Self-Regulatory Organizations; American Stock Exchange LLC; Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto Relating to the Listing and Trading of Trust Issued Receipts That Directly Hold Investments in Certain Financial Instruments and To Permit the Listing and Trading of Shares of Fourteen Funds of the Commodities and Currency Trust, 33467-33476 [E8-13159]
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Federal Register / Vol. 73, No. 114 / Thursday, June 12, 2008 / Notices
By the Commission.
Jill M. Peterson,
Assistant Secretary.
[FR Doc. 08–1347 Filed 6–10–08; 10:23 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57932; File No. SR–Amex–
2008–39]
Self-Regulatory Organizations;
American Stock Exchange LLC; Notice
of Filing of Proposed Rule Change and
Amendment No. 1 Thereto Relating to
the Listing and Trading of Trust Issued
Receipts That Directly Hold
Investments in Certain Financial
Instruments and To Permit the Listing
and Trading of Shares of Fourteen
Funds of the Commodities and
Currency Trust
June 5, 2008.
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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 May 9,
2008, 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 June 4, 2008, the Exchange filed
Amendment No. 1 to the proposed rule
change. The Commission is publishing
this notice to solicit comments on the
proposed rule change, as amended, from
interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to: (1) Amend
Commentary .07 to Amex Rule 1202 to
permit the listing and trading of certain
trust issued receipts (‘‘TIRs’’) that hold
any combination of investments
including cash, securities, options on
securities and indices, commodities,
futures contracts, options on futures
contracts, forward contracts, equity
caps, collars, and floors, and swap
agreements (collectively, ‘‘Financial
Instruments’’); and (2) list and trade the
shares (‘‘Shares’’) of fourteen funds
(‘‘Funds’’) of the Commodities and
Currency Trust (‘‘Trust’’) based on
certain commodity indexes,
commodities, and currencies pursuant
to Commentary .07 to Amex Rule 1202,
as proposed to be amended. The text of
the proposed rule change is available at
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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Amex, the Commission’s Public
Reference Room, and https://
www.amex.com.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The Exchange proposes to amend
Commentary .07 to Amex Rule 1202 to
permit the listing and trading of certain
TIRs that directly hold any combination
of investments in Financial
Instruments.3 In addition, the Exchange
proposes to list and trade the Shares of
the Funds pursuant to Commentary .07
to Amex Rule 1202, as proposed to be
amended.
Proposed Revision to Commentary .07
to Amex Rule 1202
Commentary .07 to Amex Rule 1202
currently permits the Exchange to list
and trade TIRs where the underlying
trust holds ‘‘Investment Shares.’’ 4
Investment Shares are defined in
Commentary .07(b)(1) to Amex Rule
1202 as securities that are (a) issued by
a trust, partnership, commodity pool, or
other similar entity that invests in any
combination of futures contracts,
options on futures contracts, forward
contracts, commodities, swaps or high
credit quality short-term fixed-income
securities or other securities, and (b)
issued and redeemed daily at net asset
value (‘‘NAV’’) in amounts correlating to
the number of receipts created and
redeemed in a specified aggregate
minimum number. As a result, TIRs that
are listed pursuant to current
Commentary .07 to Amex Rule 1202 are
3 The Exchange represents that permissible
securities in connection with Financial Instruments
would not include foreign equity securities.
4 See Commentary .07(a) to Amex Rule 1202. See
also Securities Exchange Act Release No. 53105
(January 11, 2006), 71 FR 3129 (January 19, 2006)
(SR–Amex 2005–059) (approving, among other
things, the adoption of Commentary .07 to Amex
Rule 1202).
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33467
required to be in the form of a ‘‘masterfeeder’’ structure, whereby the listed
security holds or invests in the security
of the fund that is investing in the
prescribed financial instruments.
As a result of a recent interpretation
by the staff of the Internal Revenue
Service relating to the inability to
interpose a grantor trust in order to
utilize a certain tax reporting form, the
Exchange has been notified that the
need for the current master-feeder
structure set forth in Commentary .07 to
Amex Rule 1202 is no longer necessary.
The Exchange represents that there are
no substantive differences between the
proposed structure (TIRs directly
holding Financial Instruments) and the
current master-feeder structure (TIRs
holding Investment Shares that invest in
certain financial instruments). Amex
states that its proposal would provide
an alternative for issuers so that TIRs
may be listed and traded on the
Exchange that directly invests in or
holds Financial Instruments, rather than
through an additional security of a fund.
Specifically, the proposal seeks to
expand the application of Commentary
.07 to Amex Rule 1202 to both
Investment Shares and Financial
Instruments. Accordingly, new
Commentary .07(b)(4) to Amex Rule
1202 would be added to define
‘‘Financial Instrument’’ as any
combination of cash, securities, options
on securities and indices, commodities,
futures contracts, options on futures
contracts, forward contracts, equity
caps, collars, and floors, and swap
agreements. Amex seeks to add the term
‘‘Financial Instrument’’ to where the
term ‘‘Investment Shares’’ appears
throughout Commentary .07 to Amex
Rule 1202 to indicate that TIRs directly
holding Financial Instruments may be
listed and traded on the Exchange.
Description of the Funds and the Shares
The Shares of each Fund will
generally be subject to the Amex rules
applicable to TIRs. The Shares represent
common units of fractional undivided
beneficial interests in, and ownership
of, each Fund. Each Fund will invest the
proceeds of its offering of Shares in
various Financial Instruments that will
provide exposure to the Funds’
underlying currency, commodity, or
commodity index, as applicable. In
addition, the Funds will also maintain
cash positions in cash or money market
instruments for the purpose of
collateralizing such positions taken in
the Financial Instruments.
Shares of seven of the Funds of the
Trust will be designated as Ultra
ProShares while the Shares of the other
seven Funds of the Trust will be
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designated as UltraShort ProShares.5
Each of the Funds will have a distinct
investment objective. The Funds will
attempt, on a daily basis, to achieve
their investment objective by
corresponding to a specified multiple or
an inverse multiple of the performance
of a particular benchmark commodities
index, commodity, or currency (each an
‘‘Underlying Benchmark’’ and
collectively, the ‘‘Underlying
Benchmarks’’).
Six Funds will be based on the
following Underlying Benchmark
indexes: (1) The Dow Jones-AIG
Commodity IndexSM; (2) the Dow JonesAIG Crude Oil Sub-IndexSM; and (3) the
Dow Jones-AIG Agriculture Sub-IndexSM
(each, an ‘‘Underlying Index’’ and
collectively, the ‘‘Underlying Indexes’’).
Four Funds will be based on the
following Underlying Benchmark
commodities: (1) Gold; and (2) silver
(each, an ‘‘Underlying Commodity’’ and
collectively, the ‘‘Underlying
Commodities’’). Lastly, four Funds will
be based on the following Underlying
Benchmark currencies versus the U.S.
dollar: (1) The Euro; and (2) the
Japanese Yen (each, an ‘‘Underlying
Currency’’ and collectively, the
‘‘Underlying Currencies’’).
The Exchange proposes to list and
trade the Shares of the Funds, that seek
daily investment results, before fees and
expenses, that correspond to twice
(200%) the daily performance of the
Underlying Benchmark (the ‘‘Ultra
Funds’’). If each such Fund is successful
in meeting its investment objective, the
NAV 6 of the Shares of each such Fund
is expected to gain on a percentage
basis, approximately twice as much as
each such Fund’s respective Underlying
Benchmark when the price of the
Underlying Benchmark increases on a
given day, and should lose
approximately twice as much when
5 The Funds are the: (1) Ultra DJ–AIG Commodity
ProShares; (2) UltraShort DJ–AIG Commodity
ProShares; (3) Ultra DJ–AIG Agriculture ProShares;
(4) UltraShort DJ–AIG Agriculture ProShares; (5)
Ultra DJ–AIG Crude Oil ProShares; (6) UltraShort
DJ–AIG Crude Oil ProShares; (7) Ultra Gold
ProShares; (8) UltraShort Gold ProShares; (9) Ultra
Silver ProShares; (10) UltraShort Silver ProShares;
(11) Ultra Euro ProShares; (12) UltraShort Euro
ProShares; (13) Ultra Yen ProShares; and (14)
UltraShort Yen ProShares. See Exhibit A to Amex’s
proposed rule change.
6 NAV means the total assets of a Fund including,
but not limited to, all cash and cash equivalents or
other debt securities, less total liabilities of such
Fund, each determined on the basis of generally
accepted accounting principles in the United States,
consistently applied under the accrual method of
accounting. In particular, NAV includes any
unrealized profit or loss on open swaps and futures
contracts and any other credit or debit accruing to
a Fund but unpaid or not received by a Fund.
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such price declines on a given day,
before fees and expenses.
The Exchange also proposes to list
and trade Shares of the Funds, that seek
daily investment results, before fees and
expenses that correspond to twice the
inverse (¥200%) of the daily
performance of the Underlying
Benchmark (the ‘‘UltraShort Funds’’). If
each such Fund is successful in meeting
its objective, the NAV of the Shares of
each such Fund is expected to increase
approximately twice as much, on a
percentage basis, as the respective
Underlying Benchmark loses on a given
day, or should decrease approximately
twice as much as the respective
Underlying Benchmark gains when the
Underlying Benchmark rises on a given
day, before fees and expenses.
The Exchange notes that the
Commission has permitted the listing
and trading on Amex of exchangetraded fund-like products linked to the
performance of underlying currencies
and commodities.7 In addition, the
Exchange further notes that the shares of
other UltraFunds and UltraShort Funds
based on various securities indexes have
previously been approved by the
Commission.8
7 See, e.g., Securities Exchange Act Release Nos.
55632 (April 13, 2007), 72 FR 19987 (April 20,
2007) (SR–Amex–2006–112) (approving the listing
and trading of the United States Natural Gas Fund,
LP); 53582 (March 31, 2006), 71 FR 17510 (April
6, 2006) (SR–Amex 2005–127) (approving the
listing and trading of the United States Oil Fund,
LP); 53521 (March 20, 2006), 71 FR 14967 (March
24, 2006) (SR–Amex 2005–072) (approving the
listing and trading of the iShares Silver Trust);
53105 (January 11, 2006), 71 FR 3129 (January 19,
2006) (SR–Amex 2005–059) (approving the listing
and trading of the DB Commodity Index Tracking
Fund); 53059 (January 5, 2006), 71 FR 2072 (January
12, 2006) (SR–Amex 2005–128) (approving the
trading of the Euro Currency Trust pursuant to
unlisted trading privileges (‘‘UTP’’)); 51058 (January
19, 2005), 70 FR 3749 (January 26, 2005) (SR–Amex
2004–38) (approving the listing and trading of the
iShares COMEX Gold Trust); and 51446 (March 29,
2005), 70 FR 17272 (April 5, 2005) (SR–Amex–
2005–032) (approving the trading of streetTRACKS
Gold Shares pursuant to UTP). See also Securities
Exchange Act Release Nos. 55029 (December 29,
2006), 72 FR 806 (January 8, 2007) (SR–Amex 2006–
76) (approving the listing and trading of the DB
Multi-Sector Commodity Trust); 54450 (September
14, 2006), 71 FR 55230 (September 21, 2006) (SR–
Amex 2006–44) (approving the listing and trading
of shares of the DB Currency Index Value Fund);
55292 (February 14, 2007), 72 FR 8406 (February
26, 2007) (SR–Amex 2006–86) (approving the
listing and trading of shares of the PowerShares DB
U.S. Dollar Index Bullish Fund and the
PowerShares DB U.S. Dollar Index Bearish Fund);
56969 (December 14, 2007), 72 FR 72424 (December
20, 2007) (approving the listing and trading of
shares on the GreenHaven Continuous Commodity
Index Fund).
8 See Securities Exchange Act Release Nos. 52553
(October 3, 2005), 70 FR 59100 (October 11, 2005)
(SR–Amex–2004–62) (approving the listing and
trading of shares of the xtraShares Trust); 54040
(June 23, 2006), 71 FR 37629 (June 30, 2006) (SR–
Amex–2006–41) (approving the listing and trading
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The Underyling Indexes. As noted
above, six of the Funds will be based on
the Underlying Indexes.9 The
Underlying Indexes are all sub-indexes
within the Dow Jones-AIG Commodity
Index.10 The Commission has
previously approved for trading certain
derivative securities products based on
the Dow Jones-AIG Commodity Index
and certain of its sub-indexes.11
(1) Dow Jones-AIG Commodity Index
Excess Return. This Underlying Index is
a proprietary index that AIG Financial
Products Corp. (successor to AIG
International, Inc. or ‘‘AIG–FP’’)
developed and that Dow Jones, in
conjunction with AIG–FP, calculates.12
of shares of the ProShares Trust); 55117 (January 17,
2007), 72 FR 3442 (January 25, 2007) (SR–Amex
2006–101) (approving the listing and trading of
shares of the ProShares Trust); 56592 (October 1,
2007), 72 FR 57364 (October 9, 2007) (SR–Amex–
2007–60) (approving the listing and trading of
shares of the ProShares Trust based on international
equity indexes); and 56998 (December 19, 2007), 72
FR 73404 (December 27, 2007) (SR–Amex–2007–
104) (approving the listing and trading of shares of
the ProShares Trust).
9 ProShares, Dow Jones & Co. (‘‘Dow Jones’’), and
AIG–FP (as defined below) have entered into a nonexclusive license agreement providing for the use
of the Underlying Indexes in connection with the
Funds. The Exchange states that AIG–FP, its
subsidiaries, and affiliates are not responsible for
and will not participate in the issuance and creation
of the Fund Shares.
10 The Exchange states that it lists and trades
exchange-traded notes linked to the performance of
the Dow Jones-AIG Commodity Index Total Return.
See Securities Exchange Act Release No. 55776
(May 17, 2007), 72 FR 29015 (May 23, 2007) (SR–
Amex–2007–29) (approving the listing and trading
of floating rate notes linked to the performance of
the Dow Jones-AIG Commodity Index Total Return).
The Exchange states that it also lists and trades
exchange-traded notes linked to the performance of
the Dow Jones-AIG ExEnergy Sub-Index. See
Securities Exchange Act Release No. 54790
(November 20, 2006), 71 FR 68645 (November 27,
2006) (SR–Amex–2006–01) (approving the listing
and trading of principal protected notes linked to
the performance of the Dow Jones-AIG ExEnergy
Sub-Index).
11 See Securities Exchange Act Release No. 55548
(March 28, 2007), 72 FR 16392 (April 4, 2007) (SR–
NYSE–2006–71) (approving the listing and trading
of nine series of exchange-traded notes of Barclays
Bank PLC linked to the sub-indexes of the Dow
Jones-AIG Commodity Index).
12 AIG–FP, a co-sponsor of the Index, represented
to the Exchange that it will: (1) Implement and
maintain firewall procedures reasonably designed
to prevent the use and dissemination by relevant
personnel of AIG–FP, in violation of applicable
laws, rules, and regulations, of material non-public
information relating to changes in the composition
or method of computation or calculation of the
Underlying Indexes; and (2) periodically check the
application of such firewall procedures as they
relate to such personnel of AIG–FP directly
responsible for such changes. The Exchange states
that AIG–FP is not a broker-dealer, but does have
affiliated companies that are broker-dealers. Dow
Jones has informed the Exchange that, except as
noted below, it does not have any affiliates engaged
in the securities or commodities trading business
and, as such, does not believe that such firewall
procedures are necessary. Dow Jones B.D. Services,
Inc. (‘‘DJBD’’) is a wholly owned subsidiary of Dow
Jones and is a registered broker-dealer under the
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The methodology for determining the
composition and weighting of the
Underlying Index and for calculating its
level is subject to modification by the
sponsors at any time. Dow Jones
disseminates the Underlying Index level
at least every 15 seconds from 8 a.m. to
3 p.m. Eastern time (‘‘ET’’) 13 and
publishes a daily Underlying Index
level at approximately 5 p.m. ET each
business day on its Web site at https://
www.djindexes.com and through other
major market data vendors.
The Underlying Index is re-weighted
and rebalanced each year in January on
a price-percentage basis. The annual
weightings for the Underlying Index are
determined each year in June or July by
AIG–FP and Dow Jones under the
supervision of the Dow Jones-AIG
Commodity Index Oversight Committee
(‘‘Oversight Committee’’),14 announced
after approval by the Oversight
Committee and implemented the
following January.
The Underlying Index is designed to
track rolling futures positions in a
diversified basket of 19 exchange-traded
futures contracts on physical
commodities. The 19 physical
commodities selected for 2008 are
natural gas, crude oil, gasoline, heating
oil, live cattle, lean hogs, wheat, corn,
soybeans, soybean oil, aluminum,
copper, zinc, nickel, gold, silver, sugar,
cotton, and coffee.
The Underlying Index tracks what is
known as a rolling futures position,
which is a position where, on a periodic
basis, futures contracts on physical
commodities specifying delivery on a
nearby date must be sold and futures
contracts on physical commodities that
have not yet reached the delivery period
must be purchased. An investor with a
rolling futures position is able to avoid
delivering underlying physical
commodities while maintaining
exposure to those commodities. The
rollover for each Underlying Index
component occurs over a period of five
Act. The Exchange represents that DJBD’s business
is limited to collecting license fees from financial
institutions and exchanges and does not engage in
the typical activities of a broker-dealer.
13 The Exchange states that any disseminated
value after 3 p.m. ET is static due to the close of
auction trading of various commodities futures
contracts.
14 The Oversight Committee was established by
Dow Jones and AIG–FP to assist with the
methodology of the Dow Jones-AIG Commodity
Index. The Oversight Committee includes
prominent members of the financial, academic, and
legal communities selected by AIG–FP and meets
annually to consider any changes to be made to the
Dow Jones-AIG Commodity Index for the coming
year. The Oversight Committee may also meet at
such other times as may be necessary. The
Oversight Committee is subject to written policies
that acknowledge their obligations with respect to
material, non-public information.
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business days each month according to
a pre-determined schedule.
The Dow Jones-AIG Commodity Index
Excess Return is intended to reflect the
overall commodity sector. The
Underlying Index tracks the 19
commodities from seven broad sectors
such as energy, livestock, grains,
industrial metals, precious metals, softs,
and vegetable oil. The Underlying Index
is composed of notional amounts of the
futures contracts for each of the
Underlying Index commodities with the
weighting of each commodity broadly
based in proportion to historical levels
of the world’s production and supplies
of such Underlying Index commodity.
The Underlying Index reflects the return
of the underlying commodity prices
movement only, whether positive or
negative. The Exchange states that the
Dow Jones-AIG Commodity Index
Excess Return is the basis for a listed
and traded futures contract on the Board
of Trade of the City of Chicago, Inc.
(‘‘CBOT’’). Futures contracts on the
Underlying Index commodities
currently trade on U.S. futures
exchanges, with the exception of
aluminum, nickel, and zinc, which
trade on the London Metal Exchange
Ltd. (‘‘LME’’).
(2) Dow Jones-AIG Crude Oil SubIndex Excess Return. The Dow JonesAIG Crude Oil Sub-Index Excess Return
is intended to reflect the performance of
crude oil as measured by the price of
nearby futures contracts of sweet, light
crude oil traded on the New York
Mercantile Exchange, Inc. (‘‘NYMEX’’),
including roll costs, without regard to
income earned on cash positions. Dow
Jones disseminates this Underlying
Index level at least every 15 seconds
from 8 a.m. to 3 p.m. ET and publishes
a daily Underlying Index level at
approximately 5 p.m. ET each business
day on its Web site and through other
major market data vendors.
The Exchange states that crude oil is
the world’s most actively traded
commodity and may experience
significant volatility. 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.
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(3) Dow Jones-AIG Agriculture SubIndex Excess Return. The Dow JonesAIG Agriculture Sub-Index Excess
Return is intended to reflect the
agricultural market. This Underlying
Index consists of the following seven
commodity futures contracts: coffee,
corn, cotton, soybeans, soybean oil,
sugar, and wheat. The Underlying Index
will reflect the performance of its
underlying commodities, including roll
costs and without regard to income
earned on cash positions. Dow Jones
disseminates the Underlying Index level
at least every 15 seconds from 8 a.m. to
3 p.m. ET and publishes a daily
Underlying Index level at approximately
5 p.m. ET each business day on its Web
site and through other major market
data vendors.
The Commodity Underlying
Benchmarks. As noted above, four
Funds will be based on gold and silver
Underlying Benchmark commodities.
(1) Gold. The Ultra Gold Fund and the
UltraShort Gold Fund are designed to
track a multiple or multiple inverse of
the daily performance of gold bullion as
measured by the U.S. dollar fixing price
for delivery in London. These Funds
will not directly or physically hold the
underlying gold, but instead will seek
exposure to gold through the use of
Financial Instruments based on the
price of gold to pursue their respective
investment objective.15 The benchmark
price of gold will be the U.S. dollar
price of gold bullion as measured by the
London afternoon fixing price per troy
ounce of unallocated gold bullion for
delivery in London through a member of
the London Bullion Market Association
(‘‘LBMA’’) authorized to effect such
delivery.
The Exchange states that the price of
gold is volatile with fluctuations
expected to affect the value of the
Shares of these Funds. The price
movement of gold may be influenced by
a variety of factors, including
announcements from central banks
regarding reserve gold holdings,
agreements among central banks,
political uncertainties, and economic
concerns. The gold market is a global
marketplace consisting of both over-thecounter (‘‘OTC’’) transactions and
exchange-traded products. The OTC
market generally consists of transactions
15 See Securities Exchange Act Release No. 51058
(January 19, 2005), 70 FR 3749 (January 26, 2005)
(SR–Amex–2004–38) (approving, among other
things, the listing and trading of shares of the
iShares COMEX Gold Trust, which are TIRs
representing an interest in the net assets of a trust
holding gold bullion). See also Securities Exchange
Act Release No. 51446 (March 29, 2005), 70 FR
17272 (April 5, 2005) (SR–Amex–2005–032)
(approving the trading of shares of the
streetTRACKS Gold Trust pursuant to UTP).
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in spot, forwards, options, and other
derivatives, while exchange-traded
transactions consist of futures and
options.
A London gold ‘‘fix’’ is conducted
each trading day at 3 p.m. London time
(‘‘LT’’) providing reference gold prices
for that day’s trading. The Exchange
notes that many long-term contracts are
priced on the basis of the London gold
fix, and market participants will usually
refer to the London gold fix when
looking for a basis for valuation. The
Exchange believes that the London fix is
the most widely used benchmark for
daily gold prices and is quoted by
various major market data vendors.
(2) Silver. The Ultra Silver Fund and
the UltraShort Silver Fund are designed
to track a multiple or multiple inverse
of the daily performance of silver
bullion as measured by the U.S. dollar
fixing price for delivery in London. The
Funds may purchase Financial
Instruments based on the price of silver
to pursue their respective investment
objective.16 The benchmark price of
silver will be the U.S. dollar price of
silver bullion as measured by the
London afternoon fixing price per troy
ounce of unallocated silver bullion for
delivery in London through a member of
the LBMA authorized to effect such
delivery.
The Exchange states that the price of
silver is volatile with fluctuations
expected to affect the value of the
Shares. The largest industrial users of
silver are the photographic, jewelry, and
electronic industries, and developments
in these industries, among other factors,
may influence the price of silver. Like
gold, the silver market is a global
marketplace consisting of both OTC
transactions and exchange-traded
products. The OTC market generally
consists of transactions in spot,
forwards, options, and other derivatives,
while exchange-traded transactions
consist of futures and options.
A London silver ‘‘fix’’ is conducted
each trading day at 12 pm LT providing
reference silver prices for that day’s
trading. The Exchange notes that many
long-term contracts are priced on the
basis of the London silver fix, and
market participants will usually refer to
the London silver fix when looking for
a basis for valuation. The Exchange
believes that the London fix is the most
widely used benchmark for daily silver
prices and is quoted by various major
market data vendors.
16 See Securities Exchange Act Release No. 53521
(March 20, 2006), 71 FR 14967 (March 24, 2006)
(SR–Amex–2005–072) (approving the listing and
trading of shares which represent beneficial
ownership interests in the net assets of the iShares
Silver Trust consisting primarily of silver bullion).
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The Currency Underlying
Benchmarks. As noted above, four
Funds will be based on the following
Underlying Benchmark currencies
versus the U.S. dollar: (1) The Euro; and
(2) the Japanese Yen. These Funds will
use the 4 p.m. ET euro and Japanese yen
exchange rates, expressed in terms of
U.S. dollars per unit of foreign currency,
as the basis for these Underlying
Benchmarks, respectively. The
Exchange states that the euro and
Japanese yen exchange rates will be
provided by Reuters.
(1) Euro. The Ultra Euro Fund and the
UltraShort Euro Fund are designed to
track a multiple or multiple inverse of
the daily change in the spot price of the
euro versus the U.S. dollar.17 The euro
is the official currency of the Eurozone,
which consists of 13 European states
including: Austria, Belgium, Cyprus,
Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, Malta, the
Netherlands, Portugal, Slovenia, and
Spain. The euro is managed and
administered by the European Central
Bank and the European System of
Central Banks. These Funds may
purchase Financial Instruments based
on the euro to pursue their respective
investment objective.
(2) Japanese Yen. The Ultra Japanese
Yen Fund and the UltraShort Japanese
Yen Fund are designed to track a
multiple or inverse of the daily change
in the spot price of the Japanese yen
versus the U.S. dollar. These Funds may
purchase Financial Instruments based
on the Japanese yen to pursue their
respective investment objective.
Structure of the Funds. Each Fund is
a separate series of the Trust, a Delaware
statutory trust.18 Each Fund will issue
common units of beneficial interest, or
Shares, which represent units of
fractional undivided beneficial interest
in and ownership of only that Fund.
Each Fund’s Shares will be offered
separately.
Wilmington Trust Company
(‘‘Trustee’’) is the sole trustee of the
Funds. The Trustee has delegated to the
Managing Owner (as defined below) all
of the power and authority to manage
the business and affairs of the Funds.
ProShare Capital Management LLC
(‘‘Managing Owner’’) will serve as the
commodity pool operator and
commodity trading advisor of each
Fund. The Managing Owner is
17 See Securities Exchange Act Release No. 53059
(January 5, 2006), 71 FR 2072 (January 12, 2006)
(SR–Amex–2005–128) (approving the trading of
shares of the Euro Currency Trust pursuant to UTP).
18 The Exchange states that the Trust and the
Funds will not be subject to registration and
regulation under the Investment Company Act of
1940.
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registered as a commodity pool operator
and commodity trading advisor with the
Commodity Futures Trading
Commission (‘‘CFTC’’), and with the
National Futures Association (‘‘NFA’’).
Prudential Bache Commodities LLC
(‘‘Commodity Broker’’) will execute and
clear the Funds’ futures contract
transactions and will perform certain
administrative services for the Funds.
The Commodity Broker is registered
with the CFTC as a Futures Commission
Merchant and is a member of the NFA
in such capacity. The Administrator that
will be selected prior to the Shares of
the Trust being offered to the public
(‘‘Administrator’’) will perform or
supervise the performance of services
necessary for the operation and
administration of the Fund. These
services include, but are not limited to,
receiving and processing orders from
Authorized Participants (as defined
below) to create and redeem baskets of
Shares, accounting, NAV, calculations,
and other fund administrative services.
A marketing agent that will be a
registered broker-dealer and that will be
selected prior to the Shares of the Trust
being offered to the public (‘‘Marketing
Agent’’) will assist the Managing Owner
and the Administrator with certain
functions and duties relating to the
creation and redemption of baskets of
Shares. The Marketing Agent may also
distribute prospectuses and consult
with the Managing Owner and its
affiliates in connection with marketing
and sales strategies. A custodian that
will be selected prior to the Shares of
the Trust being offered to the public
(‘‘Custodian’’) will serve as custodian of
all securities and cash at any time
delivered to the Custodian by each
respective Fund and hold its securities
in its name or the name of its nominees.
The Custodian is also expected to serve
as each Fund’s transfer agent.
Investment Objective of the Funds.
Each Ultra Fund will seek investment
results that correspond, before fees and
expenses, to twice (200%) the daily
performance of the Underlying
Benchmark. Each UltraShort Fund will
seek daily investment results, before
fees and expenses, of twice the inverse
or opposite (¥200%) of the daily
performance of the Underlying
Benchmark.
In seeking to achieve each Fund’s
investment objective, the Managing
Owner determines the type, quantity,
and mix of investment positions that it
believes in combination should produce
daily returns consistent with a Fund’s
investment objective. Each Fund will
invest principally in any one of, or
combinations of, Financial Instruments
with respect to the applicable Fund’s
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Underlying Benchmark to the extent
determined appropriate by the
Managing Owner. In addition, each
Fund may establish long or short
positions in Financial Instruments as
the Managing Owner believes will
further the investment objective of each
Fund.
While the Managing Owner will
attempt to minimize any ‘‘tracking
error’’ between the investment results of
a particular Fund and the performance
(and specified multiple thereof) or the
inverse performance (and specified
multiple thereof) of its Underlying
Benchmark, certain factors may tend to
cause the investment results of a Fund
to vary from such relevant Underlying
Benchmark or specified multiple
thereof.19 The Ultra Funds are expected
to be highly correlated to the
Underlying Benchmark and investment
objective (0.95 or greater). The
UltraShort Funds are expected to be
highly inversely correlated to each
Underlying Benchmark and investment
objective (¥.95 or greater).20 In each
case, the Funds are expected to have a
daily tracking error of less than 5% (500
basis points) relative to the specified
multiple or inverse multiple of the
performance of the relevant Underlying
Benchmark.
The Exchange states that the
Registration Statement for each Fund
will provide a detailed description,
including, but not limited to, the
structure, creation/redemption process,
investment objective and strategies,
characteristics, tax status, and
distributions. Investors are directed to
each Fund’s Registration Statement for a
complete explanation.
The Portfolio Investment
Methodology. The Managing Owner will
seek to establish an investment
exposure in each portfolio
corresponding to each Fund’s
investment objective based upon its
‘‘Portfolio Investment Methodology.’’
The Portfolio Investment Methodology
is a mathematical model based on wellestablished principles of finance that are
widely used by investment
practitioners, including conventional
index fund managers.
The Portfolio Investment
Methodology was designed to determine
for each Fund the portfolio investments
needed to achieve its stated investment
objectives. The Portfolio Investment
Methodology takes into account a
variety of specified criteria and data, the
most important of which are: (1) Net
assets (taking into account creations and
redemptions) in each Fund’s portfolio at
the end of each trading day; (2) the
amount of required exposure to the
Underlying Benchmark; and (3) the
positions in Financial Instruments at the
beginning of each trading day. The
Managing Owner pursuant to the
methodology will then mathematically
determine the end-of-day positions to
establish the required amount of
exposure to the Underlying Benchmark
(‘‘Solution’’), which will consist of
Financial Instruments. The difference
between the start-of-day positions and
the required end-of-day positions is the
actual amount of Financial Instruments
that must be bought or sold for the day.
The Solution represents the required
exposure and, when necessary, is
converted into an order or orders to be
filled that same day.
Generally, portfolio trades effected
pursuant to the Solution are reflected in
the NAV on the first business day (T+1)
after the date the relevant trade is made.
Therefore, the NAV calculated for a
Fund on a given day should reflect the
trades executed pursuant to the prior
day’s Solution. For example, trades
pursuant to the Solution calculated on
a Monday afternoon are executed on
behalf of the Fund in question on that
day. These trades will then be reflected
in the NAV for that Fund that is
calculated as of the time shown in the
chart below.
The timeline for the Portfolio
Investment Methodology is as follows
and is reflected more specifically in the
chart below. Authorized Participants
(‘‘APs’’ or ‘‘Authorized Participants’’) 21
have a cut-off of one-hour before the
earliest underlying close for orders
submitted by telephone, facsimile, and
other electronic means of
communication. Orders received via
mail will be priced at the next NAV.
The Exchange states that AP orders by
mail are exceedingly rare. Orders are
received by the Marketing Agent and
relayed to the Managing Owner within
ten minutes. As such, the Managing
Owner will know by approximately 50
minutes before the earliest underlying
close the number of creation/
redemption orders by APs for that day.
Primary orders are then placed at
approximately 30 minutes prior to the
earliest underlying close using methods
and order types that the Managing
Owner believes will most accurately
replicate the close of the Underlying
Benchmark. Approximately five
minutes before the earliest underlying
close, the Managing Owner will again
look at the exposure to make sure that
the orders placed are consistent with the
Solution, and as described above, the
Managing Owner will execute any other
transactions in Financial Instruments
(secondary orders) to assure that the
Fund’s exposure is consistent with the
Solution.
Create or
redeem cutoff
Managing
owner notified
Primary order
placed
First
secondary
order
Close of
earliest
NAV
calculation
time
(Earliest
close–60 min)
(Earliest
close–50 min)
(Earliest
close–30 min)
(Earliest
close–5 min)
underlying
(Close of last
underlying) 22
6 a.m.
9 a.m.
12:30 p.m.
6:10 a.m.
9:10 a.m.
12:40 p.m.
6:30 a.m.
9:30 a.m.
1 p.m.
Benchmark or index
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Silver ........................................................
Gold ..........................................................
DJ–AIG .....................................................
19 Several factors may cause a Fund to vary from
the relevant Underlying Benchmark and applicable
investment objective including: (1) A Fund’s
expenses, including brokerage and the cost of the
investment techniques employed by that Fund; (2)
less than all of the components in the Underlying
Benchmark being held by a Fund and components
not included in the Underlying Benchmark being
held by a Fund; (3) an imperfect correlation
between the performance of Financial Instruments
held by a Fund and the performance of the
Underlying Benchmark; (4) bid-ask spreads; (5)
holding instruments traded in a market that has
become illiquid or disrupted; (6) a Fund’s Share
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21:47 Jun 11, 2008
Jkt 214001
prices being rounded to the nearest cent; (7)
changes to the Underlying Benchmark that are not
disseminated in advance; (8) the need to conform
a Fund’s portfolio holdings to comply with
investment restrictions or policies or regulatory or
tax law requirements; and (9) early and
unanticipated closings of the markets on which the
holdings of a Fund trade, resulting in the inability
of the Fund to execute intended portfolio
transactions.
20 Correlation is the strength of the relationship
between (1) the change in a Fund’s NAV and (2) the
change in the Underlying Benchmark (investment
objective). The statistical measure of correlation is
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6:55 a.m.
9:55 a.m.
1:25 p.m.
7 a.m.
10 a.m.
1:30 p.m.
7 a.m.
10 a.m.
2:15 p.m.
known as the ‘‘correlation coefficient.’’ A
correlation coefficient of +1 indicates a perfect
positive correlation, while a value of ¥1 indicates
a perfect negative (inverse) correlation. A value of
zero would mean that there is no correlation
between the two variables.
21 An Authorized Participant must (1) Be a
registered broker-dealer or other securities market
participant, such as a bank or other financial
institution that is not required to register as a broker
dealer to engage in securities transactions, (2) be a
Depository Trust Corporation participant, and (3)
have entered into an agreement with each Fund and
the Managing Owner.
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Create or
redeem cutoff
Managing
owner notified
Primary order
placed
First
secondary
order
Close of
earliest
NAV
calculation
time
(Earliest
close–60 min)
(Earliest
close–50 min)
(Earliest
close–30 min)
(Earliest
close–5 min)
underlying
(Close of last
underlying) 22
10:45 a.m.
10:55 a.m.
11:15 a.m.
11:40 a.m.
11:45 a.m.
2:30 a.m.
1:30 p.m.
1:40 p.m.
2 p.m.
2:25 p.m.
2:30 p.m.
2:30 p.m.
3 p.m.
3 p.m.
3:10 p.m.
3:10 p.m.
3:30 p.m.
3:30 p.m.
3:55 p.m.
3:55 p.m.
4 p.m.
4 p.m.
4 p.m.
4 p.m.
Benchmark or index
mstockstill on PROD1PC66 with NOTICES
Agriculture:
DJ–AIG .............................................
Commodity:
DJ–AIG .............................................
Crude Oil:
Euro ..................................................
Yen ....................................................
Description of Investment Techniques.
In attempting to achieve its individual
investment objectives, a Fund will
invest its assets in, and will hold only,
Financial Instruments. Each Fund may
hold Financial Instruments for the
purposes of attempting to gain exposure
to the components of its Underlying
Benchmark, without actually transacting
in such underlying components.
The counterparties to the Financial
Instruments, such as swap agreements,
forward contracts, equity caps, collars,
and floors that a Fund may use will be
Futures Commission Merchants, major
broker-dealers, and banks. To protect
itself from the credit risk that arises in
connection with swap agreements,
forward contracts, equity caps, collars,
and floors, each Fund 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 Fund’s exposure.
The counterparties to such an agreement
will generally be major broker-dealers
and banks or their affiliates, although
certain institutions, such as large energy
companies or other institutions active in
the commodities markets, may also be
counterparties. The Managing Owner
will assess or review, as appropriate, the
creditworthiness of each potential or
existing counterparty to such an
agreement. Furthermore, the Managing
Owner for each Fund will only enter
into agreements with: (1) Members of
the Federal Reserve System, foreign
banks with branches regulated by the
Federal Reserve Board, or foreign banks
with representative offices regulated by
the Federal Reserve Board; (2) primary
dealers in U.S. government securities;
(3) broker-dealers; (4) Commodities
Futures Merchants; or (5) affiliates of
the foregoing.
22 For Silver and Gold, the NAV calculation time
may vary due to differences in when daylight
savings time is effective between London and New
York. The actual times will equate to noon LT for
Silver and 3 p.m. LT for Gold.
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21:47 Jun 11, 2008
Jkt 214001
Creation and Redemption of Shares.
The Funds will create and redeem
Shares in one or more blocks of at least
50,000 Shares of a Fund (‘‘Creation
Units’’). The Funds will be purchased
and redeemed entirely for cash (‘‘Cash
Deposit Amount’’). The use of the Cash
Deposit Amount for the purchase and
redemption of Creation Units is due to
the limited transferability of Financial
Instruments. The Funds will issue and
redeem the Shares on a continuous
basis, by or through Authorized
Participants at the NAV per Share next
determined after an order to purchase
the Shares is received in proper form.
Creation Units may be created or
redeemed only by Authorized
Participants. Except when aggregated in
Creation Units, the Shares are not
redeemable securities. Authorized
Participants may pay a fixed transaction
fee of $500 in connection with each
order to create or redeem a Creation
Unit, regardless of the number of
Creation Units. A variable transaction
fee of up to 0.10% of the value of each
Creation Unit may also be applicable to
each creation/redemption transaction.
Authorized Participants may sell the
Shares included in the Creation Units
they purchase from the Funds to other
investors.
On any business day,23 an Authorized
Participant may place an order with the
Marketing Agent or Administrator to
create one or more Creation Units. For
Funds that track an Underlying
Benchmark commodity, purchase orders
must be placed one hour before the
London ‘‘fix’’ for such commodity, i.e.,
2 p.m. LT (9 a.m. ET) for gold and 11
a.m. LT (6 a.m. ET) for silver. For Funds
that are benchmarked against an
Underlying Index, purchase orders must
be placed one hour prior to the closing
23 For purposes of processing both purchase and
redemption orders, a ‘‘business day’’ means any day
other than a day when any of Amex, the New York
Stock Exchange LLC (‘‘NYSE’’), the Chicago
Mercantile Exchange (‘‘CME’’), CBOT,
IntercontinentalExchange (‘‘ICE’’)/New York Board
of Trade (‘‘NYBOT’’), LME, or NYMEX is closed for
regular trading.
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of the underlying commodity futures
contract on the primary exchange upon
which the benchmarked commodity
futures contract trades. Where an
Underlying Index contains multiple
commodities, purchase orders must be
placed one hour before the earliest
futures contract close contained in the
Underlying Index. For Funds that track
an Underlying Benchmark currency,
purchase orders must be placed one
hour before the close of NYSE, normally
4 p.m. ET. The day on which the
Administrator or Marketing Agent
receives a valid purchase order is the
purchase order date. Purchase orders are
irrevocable by an Authorized
Participant. By placing a purchase
order, and prior to delivery of such
Creation Units, an Authorized
Participant’s DTC account will be
charged the non-refundable transaction
fee due for the purchase order.
The procedures by which an
Authorized Participant can redeem one
or more Creation Units are the same as
those for the creation of Creation Units.
An Authorized Participant may place an
order with the Marketing Agent or
Administrator to redeem one or more
Creation Units. Redemption orders,
which are irrevocable, must be placed
one hour prior to the closing of the
relevant closing times. The day on
which the Marketing Agent or
Administrator receives a valid
redemption order is the redemption
order date. By placing a redemption
order, an Authorized Participant agrees
to deliver the Creation Units to be
redeemed through DTC’s book-entry
system to the applicable Fund not later
than noon ET, on the third business day
immediately following the redemption
order date. By placing a redemption
order, and prior to receipt of the
redemption proceeds, an Authorized
Participant’s DTC account will be
charged the non-refundable transaction
fee due for the redemption order.
Retail investors seeking to purchase or
sell Shares on any day are expected to
effect such transactions in the secondary
market at the market price per Share,
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rather than in connection with the
creation or redemption of Creation
Units. The Exchange believes that the
Shares will not trade at a material
discount or premium to the value of the
assets held by the Funds based on
potential arbitrage opportunities. Due to
the fact that the Shares can be created
and redeemed only in Creation Units at
NAV, the Exchange submits that
arbitrage opportunities should provide a
mechanism to mitigate the effect of any
premiums or discounts that may exist
from time to time. The Exchange
believes that market professionals will
have the ability to arbitrage Shares of
the Funds in a manner similar to
conventional index-based exchangetraded funds. The disclosure of portfolio
holdings and the availability of the
Indicative Fund Value (as defined
below) and other pricing information
about portfolio holdings will permit
arbitrageurs to identify when the market
price of the Shares is higher or lower
than the value of the portfolio. As a
result, these market professionals will
buy Shares when they are priced lower
than the portfolio and sell Shares when
they are priced higher than the
portfolio, thereby moving prices back in
line with the value of the portfolio.
Actual and potential arbitrage of this
nature should help the secondary
market prices of the Shares to remain
close to NAV.
Net Asset Value (NAV). The NAV of
a Fund is total assets including, but not
limited to, all cash and cash equivalents
or other debt securities, less total
liabilities, each determined on the basis
of generally accepted accounting
principles. In particular, the NAV
includes any unrealized profit or loss on
open Financial Instruments and any
other credit or debit accruing to a Fund,
but unpaid or not received.
The NAV per Share of each Fund is
computed by dividing the value of the
net assets of such Fund (i.e., the value
of its total assets, less total liabilities) by
its total number of Shares outstanding.
Expenses and fees are accrued daily and
taken into account for purposes of
determining NAV. The NAV of each
Fund is calculated by the Administrator
and is determined each business day as
set forth in the chart above.
The Exchange represents that it will
obtain a representation (prior to listing
the Shares of the Funds) from the Trust
that the NAV per Share will be
calculated daily and made available to
all market participants at the same time.
Availability of Information Regarding
the Shares. The Web sites for the Fund
and/or the Exchange, which are publicly
accessible at no charge, will contain the
following information: (1) The daily
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21:47 Jun 11, 2008
Jkt 214001
current NAV per Share, the prior
business day’s NAV per Share, and the
reported closing price; (2) the mid-point
of the bid-ask price in relation to the
NAV per Share as of the time it is
calculated (the ‘‘Bid-Ask Price’’); 24 (3)
calculation of the premium or discount
of such price against the NAV per Share;
(4) data in chart form displaying the
frequency distribution of discounts and
premiums of the Bid-Ask Price against
the NAV per Share, within appropriate
ranges for each of the four previous
calendar quarters; (5) the applicable
prospectus; and (6) other applicable
quantitative information.
As described above, the NAV per
Share will be calculated and
disseminated daily. Amex will
disseminate for the Funds on a daily
basis by means of the Consolidated Tape
Association/Consolidated Quotation
High Speed Lines information with
respect to the corresponding Indicative
Fund Value (as discussed below), recent
NAVs per Share, and the number of
Shares outstanding. The Exchange will
also make available on its Web site daily
trading volume of the Shares, closing
prices of the Shares, and the NAV per
Share. The closing and settlement prices
of the futures contracts held by the
Funds are also readily available from
CME, NYMEX, CBOT, ICE/NYBOT,
LME, automated quotation systems,
published or other public sources, or
on-line information services such as
Bloomberg or Reuters. Real-time
dissemination of spot pricing for gold,
silver, euro, and Japanese yen is
available on a 24-hour basis worldwide
from various major market data vendors.
Each Fund’s total portfolio
composition will be disclosed on the
Web site of the Trust (https://
www.proshares.com) or another relevant
Web site as determined by the Trust
and/or the Exchange. The Trust will
provide Web site disclosure of portfolio
holdings daily and will include, as
applicable, the names and number of
Financial Instruments and
characteristics of such instruments and
cash equivalents, and amount of cash
held in the portfolio of each Fund. This
Web site disclosure of the portfolio
composition of each Fund will occur at
the same time as the disclosure by the
Managing Owner of the portfolio
composition to Authorized Participants
so that all market participants are
provided portfolio composition
information at the same time. Therefore,
the same portfolio information will be
provided on the public Web site as well
24 The Bid-Ask Price of Shares is determined
using the highest bid and lowest offer as of the time
of calculation of the NAV.
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33473
as in electronic files provided to
Authorized Participants. Accordingly,
each investor will have access to the
current portfolio composition of each
Fund through the Trust’s Web site and/
or at the Exchange’s Web site at
https://www.amex.com.
The value of each Underlying
Benchmark will be updated intra-day on
a real time basis as its components
change in price. The daily closing index
value and the percentage change in the
daily closing index value for each
Underlying Index will be publicly
available on various Web sites, such as
https://www.ino.com and https://
www.finance.yahoo.com. Data regarding
each Underlying Index is also available
from the respective index provider to
subscribers. In addition, data is also
available regarding the underlying
component commodities of each
Underlying Index from those futures
exchanges that list and trade futures
contracts on those commodities. Several
independent data vendors also package
and disseminate index data in various
value-added formats (including vendors
displaying both index constituents and
index levels and vendors displaying
index levels only).
Data regarding spot pricing of the
Underlying Benchmark commodities
(gold and silver) is publicly available on
a 24-hour basis from various financial
information service providers, such as
Reuters and Bloomberg. In addition, the
daily London fix for gold and silver is
also disseminated by various market
data vendors and is available from the
LBMA Web site at https://
www.lbma.org.uk. Data regarding
futures contracts and options on futures
contracts in connection with the
Underlying Benchmark commodities is
also available from NYMEX at https://
www.nymex.com.
There is considerable public price and
data information regarding the
Underlying Benchmark currencies (euro
and Japanese yen). Spot pricing related
to the foreign currency exchange is
available to investors and market
professionals on a 24-hour basis. A
variety of public Web sites and
professional and subscription services
provide market and price information
regarding the euro and the yen. Current
spot prices are also generally available
from foreign exchange dealers.
Dissemination of Indicative Fund
Value. The Administrator calculates and
disseminates, once each trading day, the
NAV per Share to market participants.
The Exchange represents that it will
obtain a representation (prior to listing
of the Funds) from the Trust that the
NAV per Share will be calculated daily
and made available to all market
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mstockstill on PROD1PC66 with NOTICES
participants at the same time. In
addition, the Administrator causes to be
made available on a daily basis the
corresponding Cash Deposit Amounts to
be deposited in connection with the
issuance of the respective Shares.
To provide updated information
relating to the Funds for use by
investors, professionals, and persons
wishing to create or redeem the Shares,
the Exchange will disseminate an
updated ‘‘Indicative Fund Value.’’ The
Indicative Fund Value will be
disseminated on a per-Share basis at
least every 15 seconds during regular
Amex trading hours of 9:30 a.m. to 4
p.m. ET. The Indicative Fund Value will
be calculated based on the cash required
for creations and redemptions for a
Fund, adjusted to reflect the price
changes of the Financial Instruments.
The Exchange submits that the
Indicative Fund Value on a per-Share
basis disseminated during Amex trading
hours should not be viewed as a realtime update of the NAV, which is
calculated only once a day. The
Exchange believes that dissemination of
the Indicative Fund Value based on the
cash amount required for a creation/
redemption provides additional
information that is not otherwise
available to the public and is useful to
professionals and investors in
connection with the Shares trading on
the Exchange or the creation or
redemption of the Shares.
Criteria for Initial and Continued
Listing. The Funds will be subject to the
criteria in Commentary .07(d) of Amex
Rule 1202 for initial and continued
listing of the Shares. The Funds will
accept subscriptions for Shares in
Creation Units from Authorized
Participants expected to be in a range
from $20 to $70 per Share during an
initial offering period, commencing
with the initial effective date of the
prospectus and terminating no later
than the ninetieth (90) day following
such date, unless (i) the subscription
minimum is reached before that date
and the Managing Owner determines to
end the initial offering period early or
(ii) that date is extended by the
Managing Owner for up to an additional
90 days.
The anticipated minimum number of
Shares for each Fund to be outstanding
at the start of trading will be 50,000
Shares.25 The Exchange believes that
this anticipated minimum number of
25 E-mail from Jeffrey P. Burns, Vice President
and Associate General Counsel, Amex, to Edward
Cho, Special Counsel, Division of Trading and
Markets, Commission, dated June 5, 2008
(confirming the minimum number of Shares for
each Fund anticipated to be outstanding at the start
of trading on the Exchange).
VerDate Aug<31>2005
21:47 Jun 11, 2008
Jkt 214001
Shares for each Fund to be outstanding
at the start of trading is sufficient to
provide adequate market liquidity and
to further the objectives of the Funds.
The Exchange represents that, for the
initial and continued listing of the
Shares, the Shares must be in
compliance with Section 803 of the
Amex Company Guide and Rule 10A–3
under the Act.26
Trading Rules. The Shares are equity
securities subject to Amex rules
governing the trading of equity
securities, including, among others,
rules governing priority, parity, and
precedence of orders, specialist
responsibilities and account opening,
and customer suitability (Amex Rule
411). Initial equity margin requirements
of 50% will apply to transactions in the
Shares. The Shares will trade on Amex
until 4 p.m. ET each business day and
will trade in a minimum price variation
of $0.01 pursuant to Amex Rule 127–
AEMI. Trading rules pertaining to oddlot trading in Amex equities (Amex Rule
205–AEMI), stop and stop limit orders
for securities that are derivatively priced
(Amex Rule 154–AEMI), and the
prevention of trade-through transactions
of protected quotations (Amex Rule
126A–AEMI) will also apply to the
Shares.
Specialist transactions in the Shares
made in connection with the creation
and redemption of Shares will not be
subject to the prohibitions of Amex Rule
190(a).27 The Shares will generally be
subject to the Exchange’s stabilization
rule, Amex Rule 170, except that
specialists may buy on ‘‘plus ticks’’ and
sell on ‘‘minus ticks,’’ in order to bring
the Shares into parity with (i) The
underlying asset or commodity on
which the Shares are based, (ii) the NAV
of the Shares, or (iii) the futures
contract(s) on the underlying asset or
commodity on which the Shares are
based. The Exchange notes that
Commentary .07(f) to Amex Rule 1202
sets forth this limited exception to
Amex Rule 170.
The trading of the Shares will also be
subject to certain conflict of interest
provisions set forth in Commentary
.07(e) to Amex Rule 1202. Lastly,
Commentary .07(g)(3) to Amex Rule
1202 prohibits the specialist in the
26 See
17 CFR 240.10A–3.
Rule 190(a) states that no specialist or
his member organization, or any member, officer,
employee, or approved person therein, may,
directly or indirectly, effect any business
transaction with a company or any officer, director
or 10% stockholder of a company in which stock
the specialist is registered. See Commentary .05 to
Amex Rule 190 (exempting specialists registered in
a security issued by a trust, listed pursuant to,
among other rules, Amex Rule 1202, from the
requirements of Amex Rule 190(a)).
27 Amex
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
Shares from using any material, nonpublic information received from any
person associated with a member,
member organization, or employee of
such person regarding trading by such
person or employee in the Underlying
Index commodities, related futures, or
options on futures, or any other related
derivatives.
Surveillance. The Exchange submits
that its surveillance procedures are
adequate to detect and deter violations
of Exchange rules relating to the trading
of the Shares. The surveillance
procedures will be similar to those used
for other commodity-based TIRs,
Commodity-Based Trust Shares,
Currency Trust Shares, and exchangetraded funds and will incorporate and
rely upon existing Amex surveillance
procedures governing options and
equities.
The Exchange states that it currently
has in place comprehensive surveillance
sharing agreements with ICE, LME, and
NYMEX for the purpose of providing
information in connection with the
trading in futures contracts traded on
their respective exchanges comprising
the Underlying Benchmarks. The
Exchange also notes that CBOT, CME,
and NYBOT are members of the
Intermarket Surveillance Group. As a
result, the Exchange asserts that market
surveillance information is available
from relevant futures exchanges, if
necessary, due to regulatory concerns
that may arise in connection with the
futures contracts
Information Circular. Amex will
distribute an Information Circular to its
members in connection with the trading
of the Shares. The Information Circular,
will discuss the special characteristics
and risks of trading this type of security,
such as commodity or currency
fluctuation risk. Specifically, the
Information Circular, among other
things, will discuss: (1) What the Shares
are and how Shares are created and
redeemed; (2) the requirement that
members and member firms deliver a
prospectus to investors purchasing the
Shares prior to or concurrently with the
confirmation of a transaction, applicable
Amex rules; (3) dissemination
information and trading information; (4)
applicable suitability rules; 28 (5) that
28 The Exchange notes that pursuant to Amex
Rule 411, members and member organizations are
required in connection with recommending
transactions in the Shares to have a reasonable basis
to believe that a customer is suitable for the
particular investment given reasonable inquiry
concerning the customer’s investment objectives,
financial situation, needs, and any other
information known by such member. See
Commentary .05 to Amex Rule 411 (providing
heightened suitability requirements for derivative
securities seeking to provide investment results that
E:\FR\FM\12JNN1.SGM
12JNN1
Federal Register / Vol. 73, No. 114 / Thursday, June 12, 2008 / Notices
mstockstill on PROD1PC66 with NOTICES
the Fund is subject to various fees and
expenses described in the Registration
Statement; (6) that there is no regulated
source of last-sale information regarding
physical commodities and currencies,
that the SEC has no jurisdiction over the
trading of physical commodities or
currencies, and that the CFTC has
regulatory jurisdiction over the trading
of futures contracts and options on
futures contracts; (7) the procedures for
purchases and redemptions of Shares
and that Shares are not individually
redeemable but are redeemable only in
one or more Creation Units; (8) any
relief, if granted, by the Commission
from any rules under the Act; (9) that
the trading hours of the Shares will be
from 9:30 a.m. to 4 p.m. ET and that the
NAV for the Shares will be calculated
shortly after 4 p.m. ET each trading day;
and (10) information about the Shares
will be publicly available on the Amex
Web site and the Funds’ Web sites.
Trading Halts. The Exchange states
that the Information Circular will also
inform members of Exchange policies
regarding trading halts in the Shares.
Specifically, trading in the Shares will
be halted in the event the market
volatility trading halt parameters set
forth in Amex Rule 117 have been
reached. Second, in addition to the
parameters set forth in Amex Rule 117,
the Exchange will halt trading in the
Shares if trading in a significant number
of underlying related futures contract(s)
is halted or suspended. Third, the
Exchange will halt trading if it becomes
aware that a Fund’s NAV or disclosure
of the portfolio composition is not being
disseminated or has not been
disseminated to all market participants
at the same time. Fourth, the Exchange
will halt trading in the Shares if the
value of an Underlying Benchmark is no
longer calculated or available on at least
a 15-second basis through one or more
major market data vendors during the
time the Shares trade on Amex or if an
Indicative Fund Value per Share
updated every 15 seconds is no longer
calculated or available.29 Fifth, with
either exceed the performance of an underlying
reference asset by a specified multiple or that
correspond to the inverse (opposite) of the
performance of an underlying reference asset by a
specified multiple). E-mail from Jeffrey P. Burns,
Vice President and Associate General Counsel,
Amex, to Edward Cho, Special Counsel, Division of
Trading and Markets, Commission, dated June 5,
2008.
29 If the value of the Underlying Benchmark or the
Indicative Fund Value is not being disseminated on
at least a 15-second basis during the hours the
Shares trade on the Exchange, the Exchange may
halt trading during the day in which the
interruption to the dissemination of the value of the
Underlying Benchmark or the Indicative Fund
Value occurs. If the interruption to the
dissemination the value of the Underlying
VerDate Aug<31>2005
21:47 Jun 11, 2008
Jkt 214001
33475
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.
A. By order approve such proposed
rule change, or
B. Institute proceedings to determine
whether the proposed rule change
should be disapproved.
2. Statutory Basis
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
The Exchange believes that the
proposed rule change is consistent with
Section 6(b) of the Act,30 in general, and
furthers the objectives of Section 6(b)(5)
of the Act,31 in particular, in that it is
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities,
and, in general, to protect investors and
the public interest. The Exchange
believes that the proposal will facilitate
the listing and trading of additional
types of commodity- and currencybased investments that will enhance
competition among market participants,
to the benefit of investors and the
marketplace.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange believes the proposed
rule change will impose no burden on
competition that is not necessary or
appropriate in furtherance of the
purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
The Exchange states that no written
comments were solicited or received
with respect to the proposed rule
change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 35 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which Amex consents, the
Commission will:
Benchmark or the Indicative Fund 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.
30 15 U.S.C. 78f(b).
31 15 U.S.C. 78f(b)(5).
PO 00000
Frm 00089
Fmt 4703
Sfmt 4703
IV. Solicitation of Comments
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–2008–39 on the
subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street, NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–Amex–2008–39. This file
number should be included on the
subject line if e-mail is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for inspection and copying in
the Commission’s Public Reference
Room, 100 F Street, NE., Washington,
DC 20549, on official business days
between the hours of 10 a.m. and 3 p.m.
Copies of the filing also will be available
for inspection and copying at the
principal office of the Exchange. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–Amex–2008–39 and should
be submitted on or before July 3, 2008.
E:\FR\FM\12JNN1.SGM
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33476
Federal Register / Vol. 73, No. 114 / Thursday, June 12, 2008 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.32
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8–13159 Filed 6–11–08; 8:45 am]
BILLING CODE 8010–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–57928; File No. SR–CBOE–
2008–57]
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing and
Immediate Effectiveness of Proposed
Rule Change To Increase the Class
Quoting Limit in GLD Options
June 5, 2008.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on June 3,
2008, the Chicago Board Options
Exchange, Incorporated (‘‘CBOE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) the proposed
rule change as described in Items I, II,
and III below, which Items have been
prepared by the CBOE. The Exchange
has designated this proposal as one
constituting a stated policy, practice, or
interpretation with respect to the
meaning, administration, or
enforcement of an existing rule under
Section 19(b)(3)(A)(i) of the Act,3 and
Rule 19b–4(f)(1) thereunder,4 which
renders the proposal effective upon
filing with the Commission. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
mstockstill on PROD1PC66 with NOTICES
The Exchange proposes to increase
the class quoting limit in the option
class SPDR Gold Trust (GLD). The text
of the proposed rule change is available
on CBOE’s Web site (https://
www.cboe.org/legal), at the CBOE’s
Office of the Secretary, and at the
Commission’s Public Reference Room.
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in Sections A, B, and C below, of
the most significant parts of such
statements.
Accordingly, CBOE believes the
proposed rule change is consistent with
the Act and the rules and regulations
under the Act applicable to a national
securities exchange and, in particular,
the requirements of Section 6(b) of the
Act.7 Specifically, the Exchange
believes the proposed rule change is
consistent with the Section 6(b)(5) 8
requirements that the rules of an
exchange be designed to promote just
and equitable principles of trade, to
prevent fraudulent and manipulative
acts and, in general, to protect investors
and the public interest. As indicated
above, the Exchange believes that
increasing the CQL in this option class
will enable the Exchange to enhance the
liquidity offered, thereby offering
deeper and more liquid markets.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
CBOE Rule 8.3A, Maximum Number
of Market Participants Quoting
Electronically per Product, establishes
class quoting limits (‘‘CQLs’’) for each
class traded on the Hybrid Trading
System or Hybrid 2.0 Platform.5 A CQL
is the maximum number of quoters that
may quote electronically in a given
product and Rule 8.3A, Interpretation
.01(a) provides that the current levels
are generally established at 50.
In addition, Rule 8.3A, Interpretation
.01(b) provides a procedure by which
the President of the Exchange may
increase the CQL for an existing or new
product. In this regard, the President of
the Exchange may increase the CQL in
exceptional circumstances, which are
defined in the rule as ‘‘substantial
trading volume, whether actual or
expected.’’ 6 The effect of an increase in
the CQL is procompetitive in that it
increases the number of market
participants that may quote
electronically in a product. The purpose
of this filing is to increase the CQL in
GLD options from its current limit of 50
to 75.
CBOE anticipates that there will be
substantial trading volume in this class.
In addition, increasing the CQL to 75
will accommodate Market-Makers that
are currently on the wait-list to be
appointed to the option class. Increasing
the CQL in this option will enable the
Exchange to enhance the liquidity
offered, thereby offering deeper and
more liquid markets. Lastly, CBOE
represents that it has the systems
Rule 8.3A.01.
actions taken by the President of the
Exchange pursuant to this paragraph will be
submitted to the SEC in a rule filing pursuant to
Section 19(b)(3)(A) of the Exchange Act.’’ Rule
8.3A.01(b).
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 15 U.S.C. 78s(b)(3)(A)(i).
4 17 CFR 240.19b–4(f)(1).
6 ‘‘Any
1 15
21:47 Jun 11, 2008
capacity to support this increase in the
CQL.
5 See
32 17
VerDate Aug<31>2005
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
Jkt 214001
PO 00000
Frm 00090
Fmt 4703
Sfmt 4703
2. Statutory Basis
B. Self-Regulatory Organization’s
Statement on Burden on Competition
CBOE 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 neither received nor
solicited written comments on the
proposal.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing proposed rule change
will take effect upon filing with the
Commission pursuant to Section
19(b)(3)(A)(i) of the Act 9 and Rule 19b–
4(f)(1) thereunder,10 because it
constitutes a stated policy, practice, or
interpretation with respect to the
meaning, administration, or
enforcement of an existing rule.
At any time within 60 days of the
filing of the proposed rule change, the
Commission may summarily abrogate
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act.
7 15
U.S.C. 78(f)(b).
U.S.C. 78(f)(b)(5).
9 15 U.S.C. 78s(b)(3)(A)(i).
10 17 CFR 240.19b–4(f)(1).
8 15
E:\FR\FM\12JNN1.SGM
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]]>Agencies
[Federal Register Volume 73, Number 114 (Thursday, June 12, 2008)]
[Notices]
[Pages 33467-33476]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E8-13159]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-57932; File No. SR-Amex-2008-39]
Self-Regulatory Organizations; American Stock Exchange LLC;
Notice of Filing of Proposed Rule Change and Amendment No. 1 Thereto
Relating to the Listing and Trading of Trust Issued Receipts That
Directly Hold Investments in Certain Financial Instruments and To
Permit the Listing and Trading of Shares of Fourteen Funds of the
Commodities and Currency Trust
June 5, 2008.
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 May 9, 2008, 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 June 4, 2008, the Exchange filed Amendment No. 1 to the
proposed rule change. The Commission is publishing this notice to
solicit comments on the proposed rule change, as amended, from
interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to: (1) Amend Commentary .07 to Amex Rule
1202 to permit the listing and trading of certain trust issued receipts
(``TIRs'') that hold any combination of investments including cash,
securities, options on securities and indices, commodities, futures
contracts, options on futures contracts, forward contracts, equity
caps, collars, and floors, and swap agreements (collectively,
``Financial Instruments''); and (2) list and trade the shares
(``Shares'') of fourteen funds (``Funds'') of the Commodities and
Currency Trust (``Trust'') based on certain commodity indexes,
commodities, and currencies pursuant to Commentary .07 to Amex Rule
1202, as proposed to be amended. The text of the proposed rule change
is available at Amex, the Commission's Public Reference Room, and
https://www.amex.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of, and basis for, the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to amend Commentary .07 to Amex Rule 1202 to
permit the listing and trading of certain TIRs that directly hold any
combination of investments in Financial Instruments.\3\ In addition,
the Exchange proposes to list and trade the Shares of the Funds
pursuant to Commentary .07 to Amex Rule 1202, as proposed to be
amended.
---------------------------------------------------------------------------
\3\ The Exchange represents that permissible securities in
connection with Financial Instruments would not include foreign
equity securities.
---------------------------------------------------------------------------
Proposed Revision to Commentary .07 to Amex Rule 1202
Commentary .07 to Amex Rule 1202 currently permits the Exchange to
list and trade TIRs where the underlying trust holds ``Investment
Shares.'' \4\ Investment Shares are defined in Commentary .07(b)(1) to
Amex Rule 1202 as securities that are (a) issued by a trust,
partnership, commodity pool, or other similar entity that invests in
any combination of futures contracts, options on futures contracts,
forward contracts, commodities, swaps or high credit quality short-term
fixed-income securities or other securities, and (b) issued and
redeemed daily at net asset value (``NAV'') in amounts correlating to
the number of receipts created and redeemed in a specified aggregate
minimum number. As a result, TIRs that are listed pursuant to current
Commentary .07 to Amex Rule 1202 are required to be in the form of a
``master-feeder'' structure, whereby the listed security holds or
invests in the security of the fund that is investing in the prescribed
financial instruments.
---------------------------------------------------------------------------
\4\ See Commentary .07(a) to Amex Rule 1202. See also Securities
Exchange Act Release No. 53105 (January 11, 2006), 71 FR 3129
(January 19, 2006) (SR-Amex 2005-059) (approving, among other
things, the adoption of Commentary .07 to Amex Rule 1202).
---------------------------------------------------------------------------
As a result of a recent interpretation by the staff of the Internal
Revenue Service relating to the inability to interpose a grantor trust
in order to utilize a certain tax reporting form, the Exchange has been
notified that the need for the current master-feeder structure set
forth in Commentary .07 to Amex Rule 1202 is no longer necessary. The
Exchange represents that there are no substantive differences between
the proposed structure (TIRs directly holding Financial Instruments)
and the current master-feeder structure (TIRs holding Investment Shares
that invest in certain financial instruments). Amex states that its
proposal would provide an alternative for issuers so that TIRs may be
listed and traded on the Exchange that directly invests in or holds
Financial Instruments, rather than through an additional security of a
fund.
Specifically, the proposal seeks to expand the application of
Commentary .07 to Amex Rule 1202 to both Investment Shares and
Financial Instruments. Accordingly, new Commentary .07(b)(4) to Amex
Rule 1202 would be added to define ``Financial Instrument'' as any
combination of cash, securities, options on securities and indices,
commodities, futures contracts, options on futures contracts, forward
contracts, equity caps, collars, and floors, and swap agreements. Amex
seeks to add the term ``Financial Instrument'' to where the term
``Investment Shares'' appears throughout Commentary .07 to Amex Rule
1202 to indicate that TIRs directly holding Financial Instruments may
be listed and traded on the Exchange.
Description of the Funds and the Shares
The Shares of each Fund will generally be subject to the Amex rules
applicable to TIRs. The Shares represent common units of fractional
undivided beneficial interests in, and ownership of, each Fund. Each
Fund will invest the proceeds of its offering of Shares in various
Financial Instruments that will provide exposure to the Funds'
underlying currency, commodity, or commodity index, as applicable. In
addition, the Funds will also maintain cash positions in cash or money
market instruments for the purpose of collateralizing such positions
taken in the Financial Instruments.
Shares of seven of the Funds of the Trust will be designated as
Ultra ProShares while the Shares of the other seven Funds of the Trust
will be
[[Page 33468]]
designated as UltraShort ProShares.\5\ Each of the Funds will have a
distinct investment objective. The Funds will attempt, on a daily
basis, to achieve their investment objective by corresponding to a
specified multiple or an inverse multiple of the performance of a
particular benchmark commodities index, commodity, or currency (each an
``Underlying Benchmark'' and collectively, the ``Underlying
Benchmarks'').
---------------------------------------------------------------------------
\5\ The Funds are the: (1) Ultra DJ-AIG Commodity ProShares; (2)
UltraShort DJ-AIG Commodity ProShares; (3) Ultra DJ-AIG Agriculture
ProShares; (4) UltraShort DJ-AIG Agriculture ProShares; (5) Ultra
DJ-AIG Crude Oil ProShares; (6) UltraShort DJ-AIG Crude Oil
ProShares; (7) Ultra Gold ProShares; (8) UltraShort Gold ProShares;
(9) Ultra Silver ProShares; (10) UltraShort Silver ProShares; (11)
Ultra Euro ProShares; (12) UltraShort Euro ProShares; (13) Ultra Yen
ProShares; and (14) UltraShort Yen ProShares. See Exhibit A to
Amex's proposed rule change.
---------------------------------------------------------------------------
Six Funds will be based on the following Underlying Benchmark
indexes: (1) The Dow Jones-AIG Commodity IndexSM; (2) the
Dow Jones-AIG Crude Oil Sub-IndexSM; and (3) the Dow Jones-
AIG Agriculture Sub-IndexSM (each, an ``Underlying Index''
and collectively, the ``Underlying Indexes''). Four Funds will be based
on the following Underlying Benchmark commodities: (1) Gold; and (2)
silver (each, an ``Underlying Commodity'' and collectively, the
``Underlying Commodities''). Lastly, four Funds will be based on the
following Underlying Benchmark currencies versus the U.S. dollar: (1)
The Euro; and (2) the Japanese Yen (each, an ``Underlying Currency''
and collectively, the ``Underlying Currencies'').
The Exchange proposes to list and trade the Shares of the Funds,
that seek daily investment results, before fees and expenses, that
correspond to twice (200%) the daily performance of the Underlying
Benchmark (the ``Ultra Funds''). If each such Fund is successful in
meeting its investment objective, the NAV \6\ of the Shares of each
such Fund is expected to gain on a percentage basis, approximately
twice as much as each such Fund's respective Underlying Benchmark when
the price of the Underlying Benchmark increases on a given day, and
should lose approximately twice as much when such price declines on a
given day, before fees and expenses.
---------------------------------------------------------------------------
\6\ NAV means the total assets of a Fund including, but not
limited to, all cash and cash equivalents or other debt securities,
less total liabilities of such Fund, each determined on the basis of
generally accepted accounting principles in the United States,
consistently applied under the accrual method of accounting. In
particular, NAV includes any unrealized profit or loss on open swaps
and futures contracts and any other credit or debit accruing to a
Fund but unpaid or not received by a Fund.
---------------------------------------------------------------------------
The Exchange also proposes to list and trade Shares of the Funds,
that seek daily investment results, before fees and expenses that
correspond to twice the inverse (-200%) of the daily performance of the
Underlying Benchmark (the ``UltraShort Funds''). If each such Fund is
successful in meeting its objective, the NAV of the Shares of each such
Fund is expected to increase approximately twice as much, on a
percentage basis, as the respective Underlying Benchmark loses on a
given day, or should decrease approximately twice as much as the
respective Underlying Benchmark gains when the Underlying Benchmark
rises on a given day, before fees and expenses.
The Exchange notes that the Commission has permitted the listing
and trading on Amex of exchange-traded fund-like products linked to the
performance of underlying currencies and commodities.\7\ In addition,
the Exchange further notes that the shares of other UltraFunds and
UltraShort Funds based on various securities indexes have previously
been approved by the Commission.\8\
---------------------------------------------------------------------------
\7\ See, e.g., Securities Exchange Act Release Nos. 55632 (April
13, 2007), 72 FR 19987 (April 20, 2007) (SR-Amex-2006-112)
(approving the listing and trading of the United States Natural Gas
Fund, LP); 53582 (March 31, 2006), 71 FR 17510 (April 6, 2006) (SR-
Amex 2005-127) (approving the listing and trading of the United
States Oil Fund, LP); 53521 (March 20, 2006), 71 FR 14967 (March 24,
2006) (SR-Amex 2005-072) (approving the listing and trading of the
iShares Silver Trust); 53105 (January 11, 2006), 71 FR 3129 (January
19, 2006) (SR-Amex 2005-059) (approving the listing and trading of
the DB Commodity Index Tracking Fund); 53059 (January 5, 2006), 71
FR 2072 (January 12, 2006) (SR-Amex 2005-128) (approving the trading
of the Euro Currency Trust pursuant to unlisted trading privileges
(``UTP'')); 51058 (January 19, 2005), 70 FR 3749 (January 26, 2005)
(SR-Amex 2004-38) (approving the listing and trading of the iShares
COMEX Gold Trust); and 51446 (March 29, 2005), 70 FR 17272 (April 5,
2005) (SR-Amex-2005-032) (approving the trading of streetTRACKS Gold
Shares pursuant to UTP). See also Securities Exchange Act Release
Nos. 55029 (December 29, 2006), 72 FR 806 (January 8, 2007) (SR-Amex
2006-76) (approving the listing and trading of the DB Multi-Sector
Commodity Trust); 54450 (September 14, 2006), 71 FR 55230 (September
21, 2006) (SR-Amex 2006-44) (approving the listing and trading of
shares of the DB Currency Index Value Fund); 55292 (February 14,
2007), 72 FR 8406 (February 26, 2007) (SR-Amex 2006-86) (approving
the listing and trading of shares of the PowerShares DB U.S. Dollar
Index Bullish Fund and the PowerShares DB U.S. Dollar Index Bearish
Fund); 56969 (December 14, 2007), 72 FR 72424 (December 20, 2007)
(approving the listing and trading of shares on the GreenHaven
Continuous Commodity Index Fund).
\8\ See Securities Exchange Act Release Nos. 52553 (October 3,
2005), 70 FR 59100 (October 11, 2005) (SR-Amex-2004-62) (approving
the listing and trading of shares of the xtraShares Trust); 54040
(June 23, 2006), 71 FR 37629 (June 30, 2006) (SR-Amex-2006-41)
(approving the listing and trading of shares of the ProShares
Trust); 55117 (January 17, 2007), 72 FR 3442 (January 25, 2007) (SR-
Amex 2006-101) (approving the listing and trading of shares of the
ProShares Trust); 56592 (October 1, 2007), 72 FR 57364 (October 9,
2007) (SR-Amex-2007-60) (approving the listing and trading of shares
of the ProShares Trust based on international equity indexes); and
56998 (December 19, 2007), 72 FR 73404 (December 27, 2007) (SR-Amex-
2007-104) (approving the listing and trading of shares of the
ProShares Trust).
---------------------------------------------------------------------------
The Underyling Indexes. As noted above, six of the Funds will be
based on the Underlying Indexes.\9\ The Underlying Indexes are all sub-
indexes within the Dow Jones-AIG Commodity Index.\10\ The Commission
has previously approved for trading certain derivative securities
products based on the Dow Jones-AIG Commodity Index and certain of its
sub-indexes.\11\
---------------------------------------------------------------------------
\9\ ProShares, Dow Jones & Co. (``Dow Jones''), and AIG-FP (as
defined below) have entered into a non-exclusive license agreement
providing for the use of the Underlying Indexes in connection with
the Funds. The Exchange states that AIG-FP, its subsidiaries, and
affiliates are not responsible for and will not participate in the
issuance and creation of the Fund Shares.
\10\ The Exchange states that it lists and trades exchange-
traded notes linked to the performance of the Dow Jones-AIG
Commodity Index Total Return. See Securities Exchange Act Release
No. 55776 (May 17, 2007), 72 FR 29015 (May 23, 2007) (SR-Amex-2007-
29) (approving the listing and trading of floating rate notes linked
to the performance of the Dow Jones-AIG Commodity Index Total
Return). The Exchange states that it also lists and trades exchange-
traded notes linked to the performance of the Dow Jones-AIG ExEnergy
Sub-Index. See Securities Exchange Act Release No. 54790 (November
20, 2006), 71 FR 68645 (November 27, 2006) (SR-Amex-2006-01)
(approving the listing and trading of principal protected notes
linked to the performance of the Dow Jones-AIG ExEnergy Sub-Index).
\11\ See Securities Exchange Act Release No. 55548 (March 28,
2007), 72 FR 16392 (April 4, 2007) (SR-NYSE-2006-71) (approving the
listing and trading of nine series of exchange-traded notes of
Barclays Bank PLC linked to the sub-indexes of the Dow Jones-AIG
Commodity Index).
---------------------------------------------------------------------------
(1) Dow Jones-AIG Commodity Index Excess Return. This Underlying
Index is a proprietary index that AIG Financial Products Corp.
(successor to AIG International, Inc. or ``AIG-FP'') developed and that
Dow Jones, in conjunction with AIG-FP, calculates.\12\
[[Page 33469]]
The methodology for determining the composition and weighting of the
Underlying Index and for calculating its level is subject to
modification by the sponsors at any time. Dow Jones disseminates the
Underlying Index level at least every 15 seconds from 8 a.m. to 3 p.m.
Eastern time (``ET'') \13\ and publishes a daily Underlying Index level
at approximately 5 p.m. ET each business day on its Web site at https://
www.djindexes.com and through other major market data vendors.
---------------------------------------------------------------------------
\12\ AIG-FP, a co-sponsor of the Index, represented to the
Exchange that it will: (1) Implement and maintain firewall
procedures reasonably designed to prevent the use and dissemination
by relevant personnel of AIG-FP, in violation of applicable laws,
rules, and regulations, of material non-public information relating
to changes in the composition or method of computation or
calculation of the Underlying Indexes; and (2) periodically check
the application of such firewall procedures as they relate to such
personnel of AIG-FP directly responsible for such changes. The
Exchange states that AIG-FP is not a broker-dealer, but does have
affiliated companies that are broker-dealers. Dow Jones has informed
the Exchange that, except as noted below, it does not have any
affiliates engaged in the securities or commodities trading business
and, as such, does not believe that such firewall procedures are
necessary. Dow Jones B.D. Services, Inc. (``DJBD'') is a wholly
owned subsidiary of Dow Jones and is a registered broker-dealer
under the Act. The Exchange represents that DJBD's business is
limited to collecting license fees from financial institutions and
exchanges and does not engage in the typical activities of a broker-
dealer.
\13\ The Exchange states that any disseminated value after 3
p.m. ET is static due to the close of auction trading of various
commodities futures contracts.
---------------------------------------------------------------------------
The Underlying Index is re-weighted and rebalanced each year in
January on a price-percentage basis. The annual weightings for the
Underlying Index are determined each year in June or July by AIG-FP and
Dow Jones under the supervision of the Dow Jones-AIG Commodity Index
Oversight Committee (``Oversight Committee''),\14\ announced after
approval by the Oversight Committee and implemented the following
January.
---------------------------------------------------------------------------
\14\ The Oversight Committee was established by Dow Jones and
AIG-FP to assist with the methodology of the Dow Jones-AIG Commodity
Index. The Oversight Committee includes prominent members of the
financial, academic, and legal communities selected by AIG-FP and
meets annually to consider any changes to be made to the Dow Jones-
AIG Commodity Index for the coming year. The Oversight Committee may
also meet at such other times as may be necessary. The Oversight
Committee is subject to written policies that acknowledge their
obligations with respect to material, non-public information.
---------------------------------------------------------------------------
The Underlying Index is designed to track rolling futures positions
in a diversified basket of 19 exchange-traded futures contracts on
physical commodities. The 19 physical commodities selected for 2008 are
natural gas, crude oil, gasoline, heating oil, live cattle, lean hogs,
wheat, corn, soybeans, soybean oil, aluminum, copper, zinc, nickel,
gold, silver, sugar, cotton, and coffee.
The Underlying Index tracks what is known as a rolling futures
position, which is a position where, on a periodic basis, futures
contracts on physical commodities specifying delivery on a nearby date
must be sold and futures contracts on physical commodities that have
not yet reached the delivery period must be purchased. An investor with
a rolling futures position is able to avoid delivering underlying
physical commodities while maintaining exposure to those commodities.
The rollover for each Underlying Index component occurs over a period
of five business days each month according to a pre-determined
schedule.
The Dow Jones-AIG Commodity Index Excess Return is intended to
reflect the overall commodity sector. The Underlying Index tracks the
19 commodities from seven broad sectors such as energy, livestock,
grains, industrial metals, precious metals, softs, and vegetable oil.
The Underlying Index is composed of notional amounts of the futures
contracts for each of the Underlying Index commodities with the
weighting of each commodity broadly based in proportion to historical
levels of the world's production and supplies of such Underlying Index
commodity. The Underlying Index reflects the return of the underlying
commodity prices movement only, whether positive or negative. The
Exchange states that the Dow Jones-AIG Commodity Index Excess Return is
the basis for a listed and traded futures contract on the Board of
Trade of the City of Chicago, Inc. (``CBOT''). Futures contracts on the
Underlying Index commodities currently trade on U.S. futures exchanges,
with the exception of aluminum, nickel, and zinc, which trade on the
London Metal Exchange Ltd. (``LME'').
(2) Dow Jones-AIG Crude Oil Sub-Index Excess Return. The Dow Jones-
AIG Crude Oil Sub-Index Excess Return is intended to reflect the
performance of crude oil as measured by the price of nearby futures
contracts of sweet, light crude oil traded on the New York Mercantile
Exchange, Inc. (``NYMEX''), including roll costs, without regard to
income earned on cash positions. Dow Jones disseminates this Underlying
Index level at least every 15 seconds from 8 a.m. to 3 p.m. ET and
publishes a daily Underlying Index level at approximately 5 p.m. ET
each business day on its Web site and through other major market data
vendors.
The Exchange states that crude oil is the world's most actively
traded commodity and may experience significant volatility. 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.
(3) Dow Jones-AIG Agriculture Sub-Index Excess Return. The Dow
Jones-AIG Agriculture Sub-Index Excess Return is intended to reflect
the agricultural market. This Underlying Index consists of the
following seven commodity futures contracts: coffee, corn, cotton,
soybeans, soybean oil, sugar, and wheat. The Underlying Index will
reflect the performance of its underlying commodities, including roll
costs and without regard to income earned on cash positions. Dow Jones
disseminates the Underlying Index level at least every 15 seconds from
8 a.m. to 3 p.m. ET and publishes a daily Underlying Index level at
approximately 5 p.m. ET each business day on its Web site and through
other major market data vendors.
The Commodity Underlying Benchmarks. As noted above, four Funds
will be based on gold and silver Underlying Benchmark commodities.
(1) Gold. The Ultra Gold Fund and the UltraShort Gold Fund are
designed to track a multiple or multiple inverse of the daily
performance of gold bullion as measured by the U.S. dollar fixing price
for delivery in London. These Funds will not directly or physically
hold the underlying gold, but instead will seek exposure to gold
through the use of Financial Instruments based on the price of gold to
pursue their respective investment objective.\15\ The benchmark price
of gold will be the U.S. dollar price of gold bullion as measured by
the London afternoon fixing price per troy ounce of unallocated gold
bullion for delivery in London through a member of the London Bullion
Market Association (``LBMA'') authorized to effect such delivery.
---------------------------------------------------------------------------
\15\ See Securities Exchange Act Release No. 51058 (January 19,
2005), 70 FR 3749 (January 26, 2005) (SR-Amex-2004-38) (approving,
among other things, the listing and trading of shares of the iShares
COMEX Gold Trust, which are TIRs representing an interest in the net
assets of a trust holding gold bullion). See also Securities
Exchange Act Release No. 51446 (March 29, 2005), 70 FR 17272 (April
5, 2005) (SR-Amex-2005-032) (approving the trading of shares of the
streetTRACKS Gold Trust pursuant to UTP).
---------------------------------------------------------------------------
The Exchange states that the price of gold is volatile with
fluctuations expected to affect the value of the Shares of these Funds.
The price movement of gold may be influenced by a variety of factors,
including announcements from central banks regarding reserve gold
holdings, agreements among central banks, political uncertainties, and
economic concerns. The gold market is a global marketplace consisting
of both over-the-counter (``OTC'') transactions and exchange-traded
products. The OTC market generally consists of transactions
[[Page 33470]]
in spot, forwards, options, and other derivatives, while exchange-
traded transactions consist of futures and options.
A London gold ``fix'' is conducted each trading day at 3 p.m.
London time (``LT'') providing reference gold prices for that day's
trading. The Exchange notes that many long-term contracts are priced on
the basis of the London gold fix, and market participants will usually
refer to the London gold fix when looking for a basis for valuation.
The Exchange believes that the London fix is the most widely used
benchmark for daily gold prices and is quoted by various major market
data vendors.
(2) Silver. The Ultra Silver Fund and the UltraShort Silver Fund
are designed to track a multiple or multiple inverse of the daily
performance of silver bullion as measured by the U.S. dollar fixing
price for delivery in London. The Funds may purchase Financial
Instruments based on the price of silver to pursue their respective
investment objective.\16\ The benchmark price of silver will be the
U.S. dollar price of silver bullion as measured by the London afternoon
fixing price per troy ounce of unallocated silver bullion for delivery
in London through a member of the LBMA authorized to effect such
delivery.
---------------------------------------------------------------------------
\16\ See Securities Exchange Act Release No. 53521 (March 20,
2006), 71 FR 14967 (March 24, 2006) (SR-Amex-2005-072) (approving
the listing and trading of shares which represent beneficial
ownership interests in the net assets of the iShares Silver Trust
consisting primarily of silver bullion).
---------------------------------------------------------------------------
The Exchange states that the price of silver is volatile with
fluctuations expected to affect the value of the Shares. The largest
industrial users of silver are the photographic, jewelry, and
electronic industries, and developments in these industries, among
other factors, may influence the price of silver. Like gold, the silver
market is a global marketplace consisting of both OTC transactions and
exchange-traded products. The OTC market generally consists of
transactions in spot, forwards, options, and other derivatives, while
exchange-traded transactions consist of futures and options.
A London silver ``fix'' is conducted each trading day at 12 pm LT
providing reference silver prices for that day's trading. The Exchange
notes that many long-term contracts are priced on the basis of the
London silver fix, and market participants will usually refer to the
London silver fix when looking for a basis for valuation. The Exchange
believes that the London fix is the most widely used benchmark for
daily silver prices and is quoted by various major market data vendors.
The Currency Underlying Benchmarks. As noted above, four Funds will
be based on the following Underlying Benchmark currencies versus the
U.S. dollar: (1) The Euro; and (2) the Japanese Yen. These Funds will
use the 4 p.m. ET euro and Japanese yen exchange rates, expressed in
terms of U.S. dollars per unit of foreign currency, as the basis for
these Underlying Benchmarks, respectively. The Exchange states that the
euro and Japanese yen exchange rates will be provided by Reuters.
(1) Euro. The Ultra Euro Fund and the UltraShort Euro Fund are
designed to track a multiple or multiple inverse of the daily change in
the spot price of the euro versus the U.S. dollar.\17\ The euro is the
official currency of the Eurozone, which consists of 13 European states
including: Austria, Belgium, Cyprus, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovenia,
and Spain. The euro is managed and administered by the European Central
Bank and the European System of Central Banks. These Funds may purchase
Financial Instruments based on the euro to pursue their respective
investment objective.
---------------------------------------------------------------------------
\17\ See Securities Exchange Act Release No. 53059 (January 5,
2006), 71 FR 2072 (January 12, 2006) (SR-Amex-2005-128) (approving
the trading of shares of the Euro Currency Trust pursuant to UTP).
---------------------------------------------------------------------------
(2) Japanese Yen. The Ultra Japanese Yen Fund and the UltraShort
Japanese Yen Fund are designed to track a multiple or inverse of the
daily change in the spot price of the Japanese yen versus the U.S.
dollar. These Funds may purchase Financial Instruments based on the
Japanese yen to pursue their respective investment objective.
Structure of the Funds. Each Fund is a separate series of the
Trust, a Delaware statutory trust.\18\ Each Fund will issue common
units of beneficial interest, or Shares, which represent units of
fractional undivided beneficial interest in and ownership of only that
Fund. Each Fund's Shares will be offered separately.
---------------------------------------------------------------------------
\18\ The Exchange states that the Trust and the Funds will not
be subject to registration and regulation under the Investment
Company Act of 1940.
---------------------------------------------------------------------------
Wilmington Trust Company (``Trustee'') is the sole trustee of the
Funds. The Trustee has delegated to the Managing Owner (as defined
below) all of the power and authority to manage the business and
affairs of the Funds. ProShare Capital Management LLC (``Managing
Owner'') will serve as the commodity pool operator and commodity
trading advisor of each Fund. The Managing Owner is registered as a
commodity pool operator and commodity trading advisor with the
Commodity Futures Trading Commission (``CFTC''), and with the National
Futures Association (``NFA''). Prudential Bache Commodities LLC
(``Commodity Broker'') will execute and clear the Funds' futures
contract transactions and will perform certain administrative services
for the Funds. The Commodity Broker is registered with the CFTC as a
Futures Commission Merchant and is a member of the NFA in such
capacity. The Administrator that will be selected prior to the Shares
of the Trust being offered to the public (``Administrator'') will
perform or supervise the performance of services necessary for the
operation and administration of the Fund. These services include, but
are not limited to, receiving and processing orders from Authorized
Participants (as defined below) to create and redeem baskets of Shares,
accounting, NAV, calculations, and other fund administrative services.
A marketing agent that will be a registered broker-dealer and that will
be selected prior to the Shares of the Trust being offered to the
public (``Marketing Agent'') will assist the Managing Owner and the
Administrator with certain functions and duties relating to the
creation and redemption of baskets of Shares. The Marketing Agent may
also distribute prospectuses and consult with the Managing Owner and
its affiliates in connection with marketing and sales strategies. A
custodian that will be selected prior to the Shares of the Trust being
offered to the public (``Custodian'') will serve as custodian of all
securities and cash at any time delivered to the Custodian by each
respective Fund and hold its securities in its name or the name of its
nominees. The Custodian is also expected to serve as each Fund's
transfer agent.
Investment Objective of the Funds. Each Ultra Fund will seek
investment results that correspond, before fees and expenses, to twice
(200%) the daily performance of the Underlying Benchmark. Each
UltraShort Fund will seek daily investment results, before fees and
expenses, of twice the inverse or opposite (-200%) of the daily
performance of the Underlying Benchmark.
In seeking to achieve each Fund's investment objective, the
Managing Owner determines the type, quantity, and mix of investment
positions that it believes in combination should produce daily returns
consistent with a Fund's investment objective. Each Fund will invest
principally in any one of, or combinations of, Financial Instruments
with respect to the applicable Fund's
[[Page 33471]]
Underlying Benchmark to the extent determined appropriate by the
Managing Owner. In addition, each Fund may establish long or short
positions in Financial Instruments as the Managing Owner believes will
further the investment objective of each Fund.
While the Managing Owner will attempt to minimize any ``tracking
error'' between the investment results of a particular Fund and the
performance (and specified multiple thereof) or the inverse performance
(and specified multiple thereof) of its Underlying Benchmark, certain
factors may tend to cause the investment results of a Fund to vary from
such relevant Underlying Benchmark or specified multiple thereof.\19\
The Ultra Funds are expected to be highly correlated to the Underlying
Benchmark and investment objective (0.95 or greater). The UltraShort
Funds are expected to be highly inversely correlated to each Underlying
Benchmark and investment objective (-.95 or greater).\20\ In each case,
the Funds are expected to have a daily tracking error of less than 5%
(500 basis points) relative to the specified multiple or inverse
multiple of the performance of the relevant Underlying Benchmark.
---------------------------------------------------------------------------
\19\ Several factors may cause a Fund to vary from the relevant
Underlying Benchmark and applicable investment objective including:
(1) A Fund's expenses, including brokerage and the cost of the
investment techniques employed by that Fund; (2) less than all of
the components in the Underlying Benchmark being held by a Fund and
components not included in the Underlying Benchmark being held by a
Fund; (3) an imperfect correlation between the performance of
Financial Instruments held by a Fund and the performance of the
Underlying Benchmark; (4) bid-ask spreads; (5) holding instruments
traded in a market that has become illiquid or disrupted; (6) a
Fund's Share prices being rounded to the nearest cent; (7) changes
to the Underlying Benchmark that are not disseminated in advance;
(8) the need to conform a Fund's portfolio holdings to comply with
investment restrictions or policies or regulatory or tax law
requirements; and (9) early and unanticipated closings of the
markets on which the holdings of a Fund trade, resulting in the
inability of the Fund to execute intended portfolio transactions.
\20\ Correlation is the strength of the relationship between (1)
the change in a Fund's NAV and (2) the change in the Underlying
Benchmark (investment objective). The statistical measure of
correlation is known as the ``correlation coefficient.'' A
correlation coefficient of +1 indicates a perfect positive
correlation, while a value of -1 indicates a perfect negative
(inverse) correlation. A value of zero would mean that there is no
correlation between the two variables.
---------------------------------------------------------------------------
The Exchange states that the Registration Statement for each Fund
will provide a detailed description, including, but not limited to, the
structure, creation/redemption process, investment objective and
strategies, characteristics, tax status, and distributions. Investors
are directed to each Fund's Registration Statement for a complete
explanation.
The Portfolio Investment Methodology. The Managing Owner will seek
to establish an investment exposure in each portfolio corresponding to
each Fund's investment objective based upon its ``Portfolio Investment
Methodology.'' The Portfolio Investment Methodology is a mathematical
model based on well-established principles of finance that are widely
used by investment practitioners, including conventional index fund
managers.
The Portfolio Investment Methodology was designed to determine for
each Fund the portfolio investments needed to achieve its stated
investment objectives. The Portfolio Investment Methodology takes into
account a variety of specified criteria and data, the most important of
which are: (1) Net assets (taking into account creations and
redemptions) in each Fund's portfolio at the end of each trading day;
(2) the amount of required exposure to the Underlying Benchmark; and
(3) the positions in Financial Instruments at the beginning of each
trading day. The Managing Owner pursuant to the methodology will then
mathematically determine the end-of-day positions to establish the
required amount of exposure to the Underlying Benchmark (``Solution''),
which will consist of Financial Instruments. The difference between the
start-of-day positions and the required end-of-day positions is the
actual amount of Financial Instruments that must be bought or sold for
the day. The Solution represents the required exposure and, when
necessary, is converted into an order or orders to be filled that same
day.
Generally, portfolio trades effected pursuant to the Solution are
reflected in the NAV on the first business day (T+1) after the date the
relevant trade is made. Therefore, the NAV calculated for a Fund on a
given day should reflect the trades executed pursuant to the prior
day's Solution. For example, trades pursuant to the Solution calculated
on a Monday afternoon are executed on behalf of the Fund in question on
that day. These trades will then be reflected in the NAV for that Fund
that is calculated as of the time shown in the chart below.
The timeline for the Portfolio Investment Methodology is as follows
and is reflected more specifically in the chart below. Authorized
Participants (``APs'' or ``Authorized Participants'') \21\ have a cut-
off of one-hour before the earliest underlying close for orders
submitted by telephone, facsimile, and other electronic means of
communication. Orders received via mail will be priced at the next NAV.
The Exchange states that AP orders by mail are exceedingly rare. Orders
are received by the Marketing Agent and relayed to the Managing Owner
within ten minutes. As such, the Managing Owner will know by
approximately 50 minutes before the earliest underlying close the
number of creation/redemption orders by APs for that day. Primary
orders are then placed at approximately 30 minutes prior to the
earliest underlying close using methods and order types that the
Managing Owner believes will most accurately replicate the close of the
Underlying Benchmark. Approximately five minutes before the earliest
underlying close, the Managing Owner will again look at the exposure to
make sure that the orders placed are consistent with the Solution, and
as described above, the Managing Owner will execute any other
transactions in Financial Instruments (secondary orders) to assure that
the Fund's exposure is consistent with the Solution.
---------------------------------------------------------------------------
\21\ An Authorized Participant must (1) Be a registered broker-
dealer or other securities market participant, such as a bank or
other financial institution that is not required to register as a
broker dealer to engage in securities transactions, (2) be a
Depository Trust Corporation participant, and (3) have entered into
an agreement with each Fund and the Managing Owner.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Create or Managing owner Primary order First Close of NAV
redeem cutoff notified placed secondary earliest calculation
------------------------------------------------ order ---------------- time
Benchmark or index ---------------- ---------------
(Earliest (Earliest (Earliest (Close of last
close-60 min) close-50 min) close-30 min) (Earliest underlying underlying)
close-5 min) \22\
--------------------------------------------------------------------------------------------------------------------------------------------------------
Silver.................................................. 6 a.m. 6:10 a.m. 6:30 a.m. 6:55 a.m. 7 a.m. 7 a.m.
Gold.................................................... 9 a.m. 9:10 a.m. 9:30 a.m. 9:55 a.m. 10 a.m. 10 a.m.
DJ-AIG.................................................. 12:30 p.m. 12:40 p.m. 1 p.m. 1:25 p.m. 1:30 p.m. 2:15 p.m.
[[Page 33472]]
Agriculture:
DJ-AIG.............................................. 10:45 a.m. 10:55 a.m. 11:15 a.m. 11:40 a.m. 11:45 a.m. 2:30 a.m.
Commodity:
DJ-AIG.............................................. 1:30 p.m. 1:40 p.m. 2 p.m. 2:25 p.m. 2:30 p.m. 2:30 p.m.
Crude Oil:
Euro................................................ 3 p.m. 3:10 p.m. 3:30 p.m. 3:55 p.m. 4 p.m. 4 p.m.
Yen................................................. 3 p.m. 3:10 p.m. 3:30 p.m. 3:55 p.m. 4 p.m. 4 p.m.
--------------------------------------------------------------------------------------------------------------------------------------------------------
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\22\ For Silver and Gold, the NAV calculation time may vary due
to differences in when daylight savings time is effective between
London and New York. The actual times will equate to noon LT for
Silver and 3 p.m. LT for Gold.
---------------------------------------------------------------------------
Description of Investment Techniques. In attempting to achieve its
individual investment objectives, a Fund will invest its assets in, and
will hold only, Financial Instruments. Each Fund may hold Financial
Instruments for the purposes of attempting to gain exposure to the
components of its Underlying Benchmark, without actually transacting in
such underlying components.
The counterparties to the Financial Instruments, such as swap
agreements, forward contracts, equity caps, collars, and floors that a
Fund may use will be Futures Commission Merchants, major broker-
dealers, and banks. To protect itself from the credit risk that arises
in connection with swap agreements, forward contracts, equity caps,
collars, and floors, each Fund 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 Fund's exposure. The counterparties to such an agreement
will generally be major broker-dealers and banks or their affiliates,
although certain institutions, such as large energy companies or other
institutions active in the commodities markets, may also be
counterparties. The Managing Owner will assess or review, as
appropriate, the creditworthiness of each potential or existing
counterparty to such an agreement. Furthermore, the Managing Owner for
each Fund will only enter into agreements with: (1) Members of the
Federal Reserve System, foreign banks with branches regulated by the
Federal Reserve Board, or foreign banks with representative offices
regulated by the Federal Reserve Board; (2) primary dealers in U.S.
government securities; (3) broker-dealers; (4) Commodities Futures
Merchants; or (5) affiliates of the foregoing.
Creation and Redemption of Shares. The Funds will create and redeem
Shares in one or more blocks of at least 50,000 Shares of a Fund
(``Creation Units''). The Funds will be purchased and redeemed entirely
for cash (``Cash Deposit Amount''). The use of the Cash Deposit Amount
for the purchase and redemption of Creation Units is due to the limited
transferability of Financial Instruments. The Funds will issue and
redeem the Shares on a continuous basis, by or through Authorized
Participants at the NAV per Share next determined after an order to
purchase the Shares is received in proper form. Creation Units may be
created or redeemed only by Authorized Participants. Except when
aggregated in Creation Units, the Shares are not redeemable securities.
Authorized Participants may pay a fixed transaction fee of $500 in
connection with each order to create or redeem a Creation Unit,
regardless of the number of Creation Units. A variable transaction fee
of up to 0.10% of the value of each Creation Unit may also be
applicable to each creation/redemption transaction. Authorized
Participants may sell the Shares included in the Creation Units they
purchase from the Funds to other investors.
On any business day,\23\ an Authorized Participant may place an
order with the Marketing Agent or Administrator to create one or more
Creation Units. For Funds that track an Underlying Benchmark commodity,
purchase orders must be placed one hour before the London ``fix'' for
such commodity, i.e., 2 p.m. LT (9 a.m. ET) for gold and 11 a.m. LT (6
a.m. ET) for silver. For Funds that are benchmarked against an
Underlying Index, purchase orders must be placed one hour prior to the
closing of the underlying commodity futures contract on the primary
exchange upon which the benchmarked commodity futures contract trades.
Where an Underlying Index contains multiple commodities, purchase
orders must be placed one hour before the earliest futures contract
close contained in the Underlying Index. For Funds that track an
Underlying Benchmark currency, purchase orders must be placed one hour
before the close of NYSE, normally 4 p.m. ET. The day on which the
Administrator or Marketing Agent receives a valid purchase order is the
purchase order date. Purchase orders are irrevocable by an Authorized
Participant. By placing a purchase order, and prior to delivery of such
Creation Units, an Authorized Participant's DTC account will be charged
the non-refundable transaction fee due for the purchase order.
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\23\ For purposes of processing both purchase and redemption
orders, a ``business day'' means any day other than a day when any
of Amex, the New York Stock Exchange LLC (``NYSE''), the Chicago
Mercantile Exchange (``CME''), CBOT, IntercontinentalExchange
(``ICE'')/New York Board of Trade (``NYBOT''), LME, or NYMEX is
closed for regular trading.
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The procedures by which an Authorized Participant can redeem one or
more Creation Units are the same as those for the creation of Creation
Units. An Authorized Participant may place an order with the Marketing
Agent or Administrator to redeem one or more Creation Units. Redemption
orders, which are irrevocable, must be placed one hour prior to the
closing of the relevant closing times. The day on which the Marketing
Agent or Administrator receives a valid redemption order is the
redemption order date. By placing a redemption order, an Authorized
Participant agrees to deliver the Creation Units to be redeemed through
DTC's book-entry system to the applicable Fund not later than noon ET,
on the third business day immediately following the redemption order
date. By placing a redemption order, and prior to receipt of the
redemption proceeds, an Authorized Participant's DTC account will be
charged the non-refundable transaction fee due for the redemption
order.
Retail investors seeking to purchase or sell Shares on any day are
expected to effect such transactions in the secondary market at the
market price per Share,
[[Page 33473]]
rather than in connection with the creation or redemption of Creation
Units. The Exchange believes that the Shares will not trade at a
material discount or premium to the value of the assets held by the
Funds based on potential arbitrage opportunities. Due to the fact that
the Shares can be created and redeemed only in Creation Units at NAV,
the Exchange submits that arbitrage opportunities should provide a
mechanism to mitigate the effect of any premiums or discounts that may
exist from time to time. The Exchange believes that market
professionals will have the ability to arbitrage Shares of the Funds in
a manner similar to conventional index-based exchange-traded funds. The
disclosure of portfolio holdings and the availability of the Indicative
Fund Value (as defined below) and other pricing information about
portfolio holdings will permit arbitrageurs to identify when the market
price of the Shares is higher or lower than the value of the portfolio.
As a result, these market professionals will buy Shares when they are
priced lower than the portfolio and sell Shares when they are priced
higher than the portfolio, thereby moving prices back in line with the
value of the portfolio. Actual and potential arbitrage of this nature
should help the secondary market prices of the Shares to remain close
to NAV.
Net Asset Value (NAV). The NAV of a Fund is total assets including,
but not limited to, all cash and cash equivalents or other debt
securities, less total liabilities, each determined on the basis of
generally accepted accounting principles. In particular, the NAV
includes any unrealized profit or loss on open Financial Instruments
and any other credit or debit accruing to a Fund, but unpaid or not
received.
The NAV per Share of each Fund is computed by dividing the value of
the net assets of such Fund (i.e., the value of its total assets, less
total liabilities) by its total number of Shares outstanding. Expenses
and fees are accrued daily and taken into account for purposes of
determining NAV. The NAV of each Fund is calculated by the
Administrator and is determined each business day as set forth in the
chart above.
The Exchange represents that it will obtain a representation (prior
to listing the Shares of the Funds) from the Trust that the NAV per
Share will be calculated daily and made available to all market
participants at the same time.
Availability of Information Regarding the Shares. The Web sites for
the Fund and/or the Exchange, which are publicly accessible at no
charge, will contain the following information: (1) The daily current
NAV per Share, the prior business day's NAV per Share, and the reported
closing price; (2) the mid-point of the bid-ask price in relation to
the NAV per Share as of the time it is calculated (the ``Bid-Ask
Price''); \24\ (3) calculation of the premium or discount of such price
against the NAV per Share; (4) data in chart form displaying the
frequency distribution of discounts and premiums of the Bid-Ask Price
against the NAV per Share, within appropriate ranges for each of the
four previous calendar quarters; (5) the applicable prospectus; and (6)
other applicable quantitative information.
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\24\ The Bid-Ask Price of Shares is determined using the highest
bid and lowest offer as of the time of calculation of the NAV.
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As described above, the NAV per Share will be calculated and
disseminated daily. Amex will disseminate for the Funds on a daily
basis by means of the Consolidated Tape Association/Consolidated
Quotation High Speed Lines information with respect to the
corresponding Indicative Fund Value (as discussed below), recent NAVs
per Share, and the number of Shares outstanding. The Exchange will also
make available on its Web site daily trading volume of the Shares,
closing prices of the Shares, and the NAV per Share. The closing and
settlement prices of the futures contracts held by the Funds are also
readily available from CME, NYMEX, CBOT, ICE/NYBOT, LME, automated
quotation systems, published or other public sources, or on-line
information services such as Bloomberg or Reuters. Real-time
dissemination of spot pricing for gold, silver, euro, and Japanese yen
is available on a 24-hour basis worldwide from various major market
data vendors.
Each Fund's total portfolio composition will be disclosed on the
Web site of the Trust (https://www.proshares.com) or another relevant
Web site as determined by the Trust and/or the Exchange. The Trust will
provide Web site disclosure of portfolio holdings daily and will
include, as applicable, the names and number of Financial Instruments
and characteristics of such instruments and cash equivalents, and
amount of cash held in the portfolio of each Fund. This Web site
disclosure of the portfolio composition of each Fund will occur at the
same time as the disclosure by the Managing Owner of the portfolio
composition to Authorized Participants so that all market participants
are provided portfolio composition information at the same time.
Therefore, the same portfolio information will be provided on the
public Web site as well as in electronic files provided to Authorized
Participants. Accordingly, each investor will have access to the
current portfolio composition of each Fund through the Trust's Web site
and/or at the Exchange's Web site at https://www.amex.com.
The value of each Underlying Benchmark will be updated intra-day on
a real time basis as its components change in price. The daily closing
index value and the percentage change in the daily closing index value
for each Underlying Index will be publicly available on various Web
sites, such as https://www.ino.com and https://www.finance.yahoo.com.
Data regarding each Underlying Index is also available from the
respective index provider to subscribers. In addition, data is also
available regarding the underlying component commodities of each
Underlying Index from those futures exchanges that list and trade
futures contracts on those commodities. Several independent data
vendors also package and disseminate index data in various value-added
formats (including vendors displaying both index constituents and index
levels and vendors displaying index levels only).
Data regarding spot pricing of the Underlying Benchmark commodities
(gold and silver) is publicly available on a 24-hour basis from various
financial information service providers, such as Reuters and Bloomberg.
In addition, the daily London fix for gold and silver is also
disseminated by various market data vendors and is available from the
LBMA Web site at https://www.lbma.org.uk. Data regarding futures
contracts and options on futures contracts in connection with the
Underlying Benchmark commodities is also available from NYMEX at http:/
/www.nymex.com.
There is considerable public price and data information regarding
the Underlying Benchmark currencies (euro and Japanese yen). Spot
pricing related to the foreign currency exchange is available to
investors and market professionals on a 24-hour basis. A variety of
public Web sites and professional and subscription services provide
market and price information regarding the euro and the yen. Current
spot prices are also generally available from foreign exchange dealers.
Dissemination of Indicative Fund Value. The Administrator
calculates and disseminates, once each trading day, the NAV per Share
to market participants. The Exchange represents that it will obtain a
representation (prior to listing of the Funds) from the Trust that the
NAV per Share will be calculated daily and made available to all market
[[Page 33474]]
participants at the same time. In addition, the Administrator causes to
be made available on a daily basis the corresponding Cash Deposit
Amounts to be deposited in connection with the issuance of the
respective Shares.
To provide updated information relating to the Funds for use by
investors, professionals, and persons wishing to create or redeem the
Shares, the Exchange will disseminate an updated ``Indicative Fund
Value.'' The Indicative Fund Value will be disseminated on a per-Share
basis at least every 15 seconds during regular Amex trading hours of
9:30 a.m. to 4 p.m. ET. The Indicative Fund Value will be calculated
based on the cash required for creations and redemptions for a Fund,
adjusted to reflect the price changes of the Financial Instruments.
The Exchange submits that the Indicative Fund Value on a per-Share
basis disseminated during Amex trading hours should not be viewed as a
real-time update of the NAV, which is calculated only once a day. The
Exchange believes that dissemination of the Indicative Fund Value based
on the cash amount required for a creation/redemption provides
additional information that is not otherwise available to the public
and is useful to professionals and investors in connection with the
Shares trading on the Exchange or the creation or redemption of the
Shares.
Criteria for Initial and Continued Listing. The Funds will be
subject to the criteria in Commentary .07(d) of Amex Rule 1202 for
initial and continued listing of the Shares. The Funds will accept
subscriptions for Shares in Creation Units from Authorized Participants
expected to be in a range from $20 to $70 per Share during an initial
offering period, commencing with the initial effective date of the
prospectus and terminating no later than the ninetieth (90) day
following such date, unless (i) the subscription minimum is reached
before that date and the Managing Owner determines to end the initial
offering period early or (ii) that date is extended by the Managing
Owner for up to an additional 90 days.
The anticipated minimum number of Shares for each Fund to be
outstanding at the start of trading will be 50,000 Shares.\25\ The
Exchange believes that this anticipated minimum number of Shares for
each Fund to be outstanding at the start of trading is sufficient to
provide adequate market liquidity and to further the objectives of the
Funds. The Exchange represents that, for the initial and continued
listing of the Shares, the Shares must be in compliance with Section
803 of the Amex Company Guide and Rule 10A-3 under the Act.\26\
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\25\ E-mail from Jeffrey P. Burns, Vice President and Associate
General Counsel, Amex, to Edward Cho, Special Counsel, Division of
Trading and Markets, Commission, dated June 5, 2008 (confirming the
minimum number of Shares for each Fund anticipated to be outstanding
at the start of trading on the Exchange).
\26\ See 17 CFR 240.10A-3.
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Trading Rules. The Shares are equity securities subject to Amex
rules governing the trading of equity securities, including, among
others, rules governing priority, parity, and precedence of orders,
specialist responsibilities and account opening, and customer
suitability (Amex Rule 411). Initial equity margin requirements of 50%
will apply to transactions in the Shares. The Shares will trade on Amex
until 4 p.m. ET each business day and will trade in a minimum price
variation of $0.01 pursuant to Amex Rule 127-AEMI. Trading rules
pertaining to odd-lot trading in Amex equities (Amex Rule 205-AEMI),
stop and stop limit orders for securities that are derivatively priced
(Amex Rule 154-AEMI), and the prevention of trade-through transactions
of protected quotations (Amex Rule 126A-AEMI) will also apply to the
Shares.
Specialist transactions in the Shares made in connection with the
creation and redemption of Shares will not be subject to the
prohibitions of Amex Rule 190(a).\27\ The Shares will generally be
subject to the Exchange's stabilization rule, Amex Rule 170, except
that specialists may buy on ``plus ticks'' and sell on ``minus ticks,''
in order to bring the Shares into parity with (i) The underlying asset
or commodity on which the Shares are based, (ii) the NAV of the Shares,
or (iii) the futures contract(s) on the underlying asset or commodity
on which the Shares are based. The Exchange notes that Commentary
.07(f) to Amex Rule 1202 sets forth this limited exception to Amex Rule
170.
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\27\ Amex Rule 190(a) states that no specialist or his member
organization, or any member, officer, employee, or approved person
therein, may, directly or indirectly, effect any business
transaction with a company or any officer, director or 10%
stockholder of a company in which stock the specialist is
registered. See Commentary .05 to Amex Rule 190 (exempting
specialists registered in a security issued by a trust, listed
pursuant to, among other rules, Amex Rule 1202, from the
requirements of Amex Rule 190(a)).
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The trading of the Shares will also be subject to certain conflict
of interest provisions set forth in Commentary .07(e) to Amex Rule
1202. Lastly, Commentary .07(g)(3) to Amex Rule 1202 prohibits the
specialist in the Shares from using any material, non-public
information received from any person associated with a member, member
organization, or employee of such person regarding trading by such
person or employee in the Underlying Index commodities, related
futures, or options on futures, or any other related derivatives.
Surveillance. The Exchange submits
