, and any other credit or
debit accruing to a Partnership but
unpaid or not received by such
Partnership. The NAV is then used to
compute all fees (including the
management and administrative fees)
that are calculated from the value of
Partnership assets. The Administrator
will calculate the NAV per Unit by
dividing the NAV by the number of
Units outstanding.
When calculating NAV, the
Administrator will value Futures
Contracts based on the closing
settlement prices quoted on the relevant
commodities and futures exchange and
obtained from various major market data
vendors such as Bloomberg or Reuters.
The value of the Other Heating Oil
Related Investments or Other Gasoline
Related Investments for purposes of
determining the NAV will be based
upon the determination of the
Administrator as to the fair market
value. Certain types of Other Heating
Oil Related Investments and Other
Gasoline Related Investments, such as
listed options on Futures Contracts,
have closing prices that are available
from the exchange upon which they are
traded or from various market data
vendors. Other Heating Oil Related
Investments and Other Gasoline Related
Investments will be valued based on the
last sale price on the exchange or market
where traded. If a contract fails to trade,
the value shall be the most recent bid
quotation from the third-party source.
Some types of Other Heating Oil Related
Investments and Other Gasoline Related
Investments, such as forward contracts,
do not trade on established exchanges,
but typically have prices that are widely
10 See Rules 6.52 and 6.52A of the NYMEX
Rulebook.
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available from third-party sources. The
Administrator may make use of such
third-party sources in calculating a fair
market value of these Other Heating Oil
Related Investments and Other Gasoline
Related Investments.
Certain types of Other Heating Oil
Related Investments and Other Gasoline
Related Investments, such as OTC
derivative ‘‘swaps,’’ also do not have
established exchanges upon which they
trade and may not have readily available
price quotes from third parties. Swaps
and other similar derivative or
contractual-type instruments will be
first valued at a price provided by a
single broker or dealer, typically the
counterparty. If no such price is
available, the contract will be valued at
a price at which the counterparty to
such contract could repurchase the
instrument or terminate the contract. In
determining the fair market value of
such derivative contracts, the
Administrator may make use of quotes
from other providers of similar
derivatives. If these are not available,
the Administrator may calculate a fair
market value of the derivative contract
based on the terms of the contract and
the movement of the underlying price
factors of the contract.
Calculation of the Basket Amount. A
Basket will be issued in exchange for
Treasuries and/or cash in an amount
equal to the NAV per Unit times
100,000 Units (the ‘‘Basket Amount’’). A
Basket will be delivered by the
Marketing Agent to an Authorized
Purchaser only after execution of the
Authorized Purchaser Agreement.
Units in a Basket are issued and
redeemed in accordance with the
Authorized Purchaser Agreement. An
Authorized Purchaser that wishes to
purchase a Basket must transfer the
Basket Amount, for each Basket
purchased, to the Custodian (the
‘‘Deposit Amount’’). An Authorized
Purchaser that wishes to redeem a
Basket will receive an amount of
Treasuries and/or cash in exchange for
each Basket surrendered in an amount
equal to the NAV per Basket (the
‘‘Redemption Amount’’).
On each business day, the
Administrator will make available,
immediately prior to the opening of
trading on the Exchange, the Basket
Amount for the creation of a Basket
based on the prior day’s NAV. At or
about 4 p.m. ET on each business day,
the Administrator will determine the
Basket Amount for orders placed by
Authorized Purchasers received before
12 p.m. ET that day. Because orders to
purchase and/or redeem Baskets must
be placed by 12 p.m. ET, but the Basket
Amount will not be determined until
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20:29 Jan 02, 2008
Jkt 214001
shortly after 4 p.m. ET on the date the
order to purchase or redeem is received,
an Authorized Purchaser will not know
the total payment required to create or
redeem a Basket at the time it submits
such irrevocable purchase and/or
redemption order. This is similar to
exchange-traded funds and mutual
funds. USHO’s and USG’s registration
statements disclose that the NAV and
the Basket Amount could rise and fall
substantially between the time an
irrevocable purchase order and/or
redemption order is submitted and the
time the Basket Amount is
determined.11
Shortly after 4 p.m. ET on each
business day, the Administrator, Amex,
and the General Partner will
disseminate the Basket Amount (for
orders placed during the day) together
with NAV for the Units. The Exchange
will obtain a representation from each
Partnership that its NAV and other
relevant pricing information will be
disclosed to all market participants at
the same time. The Basket Amount and
the NAV are communicated by the
Administrator to all Authorized
Purchasers via facsimile or e-mail.
Concurrently, the Amex will also
disclose the NAV and Basket Amount
on its Web site at https://www.amex.com.
The Basket Amount necessary for the
creation of a Basket will change from
day to day. On each day that the Amex
is open for regular trading, the
Administrator will adjust the Deposit
Amount as appropriate to reflect the
prior day’s Partnership NAV and
accrued expenses. The Administrator
will then determine the Deposit Amount
for a given business day.
Calculation and Payment of the
Deposit Amount. The Deposit Amount
of Treasuries and/or cash will be in the
same proportion to the total net assets
of each Partnership as the number of
Units to be created is in proportion to
the total number of Units outstanding as
of the date the purchase order is
accepted. The General Partner will
determine the requirements for the
Treasuries that may be included in the
Deposit Amount and will disseminate
these requirements at the start of each
business day. The amount of cash that
is required is the difference between the
aggregate market value of the Treasuries
required to be included in the Deposit
11 The General Partner states that the price of
crude oil, heating oil, gasoline, and other
petroleum-based fuels futures may fluctuate 5% or
more between 12:00 noon, the cutoff for creation
and redemption orders, and 2:30 p.m., the close of
trading on NYMEX. As explained further below (see
section entitled ‘‘Arbitrage,’’ infra), the Exchange
does not anticipate such price movements to impact
the arbitrage process.
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519
Amount as of 4 p.m. ET on the date of
purchase and the total required deposit.
All purchase orders must be received
by the Marketing Agent by 12 p.m. ET
for consideration on that business day.
Delivery of the Deposit Amount, i.e.,
Treasuries and/or cash, to the
Administrator must occur by the third
business day following the purchase
order date (T+3).12 Thus, the General
Partner will disseminate shortly after 4
p.m. ET, on the date the purchase order
was properly submitted, the amount of
Treasuries and/or cash to be deposited
with the Custodian for each Basket.
Calculation and Payment of the
Redemption Amount. The Units will not
be individually redeemable but will
only be redeemable in Baskets. To
redeem, an Authorized Purchaser will
be required to accumulate enough Units
to constitute a Basket (i.e., 100,000
Units). An Authorized Purchaser
redeeming a Basket will receive the
Redemption Amount. Upon the
surrender of the Units and payment of
applicable redemption transaction fee,13
taxes, or charges, the Custodian will
deliver to the redeeming Authorized
Purchaser the Redemption Amount. The
Redemption Amount of Treasuries and/
or cash will be in the same proportion
to the total net assets of each
Partnership as the number of Units to be
redeemed is in proportion to the total
number of Units outstanding as of the
date the redemption order is accepted.
The General Partner will determine the
Treasuries to be included in the
Redemption Amount. The amount of
cash that is required is the difference
between the aggregate market value of
the Treasuries required to be included
in the Redemption Amount as of 4 p.m.
ET on the date of redemption and the
total Redemption Amount. All
redemption orders must be received by
the Marketing Agent by 12 p.m. ET on
the business day redemption is
requested and are irrevocable. Delivery
of the Basket to be redeemed to the
Custodian and payment of Redemption
Amount will occur by the third business
day following the redemption order date
(T+3).
Arbitrage
The Exchange believes that the Units
will not trade at a material discount or
premium to a Unit’s NAV based on
potential arbitrage opportunities. Due to
the fact that the Units can be created
and redeemed only in Baskets at NAV,
12 Authorized Purchasers are required to pay a
transaction fee of $1,000 for each order to create one
or more Baskets.
13 Authorized Purchasers are required to pay a
transaction fee of $1,000 for each order to redeem
one or more Baskets.
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arbitrage opportunities should provide a
mechanism to mitigate the effect of any
premiums or discounts that may exist
from time to time.14
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Dissemination and Availability of
Information
Futures Contracts. The daily
settlement prices for the NYMEX-traded
Futures Contracts are publicly available
on the NYMEX Web site at https://
www.nymex.com. The Exchange will
also include on its Web site at https://
www.amex.com a hyperlink to the
NYMEX Web site for the purpose of
disclosing futures contract pricing. In
addition, various market data vendors
and news publications publish futures
prices and related data. The Exchange
represents that quote and last-sale
information for the Futures Contracts
are widely disseminated through a
variety of market data vendors
worldwide, including Bloomberg and
Reuters. In addition, real-time futures
data is available by subscription from
Reuters and Bloomberg. The NYMEX
also provides delayed futures
information on current and past trading
sessions and market news free of charge
on its Web site. The specific contract
specifications for the Futures Contracts
are also available on the NYMEX Web
site and the ICE Futures Web site at
https://www.icefutures.com.
Partnership Units. The Exchange’s
Web site at https://www.amex.com,
which is publicly accessible at no
charge, will contain the following
information: (1) The prior business
day’s NAV and the reported closing
price; (2) the mid-point of the bid-ask
price 15 in relation to the NAV as of the
time the NAV is calculated (the ‘‘BidAsk Price’’); (3) calculation of the
premium or discount of such price
against such NAV; (4) data in chart form
displaying the frequency distribution of
discounts and premiums of the Bid-Ask
Price against the NAV, within
appropriate ranges for each of the four
previous calendar quarters; (5) the
14 Arbitrage opportunities may arise whenever the
market price of a Partnership Unit is higher (or
lower) than its expected fair market value, which
is based on the price of the underlying commodity
futures. An Authorized Purchaser may effectively
lock-in an arbitrage spread by selling (or buying) the
Units while, at the same time buying (or selling),
the related commodity futures. This arbitrage
activity may occur not only at the time of an
irrevocable creation or redemption order, but
throughout the day. Accordingly, arbitrage activity
should not be affected by price movements in the
underlying commodity assets between the cutoff for
creation and redemption orders and the close of
futures trading, following which the Basket Amount
is determined.
15 The Bid-Ask Price of Units is determined using
the highest bid and lowest offer as of the time of
calculation of the NAV.
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20:29 Jan 02, 2008
Jkt 214001
prospectus and the most recent periodic
reports filed with the Commission or
required by the CFTC; and (6) other
applicable quantitative information.
Portfolio Disclosure. USHO’s and
USG’s total portfolio composition will
be disclosed, each business day that the
Amex is open for trading, on their
respective Web sites at https://
www.unitedstatesheatingoilfund.com
and https://
www.unitedstatesgasolinefund.com.
USHO’s Web site disclosure of portfolio
holdings will be made daily and will
include, as applicable, the name and
value of each Heating Oil Interest, the
specific types of Heating Oil Interests
and characteristics of such Heating Oil
Interests, Treasuries, and amount of
cash and cash equivalents held in the
portfolio of USHO. USG’s Web site
disclosure of portfolio holdings will be
made daily and will include, as
applicable, the name and value of each
Gasoline Interest, the specific types of
Gasoline Interests and characteristics of
such Gasoline Interests, Treasuries, and
amount of cash and cash equivalents
held in the portfolio of USG. The public
Web site disclosure of the portfolio
composition of each of USHO and USG
will coincide with the disclosure by the
Administrator on each business day of
the NAV for the Units and the Basket
Amount (for orders placed during the
day) for each Partnership. Therefore, the
same portfolio information will be
provided at the same time on the public
Web site for each Partnership as well as
in the facsimile or e-mail to Authorized
Purchasers containing the NAV and
Basket Amount (‘‘Daily
Dissemination’’). The format of the
public Web site disclosure and the Daily
Dissemination will differ because the
public Web site will list all portfolio
holdings while the Daily Dissemination
will provide the portfolio holdings in a
format appropriate for Authorized
Purchasers, i.e., the exact components of
a Creation Unit.
As described above, each
Partnership’s NAV will be calculated
and disseminated daily. The Amex also
intends to disseminate for each
Partnership on a daily basis by means of
Consolidated Tape Association
(‘‘CTA’’)/Consolidated Quote High
Speed Lines information with respect to
the Indicative Partnership Value (as
discussed below), recent NAV, Units
outstanding, the Basket Amount, and
the Deposit Amount. The Exchange will
also make available on its Web site daily
trading volume, closing prices, and the
NAV. The closing price and settlement
prices of the Futures Contracts held by
each Partnership are also readily
available from the NYMEX, automated
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Fmt 4703
Sfmt 4703
quotation systems, published or other
public sources, or on-line information
services such as Bloomberg or Reuters.
In addition, the Exchange will provide
a hyperlink on its Web site at https://
www.amex.com to each Partnership’s
Web site.
Indicative Partnership Value. In order
to provide updated information relating
to each Partnership for use by investors,
professionals, and persons wishing to
create or redeem the Units, the
Exchange will disseminate through the
facilities of the CTA an amount
representing, on a per-Unit basis, the
current indicative value of the Basket
Amount (the ‘‘Indicative Partnership
Value’’). Amex Rule 1500–AEMI(b)
defines ‘‘Indicative Partnership Value’’
as an estimate, updated at least every 15
seconds, of the value of a Partnership
Unit of each series. Consistent with
Amex Rule 1502, the Indicative
Partnership Value for each Partnership
will be disseminated on a per-Unit basis
at least every 15 seconds during regular
Amex trading hours of 9:30 a.m. to 4:15
p.m. ET. The Indicative Partnership
Value will be calculated based on the
Treasuries and cash required for
creations and redemptions (i.e., NAV
per Unit x 100,000) adjusted to reflect
the price changes of the relevant
Benchmark Futures Contracts.
The Indicative Partnership Value is
based on open-outcry trading of the
relevant Benchmark Futures Contracts
on NYMEX. Open-outcry trading on the
NYMEX closes daily at 2:30 p.m. ET
while NYMEX’s energy futures contracts
are traded on the Chicago Mercantile
Exchange’s CME Globex electronic
trading platform on a 24-hour basis.16
After the close of open outcry on
NYMEX at 2:30 p.m., the Indicative
Partnership Value will reflect changes to
the relevant Benchmark Futures
Contracts as provided for through CME
Globex. The value of the relevant
Benchmark Futures Contracts will be
available on a 15-second delayed basis
during the time that Units trade on the
Exchange.
While NYMEX is open for trading, the
Indicative Partnership Value can be
expected to closely approximate the
value per Unit of the Basket Deposit.
However, during Amex trading hours
when the Futures Contracts have ceased
trading in NYMEX’s open outcry,
spreads and resulting premiums or
discounts may widen and, therefore,
16 CME Globex (‘‘Globex’’) is an open-access
marketplace that operates virtually 24 hours each
trading day. Electronic trading on Globex is
conducted from 6 p.m. ET Sunday through 5:15
p.m. ET Friday each week. There is a 45-minute
break each day between 5:15 p.m. ET and 6 p.m.
ET.
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increase the difference between the
price of the Units and the NAV of the
Units. The Indicative Partnership Value
disseminated during Amex trading
hours, on a per-Unit basis, should not be
viewed as a real-time update of the
NAV, which is calculated only once
daily. The Exchange believes that
dissemination of the Indicative
Partnership Value based on the Basket
Deposit provides additional information
that is not otherwise available to the
public and is useful to professionals and
investors in connection with the Units
trading on the Exchange or the creation
or redemption of the Units.
Partnership Termination Events
Each Partnership will continue in
effect from the date of its formation in
perpetuity, unless sooner terminated
upon the occurrence of any one or more
of the following circumstances: (1) The
death, adjudication of incompetence,
bankruptcy, dissolution, withdrawal, or
removal of a general partner who is the
sole remaining general partner, unless a
majority in interest of limited partners
within 90 days after such event elects to
continue the Partnership and appoints a
successor general partner; or (2) the
affirmative vote to terminate the
Partnership by a majority in interest of
the limited partners to terminate the
partnership, subject to certain
conditions.
Upon termination of the Partnership,
holders of the Units will surrender their
Units and the assets of the Partnership
shall be distributed to the Unit holders
pro rata in accordance with the value of
the Units, in cash or in kind, as
determined by the General Partner.
Purchases and Redemptions in Baskets
In the Information Circular, members
and member organizations will be
informed that procedures for purchases
and redemptions of Units in Baskets are
described in the Prospectus and that
Units are not individually redeemable
but are redeemable only in Baskets or
multiples thereof.
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Listing and Trading Rules
Each Partnership will be subject to the
criteria in Amex Rule 1502 for initial
and continued listing of the Units. The
Exchange will require a minimum of
100,000 Units to be outstanding at the
start of trading. The Exchange expects
that the initial price of a Unit will be
$50.00.17 The Exchange believes that
17 Each Partnership expects that the initial
Authorized Purchaser will purchase the initial
Basket of 100,000 Units at the initial offering price
per Unit of $50.00. On the date of the public
offering and thereafter, each Partnership will
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20:29 Jan 02, 2008
Jkt 214001
the anticipated minimum number of
Units outstanding at the start of trading
is sufficient to provide adequate market
liquidity and to further each
Partnership’s objective to seek to
provide a simple and cost effective
means of accessing the commodity
futures markets. The Exchange
represents that it prohibits the initial
and/or continued listing of any security
that is not in compliance with Rule
10A–3 under the Act.18
The Amex original listing fee
applicable to the listing of Units for
each Partnership is $5,000. In addition,
the annual listing fee applicable under
Section 141 of the Amex Company
Guide will be based upon the year-end
aggregate number of Units in all series
of each Partnership outstanding at the
end of each calendar year.
Amex Rule 154–AEMI, ‘‘Orders in
AEMI,’’ paragraph (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, as set forth in
subparagraphs (c)(ii)(1)–(4) of Rule 154–
AEMI. The Units will be deemed
eligible for this treatment.
The Exchange states that Amex Rule
126A–AEMI, which will apply to
trading of the Units, complies with Rule
611 of Regulation NMS, which requires
among other things, that the Exchange
adopt and enforce written policies and
procedures that are reasonably designed
to prevent trade-throughs of protected
quotations.
Consistent with the treatment of trustissued receipts (‘‘TIRs’’),19 specialist
transactions of the Units made in
connection with the creation and
redemption of Units will not be subject
to the prohibitions of Amex Rule 190,
‘‘Specialist’s Transactions with Public
Customers.’’ The Units will generally be
subject to the Exchange’s stabilization
rule, Rule 170–AEMI, ‘‘Registration and
Functions of Specialists,’’ except that
specialists may buy on ‘‘plus ticks’’ and
sell on ‘‘minus ticks,’’ in order to bring
the Units into parity with the
underlying commodity or commodities
and/or futures contract price. The
Exchange notes that Commentary .01 to
its Rule 1503, ‘‘Specialist Prohibitions,’’
continuously issue Units in Baskets consisting of
100,000 Units to Authorized Purchasers at NAV.
18 See 17 CFR 240.10A–3.
19 See The Commission notes that Commentary
.05 to Rule 190 provides an exemption from the
prohibitions stated in that rule for securities issued
by a trust listed pursuant to Amex Rules 1200–
AEMI and 1201–1202, 1200A–AEMI and 1201A–
1205A, or 1200B and 1201B–1205B.
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521
sets forth this limited exception to Rule
170–AEMI.
The trading of the Units will be
subject to certain conflict-of-interest
provisions set forth in Amex Rules 1503
and 1504. Rule 1503 provides that the
prohibitions in Rule 175(c) apply to a
specialist in the Units so that the
specialist or affiliated person may not
act or function as a market-maker in an
underlying asset, related futures
contract or option, or any other related
derivative. An exception to the general
prohibition in Rule 1503 provides that
an approved person of an equity
specialist that has established and
obtained Exchange approval for
procedures restricting flow of material,
non-public market information between
itself and the specialist member
organization, and any member, officer,
or employee associated therewith, may
act in a market-making capacity, other
than as a specialist in the Units on
another market center, in the underlying
asset or commodity, related futures or
options on futures, or any other related
derivatives. Rule 1504 provides that a
specialist handling Units must provide
the Exchange with all necessary
information relating to its trading in
underlying physical assets or
commodities, related futures or options
on futures, or any other related
derivatives. In addition, a member or
member organization will be subject to
Commentary .03 to Amex Rule 1500AEMI prohibiting it from acting as a
market maker from off-floor through the
use of multiple limit orders as agent
(i.e., customer agency orders).
Trading Halts
If an Indicative Partnership Value is
not being disseminated by one or more
major market data vendors, the
Exchange may halt trading during the
day in which the interruption to the
dissemination of such Indicative
Partnership Value occurs. If the
interruption to the dissemination of an
Indicative Partnership 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.
Prior to the commencement of
trading, the Exchange will issue an
Information Circular to members
informing them of, among other things,
Exchange policies regarding trading
halts in the Units. First, the Information
Circular will advise that trading will be
halted in the event the market volatility
trading halt parameters set forth in
Amex Rule 117 have been reached.
Second, the Information Circular will
advise that, in addition to the
parameters set forth in Rule 117, the
E:\FR\FM\03JAN1.SGM
03JAN1
522
Federal Register / Vol. 73, No. 2 / Thursday, January 3, 2008 / Notices
Exchange will halt trading in the Units
if trading in the underlying Benchmark
Futures Contracts is halted or
suspended. Third, with respect to a halt
in trading that is not specified above,
the Exchange may also consider other
relevant factors and the existence of
unusual conditions or circumstances
that may be detrimental to the
maintenance of a fair and orderly
market. Additionally, the Exchange
represents that it will cease trading in
the Units if any of the condition in
Amex Rule 1502(b)(ii) or (iii) exist (i.e.,
if there is a halt or disruption in the
dissemination of the Indicative
Partnership Value and/or underlying
Heating Oil Benchmark Futures
Contracts and/or Gasoline Benchmark
Futures Contracts).
pwalker on PROD1PC71 with NOTICES
Suitability
The Information Circular will inform
members and member organizations of
the characteristics of the Units and of
applicable Exchange rules, as well as of
the requirements of Amex Rule 411
(Duty to Know and Approve
Customers).
The Exchange notes that, pursuant to
Amex Rule 411, a member or member
organization is required in connection
with recommending transactions in the
Units to have a reasonable basis to
believe that a customer is suitable for
the particular investment given
reasonable inquiry concerning the
customer’s investment objectives,
financial situation, needs, and any other
information known by such member.
Information Circular
The Amex will distribute an
Information Circular to its members in
connection with the trading of each
Partnership’s Units. The Information
Circular will discuss the special
characteristics and risks of trading in
the Units. Specifically, the Information
Circular, among other things, will
discuss what the Units are; how a
Basket is created and redeemed; the
requirement that members and member
firms deliver a prospectus to investors
purchasing the Units prior to, or
concurrently with, the confirmation of a
transaction; applicable Amex rules;
dissemination of information regarding
the Indicative Partnership Value;
trading information; and applicable
suitability rules. The Information
Circular will also explain that each
Partnership is subject to various fees
and expenses described in the relevant
Registration Statements. The
Information Circular will also reference
the fact that there is no regulated source
of last-sale information regarding
physical commodities, and describe the
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20:29 Jan 02, 2008
Jkt 214001
regulatory framework relating to the
trading of crude oil- and natural gasbased futures contracts and related
options.
The Information Circular will also
notify members and member
organizations about the procedures for
purchases and redemptions of Units in
Baskets, and that Units are not
individually redeemable but are
redeemable only in Baskets or multiples
thereof. The Information Circular will
also discuss any relief, if granted, by the
Commission or the staff from any rules
under the Act.
The Information Circular will disclose
that the NAV for Units will be
calculated shortly after 4 p.m. ET each
trading day.
section 6(b)(5) 22 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; to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system; and is not
designed to permit unfair
discrimination between customers,
issuers, brokers, or dealers, or to
regulate by virtue of any authority
conferred by the Act matters not related
to the purpose of the Act or the
administration of the Exchange.
Surveillance
The Exchange submits that its
surveillance procedures are adequate to
deter and detect violations of Exchange
rules relating to the trading of the Units.
The surveillance procedures for the
Units will be similar to those used for
units of the United States Oil Fund, LP
and the United States Natural Gas Fund,
LP 20 as well as other commodity-based
trusts, TIRs, and exchange-traded funds.
In addition, the surveillance procedures
will incorporate and rely upon existing
Amex surveillance procedures
governing options and equities. The
Exchange currently has in place a
comprehensive surveillance sharing
agreement with each of NYMEX and ICE
Futures for the purpose of providing
information in connection with trading
in, or related to, futures contracts traded
on NYMEX and ICE Futures,
respectively. To the extent that a
Partnership invests in Heating Oil
Interests or Gasoline Interests traded on
other exchanges, the Amex will enter
into comprehensive surveillance sharing
agreements with those particular
exchanges. The Exchange represents
that each of the Partnerships will only
invest in futures contracts on markets
where the Exchange has entered into the
appropriate comprehensive surveillance
sharing agreements.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
2. Statutory Basis
The Amex believes that the proposed
rule change is consistent with the
requirements of section 6(b) of the Act 21
in general, and furthers the objectives of
20 See Exchange Act Release Nos. 53582 (March
31, 2006), 71 FR 17510 (April 6, 2006) (SR–Amex–
2005–127) (approving Amex Rules 1500–AEMI and
1501 through 1505 in conjunction with the listing
and trading of Units of the United States Oil Fund,
LP) and 55632 (April 13, 2007), 72 FR 19987 (April
20, 2007) (SR–Amex–2006–112) (approving the
listing and trading of Units of the United States
Natural Gas Fund, LP).
21 15 U.S.C. 78f(b).
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Fmt 4703
Sfmt 4703
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
The Exchange has neither solicited
nor received written comments on 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 the self-regulatory
organization 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 Amex has 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.
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.
22 15
E:\FR\FM\03JAN1.SGM
U.S.C. 78f(b)(5).
03JAN1
Federal Register / Vol. 73, No. 2 / Thursday, January 3, 2008 / Notices
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–2007–70 on the
subject line.
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57052; File No. SR–Amex–
2007–140]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing and Immediate Effectiveness
of a Proposed Rule Change Relating to
Options Licensing Fee Changes
December 27, 2007.
Paper Comments
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 December
21, 2007, the American Stock Exchange
LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with
the Securities and Exchange
All submissions should refer to File
Commission (‘‘Commission’’) the
Number SR–Amex–2007–70. This file
proposed rule change as described in
number should be included on the
subject line if e-mail is used. To help the Items I and II below, which Items have
been substantially prepared by the
Commission process and review your
Exchange. The Exchange has designated
comments more efficiently, please use
only one method. The Commission will this proposal as one establishing or
post all comments on the Commission’s changing a due, fee, or other charge
applicable only to a member, pursuant
Internet Web site (https://www.sec.gov/
to section 19(b)(3)(A)(ii) of the Act 3 and
rules/sro.shtml). Copies of the
Rule 19b–4(f)(2) thereunder,4 which
submission, all subsequent
renders the proposal effective upon
amendments, all written statements
filing with the Commission. The
with respect to the proposed rule
Commission is publishing this notice to
change that are filed with the
solicit comments on the proposed rule
Commission, and all written
change from interested persons.
communications relating to the
proposed rule change between the
I. Self-Regulatory Organization’s
Commission and any person, other than Statement of the Terms of Substance of
those that may be withheld from the
the Proposed Rule Change
public in accordance with the
Amex proposes to modify its Options
provisions of 5 U.S.C. 552, will be
Fee Schedule.
available for inspection and copying in
The text of the proposed rule change
the Commission’s Public Reference
is available at the Exchange, on the
Room, 100 F Street, NE., Washington,
Exchange’s Web site at https://
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m. www.amex.com, and at the
Commission’s Public Reference Room.
Copies of such filing also will be
available for inspection and copying at
II. Self-Regulatory Organization’s
the principal office of the Exchange. All Statement of the Purpose of, and
comments received will be posted
Statutory Basis for, the Proposed Rule
without change; the Commission does
Change
not edit personal identifying
information from submissions. You
In its filing with the Commission, the
should submit only information that
Exchange included statements
you wish to make available publicly. All concerning the purpose of, and basis for
submissions should refer to File
the proposed rule change, and discussed
Number SR–Amex–2007–70 and should any comments it received on the
be submitted on or before January 18,
proposed rule change. The text of these
2008.
statements may be examined at the
places specified in Item IV below. The
For the Commission, by the Division of
Exchange has prepared summaries, set
Trading and Markets, pursuant to delegated
forth in sections A, B, and C below, of
authority.23
the most significant aspects of such
Nancy M. Morris,
statements.
pwalker on PROD1PC71 with NOTICES
• Send paper comments in triplicate
to Nancy M. Morris, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
Secretary.
[FR Doc. E7–25487 Filed 1–2–08; 8:45 am]
BILLING CODE 8011–01–P
23 17
20:29 Jan 02, 2008
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(ii).
4 17 CFR 240.19b–4(f)(2).
2 17
CFR 200.30–3(a)(12).
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523
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange has entered into
numerous agreements with index
providers for the purpose of trading
index options. The requirement to pay
an index license fee to such third parties
is a condition to the listing and trading
of these index options. In many cases,
the Exchange is required to pay a
significant licensing fee to issuers or
index owners that may not be
reimbursed. In an effort to recoup the
costs associated with index licenses, the
Exchange has previously established a
per-contract licensing fee for firms,
specialists, registered options traders
(‘‘ROTs’’), remote registered options
traders (‘‘RROTs’’), supplemental
registered options traders (‘‘SROTs’’),
non-member market makers, and brokerdealers that is collected on every
transaction in designated products in
which a firm, specialist, ROT, RROT,
SROT, non-member market maker, or
broker-dealer is a party. The licensing
fees currently imposed are set forth in
the Exchange’s Options Fee Schedule.
The Exchange is proposing to amend
its Options Fee Schedule to increase the
licensing fees for options on the Nasdaq100 Index (NDX) and Mini-Nasdaq-100
Index (MNX). Currently, the licensing
fees for these index options are $0.15
per contract side. As a result of a recent
change to the licensing agreement for
NDX and MNX, the Exchange is now
being charged a higher license fee.
Accordingly, the Exchange now
proposes to charge $ 0.16 per contract
side for NDX and MNX options,
effective January 2, 2008.
The Exchange submits that the
proposed license fee will provide the
Exchange with additional revenue and
allow the Exchange to recoup its costs
associated with the trading of NDX and
MNX options. Furthermore, the Amex
believes that this fee will help to
allocate to those firms, specialists,
ROTs, RROTs, SROTs, non-member
market makers, and broker-dealers
transacting in NDX and MNX options a
fair share of the related costs of offering
such options. Accordingly, the
Exchange believes that the proposed fee
is reasonable.
The Exchange asserts that the
proposal is equitable as required by
section 6(b)(4) of the Act.5
5 Section 6(b)(4) requires that the rules of a
national securities exchange provide for the
equitable allocation of reasonable dues, fees, and
Continued
E:\FR\FM\03JAN1.SGM
03JAN1
]]>Agencies
[Federal Register Volume 73, Number 2 (Thursday, January 3, 2008)]
[Notices]
[Pages 514-523]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-25487]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57042; File No. SR-Amex-2007-70]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of Proposed Rule Change, as Modified by Amendments No.
1 and 2, Relating to the Listing and Trading of Units of the United
States Heating Oil Fund, LP and the United States Gasoline Fund, LP
December 26, 2007.
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on June 29, 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. On August 16, 2007, the Exchange submitted Amendment No. 1 to
the proposed rule change. On December 20, 2007, the Exchange submitted
Amendment No. 2 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 units (a ``Unit'' or
collectively, the ``Units'') of each of the United States Heating Oil
Fund, LP (``USHO'') and the United States Gasoline Fund, LP (``USG'')
(each, a ``Partnership,'' and collectively, the ``Partnerships'').
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 Amex included statements
concerning the purpose of, and basis for, the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Amex 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
The Exchange proposes to list and trade the Units issued by USHO
(under the symbol: ``UHN'') and USG (under symbol: ``UGA'') pursuant to
Amex Rules 1500-AEMI and 1501 through 1505. \3\ Each Partnership is a
commodity pool that will issue Units that may be purchased and sold on
the Exchange. The Exchange submits that the Units will conform to the
initial and continued listing criteria under Rule 1502, \4\ specialist
prohibitions under Rule 1503, and the obligations of specialists under
Rule 1504.
---------------------------------------------------------------------------
\3\ Amex Rule 1500-AEMI provides for the listing of Partnership
Units, which are defined as securities, that are (a) issued by a
partnership that invests in any combination of futures contracts,
options on futures contracts, forward contracts, commodities, and/or
securities; and (b) issued and redeemed daily in specified aggregate
amounts at net asset value. See Exchange Act Release No. 53582
(March 31, 2006), 71 FR 17510 (April 6, 2006) (SR-Amex-2005-127)
(approving Amex Rules 1500-AEMI and 1501 through 1505 in conjunction
with the listing and trading of Units of the United States Oil Fund,
LP).
\4\ See section entitled ``Listing and Trading Rules,'' infra.
---------------------------------------------------------------------------
Ownership of a Unit represents a fractional undivided beneficial
interest in each of the net assets of USHO and USG. Each of the net
assets of USHO and USG will consist of investments in futures contracts
based on heating oil, gasoline, crude oil, and other petroleum-based
fuels, and natural gas that are traded on the New York Mercantile
Exchange (``NYMEX''), Intercontinental Exchange (``ICE Futures''), or
other U.S. and foreign exchanges (collectively, ``Futures Contracts'').
In the case of USHO, the predominant investments are expected to be
based on, or related to, heating oil. The predominant investments of
USG are expected to be based on, or related to, gasoline.
USHO may also invest in other heating-oil-related investments such
as cash-settled options on Futures Contracts, forward contracts for
heating oil, and over-the-counter (``OTC'') contracts that are based on
the price of heating oil, oil and other petroleum-based fuels, Futures
Contracts, and indices based on the foregoing (collectively, ``Other
Heating Oil Related Investments''). Futures Contracts and Other Heating
Oil Related Investments collectively are referred to as ``Heating Oil
Interests.''
Similarly, USG may also invest in other gasoline-related
investments such as cash-settled options on Futures Contracts, forward
contracts for gasoline, and OTC transactions based on the price of
gasoline, oil, and other petroleum-based fuels, Futures Contracts, and
indices based on the foregoing (collectively, ``Other Gasoline-Related
Investments''). Futures Contracts and Other Gasoline-Related
Investments collectively are referred to as ``Gasoline Interests.''
Each of USHO and USG will invest in Heating Oil Interests and
Gasoline Interests, respectively, to the fullest extent possible
without being leveraged or unable to satisfy its current or potential
margin or collateral obligations. In pursuing this objective, the
primary focus of USHO's and USG's investment manager, Victoria Bay
Asset Management, LLC (``Victoria Bay'' or ``General Partner''), will
be the investment in Futures Contracts and the management of its
investments in short-term obligations of the United States of two years
or less (``Treasuries''), and cash and cash equivalents (collectively,
``Cash'') for margining purposes and as collateral.
USHO Investment Objective and Policies
The investment objective of USHO is for the changes in percentage
terms of a Unit's net asset value (``NAV'') to reflect the changes in
percentage terms of the price of heating oil (also known as No. 2 fuel)
delivered at the New York harbor, as measured by the changes in the
price of the heating oil futures contract traded on the NYMEX (the
[[Page 515]]
``Heating Oil Benchmark Futures Contract''), less USHO's expenses. The
Heating Oil Benchmark Futures contract employed is the near month
expiration contract, except when the near month contract is within two
weeks of expiration, in which case it will invest in the next
expiration month.\5\
---------------------------------------------------------------------------
\5\ The Benchmark Futures Contracts will be changed or
``rolled'' over a four-day period by selling the near month contract
that expires the following month.
---------------------------------------------------------------------------
The General Partner will attempt to place USHO's trades in Heating
Oil Interests and otherwise manage USHO's investments so that ``A''
will be within plus/minus 10% of ``B'', where:
A is the average daily change in USHO's NAV for any period
of 30 successive valuation days, i.e., any day as of which USHO
calculates its NAV, and
B is the average daily change in the price of the
Benchmark Futures Contract over the same period.
The Exchange states that an investment in the Units will allow both
retail and institutional investors to easily gain exposure to the
heating oil market in a cost-effective manner. The Units are also
expected to provide additional means for diversifying an investor's
investments or hedging exposure to changes in heating oil prices.
The General Partner believes that market arbitrage opportunities
should cause USHO's Unit price to closely track USHO's per-Unit NAV,
which is targeted at the current Heating Oil Benchmark Futures
Contract.\6\ USHO will not be operated in a manner such that the per-
Unit NAV will equal, in dollar terms, the dollar price of spot heating
oil or any particular futures contract based on heating oil.
---------------------------------------------------------------------------
\6\ See section entitled ``Arbitrage,'' infra.
---------------------------------------------------------------------------
USG Investment Objective and Policies
The investment objective of USG is for changes in percentage terms
of a Unit's NAV to reflect the changes in percentage terms of the price
of unleaded gasoline (also known as reformulated gasoline blendstock
for oxygen blending or ``RBOB''), for delivery to New York harbor, as
measured by the changes in the price of the unleaded gasoline futures
contract traded on the NYMEX (the ``Gasoline Benchmark Futures
Contract''), less USG's expenses. The Gasoline Benchmark Futures
Contract employed is the near month expiration contract, except when
the near month contract is within two weeks, in which case it will
invest in the next expiration month.\7\
---------------------------------------------------------------------------
\7\ The Benchmark Futures Contracts will be changed or
``rolled'' over a four-day period by selling the near month contract
that expires the following month.
---------------------------------------------------------------------------
The General Partner will attempt to place USG's trades in Gasoline
Interests and otherwise manage USG's investments so that ``A'' will be
within plus/minus 10% of ``B'', where:
A is the average daily change in USG's NAV for any period
of 30 successive valuation days, i.e., any day as of which USG
calculates its NAV, and
B is the average daily change in the price of the
Benchmark Futures Contract over the same period.
The Exchange states that an investment in the Units will allow both
retail and institutional investors to easily gain exposure to the
gasoline market in a cost-effective manner. The Units are also expected
to provide additional means for diversifying an investor's investments
or hedging exposure to changes in gasoline prices.
The General Partner believes that market arbitrage opportunities
should cause USG's Unit price to closely track USG's per-Unit NAV which
is targeted at the current Gasoline Benchmark Futures Contract. USG
will not be operated in a manner such that the per-Unit NAV will equal,
in dollar terms, the dollar price of spot gasoline or any particular
futures contract based on gasoline.
Description of the Petroleum-Based Fuels Market
With respect to each of the following petroleum-based fuel markets,
the Exchange states as follows:
Heating Oil. Heating oil, also known as No. 2 fuel oil, accounts
for 25% of the yield of a barrel of crude oil, the second largest
``cut'' from oil after gasoline. The heating oil futures contract,
listed and traded on NYMEX, trades in units of 42,000 gallons (1,000
barrels) and is based on delivery in New York harbor, the principal
cash market center. The price of heating oil fluctuates on a seasonal
basis. Cold weather increases demand and price follows.
Crude Oil. Crude oil is the world's most actively traded commodity.
The NYMEX is the world's most liquid forum for crude oil trading and
has the most liquid futures contracts on a physical commodity. Due to
the liquidity and price transparency of oil Futures Contracts, they are
used as a principal international pricing benchmark. The oil futures
contracts for WTI light, sweet crude oil trade on the NYMEX in units of
1,000 U.S. barrels (42,000 gallons) and, if not closed out before
maturity, will result in delivery of oil to Cushing, Oklahoma, which is
also accessible to the world market by two major interstate petroleum
pipeline systems.
The price of crude oil is established by the supply and demand
conditions in the global market overall, and more particularly, in the
main refining centers of Singapore, Northwest Europe, and the U.S. Gulf
Coast. Demand for petroleum products by consumers, as well as
agricultural, manufacturing, and transportation industries, determines
demand for crude oil by refiners. Since the precursors of product
demand are linked to economic activity, crude oil demand will tend to
reflect economic conditions. However, other factors such as weather
also influence product and crude oil demand. The price of WTI light,
sweet crude oil has historically exhibited periods of significant
volatility.
Gasoline. Gasoline is by volume the largest single refined product
sold in the United States and accounts for almost half of national oil
consumption. The gasoline Futures Contract, listed and traded on the
NYMEX, trades in units of 42,000 gallons (1,000 barrels) and is based
on delivery at petroleum products terminals in the New York harbor, the
major East Coast trading center for imports and domestic shipments from
refineries in the New York harbor area or from the Gulf Coast refining
centers. The price of gasoline is volatile.
Natural Gas. Natural gas accounts for almost a quarter of U.S.
energy consumption. The price of natural gas is established by the
supply and demand conditions in the North American market, and more
particularly, in the main refining center of the U.S. Gulf Coast. The
natural gas market essentially constitutes an auction, where the
highest bidder wins the supply. When markets are ``strong'' (i.e., when
demand is high and/or supply is low), the bidder must be willing to pay
a higher premium to capture the supply. When markets are ``weak''
(i.e., when demand is low and/or supply is high), a bidder may choose
not to outbid competitors, waiting instead for later, possibly lower-
priced, supplies. Demand for natural gas by consumers, and the
agricultural, manufacturing, and transportation industries, determines
overall demand for natural gas. Since the precursors of product demand
are linked to economic activity, natural gas demand will tend to
reflect economic conditions. However, other factors such as weather
significantly influence natural gas demand. NYMEX is the world's
largest physical commodity futures exchange and the dominant market for
the trading of energy and precious metals. The NYMEX's natural
[[Page 516]]
gas futures contracts trade in units of 10,000 million British thermal
units (``mmBtu'') and are based on delivery at the Henry Hub in
Louisiana.
Because of the volatility of natural gas prices, a vigorous basis
market has developed in the pricing relationships between the Henry Hub
and other important natural gas market centers in the continental
United States and Canada.
Structure and Regulation of USHO and USG
Each of USHO and USG is a Delaware limited partnership formed in
April 2007. USHO is a commodity pool that will invest in Heating Oil
Interests, while USG is a commodity pool that will invest in Gasoline
Interests. Neither USHO nor USG is an investment company as defined in
section 3(a) of the Investment Company Act of 1940. Both are managed by
Victoria Bay, a single-member Delaware limited liability company, which
is wholly owned by Wainwright Holdings, Inc. The General Partner of the
Partnerships is registered as a commodity pool operator (``CPO'') with
the Commodity Futures Trading Commission (the ``CFTC'') and is a member
of the National Futures Association.
Information regarding the Partnerships and the General Partner, as
well as detailed descriptions of the manner in which the Units will be
offered and sold, and the investment strategy of USHO and USG, are
included in their respective registration statements regarding the
offering of the Units filed with the Commission under the Securities
Act of 1933.\8\
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\8\ See USHO's Form S-1 filed with the Commission on April 19,
2007 (File No. 333-142211); USG's S-1 filed with the Commission on
April 18, 2007 (File No. 333-142206).
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Clearing Broker. UBS Securities, LLC (the ``Clearing Broker''), a
CFTC-registered futures commission merchant (``FCM''), will execute and
clear each Partnership's futures contract transactions and hold the
margin related to its Futures Contracts investments. The clearing
arrangements between the Clearing Broker and each Partnership are
terminable by the Clearing Broker, upon notice. In such an instance,
the General Partner may be required to renegotiate with the current
Clearing Broker, or make arrangements with other FCMs, if the
Partnership(s) intend(s) to continue trading in Futures Contracts or
Heating Oil Interests and Gasoline Interests, as appropriate, at the
present level of capacity.
Administrator and Custodian. Under separate agreements with each
Partnership, Brown Brothers Harriman & Co. will serve as each
Partnership's administrator, registrar, transfer agent, and custodian
(the ``Administrator'' or ``Custodian''). The Administrator will
perform or supervise the performance of services necessary for the
operation and administration of each Partnership. These services
include, but are not limited to, investment accounting, financial
reporting, broker and trader reconciliation, calculation of the NAV,
and valuation of Treasuries and cash equivalents used to purchase or
redeem Units and other Partnership assets or liabilities. As Custodian,
it will: (1) Receive payments from purchasers of Creation Baskets; (2)
make payments to Sellers for Redemption Baskets, as described below;
and (3) hold the cash, cash equivalents and Treasuries, as well as
collateral posted by each Partnership's derivatives counterparties, and
will make transfers of margin and collateral with respect to each
Partnership's investments to and from its FCMs or counterparties.
Marketing Agent. ALPS Distributors, Inc., a registered broker-
dealer, will be the marketing agent for the Partnerships (``Marketing
Agent''). The Marketing Agent will continuously offer and redeem
Creation and Redemption Baskets, respectively, and will receive and
process creation and redemption orders from Authorized Purchasers (as
defined below) and coordinate the processing of orders for the creation
or redemption of Units with the General Partner and the Depository
Trust Company (``DTC'').
Investment Strategy of USHO
Investments. The General Partner of USHO believes that it will be
able to use a combination of Futures Contracts and Other Heating Oil
Related Investments to manage the portfolio to achieve its investment
objective. The General Partner further anticipates that the exact mix
of Futures Contracts and Other Heating Oil Related Investments held by
the portfolio will vary over time depending on, among over things, the
amount of invested assets in the portfolio, price movements of Heating
Oil, the rules and regulations of the various futures and commodities
exchanges and trading platforms that deal in Heating Oil Interests, and
innovations in the Heating Oil Interests' marketplace, including both
the creation of new Heating Oil Interest investment vehicles and the
creation of new trading venues that trade in Heating Oil Interests.
Futures Contracts. The principal Heating Oil Interests to be
invested in by USHO are Futures Contracts. USHO initially expects to
purchase the Benchmark Futures Contract. USHO may also invest in
Futures Contracts in Heating Oil, crude oil, gasoline, and other
petroleum-based fuels that are traded on the NYMEX, ICE Futures, or
other U.S. and foreign exchanges.
The Heating Oil Benchmark Futures Contract has historically closely
tracked the investment objective of USHO over the short term, medium
term and the long term. For that reason, USHO anticipates making
significant investments in the Heating Oil Benchmark Futures Contract.
The General Partner submits that other Futures Contracts have also
tended to track the investment objective of USHO, though not as closely
as the Heating Oil Benchmark Futures Contract.
Other Heating Oil Related Investments. USHO may also purchase Other
Heating Oil Related Investments such as cash-settled options on Futures
Contracts and forward contracts for Heating Oil, and participate in OTC
transactions that are based on the price of Heating Oil, crude oil,
natural gas, and other petroleum-based fuels, Futures Contracts, and
indices based on the foregoing. Option contracts offer investors and
hedgers another vehicle for managing exposure to the heating oil
market. USHO may purchase options on Heating Oil Futures Contracts on
the principal commodities and futures exchanges in pursuing its
investment objective.
In addition to these listed options, there also exists an active
OTC market in derivatives linked to Heating Oil. These OTC derivative
contracts are privately negotiated agreements between two parties.
Unlike Futures Contracts or related options, each party to an OTC
contract bears the credit risk that the counterparty may not be able to
perform its obligations. Some OTC contracts contain fairly generic
terms and conditions and are available from a wide range of
participants, while other OTC contracts have highly customized terms
and conditions and are not as widely available. Many OTC contracts are
cash-settled forwards for the future delivery of Heating Oil or
petroleum-based fuels that have terms similar to the Futures Contracts.
Others take the form of ``swaps'' in which the two parties exchange
cash flows based on pre-determined formulas tied to the price of
Heating Oil as determined by the spot, forward, or futures markets.
USHO may enter into OTC derivative contracts whose value may be tied to
changes in the difference between the Heating Oil spot price, the price
of Futures Contracts traded on NYMEX, and the prices of non-NYMEX
Futures
[[Page 517]]
Contracts that may be invested in by USHO.
Investment Strategy of USG
Investments. USG believes that it will be able to use a combination
of Futures Contracts and Other Gasoline Related Investments to manage
the portfolio to achieve its investment objective. USG further
anticipates that the exact mix of Futures Contracts and Other Gasoline
Related Investments held by the portfolio will vary over time depending
on, among other things, the amount of invested assets in the portfolio,
price movements of Gasoline, the rules and regulations of the various
futures and commodities exchanges and trading platforms that deal in
Gasoline Interests, and innovations in the Gasoline Interests'
marketplace including both the creation of new Gasoline Interest
investment vehicles and the creation of new trading venues that trade
in Gasoline Interests.
Futures Contracts. The principal Gasoline Interests to be invested
in by USG are Futures Contracts. USG initially expects to purchase the
Gasoline Benchmark Futures Contract. USG may also invest in Futures
Contracts in crude oil, natural gas, heating oil, and other petroleum-
based fuels that are traded on the NYMEX, ICE Futures, or other U.S.
and foreign exchanges.
The Gasoline Benchmark Futures Contract has historically closely
tracked the investment objective of USG over the short term, medium
term and the long term. For that reason, USG anticipates making
significant investments in the Gasoline Benchmark Futures Contract. The
General Partner submits that other Futures Contracts have also tended
to track the investment objective of USG, though not as closely as the
Gasoline Benchmark Futures Contract.
Other Gasoline Related Investments. USG may also purchase Other
Gasoline Related Investments such as cash-settled options on Futures
Contracts, forward contracts for gasoline, and OTC contracts that are
based on the price of gasoline, heating oil, crude oil, natural gas,
and other petroleum-based fuels, as well as Futures Contracts and
indices based on the foregoing. Option contracts offer investors and
hedgers another vehicle for managing exposure to the gasoline market.
USG may purchase options on gasoline Futures Contracts on the principal
commodities and futures exchanges in pursuing its investment objective.
In addition to these listed options, there also exists an active
OTC market in derivatives linked to gasoline. These OTC derivative
transactions are privately negotiated agreements between two parties.
Unlike Futures Contracts or related options, each party to an OTC
contract bears the credit risk that the counterparty may not be able to
perform its obligations. Some OTC contracts contain fairly generic
terms and conditions and are available from a wide range of
participants, while other OTC contracts have highly customized terms
and conditions and are not as widely available. Many OTC contracts are
cash-settled forwards for the future delivery of gasoline or petroleum-
based fuels that have terms similar to the Futures Contracts. Others
take the form of ``swaps'' in which the two parties exchange cash flows
based on pre-determined formulas tied to the price of gasoline as
determined by the spot, forward, or futures markets. USG may enter into
OTC derivative contracts whose value will be tied to changes in the
difference between the gasoline spot price, the price of Futures
Contracts traded on NYMEX, and the prices of non-NYMEX Futures
Contracts that may be invested in by USG.
Impact of Accountability Levels and Position Limits
The CFTC and U.S. designated contract markets such as NYMEX have
established accountability levels and position limits on the maximum
net long or net short Futures Contracts in commodity interests that any
person or group of persons under common trading control and that these
limits are applicable to each of the Partnerships. Accountability
levels and position limits are intended, among other things, to prevent
a corner or squeeze on a market or undue influence on prices by any
single trader or group of traders. The net position is the difference
between an individual or firm's open long contracts and open short
contracts in any one commodity.
Most U.S. futures exchanges, such as NYMEX, also limit the daily
price fluctuation (i.e., daily price limits) for Futures Contracts. The
daily price limits establish the maximum amount that the price of a
futures contract or an option on a futures contract may vary either up
or down from the previous day's settlement price during a particular
trading session. Once the daily limit has been reached in a particular
futures contract or option on a futures contract, no trades may be made
at a price beyond the limit.
The accountability levels for the Heating Oil Benchmark Futures
Contract, the Gasoline Benchmark Futures Contract, and other Futures
Contracts traded on NYMEX are not a fixed ceiling, but rather a
threshold above which the NYMEX may exercise greater scrutiny and
control over an investor's positions. The current accountability level
for each of the Heating Oil Benchmark Futures Contract and Gasoline
Benchmark Futures Contract is 7,000 contracts. If a Partnership exceeds
this accountability level for its Benchmark Futures Contract, NYMEX
will monitor the Partnership's exposure and ask for further information
on its activities, including the total size of all positions, the
investment and trading strategy, and the extent of liquidity resources.
If deemed necessary by NYMEX, it could also order the Partnership to
reduce its position back to the accountability level.
If NYMEX orders a Partnership to reduce its position back to the
accountability level, or to an accountability level that NYMEX deems
appropriate for the Partnership, such an accountability level may
impact the mix of investments by such Partnership. To illustrate,
assume that the Heating Oil Benchmark Futures Contract and the unit
price of USHO are each $10, and that NYMEX has determined that USHO may
not own more than 7,000 contracts. In such a case, USHO could invest up
to $2.940 billion of its daily net assets in the Benchmark Futures
Contract (i.e., $10 per unit multiplied by 42,000 (a Benchmark Futures
Contract is a contract for 42,000 gallons (1,000 barrels)) multiplied
by 7,000 contracts) before reaching the accountability level imposed by
NYMEX. Once the daily net assets of the portfolio exceed $2.940 billion
in the Heating Oil Benchmark Futures Contract, the portfolio may not be
able to make any further investments in the Heating Oil Benchmark
Futures Contract, depending on whether the NYMEX imposes limits. If
NYMEX does impose limits at the $2.940 billion level (or another
level), USHO anticipates that it will invest the majority of its assets
above that level in a mix of other Futures Contracts or Other Heating
Oil Related Investments. The above example applies equally to USG and
the Gasoline Benchmark Futures Contract.
In addition to accountability levels, NYMEX imposes position limits
on contracts held in the last few days of trading in the near month
contract. The Exchange states that it is unlikely that a Partnership
will run up against such position limits because each Partnership's
investment strategy is to exit from the near month contract over a four
day period beginning two weeks from expiration of the contract.
[[Page 518]]
Investment Procedures
The General Partner of each of USHO and USG anticipate that the use
of Other Heating Oil Related Investments and Other Gasoline Related
Investments, respectively, together with investments in Futures
Contracts, will produce price and total return results that closely
track each Partnership's investment objective.
Counterparty Procedures. To protect itself from the credit risk
that arises in connection with OTC contracts, each Partnership will
enter into agreements with each counterparty that provide for the
netting of its overall exposure to its counterparty, and/or provide
collateral or other credit support to address the Partnership's
exposure. The counterparties to an OTC contract will generally be major
broker-dealers and banks or their affiliates, though certain
institutions, such as large energy companies, or other institutions
active in the gasoline commodities markets, may also be counterparties.
The General Partner will assess or review, as appropriate, the
creditworthiness of each potential or existing, as appropriate,
counterparty to an OTC contract pursuant to guidelines approved by the
General Partner's board of directors. Furthermore, the General Partner,
on behalf of each Partnership, will only enter into OTC contracts with
(a) members of the Federal Reserve System or foreign banks with
branches regulated by the Federal Reserve Board, (b) primary dealers in
U.S. government securities, (c) broker-dealers, (d) commodities futures
merchants, or (e) affiliates of the foregoing.
Cash, Cash Equivalents, and Treasuries. USHO and USG will invest
virtually all of their assets not invested in Heating Oil Interests or
Gasoline Interests, respectively, in cash, cash equivalents, and
Treasuries with a remaining maturity of two years or less. The cash,
cash equivalents, and Treasuries will be available to be used to meet
each Partnership's current or potential margin and collateral
requirements with respect to investments in Heating Oil Interests or
Gasoline Interests, as appropriate. Neither Partnership will use cash,
cash equivalents, or Treasuries as margin for new investments unless it
has a sufficient amount of cash, cash equivalents or Treasuries to meet
the margin or collateral requirements that may arise due to changes in
the value of its currently held Heating Oil Interests or Gasoline
Interests. Other than in connection with a redemption of Units, each
Partnership does not intend to distribute cash or property to its Unit
holders. Interest earned on cash, cash equivalents, and Treasuries held
by a Partnership will be retained by it to pay its expenses, to make
investments to satisfy its investment objectives, or to satisfy its
margin or collateral requirements.
The Markets for Partnership Units
There will be two markets for investors to purchase and sell Units.
A new issuance of the Units will be made only in a ``Basket'' of
100,000 Units or multiples thereof. Each Partnership will issue and
redeem Baskets on a continuous basis, by or through participants who
have each entered into an authorized purchaser agreement (``Authorized
Purchaser Agreement'' and each such participant, an ``Authorized
Purchaser'') \9\ with the General Partner, at the NAV per Unit next
determined after an order to purchase the Units in a Basket is received
in proper form. A Basket may be issued and redeemed on any ``business
day'' (defined as any day other than a day on which the Amex, NYMEX, or
the New York Stock Exchange is closed for regular trading) through the
Marketing Agent in exchange for cash and/or Treasuries, which the
Custodian receives from an Authorized Purchaser or transfers to an
Authorized Purchaser, in each case on behalf of a Partnership. A Basket
is then separable upon issuance into identical Units that will be
listed and traded on the Exchange. The Exchange expects that the number
of outstanding Units will increase and decrease as a result of
creations and redemptions of Baskets.
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\9\ ``An Authorized Purchaser'' must be (1) a registered broker-
dealer or other market participant, such as a bank or other
financial institution, that is exempt from broker-dealer
registration; and (2) a DTC Participant.
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The Units will thereafter be traded on the Exchange similar to
other equity securities. Units will be registered in book-entry form
through DTC. Trading in the Units on the Exchange will be effected
until 4:15 p.m. Eastern time (``ET'') each business day. The minimum
trading increment for such Units will be $0.01.
Each Authorized Purchaser, and each distributor offering and
selling newly issued Units as part of the distribution of such Units,
is required to comply with the prospectus delivery and disclosure
requirements of the Securities Act of 1933, as well as the requirements
of the Commodities Exchange Act, including the requirement that
prospective investors provide an acknowledgement of receipt of such
disclosure materials prior to the payment for any newly issued Units.
Calculation of Partnership NAV. The Administrator will calculate
NAV as follows: (1) Determine the current value of each Partnership's
assets; and (2) subtract the liabilities of each Partnership. The NAV
will be calculated shortly after the close of trading on the Exchange
using the settlement value \10\ of Futures Contracts traded on the
NYMEX as of the close of open-outcry trading on the NYMEX at 2:30 p.m.
ET, and for the value of other Heating Oil Interests or Gasoline
Interests, depending on the Partnership, and Treasuries and cash
equivalents, the value of such investments as of the earlier of 4 p.m.
ET or the close of trading on the New York Stock Exchange. The NAV is
calculated by including any unrealized profit or loss on Futures
Contracts and Other Heating Oil Related Investments and Other Gasoline
Related Investments, as the case may be, and any other credit or debit
accruing to a Partnership but unpaid or not received by such
Partnership. The NAV is then used to compute all fees (including the
management and administrative fees) that are calculated from the value
of Partnership assets. The Administrator will calculate the NAV per
Unit by dividing the NAV by the number of Units outstanding.
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\10\ See Rules 6.52 and 6.52A of the NYMEX Rulebook.
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When calculating NAV, the Administrator will value Futures
Contracts based on the closing settlement prices quoted on the relevant
commodities and futures exchange and obtained from various major market
data vendors such as Bloomberg or Reuters. The value of the Other
Heating Oil Related Investments or Other Gasoline Related Investments
for purposes of determining the NAV will be based upon the
determination of the Administrator as to the fair market value. Certain
types of Other Heating Oil Related Investments and Other Gasoline
Related Investments, such as listed options on Futures Contracts, have
closing prices that are available from the exchange upon which they are
traded or from various market data vendors. Other Heating Oil Related
Investments and Other Gasoline Related Investments will be valued based
on the last sale price on the exchange or market where traded. If a
contract fails to trade, the value shall be the most recent bid
quotation from the third-party source. Some types of Other Heating Oil
Related Investments and Other Gasoline Related Investments, such as
forward contracts, do not trade on established exchanges, but typically
have prices that are widely
[[Page 519]]
available from third-party sources. The Administrator may make use of
such third-party sources in calculating a fair market value of these
Other Heating Oil Related Investments and Other Gasoline Related
Investments.
Certain types of Other Heating Oil Related Investments and Other
Gasoline Related Investments, such as OTC derivative ``swaps,'' also do
not have established exchanges upon which they trade and may not have
readily available price quotes from third parties. Swaps and other
similar derivative or contractual-type instruments will be first valued
at a price provided by a single broker or dealer, typically the
counterparty. If no such price is available, the contract will be
valued at a price at which the counterparty to such contract could
repurchase the instrument or terminate the contract. In determining the
fair market value of such derivative contracts, the Administrator may
make use of quotes from other providers of similar derivatives. If
these are not available, the Administrator may calculate a fair market
value of the derivative contract based on the terms of the contract and
the movement of the underlying price factors of the contract.
Calculation of the Basket Amount. A Basket will be issued in
exchange for Treasuries and/or cash in an amount equal to the NAV per
Unit times 100,000 Units (the ``Basket Amount''). A Basket will be
delivered by the Marketing Agent to an Authorized Purchaser only after
execution of the Authorized Purchaser Agreement.
Units in a Basket are issued and redeemed in accordance with the
Authorized Purchaser Agreement. An Authorized Purchaser that wishes to
purchase a Basket must transfer the Basket Amount, for each Basket
purchased, to the Custodian (the ``Deposit Amount''). An Authorized
Purchaser that wishes to redeem a Basket will receive an amount of
Treasuries and/or cash in exchange for each Basket surrendered in an
amount equal to the NAV per Basket (the ``Redemption Amount'').
On each business day, the Administrator will make available,
immediately prior to the opening of trading on the Exchange, the Basket
Amount for the creation of a Basket based on the prior day's NAV. At or
about 4 p.m. ET on each business day, the Administrator will determine
the Basket Amount for orders placed by Authorized Purchasers received
before 12 p.m. ET that day. Because orders to purchase and/or redeem
Baskets must be placed by 12 p.m. ET, but the Basket Amount will not be
determined until shortly after 4 p.m. ET on the date the order to
purchase or redeem is received, an Authorized Purchaser will not know
the total payment required to create or redeem a Basket at the time it
submits such irrevocable purchase and/or redemption order. This is
similar to exchange-traded funds and mutual funds. USHO's and USG's
registration statements disclose that the NAV and the Basket Amount
could rise and fall substantially between the time an irrevocable
purchase order and/or redemption order is submitted and the time the
Basket Amount is determined.\11\
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\11\ The General Partner states that the price of crude oil,
heating oil, gasoline, and other petroleum-based fuels futures may
fluctuate 5% or more between 12:00 noon, the cutoff for creation and
redemption orders, and 2:30 p.m., the close of trading on NYMEX. As
explained further below (see section entitled ``Arbitrage,'' infra),
the Exchange does not anticipate such price movements to impact the
arbitrage process.
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Shortly after 4 p.m. ET on each business day, the Administrator,
Amex, and the General Partner will disseminate the Basket Amount (for
orders placed during the day) together with NAV for the Units. The
Exchange will obtain a representation from each Partnership that its
NAV and other relevant pricing information will be disclosed to all
market participants at the same time. The Basket Amount and the NAV are
communicated by the Administrator to all Authorized Purchasers via
facsimile or e-mail. Concurrently, the Amex will also disclose the NAV
and Basket Amount on its Web site at https://www.amex.com. The Basket
Amount necessary for the creation of a Basket will change from day to
day. On each day that the Amex is open for regular trading, the
Administrator will adjust the Deposit Amount as appropriate to reflect
the prior day's Partnership NAV and accrued expenses. The Administrator
will then determine the Deposit Amount for a given business day.
Calculation and Payment of the Deposit Amount. The Deposit Amount
of Treasuries and/or cash will be in the same proportion to the total
net assets of each Partnership as the number of Units to be created is
in proportion to the total number of Units outstanding as of the date
the purchase order is accepted. The General Partner will determine the
requirements for the Treasuries that may be included in the Deposit
Amount and will disseminate these requirements at the start of each
business day. The amount of cash that is required is the difference
between the aggregate market value of the Treasuries required to be
included in the Deposit Amount as of 4 p.m. ET on the date of purchase
and the total required deposit.
All purchase orders must be received by the Marketing Agent by 12
p.m. ET for consideration on that business day. Delivery of the Deposit
Amount, i.e., Treasuries and/or cash, to the Administrator must occur
by the third business day following the purchase order date (T+3).\12\
Thus, the General Partner will disseminate shortly after 4 p.m. ET, on
the date the purchase order was properly submitted, the amount of
Treasuries and/or cash to be deposited with the Custodian for each
Basket.
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\12\ Authorized Purchasers are required to pay a transaction fee
of $1,000 for each order to create one or more Baskets.
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Calculation and Payment of the Redemption Amount. The Units will
not be individually redeemable but will only be redeemable in Baskets.
To redeem, an Authorized Purchaser will be required to accumulate
enough Units to constitute a Basket (i.e., 100,000 Units). An
Authorized Purchaser redeeming a Basket will receive the Redemption
Amount. Upon the surrender of the Units and payment of applicable
redemption transaction fee,\13\ taxes, or charges, the Custodian will
deliver to the redeeming Authorized Purchaser the Redemption Amount.
The Redemption Amount of Treasuries and/or cash will be in the same
proportion to the total net assets of each Partnership as the number of
Units to be redeemed is in proportion to the total number of Units
outstanding as of the date the redemption order is accepted. The
General Partner will determine the Treasuries to be included in the
Redemption Amount. The amount of cash that is required is the
difference between the aggregate market value of the Treasuries
required to be included in the Redemption Amount as of 4 p.m. ET on the
date of redemption and the total Redemption Amount. All redemption
orders must be received by the Marketing Agent by 12 p.m. ET on the
business day redemption is requested and are irrevocable. Delivery of
the Basket to be redeemed to the Custodian and payment of Redemption
Amount will occur by the third business day following the redemption
order date (T+3).
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\13\ Authorized Purchasers are required to pay a transaction fee
of $1,000 for each order to redeem one or more Baskets.
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Arbitrage
The Exchange believes that the Units will not trade at a material
discount or premium to a Unit's NAV based on potential arbitrage
opportunities. Due to the fact that the Units can be created and
redeemed only in Baskets at NAV,
[[Page 520]]
arbitrage opportunities should provide a mechanism to mitigate the
effect of any premiums or discounts that may exist from time to
time.\14\
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\14\ Arbitrage opportunities may arise whenever the market price
of a Partnership Unit is higher (or lower) than its expected fair
market value, which is based on the price of the underlying
commodity futures. An Authorized Purchaser may effectively lock-in
an arbitrage spread by selling (or buying) the Units while, at the
same time buying (or selling), the related commodity futures. This
arbitrage activity may occur not only at the time of an irrevocable
creation or redemption order, but throughout the day. Accordingly,
arbitrage activity should not be affected by price movements in the
underlying commodity assets between the cutoff for creation and
redemption orders and the close of futures trading, following which
the Basket Amount is determined.
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Dissemination and Availability of Information
Futures Contracts. The daily settlement prices for the NYMEX-traded
Futures Contracts are publicly available on the NYMEX Web site at
https://www.nymex.com. The Exchange will also include on its Web site at
https://www.amex.com a hyperlink to the NYMEX Web site for the purpose
of disclosing futures contract pricing. In addition, various market
data vendors and news publications publish futures prices and related
data. The Exchange represents that quote and last-sale information for
the Futures Contracts are widely disseminated through a variety of
market data vendors worldwide, including Bloomberg and Reuters. In
addition, real-time futures data is available by subscription from
Reuters and Bloomberg. The NYMEX also provides delayed futures
information on current and past trading sessions and market news free
of charge on its Web site. The specific contract specifications for the
Futures Contracts are also available on the NYMEX Web site and the ICE
Futures Web site at https://www.icefutures.com.
Partnership Units. The Exchange's Web site at https://www.amex.com,
which is publicly accessible at no charge, will contain the following
information: (1) The prior business day's NAV and the reported closing
price; (2) the mid-point of the bid-ask price \15\ in relation to the
NAV as of the time the NAV is calculated (the ``Bid-Ask Price''); (3)
calculation of the premium or discount of such price against such NAV;
(4) data in chart form displaying the frequency distribution of
discounts and premiums of the Bid-Ask Price against the NAV, within
appropriate ranges for each of the four previous calendar quarters; (5)
the prospectus and the most recent periodic reports filed with the
Commission or required by the CFTC; and (6) other applicable
quantitative information.
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\15\ The Bid-Ask Price of Units is determined using the highest
bid and lowest offer as of the time of calculation of the NAV.
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Portfolio Disclosure. USHO's and USG's total portfolio composition
will be disclosed, each business day that the Amex is open for trading,
on their respective Web sites at https://
www.unitedstatesheatingoilfund.com and https://
www.unitedstatesgasolinefund.com. USHO's Web site disclosure of
portfolio holdings will be made daily and will include, as applicable,
the name and value of each Heating Oil Interest, the specific types of
Heating Oil Interests and characteristics of such Heating Oil
Interests, Treasuries, and amount of cash and cash equivalents held in
the portfolio of USHO. USG's Web site disclosure of portfolio holdings
will be made daily and will include, as applicable, the name and value
of each Gasoline Interest, the specific types of Gasoline Interests and
characteristics of such Gasoline Interests, Treasuries, and amount of
cash and cash equivalents held in the portfolio of USG. The public Web
site disclosure of the portfolio composition of each of USHO and USG
will coincide with the disclosure by the Administrator on each business
day of the NAV for the Units and the Basket Amount (for orders placed
during the day) for each Partnership. Therefore, the same portfolio
information will be provided at the same time on the public Web site
for each Partnership as well as in the facsimile or e-mail to
Authorized Purchasers containing the NAV and Basket Amount (``Daily
Dissemination''). The format of the public Web site disclosure and the
Daily Dissemination will differ because the public Web site will list
all portfolio holdings while the Daily Dissemination will provide the
portfolio holdings in a format appropriate for Authorized Purchasers,
i.e., the exact components of a Creation Unit.
As described above, each Partnership's NAV will be calculated and
disseminated daily. The Amex also intends to disseminate for each
Partnership on a daily basis by means of Consolidated Tape Association
(``CTA'')/Consolidated Quote High Speed Lines information with respect
to the Indicative Partnership Value (as discussed below), recent NAV,
Units outstanding, the Basket Amount, and the Deposit Amount. The
Exchange will also make available on its Web site daily trading volume,
closing prices, and the NAV. The closing price and settlement prices of
the Futures Contracts held by each Partnership are also readily
available from the NYMEX, automated quotation systems, published or
other public sources, or on-line information services such as Bloomberg
or Reuters. In addition, the Exchange will provide a hyperlink on its
Web site at https://www.amex.com to each Partnership's Web site.
Indicative Partnership Value. In order to provide updated
information relating to each Partnership for use by investors,
professionals, and persons wishing to create or redeem the Units, the
Exchange will disseminate through the facilities of the CTA an amount
representing, on a per-Unit basis, the current indicative value of the
Basket Amount (the ``Indicative Partnership Value''). Amex Rule 1500-
AEMI(b) defines ``Indicative Partnership Value'' as an estimate,
updated at least every 15 seconds, of the value of a Partnership Unit
of each series. Consistent with Amex Rule 1502, the Indicative
Partnership Value for each Partnership will be disseminated on a per-
Unit basis at least every 15 seconds during regular Amex trading hours
of 9:30 a.m. to 4:15 p.m. ET. The Indicative Partnership Value will be
calculated based on the Treasuries and cash required for creations and
redemptions (i.e., NAV per Unit x 100,000) adjusted to reflect the
price changes of the relevant Benchmark Futures Contracts.
The Indicative Partnership Value is based on open-outcry trading of
the relevant Benchmark Futures Contracts on NYMEX. Open-outcry trading
on the NYMEX closes daily at 2:30 p.m. ET while NYMEX's energy futures
contracts are traded on the Chicago Mercantile Exchange's CME
Globex[supreg] electronic trading platform on a 24-hour basis.\16\
After the close of open outcry on NYMEX at 2:30 p.m., the Indicative
Partnership Value will reflect changes to the relevant Benchmark
Futures Contracts as provided for through CME Globex[supreg]. The value
of the relevant Benchmark Futures Contracts will be available on a 15-
second delayed basis during the time that Units trade on the Exchange.
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\16\ CME Globex[supreg] (``Globex'') is an open-access
marketplace that operates virtually 24 hours each trading day.
Electronic trading on Globex is conducted from 6 p.m. ET Sunday
through 5:15 p.m. ET Friday each week. There is a 45-minute break
each day between 5:15 p.m. ET and 6 p.m. ET.
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While NYMEX is open for trading, the Indicative Partnership Value
can be expected to closely approximate the value per Unit of the Basket
Deposit. However, during Amex trading hours when the Futures Contracts
have ceased trading in NYMEX's open outcry, spreads and resulting
premiums or discounts may widen and, therefore,
[[Page 521]]
increase the difference between the price of the Units and the NAV of
the Units. The Indicative Partnership Value disseminated during Amex
trading hours, on a per-Unit basis, should not be viewed as a real-time
update of the NAV, which is calculated only once daily. The Exchange
believes that dissemination of the Indicative Partnership Value based
on the Basket Deposit provides additional information that is not
otherwise available to the public and is useful to professionals and
investors in connection with the Units trading on the Exchange or the
creation or redemption of the Units.
Partnership Termination Events
Each Partnership will continue in effect from the date of its
formation in perpetuity, unless sooner terminated upon the occurrence
of any one or more of the following circumstances: (1) The death,
adjudication of incompetence, bankruptcy, dissolution, withdrawal, or
removal of a general partner who is the sole remaining general partner,
unless a majority in interest of limited partners within 90 days after
such event elects to continue the Partnership and appoints a successor
general partner; or (2) the affirmative vote to terminate the
Partnership by a majority in interest of the limited partners to
terminate the partnership, subject to certain conditions.
Upon termination of the Partnership, holders of the Units will
surrender their Units and the assets of the Partnership shall be
distributed to the Unit holders pro rata in accordance with the value
of the Units, in cash or in kind, as determined by the General Partner.
Purchases and Redemptions in Baskets
In the Information Circular, members and member organizations will
be informed that procedures for purchases and redemptions of Units in
Baskets are described in the Prospectus and that Units are not
individually redeemable but are redeemable only in Baskets or multiples
thereof.
Listing and Trading Rules
Each Partnership will be subject to the criteria in Amex Rule 1502
for initial and continued listing of the Units. The Exchange will
require a minimum of 100,000 Units to be outstanding at the start of
trading. The Exchange expects that the initial price of a Unit will be
$50.00.\17\ The Exchange believes that the anticipated minimum number
of Units outstanding at the start of trading is sufficient to provide
adequate market liquidity and to further each Partnership's objective
to seek to provide a simple and cost effective means of accessing the
commodity futures markets. The Exchange represents that it prohibits
the initial and/or continued listing of any security that is not in
compliance with Rule 10A-3 under the Act.\18\
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\17\ Each Partnership expects that the initial Authorized
Purchaser will purchase the initial Basket of 100,000 Units at the
initial offering price per Unit of $50.00. On the date of the public
offering and thereafter, each Partnership will continuously issue
Units in Baskets consisting of 100,000 Units to Authorized
Purchasers at NAV.
\18\ See 17 CFR 240.10A-3.
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The Amex original listing fee applicable to the listing of Units
for each Partnership is $5,000. In addition, the annual listing fee
applicable under Section 141 of the Amex Company Guide will be based
upon the year-end aggregate number of Units in all series of each
Partnership outstanding at the end of each calendar year.
Amex Rule 154-AEMI, ``Orders in AEMI,'' paragraph (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, as set forth in
subparagraphs (c)(ii)(1)-(4) of Rule 154-AEMI. The Units will be deemed
eligible for this treatment.
The Exchange states that Amex Rule 126A-AEMI, which will apply to
trading of the Units, complies with Rule 611 of Regulation NMS, which
requires among other things, that the Exchange adopt and enforce
written policies and procedures that are reasonably designed to prevent
trade-throughs of protected quotations.
Consistent with the treatment of trust-issued receipts
(``TIRs''),\19\ specialist transactions of the Units made in connection
with the creation and redemption of Units will not be subject to the
prohibitions of Amex Rule 190, ``Specialist's Transactions with Public
Customers.'' The Units will generally be subject to the Exchange's
stabilization rule, Rule 170-AEMI, ``Registration and Functions of
Specialists,'' except that specialists may buy on ``plus ticks'' and
sell on ``minus ticks,'' in order to bring the Units into parity with
the underlying commodity or commodities and/or futures contract price.
The Exchange notes that Commentary .01 to its Rule 1503, ``Specialist
Prohibitions,'' sets forth this limited exception to Rule 170-AEMI.
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\19\ See The Commission notes that Commentary .05 to Rule 190
provides an exemption from the prohibitions stated in that rule for
securities issued by a trust listed pursuant to Amex Rules 1200-AEMI
and 1201-1202, 1200A-AEMI and 1201A-1205A, or 1200B and 1201B-1205B.
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The trading of the Units will be subject to certain conflict-of-
interest provisions set forth in Amex Rules 1503 and 1504. Rule 1503
provides that the prohibitions in Rule 175(c) apply to a specialist in
the Units so that the specialist or affiliated person may not act or
function as a market-maker in an underlying asset, related futures
contract or option, or any other related derivative. An exception to
the general prohibition in Rule 1503 provides that an approved person
of an equity specialist that has established and obtained Exchange
approval for procedures restricting flow of material, non-public market
information between itself and the specialist member organization, and
any member, officer, or employee associated therewith, may act in a
market-making capacity, other than as a specialist in the Units on
another market center, in the underlying asset or commodity, related
futures or options on futures, or any other related derivatives. Rule
1504 provides that a specialist handling Units must provide the
Exchange with all necessary information relating to its trading in
underlying physical assets or commodities, related futures or options
on futures, or any other related derivatives. In addition, a member or
member organization will be subject to Commentary .03 to Amex Rule
1500-AEMI prohibiting it from acting as a market maker from off-floor
through the use of multiple limit orders as agent (i.e., customer
agency orders).
Trading Halts
If an Indicative Partnership Value is not being disseminated by one
or more major market data vendors, the Exchange may halt trading during
the day in which the interruption to the dissemination of such
Indicative Partnership Value occurs. If the interruption to the
dissemination of an Indicative Partnership 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.
Prior to the commencement of trading, the Exchange will issue an
Information Circular to members informing them of, among other things,
Exchange policies regarding trading halts in the Units. First, the
Information Circular will advise that trading will be halted in the
event the market volatility trading halt parameters set forth in Amex
Rule 117 have been reached. Second, the Information Circular will
advise that, in addition to the parameters set forth in Rule 117, the
[[Page 522]]
Exchange will halt trading in the Units if trading in the underlying
Benchmark Futures Contracts is halted or suspended. Third, with respect
to a halt in trading that is not specified above, the Exchange may also
consider other relevant factors and the existence of unusual conditions
or circumstances that may be detrimental to the maintenance of a fair
and orderly market. Additionally, the Exchange represents that it will
cease trading in the Units if any of the condition in Amex Rule
1502(b)(ii) or (iii) exist (i.e., if there is a halt or disruption in
the dissemination of the Indicative Partnership Value and/or underlying
Heating Oil Benchmark Futures Contracts and/or Gasoline Benchmark
Futures Contracts).
Suitability
The Information Circular will inform members and member
organizations of the characteristics of the Units and of applicable
Exchange rules, as well as of the requirements of Amex Rule 411 (Duty
to Know and Approve Customers).
The Exchange notes that, pursuant to Amex Rule 411, a member or
member organization is required in connection with recommending
transactions in the Units to have a reasonable basis to believe that a
customer is suitable for the particular investment given reasonable
inquiry concerning the customer's investment objectives, financial
situation, needs, and any other information known by such member.
Information Circular
The Amex will distribute an Information Circular to its members in
connection with the trading of each Partnership's Units. The
Information Circular will discuss the special characteristics and risks
of trading in the Units. Specifically, the Information Circular, among
other things, will discuss what the Units are; how a Basket is created
and redeemed; the requirement that members and member firms deliver a
prospectus to investors purchasing the Units prior to, or concurrently
with, the confirmation of a transaction; applicable Amex rules;
dissemination of information regarding the Indicative Partnership
Value; trading information; and applicable suitability rules. The
Information Circular will also explain that each Partnership is subject
to various fees and expenses described in the relevant Registration
Statements. The Information Circular will also reference the fact that
there is no regulated source of last-sale information regarding
physical commodities, and describe the regulatory framework relating to
the trading of crude oil- and natural gas-based futures contracts and
related options.
The Information Circular will also notify members and member
organizations about the procedures for purchases and redemptions of
Units in Baskets, and that Units are not individually redeemable but
are redeemable
