Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of FactorShares Funds, 1477-1487 [2011-162]
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Federal Register / Vol. 76, No. 6 / Monday, January 10, 2011 / Notices
A. Self-Regulatory Organization’s
Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule
Change
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–63636; File No. SR–
NYSEArca–2010–121]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to the Listing
and Trading of FactorShares Funds
January 3, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that, on December
22, 2010, NYSE Arca, Inc. (‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(‘‘Commission’’ or ‘‘SEC’’) the proposed
rule change as described in Items I and
II below, which Items have been
prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the following pursuant to
NYSE Arca Equities Rule 8.200:
FactorShares 2X: S&P500 Bull/TBond
Bear; FactorShares 2X: TBond Bull/
S&P500 Bear; FactorShares 2X: S&P500
Bull/USD Bear; FactorShares 2X: Oil
Bull/S&P500 Bear; and FactorShares 2X:
Gold Bull/S&P500 Bear. The text of the
proposed rule change is available at the
Exchange, the Commission’s Public
Reference Room, and https://
www.nyse.com.
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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
self-regulatory organization 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 those 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.
1 15
2 17
U.S.C. 78s(b)(1).
CFR 240.19b–4.
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1. Purpose
NYSE Arca Equities Rule 8.200,
Commentary .02, permits the trading of
Trust Issued Receipts (‘‘TIRs’’) either by
listing or pursuant to unlisted trading
privileges (‘‘UTP’’).3 The Exchange
proposes to list and trade the shares of
the following pursuant to NYSE Arca
Equities Rule 8.200: FactorShares 2X:
S&P500 Bull/TBond Bear; FactorShares
2X: TBond Bull/S&P500 Bear;
FactorShares 2X: S&P500 Bull/USD
Bear; FactorShares 2X: Oil Bull/S&P500
Bear; and FactorShares 2X: Gold Bull/
S&P500 Bear (each a ‘‘Fund’’ and,
collectively, the ‘‘Funds’’).4 All Funds
except for the FactorShares 2X: TBond
Bull/S&P500 Bear are also referred to as
‘‘Leveraged Funds,’’ and FactorShares
2X: TBond Bull/S&P500 Bear is referred
to as the ‘‘Leveraged Inverse Fund.’’ 5
The Exchange notes that the
Commission has previously approved
the listing and trading of other issues of
TIRs on the American Stock Exchange
LLC (‘‘Amex’’),6 trading on NYSE Arca
pursuant to UTP,7 and listing on NYSE
Arca.8 In addition, the Commission has
approved other exchange-traded fundlike products linked to the performance
of underlying commodities.9
3 Commentary .02 to NYSE Arca Equities Rule
8.200 applies to TIRs that invest in ‘‘Financial
Instruments.’’ The term ‘‘Financial Instruments,’’ as
defined in Commentary .02(b)(4) to NYSE Arca
Equities Rule 8.200, means any combination of
investments, including cash; securities; options on
securities and indices; futures contracts; options on
futures contracts; forward contracts; equity caps,
collars and floors; and swap agreements.
4 See Pre-Effective Amendment No. 3 to Form S–
1, dated November 3, 2010, for each Fund
(individually, a ‘‘Registration Statement,’’ and,
collectively, the ‘‘Registration Statements’’) (File
Nos. 333–164754, 333–164758, 333–164757, 333–
164756 and 333–164755, respectively). The
description of the Funds and the Shares contained
herein are based on the Registration Statements.
5 Terms relating to the Funds and the Indexes
referred to, but not defined, herein are defined in
the common Prospectus within the Registration
Statements.
6 See, e.g., Securities Exchange Act Release No.
58161 (July 15, 2008), 73 FR 42380 (July 21, 2008)
(SR–Amex–2008–39) (order approving amendments
to Amex Rule 1202, Commentary .07, and listing on
Amex of 14 funds of the Commodities and Currency
Trust).
7 See, e.g., Securities Exchange Act Release No.
58162 (July 15, 2008), 73 FR 42391 (July 21, 2008)
(SR–NYSEArca–2008–73) (notice of effectiveness of
UTP trading on NYSE Arca of 14 funds of the
Commodities and Currency Trust).
8 See, e.g., Securities Exchange Act Release No.
58457 (September 3, 2008), 73 FR 52711 (September
10, 2008) (SR–NYSEArca–2008–91) (order
approving listing on NYSE Arca of 14 funds of the
Commodities and Currency Trust).
9 See, e.g., Securities Exchange Act Release Nos.
55585 (April 5, 2007), 72 FR 18500 (April 12, 2007)
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1477
Each of the Funds was formed on
January 26, 2010 as a separate Delaware
statutory trust, and each Fund will issue
and offer common units of beneficial
interest (‘‘Shares’’), which represent
units of fractional beneficial undivided
interest in and ownership of such Fund.
Factor Capital Management, LLC,
(‘‘Managing Owner’’), a Delaware limited
liability company, will serve as the
Managing Owner of each Fund.
Interactive Brokers LLC, a Connecticut
limited liability company, will serve as
each Fund’s clearing broker
(‘‘Commodity Broker’’). The Commodity
Broker is registered with the Commodity
Futures Trading Commission (‘‘CFTC’’)
as a futures commission merchant and
is a member of the National Futures
Association in such capacity. Each Fund
has appointed State Street Bank and
Trust Company, (‘‘State Street’’), as the
Administrator, the Transfer Agent and
the Custodian of each Fund.
Each Fund has appointed Foreside
Fund Services, LLC as the Distributor to
assist the Managing Owner and the
Funds with certain functions and duties
relating to distribution, compliance of
sales and marketing materials, and
certain regulatory compliance matters.
The Distributor will not open or
maintain customer accounts or handle
orders for any of the Funds.
Overview of the Standard & Poor’s
Factor Index Series (‘‘Indexes’’)
According to the Registration
Statements, the Indexes are intended to
reflect the daily spreads, or the
differences, in the relative return,
positive or negative, between the
corresponding sub-indexes constructed
from futures contracts (‘‘Index Futures
Contracts’’) of each Index. Each Index is
comprised of a long sub-index (‘‘Long
Sub-Index’’) and a short sub-index
(‘‘Short Sub-Index’’) (individually, a
‘‘Sub-Index’’ and, collectively, the ‘‘SubIndexes’’). The Long Sub-Index is
composed of the long front Index
Futures Contract (‘‘Long Index Futures
Contract’’).10 The Short Sub-Index is
composed of the short front Index
Futures Contract (‘‘Short Index Futures
(SR–NYSE–2006–75) (approving for NYSE listing
the iShares GS Commodity Light Energy Indexed
Trust; iShares GS Commodity Industrial Metals
Indexed Trust; iShares GS Commodity Livestock
Indexed Trust and iShares GS Commodity NonEnergy Indexed Trust); 56932 (December 7, 2007),
72 FR 71178 (December 14, 2007) (SR–NYSEArca–
2007–112) (order granting accelerated approval to
list iShares S&P GSCI Commodity-Indexed Trust);
and 59895 (May 8, 2009), 74 FR 22993 (May 15,
2009) (SR–NYSEArca–2009–40) (order granting
accelerated approval for NYSE Arca listing the
ETFS Gold Trust).
10 The term ‘‘long front’’ refers to a long position
in the near month contract.
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Federal Register / Vol. 76, No. 6 / Monday, January 10, 2011 / Notices
Contract’’).11 Each Index is calculated to
reflect the corresponding relative return,
or spread, which is the difference in the
daily changes, positive or negative,
between the value of the Long SubIndex and the value of the Short SubIndex, plus the return on a risk free
component.
The objective of each Index is to track
the daily price spreads, or difference
between the Sub-Indexes, and in turn,
Index 13
S&P U.S. Equity Risk Premium Total Return Index.
S&P 500® Non-U.S. Dollar
Index.15
S&P Crude Oil-Equity Spread
Total Return Index.
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S&P Gold-Equity Spread
Total Return Index.
18:19 Jan 07, 2011
two market segments. The Long SubIndex tracks the changes in the Long
Index Futures Contract. The Short SubIndex tracks the changes in the Short
Index Futures Contract.
The Sub-Indexes, Index Futures
Contracts, trading hours of the
applicable Index Futures Contracts, and
related information are set forth in the
chart below.
Sub-indexes and index futures contracts
Exchange 14
(symbol)
Contract months
Trading hours (eastern time)
Long Sub-Index: S&P 500®
Futures Excess Return
Index.
Long Index Futures Contract:
E-mini Standard and
Poor’s 500 Stock Price
IndexTM Futures.
Short Sub-Index: S&P 30Year Treasury Bond Futures Excess Return Index.
Short Index Futures Contract:
30-Year U.S. Treasury
Bond Futures.
Long Sub-Index: S&P 500®
Futures Excess Return
Index.
Long Index Futures Contract:
E-mini Standard and
Poor’s 500 Stock Price
IndexTM Futures.
Short Sub-Index: S&P U.S.
Dollar Futures Excess Return Index.
Short Index Futures Contract:
U.S. Dollar Index® Futures.
Long Sub-Index: S&P GSCI®
Crude Oil Excess Return
Index.
Long Index Futures Contracts: Light Sweet Crude
Oil Futures.
Short Sub-Index: S&P 500®
Futures Excess Return
Index.
Short Index Futures Contract:
E-mini Standard and
Poor’s 500 Stock Price
IndexTM Futures.
Long Sub-Index: S&P GSCI®
Gold Excess Return Index.
Long Index Futures Contract:
Gold Futures.
Short Sub-Index: S&P 500®
Futures Excess Return
Index.
Short Index Futures Contract:
E-mini Standard and
Poor’s 500 Stock Price
IndexTM Futures.
CME (ES) .........
March, June, September, December.
Monday–Thursday: 6 p.m.–
4:15 p.m. (next day) &
4:30 p.m.–5:30 p.m.; Sunday: 6 p.m.–4:15 p.m.
(next day).
CME (US) .........
...............................................
Monday–Friday: 8:20 a.m.–3
p.m.
CME (ES) .........
March, June, September, December.
Monday–Thursday: 6 p.m.–
4:15 p.m. (next day) &
4:30 p.m.–5:30 p.m.; Sunday: 6 p.m.–4:15 p.m.
(next day).
ICE (DX) ...........
...............................................
Monday–Friday: 8 p.m.–6
p.m. (next day) Sunday: 6
p.m.–6 p.m. (next day).
NYMEX (CL) .....
Rolled pursuant to S&P
GSCI® schedule.
Monday–Friday: 9 a.m.–2:30
p.m.
CME (ES) .........
March, June, September, December.
Monday–Thursday: 6 p.m.–
4:15 p.m. (next day) &
4:30 p.m.–5:30 p.m.; Sunday: 6 p.m.–4:15 p.m.
(next day).
COMEX (GC) ...
Rolled pursuant to S&P
GSCI® schedule.
Monday–Friday: 8:20 a.m.–
1:30 p.m.
CME (ES) .........
March, June, September, December.
Monday–Thursday: 6 p.m.–
4:15 p.m. (next day) &
4:30 p.m.–5:30 p.m.; Sunday: 6 p.m.–4:15 p.m.
(next day).
11 The term ‘‘short front’’ refers to a short position
in the near month contract.
12 Standard & Poor’s Financial Services LLC is the
Index Sponsor with respect to the Indexes and is
not affiliated with a broker-dealer. The Index
Sponsor has implemented procedures designed to
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the underlying Index Futures Contracts.
Although each Index is calculated to
reflect both an excess return and a total
return, each Fund tracks an Index that
is calculated to reflect a total return.
Standard & Poor’s Financial Services
LLC is the Index Sponsor for the
Indexes and is the calculation agent for
the Indexes and Sub-Indexes.12
Each Index is intended to reflect the
difference in the daily return between
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prevent the use and dissemination of material, nonpublic information regarding the Indexes.
13 The Base Date for each Index is September 9,
1997 and each Sub-Index Base Weight is 100%.
14 ‘‘CME’’ means the Chicago Mercantile
Exchange, Inc. ‘‘ICE’’ means the Intercontinental
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Exchange, Inc. ‘‘NYMEX’’ means the New York
Mercantile Exchange. ‘‘COMEX’’ means the COMEX
division of NYMEX.
15 The S&P 500® Non-U.S. Dollar Index is
calculated on a Total Return basis.
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Operation of the Funds
srobinson on DSKHWCL6B1PROD with NOTICES
According to the Registration
Statements, the objective of each Fund
will be to reflect the spread, or the
difference, in daily return, on a
leveraged basis, between two
predetermined market segments. Each
Fund will represent a relative value or
‘‘spread’’ strategy seeking to track the
differences in daily returns between two
futures-based Index components (as
discussed above under ‘‘Overview of the
Indexes’’). By simultaneously buying
and selling two benchmark Index
Futures Contracts (or, as necessary,
substantively equivalent combinations
of Substitute Futures and Financial
Instruments),16 each Leveraged Fund
and Leveraged Inverse Fund will target
a daily return equivalent to
approximately +200% and ¥200%,
respectively, of the spread, or the
difference, in daily return between a
long futures contract and a short futures
contract (before fees, expenses and
interest income).
Each Fund will hold a portfolio of
Index Futures Contracts, each of which
are traded on various futures markets in
the United States. In the event a Fund
reaches position limits imposed by the
CFTC or a futures exchange with respect
to an Index Futures Contract, the
Managing Owner, may in its
commercially reasonable judgment,
cause the Fund to invest in Substitute
Futures or Financial Instruments
referencing the particular Index Futures
Contract, or Financial Instruments not
referencing the particular Index Futures
Contract, if such instruments tend to
exhibit trading prices or returns that
correlate with the corresponding Index
or any Index Futures Contract and will
further the investment objective of the
Fund.17 A Fund may also invest in
Substitute Futures or Financial
Instruments if the market for a specific
Index Futures Contract experiences
16 According to the Registration Statements, the
term ‘‘Substitute Futures’’ refers to futures contracts
other than the specific Index Futures Contracts that
underlie the applicable Index that the Managing
Owner expects will tend to exhibit trading prices
or returns that generally correlate with an Index
Futures Contract. The term ‘‘Financial Instruments’’
refers to forward agreements and swaps that the
Managing Owner expects will tend to exhibit
trading prices or returns that generally correlate
with an Index Futures Contract. Shareholders may
review a Fund’s monthly Account Statement that
will be posted on the Fund’s Web site at https://
www.factorshares.net or a Fund’s periodic reports
on Form 10–Q and/or Form 10–K as filed with the
SEC at https://www.sec.gov for additional
information. In addition, investors will have access
to the current portfolio composition of the Funds
through the Funds’ Web site, as described below.
17 To the extent practicable, a Fund will invest in
swaps cleared through the facilities of a centralized
clearing house.
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emergencies (such as a natural disaster,
terrorist attack or an act of God) or
disruptions (such as a trading halt or
flash crash) that prevent the Fund from
obtaining the appropriate amount of
investment exposure to the affected
Index Futures Contract.18
Each Fund also will hold cash and
United States Treasury securities and
other high credit quality short-term
fixed income securities (‘‘Fixed Income
Instruments’’) for deposit with its
Commodity Broker as margin. No Fund
will be ‘‘managed’’ by traditional
methods, which typically involve
effecting changes in the composition of
a portfolio on the basis of judgments
relating to economic, financial and
market considerations with a view to
obtaining positive results under
changing market conditions.
According to the Registration
Statements, each Leveraged Fund will
allow investors to potentially profit
from the daily return of a Long Index
Futures Contract in excess of the daily
return of a Short Index Futures Contract
(each term as defined above). The
Leveraged Inverse Fund will allow
investors to potentially profit from the
daily return of a Short Index Futures
Contract in excess of the daily return of
a Long Index Futures Contract.
A Fund’s Index consists of two SubIndexes. A Long Sub-Index reflects a
passive exposure to a certain nearmonth long Index Futures Contract. A
Short Sub-Index reflects a passive
exposure to a certain near-month short
Index Futures Contract.19 Each Index is
designed to reflect +100% of the spread,
or the difference, in daily return,
positive or negative, between the Long
Sub-Index and the Short Sub-Index plus
the return on a risk free component.
Each Fund intends to track its
corresponding Index on a leveraged
basis by creating a portfolio of long and
short positions. The Managing Owner
will determine the type, quantity and
combination of Index Futures Contracts,
and, as applicable, Substitute Futures
and Financial Instruments, the
Managing Owner believes may produce
daily returns consistent with the
applicable Fund’s daily and leveraged
objective.
18 According to the Registration Statements, the
Managing Owner will also attempt to mitigate each
Fund’s credit risk by transacting only with large,
well-capitalized institutions using measures
designed to determine the creditworthiness of a
counterparty. The Managing Owner will take
various steps to limit counterparty credit risk, as
described under the section ‘‘Financial Instrument
Counterparties’’ in the Registration Statements.
19 The Long Sub-Index, Long Index Futures
Contract, Short Sub-Index and Short Index Futures
Contract for each Fund are set forth in the chart
above.
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Each Index is rebalanced daily as of
the Index Calculation Time (as defined
below) in order to continue to reflect the
spread, or the difference in the daily
return between two specific market
segments. By rebalancing each Index on
a daily basis as of the Index Calculation
Time, each Index will then be
comprised of equal notional amounts
(i.e., +100% and ¥100%, respectively)
of both of its Long Index Futures
Contracts and Short Index Futures
Contracts in accordance with its daily
objectives. Daily rebalancing of each
Index will lead to different results than
would otherwise occur if an Index, and
in turn, its corresponding Fund, were to
be rebalanced less frequently or more
frequently than daily.
Because each Fund will seek to
achieve its daily investment objective by
tracking its corresponding Index on a
daily and leveraged basis, each Fund
will seek to rebalance daily both its long
and short positions around the net asset
value (‘‘NAV’’) Calculation Time (as
described below under ‘‘Net Asset
Value’’). The purpose of daily
rebalancing is to reposition each Fund’s
investments in accordance with its daily
investment objective.
As described in the Registration
Statements, each Fund will have a
leverage ratio of approximately 4:1 20
upon daily rebalancing, which increases
the potential for trading profits and
losses. The use of leverage increases the
potential for both trading profits and
losses, depending on the changes in
market value of the Long Index Futures
Contracts positions, the Short Index
Futures Contracts positions (and/or
Substitute Futures and Financial
Instruments, as applicable), of each
Fund. Holding futures positions with a
notional amount in excess of each
Fund’s NAV constitutes a form of
leverage. Because the notional value of
each Fund’s Index Futures Contracts
(and/or Substitute Futures and
Financial Instruments, as applicable),
will rise or fall throughout each trading
day and prior to rebalancing, the
leverage ratio could be higher or lower
than an approximately 4:1 leverage ratio
between the notional value of a Fund’s
portfolio and a Fund’s Equity (estimated
NAV) immediately after rebalancing. As
the ratio increases, an investor’s losses
may increase correspondingly.
Each Sub-Index, which is comprised
of a certain Index Futures Contract,
includes provisions for the replacement
(also referred to as ‘‘rolling’’) of its Index
Futures Contract as it approaches its
20 See also discussion regarding dollar neutrality
in the following section ‘‘Examples Explaining the
Initial Allocation of the Funds.’’
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expiration date. ‘‘Rolling’’ is a procedure
which involves closing out the Index
Futures Contract that will soon expire
and establishing a position in a new
Index Futures Contract with a later
expiration date pursuant to the rules of
each Sub-Index. In turn, each Fund will
seek to roll its Index Futures Contracts
in a manner consistent with its SubIndex’s provisions for the replacement
of an Index Futures Contract that is
approaching maturity.
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Examples Explaining the Initial
Allocation of the Funds
As described below, each Fund will
seek to invest in a manner such that the
dollar value i.e., described as Fund
Equity below) of a Fund’s holdings of
both its Long Index Futures Contracts
and Short Index Futures Contracts will
be approximately equal, which is
commonly referred to as ‘‘dollar
neutrality.’’
Each Fund’s daily performance will
reflect the gain or loss from the spread,
or the difference between the applicable
Long Index Futures Contracts and Short
Index Futures Contracts, any income
from a Fund’s collateral, and a decrease
in the NAV of the Fund due to its fees
and expenses.
Leveraged Funds
For a Leveraged Fund, a long position
is established in the Long Index Futures
Contract seeking to provide a leveraged
exposure to the Long Sub-Index. A
Leveraged Fund will purchase a
sufficient number of Long Index Futures
Contracts targeting a long notional
exposure equivalent to approximately
+200% of a Fund’s estimated NAV, or
Fund Equity. Additionally, a Leveraged
Fund will establish a short position in
the Short Index Futures Contracts
seeking to provide a leveraged exposure
to the Short Sub-Index. Accordingly, a
Leveraged Fund will sell a sufficient
number of Short Index Futures
Contracts targeting a short notional
exposure equivalent to approximately
¥200% of Fund Equity. Therefore,
immediately after establishing each of
these positions, the target gross notional
exposure of a Leveraged Fund’s
aggregate Long Index Futures Contracts
and Short Index Futures Contracts will
equal approximately +400% (i.e.,
+200% long and +200% short) of Fund
Equity.
For example, assume that Fund
Equity is $100 million. A Leveraged
Fund may seek to purchase a quantity
of Long Index Futures Contracts with a
total long notional value of
approximately + $200 million (i.e.,
+200% of $100 million). Additionally, a
Leveraged Fund may seek to sell a
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quantity of Short Index Futures
Contracts with a total short notional
value of approximately ¥$200 million
(i.e., ¥200% of $100 million).
Consequently, a Leveraged Fund may
seek to hold Long Index Futures
Contracts and Short Index Futures
Contracts with a gross notional value of
approximately +$400 million (i.e.,
+$200 million long and + $200 million
short). A Leveraged Fund will
experience a gain or loss depending
predominantly on the Fund’s beginning
exposure to its Index Futures Contracts,
and the ensuing return of the Index
Futures Contracts.
As described previously, assume
initially that Fund Equity was $100
million. Prior to any changes in the
value of Fund Equity, the beginning
exposure to the Long Index Futures
Contract would be +$200 million and
the beginning exposure to the Short
Index Futures Contract would be
¥ $200 million. Therefore, the
Leveraged Fund would be positioned to
return +200% of the spread, or the
difference in return between the Long
Index Futures Contract and the Short
Index Futures Contract.
Leveraged Inverse Fund
For the Leveraged Inverse Fund, a
long position is established in the Short
Index Futures Contract seeking to
provide a leveraged exposure to the
Short Sub-Index. The Leveraged Inverse
Fund will purchase a sufficient number
of Short Index Futures Contracts
targeting a long notional exposure
equivalent to approximately +200% of
Fund Equity. Additionally, the
Leveraged Inverse Fund will establish a
short position in the Long Index Futures
Contracts seeking to provide a leveraged
exposure to the Long Sub-Index.
Accordingly, the Leveraged Inverse
Fund will sell a sufficient number of
Long Index Futures Contracts targeting
a short notional exposure equivalent to
approximately ¥200% of Fund Equity.
Therefore, immediately after
establishing each of these positions, the
target gross notional exposure of the
Leveraged Inverse Fund’s aggregate
Long Index Futures Contracts and Short
Index Futures Contracts will equal
approximately +400% (i.e., +200% long
and +200% short) of Fund Equity.
For example, assume that Fund
Equity is $100 million. As illustrated
below, the Leveraged Inverse Fund may
seek to purchase a quantity of Short
Index Futures Contracts with a total
long notional value of approximately
+$200 million (i.e., +200% of $100
million). Additionally, the Leveraged
Inverse Fund may seek to sell a quantity
of Long Index Futures Contracts with a
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total short notional value of
approximately ¥$200 million (i.e.,
¥200% of $100 million). Consequently,
the Leveraged Inverse Fund may seek to
hold Long Index Futures Contracts and
Short Index Futures Contracts with a
gross notional value of approximately
+$400 million (i.e., +$200 million long
and +$200 million short).
The Leveraged Inverse Fund will
experience a gain or loss depending
predominantly on the Fund’s beginning
exposure to its Index Futures Contracts
and the ensuing return of the Index
Futures Contracts.
As described previously, assume
initially that Fund Equity was $100
million. Prior to any changes in the
value of Fund Equity, the beginning
exposure to the Short Index Futures
Contract would be +$200 million and
the beginning exposure to the Long
Index Futures Contract would be ¥$200
million. Therefore, the Leveraged
Inverse Fund would be positioned to
return ¥200% of the spread, or the
difference in return between the Long
Index Futures Contract and the Short
Index Futures Contract.
Overview of the Funds
FactorShares 2X: S&P500 Bull/TBond
Bear
The FactorShares 2X: S&P500 Bull/
TBond Bear is designed for investors
who believe the large-cap U.S. equity
market segment will increase in value
relative to the long-dated U.S. Treasury
market segment. According to its
Registration Statement, the objective of
the FactorShares 2X: S&P500 Bull/
TBond Bear will be to seek to track
approximately +200% of the daily
return of the S&P U.S. Equity Risk
Premium Total Return Index. The Fund
will seek to track the spread, or the
difference in daily returns between the
U.S. equity and interest rate market
segments by primarily establishing a
leveraged long position in the E-mini
Standard and Poor’s 500 Stock Price
IndexTM Futures (‘‘Equity Index Futures
Contract’’), and a leveraged short
position in the 30-Year U.S. Treasury
Bond Futures (‘‘Treasury Index Futures
Contract’’).
The Equity Index Futures Contract
provides an exposure to a major
benchmark index with respect to largecap U.S. equities known as the S&P
500® Index. The Equity Index Futures
Contract is a futures contract that
provides and permits investors to invest
in a substitute instrument in place of the
underlying, speculate or hedge, as
applicable, in large-cap U.S. equities.
The Equity Index Futures Contract
serves as a proxy for large-cap U.S.
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equities because the performance of the
Equity Index Futures Contract is
dependent upon and reflects the
changes in the S&P 500®, which is an
index that reflects the performance of
each of the underlying 500 large-cap
U.S. equities. The Treasury Index
Futures Contract provides an exposure
to the interest rate market segment with
respect to 30-Year U.S. Treasury Bonds.
The Treasury Index Futures Contract is
a futures contract that provides and
permits investors to invest in a
substitute instrument in place of the
underlying, speculate or hedge, as
applicable, in the direction of interest
rates with respect to long-term Treasury
Bonds. The Treasury Index Futures
Contract serves as a proxy for 30-Year
U.S. Treasury Bonds because the
performance of the Treasury Index
Futures Contract is dependent upon and
reflects the changes in the price of the
underlying 30-Year U.S. Treasury
Bonds.
In order to pursue its investment
objective, the FactorShares 2X: S&P500
Bull/TBond Bear will seek to invest
approximately +200% of the value of its
Fund Equity (i.e., the estimated NAV) in
the front month Equity Index Futures
Contract and/or Substitute Futures and
Financial Instruments, as applicable.
Simultaneously, the Fund seeks to
invest approximately ¥200% of the
value of its Fund Equity in the front
month Treasury Index Futures Contract
and/or Substitute Futures and Financial
Instruments, as applicable. Around the
NAV Calculation Time, and in order to
continue to pursue its daily investment
objective, the Fund seeks to rebalance
daily its front month Equity Index
Futures Contracts and/or Substitute
Futures and Financial Instruments, as
applicable, to equal approximately
+200% of the value of its Fund Equity.
Similarly, around the NAV Calculation
Time, the Fund will seek to rebalance
daily its front month Treasury Index
Futures Contract and/or Substitute
Futures and Financial Instruments, as
applicable, to equal approximately
¥200% of the value of its Fund Equity.
FactorShares 2X: TBond Bull/S&P500
Bear
The FactorShares 2X: TBond Bull/
S&P500 Bear is designed for investors
who believe the long-dated U.S.
Treasury market segment will increase
in value relative to the large-cap U.S.
equity market segment. According to its
Registration Statement, the objective of
the FactorShares 2X: TBond Bull/
S&P500 Bear will be to seek to track
approximately ¥200% of the daily
return of the S&P U.S. Equity Risk
Premium Total Return Index. The Fund
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will seek to track the spread or the
difference in daily returns between the
interest rate and U.S. equity market
segments by primarily establishing a
leveraged long position in the Treasury
Index Futures Contract and a leveraged
short position in the Equity Index
Futures Contract.
The Treasury Index Futures Contract
provides an exposure to the interest rate
market segment with respect to 30-Year
U.S. Treasury Bonds. The Treasury
Index Futures Contract is a futures
contract that provides and permits
investors to invest in a substitute
instrument in place of the underlying,
speculate or hedge, as applicable, in the
direction of interest rates with respect to
long-term Treasury Bonds. The Treasury
Index Futures Contract serves as a proxy
for 30-Year U.S. Treasury Bonds
because the performance of the Treasury
Index Futures Contract is dependent
upon and reflects the changes in the
price of the underlying 30-Year U.S.
Treasury Bonds. The Equity Index
Futures Contract provides an exposure
to the S&P 500® Index. The Equity
Index Futures Contract is a futures
contract that provides and permits
investors to invest in a substitute
instrument in place of the underlying,
speculate or hedge, as applicable, in
large-cap U.S. equities. The Equity
Index Futures Contract serves as a proxy
for large-cap U.S. equities because the
performance of the Equity Index Futures
Contract is dependent upon and reflects
the changes in the S&P 500®.
In order to pursue its investment
objective, the FactorShares 2X: TBond
Bull/S&P500 Bear will seek to invest
approximately +200% of the value of its
Fund Equity (i.e., the estimated NAV) in
the front month Treasury Index Futures
Contract and/or Substitute Futures and
Financial Instruments, as applicable.
Simultaneously, the Fund will seek to
invest approximately ¥ 200% of the
value of its Fund Equity in the front
month Equity Index Futures Contract
and/or Substitute Futures and Financial
Instruments, as applicable. Around the
NAV Calculation Time, and in order to
continue to pursue its daily investment
objective, the Fund will seek to
rebalance daily its front month Treasury
Index Futures Contracts and/or
Substitute Futures and Financial
Instruments, as applicable, to equal
approximately +200% of the value of its
Fund Equity. Similarly, around the NAV
Calculation Time, the Fund will seek to
rebalance daily its front month Equity
Index Futures Contract and/or
Substitute Futures and Financial
Instruments, as applicable, to equal
approximately ¥ 200% of the value of
its Fund Equity.
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1481
FactorShares 2X: S&P500 Bull/USD Bear
The FactorShares 2X: S&P500 Bull/
USD Bear is designed for investors who
believe the large-cap U.S. equity market
segment will increase in value relative
to the general indication of the
international value of the U.S. dollar.
According to its Registration Statement,
the objective of the FactorShares 2X:
S&P500 Bull/USD Bear will be to seek
to track approximately +200% of the
daily return of the S&P 500 Non-U.S.
Dollar Index. The Fund will seek to
track the spread or the difference in
daily returns between the U.S. equity
and currency market segments by
primarily establishing a leveraged long
position in the Equity Index Futures
Contract, and a leveraged short position
in the U.S. Dollar Index® Futures
(‘‘Currency Index Futures Contract’’).
The Equity Index Futures Contract
provides an exposure to the S&P 500®
Index. The Equity Index Futures
Contract is a futures contract that
provides and permits investors to invest
in a substitute instrument in place of the
underlying, speculate or hedge, as
applicable, in large-cap U.S. equities.
The Equity Index Futures Contract
serves as a proxy for large-cap U.S.
equities because the performance of the
Equity Index Futures Contract is
dependent upon and reflects the
changes in the S&P 500®. The Currency
Index Futures Contract provides an
exposure to the international value of
the U.S. dollar. The Currency Index
Futures Contract is a futures contract
that provides and permits investors to
invest in a substitute instrument in
place of the underlying, speculate or
hedge, as applicable, in the direction of
the U.S. dollar relative to a basket of six
major world currencies. The Currency
Index Futures Contract serves as a proxy
for the international value of the U.S.
dollar relative to the six major world
currencies because the performance of
the Currency Index Futures Contract is
dependent upon and reflects the
changes in the U.S. Dollar Index
(USDX®), which is an index which
reflects the performance of each of the
underlying basket of six major world
currencies relative to the U.S. dollar.
In order to pursue its investment
objective, the FactorShares 2X: S&P500
Bull/USD Bear will seek to invest
approximately +200% of the value of its
Fund Equity (i.e., the estimated NAV) in
the front month Equity Index Futures
Contract and/or Substitute Futures and
Financial Instruments, as applicable.
Simultaneously, the Fund seeks to
invest approximately ¥200% of the
value of its Fund Equity in the front
month Currency Index Futures Contract
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and/or Substitute Futures and Financial
Instruments, as applicable. Around the
NAV Calculation Time, and in order to
continue to pursue its daily investment
objective, the Fund seeks to rebalance
daily its front month Equity Index
Futures Contracts and/or Substitute
Futures and Financial Instruments, as
applicable, to equal approximately
+200% of the value of its Fund Equity.
Similarly, around the NAV Calculation
Time, the Fund will seek to rebalance
daily its front month Currency Index
Futures Contract and/or Substitute
Futures and Financial Instruments, as
applicable, to equal approximately
¥200% of the value of its Fund Equity.
FactorShares 2X: Oil Bull/S&P500 Bear
The FactorShares 2X: Oil Bull/
S&P500 Bear is designed for investors
who believe that crude oil will increase
in value relative to the large-cap U.S.
equity market segment. According to its
Registration Statement, the objective of
the FactorShares 2X: Oil Bull/S&P500
Bear will be to seek to track
approximately +200% of the daily
return of the S&P Crude Oil-Equity
Spread Total Return Index. The Fund
will seek to track the spread or the
difference in daily returns between the
oil and U.S. equity market segments by
primarily establishing a leveraged long
position in the Oil Index Futures
Contract, as defined below, and a
leveraged short position in the Equity
Index Futures Contract.
The Oil Index Futures Contract
provides an exposure to the oil market
segment with respect to light sweet
crude oil. The Oil Index Futures
Contract is a futures contract that
provides and permits investors to invest
in a substitute instrument in place of the
underlying, speculate or hedge, as
applicable, in the direction of the value
of light sweet crude oil. The Oil Index
Futures Contract serves as a proxy for
light sweet crude oil because the
performance of the Oil Index Futures
Contract is dependent upon and reflects
the changes in the price of light sweet
crude oil. The Equity Index Futures
Contract provides an exposure to the
S&P 500® Index. The Equity Index
Futures Contract is a futures contract
that provides and permits investors to
invest in a substitute instrument in
place of the underlying, speculate or
hedge, as applicable, in large-cap U.S.
equities. The Equity Index Futures
Contract serves as a proxy for large-cap
U.S. equities because the performance of
the Equity Index Futures Contract is
dependent upon and reflects the
changes in the S&P 500®.
In order to pursue its investment
objective, the FactorShares 2X: Oil Bull/
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Jkt 223001
S&P500 Bear will seek to invest
approximately +200% of the value of its
Fund Equity (i.e., the estimated NAV) in
the front month Oil Index Futures
Contract and/or Substitute Futures and
Financial Instruments, as applicable.
Simultaneously, the Fund will seek to
invest approximately¥200% of the
value of its Fund Equity in the front
month Equity Index Futures Contract
and/or Substitute Futures and Financial
Instruments, as applicable. Around the
NAV Calculation Time, and in order to
continue to pursue its daily investment
objective, the Fund will seek to
rebalance daily its front month Oil
Index Futures Contracts and/or
Substitute Futures and Financial
Instruments, as applicable, to equal
approximately +200% of the value of its
Fund Equity. Similarly, around the NAV
Calculation Time, the Fund will seek to
rebalance daily its front month Equity
Index Futures Contract and/or
Substitute Futures and Financial
Instruments, as applicable, to equal
approximately ¥200% of the value of
its Fund Equity.
FactorShares 2X: Gold Bull/S&P500
Bear
The FactorShares 2X: Gold Bull/
S&P500 Bear is designed for investors
who believe that gold will increase in
value relative to the large-cap U.S.
equity market segment. According to its
Registration Statement, the objective of
the FactorShares 2X: Gold Bull/S&P500
Bear will be to seek to track
approximately +200% of the daily
return of the S&P Gold-Equity Spread
Total Return Index. The Fund will seek
to track the spread or the difference in
daily returns between the gold and U.S.
equity market segments by primarily
establishing a leveraged long position in
the Gold Index Futures Contract, as
defined below, and a leveraged short
position in the Equity Index Futures
Contract.
The Gold Index Futures Contract
provides an exposure to the precious
metals market segment with respect to
gold. The Gold Index Futures Contract
is a futures contract that provides and
permits investors to invest in a
substitute instrument in place of the
underlying, speculate or hedge, as
applicable, in the direction of the value
of gold. The Gold Index Futures
Contract serves as a proxy for gold
because the performance of the Gold
Index Futures Contract is dependent
upon and reflects the changes in the
price of gold. The Equity Index Futures
Contract provides an exposure to the
S&P 500® Index. The Equity Index
Futures Contract is a futures contract
that provides and permits investors to
PO 00000
Frm 00083
Fmt 4703
Sfmt 4703
invest in a substitute instrument in
place of the underlying, speculate or
hedge, as applicable, in large-cap U.S.
equities. The Equity Index Futures
Contract serves as a proxy for large-cap
U.S. equities because the performance of
the Equity Index Futures Contract is
dependent upon and reflects the
changes in the S&P 500®.
In order to pursue its investment
objective, the FactorShares 2X: Gold
Bull/S&P500 Bear will seek to invest
approximately +200% of the value of its
Fund Equity (i.e., the estimated NAV) in
the front month Gold Index Futures
Contract and/or Substitute Futures and
Financial Instruments, as applicable.
Simultaneously, the Fund will seek to
invest approximately – 200% of the
value of its Fund Equity in the front
month Equity Index Futures Contract
and/or Substitute Futures and Financial
Instruments, as applicable. Around the
NAV Calculation Time, and in order to
continue to pursue its daily investment
objective, the Fund will seek to
rebalance daily its front month Gold
Index Futures Contracts and/or
Substitute Futures and Financial
Instruments, as applicable, to equal
approximately +200% of the value of its
Fund Equity. Similarly, around the NAV
Calculation Time, the Fund will seek to
rebalance daily its front month Equity
Index Futures Contract and/or
Substitute Futures and Financial
Instruments, as applicable, to equal
approximately¥ 200% of the value of
its Fund Equity.
Net Asset Value
According to each Registration
Statement, NAV, in respect of a Fund,
means the total assets of the applicable
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 futures contracts, Financial
Instruments (if any), and any other
credit or debit accruing to a Fund but
unpaid or not received by a Fund. All
open futures contracts traded on a
United States exchange are calculated at
their then current market value, which
are based upon the settlement price for
that particular futures contract traded
on the applicable United States
exchange on the date with respect to
which NAV is being determined;
provided, that if a futures contract
traded on a United States exchange
could not be liquidated on such day,
due to the operation of daily limits or
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other rules of the exchange upon which
that position is traded or otherwise, the
settlement price on the most recent day
on which the position could have been
liquidated will be the basis for
determining the market value of such
position for such day. The current
market value of all open futures
contracts traded on a non-United States
exchange, to the extent applicable, are
based upon the settlement price for that
particular futures contract traded on the
applicable non-United States exchange
on the date with respect to which NAV
is being determined; provided further,
that if a futures contract traded on a
non-United States exchange, to the
extent applicable, could not be
liquidated on such day, due to the
operation of daily limits (if applicable)
or other rules of the exchange upon
which that position is traded or
otherwise, the settlement price on the
srobinson on DSKHWCL6B1PROD with NOTICES
2X: S&P500 Bull/TBond
2X: TBond Bull/S&P500
2X: S&P500 Bull/USD
2X:
Oil
distribution will be a liability of such
Fund from the day when the
distribution is declared until it is paid.
The NAV of each Fund is calculated
as of the first to settle of the
corresponding Index Futures Contracts,
provided that no Fund will calculate its
NAV after 4 p.m. Eastern Time (‘‘E.T.’’).
For example, the futures exchanges on
which the E-mini Standard and Poor’s
500 Stock Price IndexTM Futures (Long
Index Futures Contracts) and the 30Year U.S. Treasury Bond Futures (Short
Index Futures Contracts) of the
FactorShares 2X: S&P500 Bull/TBond
Bear fund settle at 4:15 p.m. E.T. and
3 p.m. E.T., respectively. Therefore, as
detailed in the table below, the
FactorShares 2X: S&P500 Bull/TBond
Bear fund will calculate its NAV, or
NAV Calculation Time, as of 3 p.m. E.T.
Fund NAV Calculation Times (E.T.):
Long Index Futures Contract: settlement time
Short Index Futures Contract: settlement time
E-mini Standard and Poor’s 500 Stock
Price IndexTM Futures: 4:15 p.m.
30 Year U.S. Treasury Bond Futures:
3 p.m.
E-mini Standard and Poor’s 500 Stock
Price IndexTM Futures: 4:15 p.m.
Light Sweet Crude Oil Futures: 2:30
p.m.
Gold Futures: 1:30 p.m .......................
30 Year U.S. Treasury Bond Futures:
3 p.m.
E-mini Standard and Poor’s 500 Stock
Price IndexTM Futures: 4:15 p.m.
U.S. Dollar Index® Futures: ................
3 p.m ...................................................
E-mini Standard and Poor’s 500 Stock
Price IndexTM Futures: 4:15 p.m.
E-mini Standard and Poor’s 500 Stock
Price IndexTM Futures: 4:15 p.m.
Fund
FactorShares
Bear.
FactorShares
Bear.
FactorShares
Bear.
FactorShares
Bear 22.
FactorShares
Bear.
most recent day on which the position
could have been liquidated will be the
basis for determining the market value
of such position for such day. The
Managing Owner may in its discretion
(and under extraordinary circumstances,
including, but not limited to, periods
during which a settlement price of a
futures contract is not available due to
exchange limit orders or force majeure
type events such as systems failure,
natural or man-made disaster, act of
God, armed conflict, act of terrorism,
riot or labor disruption or any similar
intervening circumstance) value any
asset of a Fund pursuant to such other
principles as the Managing Owner
deems fair and equitable so long as such
principles are consistent with normal
industry standards. Interest earned on
any Fund’s futures brokerage account, if
applicable, will be accrued at least
monthly. The amount of any
Bull/S&P500
2X: Gold Bull/S&P500
First to settle/NAV
Calculation Time 21
3 p.m.
3 p.m.
3 p.m.
2:30 p.m.
1:30 p.m.
A Fund’s daily NAV may reflect the
closing settlement price and/or the last
traded value just before the NAV
Calculation Time, as applicable, for
each of its Index Futures Contracts. A
Fund’s daily NAV will reflect the
closing settlement price for each of its
Index Futures Contracts if an Index
Future Contract’s closing settlement
price is determined at or just before the
NAV Calculation Time. If the exchange
on which a Fund’s Index Futures
Contract does not determine the closing
settlement price at or just before the
NAV Calculation Time, then the last
traded value for that Index Futures
Contract up until (but excluding) the
NAV Calculation Time will be reflected
in the NAV.
For example, the closing settlement
price of the 30-Year U.S. Treasury Bond
Futures occurs at or around 3 p.m. E.T.,
or just before the NAV Calculation Time
for the FactorShares 2X: S&P500 Bull/
TBond Bear. Accordingly, the Index
Futures Contract price used to
determine the NAV for 30-Year U.S.
Treasury Bond Futures positions held
by the FactorShares 2X: S&P500 Bull/
TBond Bear will be the corresponding
closing settlement price of 30-Year U.S.
Treasury Bond Futures as reported by
CME. However, the closing settlement
price for the E-mini Standard and Poor’s
500 Stock Price IndexTM Futures is
determined at or around 4:15 p.m. E.T.,
which occurs 75 minutes after the NAV
Calculation Time of FactorShares 2X:
S&P500 Bull/TBond Bear. Therefore, the
Index Futures Contract price used to
determine the NAV for E-mini Standard
and Poor’s 500 Stock Price IndexTM
Futures positions held by the
FactorShares 2X: S&P500 Bull/TBond
Bear will be the last traded value for the
E-mini Standard and Poor’s 500 Stock
Price IndexTM Futures up until (but
excluding) 3 p.m. E.T.
In calculating the NAV of a Fund, the
settlement value of a Financial
Instrument is determined by applying
the terms as provided under the
applicable Financial Instrument.
However, in the event that an
underlying Index Futures Contract is
not trading due to the operation of daily
limits or otherwise, the Managing
Owner may in its sole discretion choose
to value the Fund’s Financial
Instruments referencing such Index
Futures Contract on a fair value basis in
order to calculate the Fund’s NAV.
NAV per Fund Share, in respect of a
Fund, is the NAV of the Fund divided
by the number of its outstanding Fund
Shares.
21 The Commission previously has approved
commodity-based or currency-based trust securities
for which the NAV is calculated earlier than 4 p.m.,
E.T. See, e.g., Securities Exchange Act Release Nos.
50603 (October 28, 2004), 69 FR 64614 (November
5, 2004) (SR–NYSE–2004–22) (order approving
listing of streetTRACKS Gold Trust); 52843
(November 28, 2005), 70 FR 72486 (December 5,
2005) (SR–NYSE–2005–65) (order approving listing
of Euro Currency Trust); and 61219 (December 22,
2009), 74 FR 68886 (December 29, 2009) (SR–
NYSEArca–2009–95) (order approving listing of
ETFS Platinum Trust).
22 Because the first to settle Index Futures
Contracts for the FactorShares 2X: Oil Bull/S&P500
Bear and FactorShares 2X: Gold Bull/S&P500 Bear
funds are each different than the first to settle Index
Futures Contracts for the remaining Funds, the
NAV Calculation Time for each of the FactorShares
2X: Oil Bull/S&P500 Bear and FactorShares 2X:
Gold Bull/S&P500 Bear funds differ from the
remaining Funds.
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18:19 Jan 07, 2011
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Pricing Information Available on the
NYSE Arca and Other Sources
According to the Registration
Statements, the Index Sponsor will
calculate the Indicative Index Value
(‘‘IIV’’) of each Index on a total return
basis. In order to calculate the IIV, the
Index Sponsor polls Reuters every 15
seconds of each trading day to
determine the real-time value of each of
the following components of each
Index: Price of the underlying Long
Index Futures Contracts; price of the
underlying Short Index Futures
Contracts; and the pro-rated risk free
rate, which is the 3-month U.S. Treasury
bill, with respect to each applicable
Index. The Index Sponsor then applies
a set of rules to the above values to
create the indicative level of each Long
Sub-Index and each Short Sub-Index,
and in turn, each Index. The IIV and
closing level of each Index and SubIndex will be calculated until the last to
settle of NYSE Arca or the last to settle
of the exchanges on which the Fund’s
Index Futures Contracts are traded,
provided, however, that no IIV will be
calculated after 4:15 p.m. E.T. (‘‘Index
Calculation Time’’). These rules are
consistent with the rules which the
Index Sponsor applies at the end of each
trading day to calculate the closing level
of each Index and Sub-Index. A similar
polling process is applied to the U.S.
Treasury bills, or any other applicable
Fixed Income Instruments, to determine
the indicative value of the Fixed Income
Instruments held by each Fund every 15
seconds throughout the trading day.
An Index and Sub-Index value will be
calculated on each business day as
determined by the futures exchanges on
which each Index’s Long Index Futures
Contract and/or a Short Index Futures
Contract trades. The Index Sponsor will
continue to calculate each Index and
Sub-Index even on days when the
futures exchanges on which each
Index’s Long Index Futures Contract
and/or a Short Index Futures Contract
trades are open and NYSE Arca is
closed.
The IIV per Share of each Fund is
calculated by applying the percentage
price change of each Fund’s holdings in
futures contracts (and/or Substitute
Futures and Financial Instruments, as
applicable) to the last published NAV of
each Fund and will be disseminated (in
U.S. dollars) by one or more market data
vendors every 15 seconds during the
NYSE Arca Core Trading Session of
9:30 a.m. to 4 p.m. E.T.
The current trading price per Share of
each Fund (quoted in U.S. dollars) will
be published continuously under its
own ticker symbol as trades occur
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18:19 Jan 07, 2011
Jkt 223001
throughout each trading day on the
consolidated tape, Reuters and/or
Bloomberg.
The Index Sponsor publishes the
intra-day level of each Index and SubIndex, which is available to subscribers.
The intra-day level of each Index and
Sub-Index is also published once every
15 seconds during the NYSE Arca Core
Trading Session on the consolidated
tape, Reuters and/or Bloomberg.
The Index Sponsor publishes the
closing level of each Index and the SubIndexes daily at the Index Sponsor’s
Web site at https://
www.standardandpoors.com. The most
recent end-of-day closing level of each
Index and Sub-Index is published under
its own symbol as of the close of
business for NYSE Arca each trading
day on the consolidated tape, Reuters
and/or Bloomberg, or any successor
thereto.
The Managing Owner publishes the
NAV of each Fund and the NAV per
Share of each Fund daily. The most
recent end-of-day NAV of each Fund is
published under its own symbol as of
the close of business on Reuters and/or
Bloomberg and on the Managing
Owner’s Web site at https://
www.factorshares.net, or any successor
thereto. In addition, the most recent
end-of-day NAV of each Fund is
published the following morning on the
consolidated tape.
The Funds will provide Web site
disclosure of the portfolio holdings
daily and will include, as applicable,
the names and value (in U.S. dollars) of
Index Futures Contracts, Substitute
Futures and Financial Instruments, as
applicable, and characteristics of these
Index Futures Contracts and Substitute
Futures and Financial Instruments, as
applicable, and Fixed Income
Instruments, and the amount of cash
held in the portfolio of the Funds. This
Web site disclosure of the portfolio
composition of the Funds 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 Funds’ 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 the
Funds through the Managing Owner’s
Web site.
Creation and Redemption of Shares
Each Fund creates and redeems
Shares from time-to-time, but only in
one or more Baskets. A Basket is a block
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Sfmt 4703
of 100,000 Shares. Baskets may be
created or redeemed only by Authorized
Participants, as described in the
Registration Statements, except that the
initial Baskets will be created by the
Initial Purchaser. Except when
aggregated in Baskets, the Shares are not
redeemable securities. Authorized
Participants pay a transaction fee of
$500 in connection with each order to
create or redeem one or more Baskets.
Authorized Participants may sell the
Shares included in the Baskets they
purchase from the Funds to other
investors.
On any business day, an Authorized
Participant may place an order with the
Distributor to create one or more
Baskets. For purposes of processing both
purchase and redemption orders, a
‘‘business day’’ means any day other
than a day when banks in New York
City are required or permitted to be
closed. Purchase orders must be placed
by no later than 5 hours prior to the
close of NYSE Arca, which would be
customarily 11 a.m. E.T. However, from
time-to-time, NYSE Arca may have an
early close at, for example, 1 p.m. E.T.
(e.g., day after Thanksgiving). On these
days, purchase orders must be placed by
no later than 8 a.m. E.T., which would
be 5 hours prior to the early close of
NYSE Arca. The day on which the
Distributor receives a valid purchase
order is the purchase order date.
Purchase orders are irrevocable. By
placing a purchase order, and prior to
delivery of such Baskets, an Authorized
Participant’s DTC account will be
charged the non-refundable transaction
fee due for the purchase order.
Determination of Required Payment
The total cash payment required to
create each Basket is the NAV of
100,000 Shares of the applicable Fund
as of the NAV Calculation Time, on the
purchase order date. Baskets are issued
as of noon, E.T., on the business day
immediately following the purchase
order date at the applicable NAV per
Share as of the NAV Calculation Time,
on the purchase order date, but only if
the required payment has been timely
received.
Because orders to purchase Baskets
must be placed by no later than 5 hours
prior to the close of NYSE Arca, but the
total payment required to create a
Basket will not be determined until the
NAV Calculation Time on the date the
purchase order is received, Authorized
Participants will not know the total
amount of the payment required to
create a Basket at the time they submit
an irrevocable purchase order for the
Basket. The NAV of a Fund and the total
amount of the payment required to
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create a Basket could rise or fall
substantially between the time an
irrevocable purchase order is submitted
and the NAV Calculation Time.
srobinson on DSKHWCL6B1PROD with NOTICES
Redemption Procedures
The procedures by which an
Authorized Participant can redeem one
or more Baskets mirror the procedures
for the creation of Baskets. On any
business day, an Authorized Participant
may place an order with the Distributor
to redeem one or more Baskets.
Redemption orders must be placed by
no later than 5 hours prior to the close
of NYSE Arca, which would be
customarily 11 a.m. E.T. However, from
time-to-time, NYSE Arca may have an
early close at, for example, 1 p.m. E.T.
On these days, redemption orders must
be placed by no later than 8 a.m. E.T.,
which would be 5 hours prior to the
early close of NYSE Arca. The day on
which the Distributor receives a valid
redemption order is the redemption
order date. Redemption orders are
irrevocable. The redemption procedures
allow Authorized Participants to redeem
Baskets. Individual shareholders may
not redeem directly from a Fund.
Instead, individual shareholders may
only redeem Shares in integral
multiples of 100,000 and only through
an Authorized Participant.
By placing a redemption order, an
Authorized Participant agrees to deliver
the Baskets to be redeemed through
DTC’s book-entry system to the
applicable Fund not later than noon,
E.T., on the 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.
Determination of Redemption Proceeds
The redemption proceeds from a
Fund consist of the cash redemption
amount. The cash redemption amount is
equal to the NAV of the number of
Basket(s) of such Fund requested in the
Authorized Participant’s redemption
order as of the NAV Calculation Time,
on the redemption order date. The
Distributor will instruct the Transfer
Agent and the Custodian of redemption
orders by close of business on the
redemption order date. The Custodian
will distribute the cash redemption
amount at noon, E.T., on the business
day immediately following the
redemption order date through DTC to
the account of the Authorized
Participant as recorded on DTC’s bookentry system, but only if the applicable
Baskets have been timely received.
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The redemption proceeds due from a
Fund are delivered to the Authorized
Participant at noon, E.T., on the
business day immediately following the
redemption order date if, by such time
on such business day immediately
following the redemption order date, the
Fund’s DTC account has been credited
with the Baskets to be redeemed. If the
Fund’s DTC account has not been
credited with all of the Baskets to be
redeemed by such time, the redemption
distribution is delivered to the extent of
whole Baskets received. Any remainder
of the redemption distribution is
delivered on the next business day to
the extent of remaining whole Baskets
received if the Transfer Agent receives
the fee applicable to the extension of the
redemption distribution date which the
Transfer Agent after consulting with the
Managing Owner may, from time-totime, determine and the remaining
Baskets to be redeemed are credited to
the Fund’s DTC account by noon, E.T.,
on such next business day. Any further
outstanding amount of the redemption
order will be cancelled. The Distributor,
after consulting with the Managing
Owner, will also be authorized to
deliver the redemption distribution
notwithstanding that the Baskets to be
redeemed are not credited to the Fund’s
DTC account by noon, E.T., on the
business day immediately following the
redemption order date if the Authorized
Participant has collateralized its
obligation to deliver the Baskets through
DTC’s book-entry system on such terms
as the Managing Owner may determine
from time-to-time.
Availability of Information Regarding
the Shares
The current trading price per Share of
each Fund (quoted in U.S. dollars) will
be published continuously under its
ticker symbol as trades occur
throughout each trading day on the
consolidated tape, Reuters and/or
Bloomberg.
The NAV for each Fund will be
calculated by the Administrator once a
day and will be disseminated daily to
all market participants at the same time.
The Exchange also will disseminate on
a daily basis via the Consolidated Tape
Association (‘‘CTA’’) information with
respect to the recent NAV, and Shares
outstanding. The Exchange will also
make available on its Web site daily
trading volume of each of the Shares.
The closing price and settlement prices
of the Index Futures Contracts are also
readily available from the NYMEX,
CME, COMEX and ICE, as applicable,
and from automated quotation systems,
published or other public sources, or
online information services such as
PO 00000
Frm 00086
Fmt 4703
Sfmt 4703
1485
Bloomberg or Reuters. Quotation and
last-sale information regarding the
Shares will be disseminated through the
facilities of the CTA.
The Web site for the Funds and/or the
Exchange, which are publicly available
at no charge, will contain the following
information: (a) The current NAV per
Share daily and the prior business day’s
NAV; (b) the reported closing price; (c)
the Prospectus; and (d) other
quantitative information.
The daily settlement prices for the
Index Futures Contracts are publicly
available on the Web site of the
NYMEX, CME and COMEX at https://
www.cmegroup.com and the ICE Web
site at https://www.theice.com. In
addition, various data vendors and news
publications publish futures prices and
data. The Exchange represents that
futures quotes and last-sale information
for the Index Futures Contracts are
widely disseminated through a variety
of major market data vendors
worldwide, including Bloomberg and
Reuters. In addition, the Exchange
further represents that complete realtime data for the Index Futures
Contracts is available by subscription
from Reuters and Bloomberg. NYMEX,
CME, COMEX and ICE also provide
delayed futures information on current
and past trading sessions and market
news free of charge on their Web sites.
The applicable specific contract
specifications for the futures contracts
are also available from such Web sites,
as well as other financial informational
sources.
The Funds will provide Web site
disclosure of portfolio holdings daily
and will include, as applicable, the
names and value (in U.S. dollars) of
Index Futures Contracts, Substitute
Futures and Financial Instruments and
characteristics of these Index Futures
Contracts, Substitute Futures and
Financial Instruments, as applicable,
and Fixed Income Instruments, and the
amount of cash held in the portfolio of
the Funds. This Web site disclosure of
the portfolio composition of the Funds
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 the Funds through the
Funds’ Web site.
In addition, in order to provide
updated information relating to each
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srobinson on DSKHWCL6B1PROD with NOTICES
Fund for use by investors and market
professionals, an IIV per Share of each
Fund will be calculated, adjusted four
times per minute throughout the NYSE
Arca Core Trading Session to reflect the
continuous price changes of such
Fund’s Index Futures Contracts,
Substitute Futures and Financial
Instruments, as applicable. The IIV will
provide a continuously updated
estimated NAV per Share and is
calculated by using the prior day’s
closing NAV per Share of each Fund as
a base and updating that value
throughout the trading day to reflect
changes in the value of the applicable
Index Futures Contracts, Substitute
Futures and Financial Instruments. The
IIV disseminated during NYSE Arca
Core Trading Session should not be
viewed as an actual real-time update of
each Fund’s NAV, which is calculated
only once a day.
As noted above, the IIV will be
disseminated on a per Share basis by
one or more major market data vendors
every 15 seconds during NYSE Arca
Core Trading Session. The value of a
Share of a Fund may be influenced by
non-concurrent trading hours between
the NYSE Arca and the NYMEX, CME,
COMEX and ICE Futures, which are the
futures exchanges on which the Index
Futures Contracts are traded
(collectively, the ‘‘Futures Exchanges’’).
As a result, during periods when the
NYSE Arca is open and one or more of
the Futures Exchanges is closed, trading
spreads and the resulting premium or
discount on the Shares may widen and,
therefore, increase the difference
between the price of the Shares and the
NAV of the Shares.
The Exchange believes that
dissemination of the IIV provides
additional information regarding each
Fund that is not otherwise available to
the public and is useful to professionals
and investors in connection with the
related Shares trading on the Exchange
or the creation or redemption of such
Shares.
Trading Rules
The Exchange deems the Shares to be
equity securities, thus rendering trading
in the Shares subject to the Exchange’s
existing rules governing the trading of
equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m.
to 8 p.m. E.T. The Exchange has
appropriate rules to facilitate
transactions in the Shares during all
trading sessions. As provided in NYSE
Arca Equities Rule 7.6, Commentary .03,
the minimum price variation (‘‘MPV’’)
for quoting and entry of orders in equity
securities traded on the NYSE Arca
Marketplace is $0.01, with the exception
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18:19 Jan 07, 2011
Jkt 223001
of securities that are priced less than
$1.00 for which the MPV for order entry
is $0.0001.
The trading of the Shares will be
subject to NYSE Arca Equities Rule
8.200, Commentary .02(e), which sets
forth certain restrictions on ETP Holders
acting as registered Market Makers in
Trust Issued Receipts to facilitate
surveillance. See ‘‘Surveillance’’ below
for more information.
With respect to trading halts, the
Exchange may consider all relevant
factors in exercising its discretion to
halt or suspend trading in the Shares.
Trading may be halted because of
market conditions or for reasons that, in
the view of the Exchange, make trading
in the Shares inadvisable. These may
include: (1) The extent to which trading
is not occurring in the underlying Index
Futures Contracts, or (2) whether other
unusual conditions or circumstances
detrimental to the maintenance of a fair
and orderly market are present. In
addition, trading in Shares will be
subject to trading halts caused by
extraordinary market volatility pursuant
to the Exchange’s ‘‘circuit breaker’’
rule23 or by the halt or suspension of
trading of the underlying Index Futures
Contracts.
The Fund will meet the initial and
continued listing requirements
applicable to Trust Issued Receipts in
NYSE Arca Equities Rule 8.200 and
Commentary .02 thereto. The Exchange
represents that, for the initial and
continued listing of the Shares, the
Shares must be in compliance with
NYSE Arca Equities Rule 5.3 and Rule
10A–3 under the Act.24 A minimum of
100,000 Shares for each Fund will be
outstanding as of the start of trading on
the Exchange.
The Exchange represents that the
Exchange may halt trading during the
day in which the interruption to the
dissemination of the IIV, the Indexes,
the Sub-Indexes or the value of the
underlying futures contracts occurs. If
the interruption to the dissemination of
the IIV, the Indexes, the Sub-Indexes or
the value of the underlying futures
contracts 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. In addition, if the
Exchange becomes aware that the NAV
with respect to the Shares is not
disseminated to all market participants
at the same time, it will halt trading in
the Shares until such time as the NAV
is available to all market participants.
23 See
24 17
PO 00000
NYSE Arca Equities Rule 7.12.
CFR 240.10A–3.
Frm 00087
Fmt 4703
Sfmt 4703
Surveillance
The Exchange intends to utilize its
existing surveillance procedures
applicable to derivative products,
including Trust Issued Receipts, to
monitor trading in the Shares. The
Exchange represents that these
procedures are adequate to properly
monitor Exchange trading of the Shares
in all trading sessions and to deter and
detect violations of Exchange rules and
applicable Federal securities laws.
The Exchange’s current trading
surveillances focus on detecting
securities trading outside their normal
patterns. When such situations are
detected, surveillance analysis follows
and investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations. The Exchange is able
to obtain information regarding trading
in the Shares, the physical commodities
included in, or options, futures or
options on futures on, Shares through
ETP Holders, in connection with such
ETP Holders’ proprietary or customer
trades which they effect through ETP
Holders on any relevant market. The
Exchange can obtain market
surveillance information, including
customer identity information, with
respect to transactions occurring on the
NYMEX, CME and COMEX in that CME
Group, Inc., the parent company of
NYMEX, CME and COMEX, is a member
of the Intermarket Surveillance Group
(‘‘ISG’’).25 In addition, ICE is a member
of ISG, and the Exchange, therefore, can
obtain market surveillance information
from such exchange.
In addition, for components traded on
exchanges, not more than 10% of the
weight of a Fund’s portfolio in the
aggregate shall consist of components
whose principal trading market is not a
member of ISG or is a market with
which the Exchange does not have a
comprehensive surveillance sharing
agreement.
The Exchange also has a general
policy prohibiting the distribution of
material, non-public information by its
employees.
Information Bulletin
Prior to the commencement of
trading, the Exchange will inform its
ETP Holders in an Information Bulletin
of the special characteristics and risks
25 For a list of the current members of ISG, see
https://www.isgportal.org. The Exchange may obtain
information from futures exchanges with which the
Exchange has entered into a surveillance sharing
agreement or that are ISG members. The Exchange
notes that not all components of the portfolio for
the Funds may trade on markets that are members
of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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Federal Register / Vol. 76, No. 6 / Monday, January 10, 2011 / Notices
associated with trading the Shares.
Specifically, the Information Bulletin
will discuss the following: (1) The risks
involved in trading the Shares during
the Opening and Late Trading Sessions
when an updated IIV will not be
calculated or publicly disseminated; (2)
the procedures for purchases and
redemptions of Shares in Creation
Baskets and Redemption Baskets (and
that Shares are not individually
redeemable); (3) NYSE Arca Equities
Rule 9.2(a), which imposes a duty of
due diligence on its ETP Holders to
learn the essential facts relating to every
customer prior to trading the Shares; (4)
how information regarding the IIV is
disseminated; (5) the requirement that
ETP Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (6)
trading information.
In addition, the Information Bulletin
will advise ETP Holders, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Funds. The Exchange
notes that investors purchasing Shares
directly from the Funds will receive a
Prospectus. ETP Holders purchasing
Shares from the Funds for resale to
investors will deliver a Prospectus to
such investors. The Information Bulletin
will also discuss any exemptive, noaction and interpretive relief granted by
the Commission from any rules under
the Act.
The Information Bulletin will further
advise ETP Holders that FINRA has
implemented increased customer
margin requirements applicable to
leveraged ETFs (which include the
Shares) and options on leveraged ETFs,
as described in FINRA Regulatory
Notices 09–53 (August 2009) and 09–65
(November 2009).
In addition, the Information Bulletin
will reference that the Funds are subject
to various fees and expenses described
in the Registration Statements. The
Information Bulletin will also reference
that the CFTC has regulatory
jurisdiction over the trading of futures
contracts traded on U.S. markets.
The Information Bulletin will also
disclose the trading hours of the Shares
of the Funds and that the NAV for the
Shares is calculated after 4 p.m. E.T.
each trading day. The Bulletin will
disclose that information about the
Shares of the Funds is publicly available
on the Funds’ Web site.
2. Statutory Basis
The proposed rule change is
consistent with Section 6(b) of the
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18:19 Jan 07, 2011
Jkt 223001
Act,26 in general, and furthers the
objectives of Section 6(b)(5),27 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 facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanism of a free and open market
and a national market system. The
Exchange believes that the proposed
rule change will facilitate the listing and
trading of an additional type of
exchange-traded product that will
enhance competition among market
participants, to the benefit of investors
and the marketplace. In addition, the
listing and trading criteria set forth in
Rule 8.200 are intended to protect
investors and the public interest.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
26 15
27 15
PO 00000
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
Frm 00088
Fmt 4703
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–NYSEArca–2010–121 on
the subject line.
Paper Comments
• Send paper comments in triplicate
to Elizabeth M. Murphy, Secretary,
Securities and Exchange Commission,
100 F Street, NE., Washington, DC
20549–1090.
All submissions should refer to File
Number SR–NYSEArca–2010–121. 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 Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street, NE.,
Washington, DC 20549–1090 on official
business days between 10 a.m. and
3 p.m. Copies of the filing will also be
available for inspection and copying at
the Exchange’s principal office. 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–NYSEArca–2010–121 and
should be submitted on or before
January 31, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.28
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–162 Filed 1–7–11; 8:45 am]
BILLING CODE 8011–01–P
28 17
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10JAN1
]]>Agencies
[Federal Register Volume 76, Number 6 (Monday, January 10, 2011)]
[Notices]
[Pages 1477-1487]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-162]
[[Page 1477]]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63636; File No. SR-NYSEArca-2010-121]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing and Trading of
FactorShares Funds
January 3, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on December 22, 2010, NYSE Arca, Inc. (``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission
(``Commission'' or ``SEC'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the following
pursuant to NYSE Arca Equities Rule 8.200: FactorShares 2X: S&P500
Bull/TBond Bear; FactorShares 2X: TBond Bull/S&P500 Bear; FactorShares
2X: S&P500 Bull/USD Bear; FactorShares 2X: Oil Bull/S&P500 Bear; and
FactorShares 2X: Gold Bull/S&P500 Bear. The text of the proposed rule
change is available at the Exchange, the Commission's Public Reference
Room, and https://www.nyse.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 self-regulatory organization
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 those 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.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
NYSE Arca Equities Rule 8.200, Commentary .02, permits the trading
of Trust Issued Receipts (``TIRs'') either by listing or pursuant to
unlisted trading privileges (``UTP'').\3\ The Exchange proposes to list
and trade the shares of the following pursuant to NYSE Arca Equities
Rule 8.200: FactorShares 2X: S&P500 Bull/TBond Bear; FactorShares 2X:
TBond Bull/S&P500 Bear; FactorShares 2X: S&P500 Bull/USD Bear;
FactorShares 2X: Oil Bull/S&P500 Bear; and FactorShares 2X: Gold Bull/
S&P500 Bear (each a ``Fund'' and, collectively, the ``Funds'').\4\ All
Funds except for the FactorShares 2X: TBond Bull/S&P500 Bear are also
referred to as ``Leveraged Funds,'' and FactorShares 2X: TBond Bull/
S&P500 Bear is referred to as the ``Leveraged Inverse Fund.'' \5\
---------------------------------------------------------------------------
\3\ Commentary .02 to NYSE Arca Equities Rule 8.200 applies to
TIRs that invest in ``Financial Instruments.'' The term ``Financial
Instruments,'' as defined in Commentary .02(b)(4) to NYSE Arca
Equities Rule 8.200, means any combination of investments, including
cash; securities; options on securities and indices; futures
contracts; options on futures contracts; forward contracts; equity
caps, collars and floors; and swap agreements.
\4\ See Pre-Effective Amendment No. 3 to Form S-1, dated
November 3, 2010, for each Fund (individually, a ``Registration
Statement,'' and, collectively, the ``Registration Statements'')
(File Nos. 333-164754, 333-164758, 333-164757, 333-164756 and 333-
164755, respectively). The description of the Funds and the Shares
contained herein are based on the Registration Statements.
\5\ Terms relating to the Funds and the Indexes referred to, but
not defined, herein are defined in the common Prospectus within the
Registration Statements.
---------------------------------------------------------------------------
The Exchange notes that the Commission has previously approved the
listing and trading of other issues of TIRs on the American Stock
Exchange LLC (``Amex''),\6\ trading on NYSE Arca pursuant to UTP,\7\
and listing on NYSE Arca.\8\ In addition, the Commission has approved
other exchange-traded fund-like products linked to the performance of
underlying commodities.\9\
---------------------------------------------------------------------------
\6\ See, e.g., Securities Exchange Act Release No. 58161 (July
15, 2008), 73 FR 42380 (July 21, 2008) (SR-Amex-2008-39) (order
approving amendments to Amex Rule 1202, Commentary .07, and listing
on Amex of 14 funds of the Commodities and Currency Trust).
\7\ See, e.g., Securities Exchange Act Release No. 58162 (July
15, 2008), 73 FR 42391 (July 21, 2008) (SR-NYSEArca-2008-73) (notice
of effectiveness of UTP trading on NYSE Arca of 14 funds of the
Commodities and Currency Trust).
\8\ See, e.g., Securities Exchange Act Release No. 58457
(September 3, 2008), 73 FR 52711 (September 10, 2008) (SR-NYSEArca-
2008-91) (order approving listing on NYSE Arca of 14 funds of the
Commodities and Currency Trust).
\9\ See, e.g., Securities Exchange Act Release Nos. 55585 (April
5, 2007), 72 FR 18500 (April 12, 2007) (SR-NYSE-2006-75) (approving
for NYSE listing the iShares GS Commodity Light Energy Indexed
Trust; iShares GS Commodity Industrial Metals Indexed Trust; iShares
GS Commodity Livestock Indexed Trust and iShares GS Commodity Non-
Energy Indexed Trust); 56932 (December 7, 2007), 72 FR 71178
(December 14, 2007) (SR-NYSEArca-2007-112) (order granting
accelerated approval to list iShares S&P GSCI Commodity-Indexed
Trust); and 59895 (May 8, 2009), 74 FR 22993 (May 15, 2009) (SR-
NYSEArca-2009-40) (order granting accelerated approval for NYSE Arca
listing the ETFS Gold Trust).
---------------------------------------------------------------------------
Each of the Funds was formed on January 26, 2010 as a separate
Delaware statutory trust, and each Fund will issue and offer common
units of beneficial interest (``Shares''), which represent units of
fractional beneficial undivided interest in and ownership of such Fund.
Factor Capital Management, LLC, (``Managing Owner''), a Delaware
limited liability company, will serve as the Managing Owner of each
Fund. Interactive Brokers LLC, a Connecticut limited liability company,
will serve as each Fund's clearing broker (``Commodity Broker''). The
Commodity Broker is registered with the Commodity Futures Trading
Commission (``CFTC'') as a futures commission merchant and is a member
of the National Futures Association in such capacity. Each Fund has
appointed State Street Bank and Trust Company, (``State Street''), as
the Administrator, the Transfer Agent and the Custodian of each Fund.
Each Fund has appointed Foreside Fund Services, LLC as the
Distributor to assist the Managing Owner and the Funds with certain
functions and duties relating to distribution, compliance of sales and
marketing materials, and certain regulatory compliance matters. The
Distributor will not open or maintain customer accounts or handle
orders for any of the Funds.
Overview of the Standard & Poor's Factor Index Series (``Indexes'')
According to the Registration Statements, the Indexes are intended
to reflect the daily spreads, or the differences, in the relative
return, positive or negative, between the corresponding sub-indexes
constructed from futures contracts (``Index Futures Contracts'') of
each Index. Each Index is comprised of a long sub-index (``Long Sub-
Index'') and a short sub-index (``Short Sub-Index'') (individually, a
``Sub-Index'' and, collectively, the ``Sub-Indexes''). The Long Sub-
Index is composed of the long front Index Futures Contract (``Long
Index Futures Contract'').\10\ The Short Sub-Index is composed of the
short front Index Futures Contract (``Short Index Futures
[[Page 1478]]
Contract'').\11\ Each Index is calculated to reflect the corresponding
relative return, or spread, which is the difference in the daily
changes, positive or negative, between the value of the Long Sub-Index
and the value of the Short Sub-Index, plus the return on a risk free
component.
---------------------------------------------------------------------------
\10\ The term ``long front'' refers to a long position in the
near month contract.
\11\ The term ``short front'' refers to a short position in the
near month contract.
---------------------------------------------------------------------------
The objective of each Index is to track the daily price spreads, or
difference between the Sub-Indexes, and in turn, the underlying Index
Futures Contracts. Although each Index is calculated to reflect both an
excess return and a total return, each Fund tracks an Index that is
calculated to reflect a total return. Standard & Poor's Financial
Services LLC is the Index Sponsor for the Indexes and is the
calculation agent for the Indexes and Sub-Indexes.\12\
---------------------------------------------------------------------------
\12\ Standard & Poor's Financial Services LLC is the Index
Sponsor with respect to the Indexes and is not affiliated with a
broker-dealer. The Index Sponsor has implemented procedures designed
to prevent the use and dissemination of material, non-public
information regarding the Indexes.
\13\ The Base Date for each Index is September 9, 1997 and each
Sub-Index Base Weight is 100%.
\14\ ``CME'' means the Chicago Mercantile Exchange, Inc. ``ICE''
means the Intercontinental Exchange, Inc. ``NYMEX'' means the New
York Mercantile Exchange. ``COMEX'' means the COMEX division of
NYMEX.
\15\ The S&P 500[supreg] Non-U.S. Dollar Index is calculated on
a Total Return basis.
---------------------------------------------------------------------------
Each Index is intended to reflect the difference in the daily
return between two market segments. The Long Sub-Index tracks the
changes in the Long Index Futures Contract. The Short Sub-Index tracks
the changes in the Short Index Futures Contract.
The Sub-Indexes, Index Futures Contracts, trading hours of the
applicable Index Futures Contracts, and related information are set
forth in the chart below.
----------------------------------------------------------------------------------------------------------------
Sub-indexes and
Index \13\ index futures Exchange \14\ (symbol) Contract months Trading hours
contracts (eastern time)
----------------------------------------------------------------------------------------------------------------
S&P U.S. Equity Risk Premium Long Sub-Index: CME (ES).............. March, June, Monday-Thursday:
Total Return Index. S&P 500[supreg] September, 6 p.m.-4:15 p.m.
Futures Excess December. (next day) &
Return Index. 4:30 p.m.-5:30
Long Index p.m.; Sunday: 6
Futures p.m.-4:15 p.m.
Contract: E-mini (next day).
Standard and
Poor's 500 Stock
Price Index\TM\
Futures.
Short Sub-Index: CME (US).............. ................. Monday-Friday:
S&P 30-Year 8:20 a.m.-3 p.m.
Treasury Bond
Futures Excess
Return Index.
Short Index
Futures
Contract: 30-
Year U.S.
Treasury Bond
Futures.
S&P 500[supreg] Non-U.S. Dollar Long Sub-Index: CME (ES).............. March, June, Monday-Thursday:
Index.\15\ S&P 500[supreg] September, 6 p.m.-4:15 p.m.
Futures Excess December. (next day) &
Return Index. 4:30 p.m.-5:30
Long Index p.m.; Sunday: 6
Futures p.m.-4:15 p.m.
Contract: E-mini (next day).
Standard and
Poor's 500 Stock
Price Index\TM\
Futures.
Short Sub-Index: ICE (DX).............. ................. Monday-Friday: 8
S&P U.S. Dollar p.m.-6 p.m.
Futures Excess (next day)
Return Index. Sunday: 6 p.m.-6
Short Index p.m. (next day).
Futures
Contract: U.S.
Dollar
Index[supreg]
Futures.
S&P Crude Oil-Equity Spread Long Sub-Index: NYMEX (CL)............ Rolled pursuant Monday-Friday: 9
Total Return Index. S&P GSCI[supreg] to S&P a.m.-2:30 p.m.
Crude Oil Excess GSCI[supreg]
Return Index. schedule.
Long Index
Futures
Contracts: Light
Sweet Crude Oil
Futures.
Short Sub-Index: CME (ES).............. March, June, Monday-Thursday:
S&P 500[supreg] September, 6 p.m.-4:15 p.m.
Futures Excess December. (next day) &
Return Index. 4:30 p.m.-5:30
Short Index p.m.; Sunday: 6
Futures p.m.-4:15 p.m.
Contract: E-mini (next day).
Standard and
Poor's 500 Stock
Price Index\TM\
Futures.
S&P Gold-Equity Spread Total Long Sub-Index: COMEX (GC)............ Rolled pursuant Monday-Friday:
Return Index. S&P GSCI[supreg] to S&P 8:20 a.m.-1:30
Gold Excess GSCI[supreg] p.m.
Return Index. schedule.
Long Index
Futures
Contract: Gold
Futures.
Short Sub-Index: CME (ES).............. March, June, Monday-Thursday:
S&P 500[supreg] September, 6 p.m.-4:15 p.m.
Futures Excess December. (next day) &
Return Index. 4:30 p.m.-5:30
Short Index p.m.; Sunday: 6
Futures p.m.-4:15 p.m.
Contract: E-mini (next day).
Standard and
Poor's 500 Stock
Price Index\TM\
Futures.
----------------------------------------------------------------------------------------------------------------
[[Page 1479]]
Operation of the Funds
According to the Registration Statements, the objective of each
Fund will be to reflect the spread, or the difference, in daily return,
on a leveraged basis, between two predetermined market segments. Each
Fund will represent a relative value or ``spread'' strategy seeking to
track the differences in daily returns between two futures-based Index
components (as discussed above under ``Overview of the Indexes''). By
simultaneously buying and selling two benchmark Index Futures Contracts
(or, as necessary, substantively equivalent combinations of Substitute
Futures and Financial Instruments),\16\ each Leveraged Fund and
Leveraged Inverse Fund will target a daily return equivalent to
approximately +200% and -200%, respectively, of the spread, or the
difference, in daily return between a long futures contract and a short
futures contract (before fees, expenses and interest income).
---------------------------------------------------------------------------
\16\ According to the Registration Statements, the term
``Substitute Futures'' refers to futures contracts other than the
specific Index Futures Contracts that underlie the applicable Index
that the Managing Owner expects will tend to exhibit trading prices
or returns that generally correlate with an Index Futures Contract.
The term ``Financial Instruments'' refers to forward agreements and
swaps that the Managing Owner expects will tend to exhibit trading
prices or returns that generally correlate with an Index Futures
Contract. Shareholders may review a Fund's monthly Account Statement
that will be posted on the Fund's Web site at https://www.factorshares.net or a Fund's periodic reports on Form 10-Q and/
or Form 10-K as filed with the SEC at https://www.sec.gov for
additional information. In addition, investors will have access to
the current portfolio composition of the Funds through the Funds'
Web site, as described below.
---------------------------------------------------------------------------
Each Fund will hold a portfolio of Index Futures Contracts, each of
which are traded on various futures markets in the United States. In
the event a Fund reaches position limits imposed by the CFTC or a
futures exchange with respect to an Index Futures Contract, the
Managing Owner, may in its commercially reasonable judgment, cause the
Fund to invest in Substitute Futures or Financial Instruments
referencing the particular Index Futures Contract, or Financial
Instruments not referencing the particular Index Futures Contract, if
such instruments tend to exhibit trading prices or returns that
correlate with the corresponding Index or any Index Futures Contract
and will further the investment objective of the Fund.\17\ A Fund may
also invest in Substitute Futures or Financial Instruments if the
market for a specific Index Futures Contract experiences emergencies
(such as a natural disaster, terrorist attack or an act of God) or
disruptions (such as a trading halt or flash crash) that prevent the
Fund from obtaining the appropriate amount of investment exposure to
the affected Index Futures Contract.\18\
---------------------------------------------------------------------------
\17\ To the extent practicable, a Fund will invest in swaps
cleared through the facilities of a centralized clearing house.
\18\ According to the Registration Statements, the Managing
Owner will also attempt to mitigate each Fund's credit risk by
transacting only with large, well-capitalized institutions using
measures designed to determine the creditworthiness of a
counterparty. The Managing Owner will take various steps to limit
counterparty credit risk, as described under the section ``Financial
Instrument Counterparties'' in the Registration Statements.
---------------------------------------------------------------------------
Each Fund also will hold cash and United States Treasury securities
and other high credit quality short-term fixed income securities
(``Fixed Income Instruments'') for deposit with its Commodity Broker as
margin. No Fund will be ``managed'' by traditional methods, which
typically involve effecting changes in the composition of a portfolio
on the basis of judgments relating to economic, financial and market
considerations with a view to obtaining positive results under changing
market conditions.
According to the Registration Statements, each Leveraged Fund will
allow investors to potentially profit from the daily return of a Long
Index Futures Contract in excess of the daily return of a Short Index
Futures Contract (each term as defined above). The Leveraged Inverse
Fund will allow investors to potentially profit from the daily return
of a Short Index Futures Contract in excess of the daily return of a
Long Index Futures Contract.
A Fund's Index consists of two Sub-Indexes. A Long Sub-Index
reflects a passive exposure to a certain near-month long Index Futures
Contract. A Short Sub-Index reflects a passive exposure to a certain
near-month short Index Futures Contract.\19\ Each Index is designed to
reflect +100% of the spread, or the difference, in daily return,
positive or negative, between the Long Sub-Index and the Short Sub-
Index plus the return on a risk free component.
---------------------------------------------------------------------------
\19\ The Long Sub-Index, Long Index Futures Contract, Short Sub-
Index and Short Index Futures Contract for each Fund are set forth
in the chart above.
---------------------------------------------------------------------------
Each Fund intends to track its corresponding Index on a leveraged
basis by creating a portfolio of long and short positions. The Managing
Owner will determine the type, quantity and combination of Index
Futures Contracts, and, as applicable, Substitute Futures and Financial
Instruments, the Managing Owner believes may produce daily returns
consistent with the applicable Fund's daily and leveraged objective.
Each Index is rebalanced daily as of the Index Calculation Time (as
defined below) in order to continue to reflect the spread, or the
difference in the daily return between two specific market segments. By
rebalancing each Index on a daily basis as of the Index Calculation
Time, each Index will then be comprised of equal notional amounts
(i.e., +100% and -100%, respectively) of both of its Long Index Futures
Contracts and Short Index Futures Contracts in accordance with its
daily objectives. Daily rebalancing of each Index will lead to
different results than would otherwise occur if an Index, and in turn,
its corresponding Fund, were to be rebalanced less frequently or more
frequently than daily.
Because each Fund will seek to achieve its daily investment
objective by tracking its corresponding Index on a daily and leveraged
basis, each Fund will seek to rebalance daily both its long and short
positions around the net asset value (``NAV'') Calculation Time (as
described below under ``Net Asset Value''). The purpose of daily
rebalancing is to reposition each Fund's investments in accordance with
its daily investment objective.
As described in the Registration Statements, each Fund will have a
leverage ratio of approximately 4:1 \20\ upon daily rebalancing, which
increases the potential for trading profits and losses. The use of
leverage increases the potential for both trading profits and losses,
depending on the changes in market value of the Long Index Futures
Contracts positions, the Short Index Futures Contracts positions (and/
or Substitute Futures and Financial Instruments, as applicable), of
each Fund. Holding futures positions with a notional amount in excess
of each Fund's NAV constitutes a form of leverage. Because the notional
value of each Fund's Index Futures Contracts (and/or Substitute Futures
and Financial Instruments, as applicable), will rise or fall throughout
each trading day and prior to rebalancing, the leverage ratio could be
higher or lower than an approximately 4:1 leverage ratio between the
notional value of a Fund's portfolio and a Fund's Equity (estimated
NAV) immediately after rebalancing. As the ratio increases, an
investor's losses may increase correspondingly.
---------------------------------------------------------------------------
\20\ See also discussion regarding dollar neutrality in the
following section ``Examples Explaining the Initial Allocation of
the Funds.''
---------------------------------------------------------------------------
Each Sub-Index, which is comprised of a certain Index Futures
Contract, includes provisions for the replacement (also referred to as
``rolling'') of its Index Futures Contract as it approaches its
[[Page 1480]]
expiration date. ``Rolling'' is a procedure which involves closing out
the Index Futures Contract that will soon expire and establishing a
position in a new Index Futures Contract with a later expiration date
pursuant to the rules of each Sub-Index. In turn, each Fund will seek
to roll its Index Futures Contracts in a manner consistent with its
Sub-Index's provisions for the replacement of an Index Futures Contract
that is approaching maturity.
Examples Explaining the Initial Allocation of the Funds
As described below, each Fund will seek to invest in a manner such
that the dollar value i.e., described as Fund Equity below) of a Fund's
holdings of both its Long Index Futures Contracts and Short Index
Futures Contracts will be approximately equal, which is commonly
referred to as ``dollar neutrality.''
Each Fund's daily performance will reflect the gain or loss from
the spread, or the difference between the applicable Long Index Futures
Contracts and Short Index Futures Contracts, any income from a Fund's
collateral, and a decrease in the NAV of the Fund due to its fees and
expenses.
Leveraged Funds
For a Leveraged Fund, a long position is established in the Long
Index Futures Contract seeking to provide a leveraged exposure to the
Long Sub-Index. A Leveraged Fund will purchase a sufficient number of
Long Index Futures Contracts targeting a long notional exposure
equivalent to approximately +200% of a Fund's estimated NAV, or Fund
Equity. Additionally, a Leveraged Fund will establish a short position
in the Short Index Futures Contracts seeking to provide a leveraged
exposure to the Short Sub-Index. Accordingly, a Leveraged Fund will
sell a sufficient number of Short Index Futures Contracts targeting a
short notional exposure equivalent to approximately -200% of Fund
Equity. Therefore, immediately after establishing each of these
positions, the target gross notional exposure of a Leveraged Fund's
aggregate Long Index Futures Contracts and Short Index Futures
Contracts will equal approximately +400% (i.e., +200% long and +200%
short) of Fund Equity.
For example, assume that Fund Equity is $100 million. A Leveraged
Fund may seek to purchase a quantity of Long Index Futures Contracts
with a total long notional value of approximately + $200 million (i.e.,
+200% of $100 million). Additionally, a Leveraged Fund may seek to sell
a quantity of Short Index Futures Contracts with a total short notional
value of approximately -$200 million (i.e., -200% of $100 million).
Consequently, a Leveraged Fund may seek to hold Long Index Futures
Contracts and Short Index Futures Contracts with a gross notional value
of approximately +$400 million (i.e., +$200 million long and + $200
million short). A Leveraged Fund will experience a gain or loss
depending predominantly on the Fund's beginning exposure to its Index
Futures Contracts, and the ensuing return of the Index Futures
Contracts.
As described previously, assume initially that Fund Equity was $100
million. Prior to any changes in the value of Fund Equity, the
beginning exposure to the Long Index Futures Contract would be +$200
million and the beginning exposure to the Short Index Futures Contract
would be - $200 million. Therefore, the Leveraged Fund would be
positioned to return +200% of the spread, or the difference in return
between the Long Index Futures Contract and the Short Index Futures
Contract.
Leveraged Inverse Fund
For the Leveraged Inverse Fund, a long position is established in
the Short Index Futures Contract seeking to provide a leveraged
exposure to the Short Sub-Index. The Leveraged Inverse Fund will
purchase a sufficient number of Short Index Futures Contracts targeting
a long notional exposure equivalent to approximately +200% of Fund
Equity. Additionally, the Leveraged Inverse Fund will establish a short
position in the Long Index Futures Contracts seeking to provide a
leveraged exposure to the Long Sub-Index. Accordingly, the Leveraged
Inverse Fund will sell a sufficient number of Long Index Futures
Contracts targeting a short notional exposure equivalent to
approximately -200% of Fund Equity. Therefore, immediately after
establishing each of these positions, the target gross notional
exposure of the Leveraged Inverse Fund's aggregate Long Index Futures
Contracts and Short Index Futures Contracts will equal approximately
+400% (i.e., +200% long and +200% short) of Fund Equity.
For example, assume that Fund Equity is $100 million. As
illustrated below, the Leveraged Inverse Fund may seek to purchase a
quantity of Short Index Futures Contracts with a total long notional
value of approximately +$200 million (i.e., +200% of $100 million).
Additionally, the Leveraged Inverse Fund may seek to sell a quantity of
Long Index Futures Contracts with a total short notional value of
approximately -$200 million (i.e., -200% of $100 million).
Consequently, the Leveraged Inverse Fund may seek to hold Long Index
Futures Contracts and Short Index Futures Contracts with a gross
notional value of approximately +$400 million (i.e., +$200 million long
and +$200 million short).
The Leveraged Inverse Fund will experience a gain or loss depending
predominantly on the Fund's beginning exposure to its Index Futures
Contracts and the ensuing return of the Index Futures Contracts.
As described previously, assume initially that Fund Equity was $100
million. Prior to any changes in the value of Fund Equity, the
beginning exposure to the Short Index Futures Contract would be +$200
million and the beginning exposure to the Long Index Futures Contract
would be -$200 million. Therefore, the Leveraged Inverse Fund would be
positioned to return -200% of the spread, or the difference in return
between the Long Index Futures Contract and the Short Index Futures
Contract.
Overview of the Funds
FactorShares 2X: S&P500 Bull/TBond Bear
The FactorShares 2X: S&P500 Bull/TBond Bear is designed for
investors who believe the large-cap U.S. equity market segment will
increase in value relative to the long-dated U.S. Treasury market
segment. According to its Registration Statement, the objective of the
FactorShares 2X: S&P500 Bull/TBond Bear will be to seek to track
approximately +200% of the daily return of the S&P U.S. Equity Risk
Premium Total Return Index. The Fund will seek to track the spread, or
the difference in daily returns between the U.S. equity and interest
rate market segments by primarily establishing a leveraged long
position in the E-mini Standard and Poor's 500 Stock Price Index\TM\
Futures (``Equity Index Futures Contract''), and a leveraged short
position in the 30-Year U.S. Treasury Bond Futures (``Treasury Index
Futures Contract'').
The Equity Index Futures Contract provides an exposure to a major
benchmark index with respect to large-cap U.S. equities known as the
S&P 500[supreg] Index. The Equity Index Futures Contract is a futures
contract that provides and permits investors to invest in a substitute
instrument in place of the underlying, speculate or hedge, as
applicable, in large-cap U.S. equities. The Equity Index Futures
Contract serves as a proxy for large-cap U.S.
[[Page 1481]]
equities because the performance of the Equity Index Futures Contract
is dependent upon and reflects the changes in the S&P 500[supreg],
which is an index that reflects the performance of each of the
underlying 500 large-cap U.S. equities. The Treasury Index Futures
Contract provides an exposure to the interest rate market segment with
respect to 30-Year U.S. Treasury Bonds. The Treasury Index Futures
Contract is a futures contract that provides and permits investors to
invest in a substitute instrument in place of the underlying, speculate
or hedge, as applicable, in the direction of interest rates with
respect to long-term Treasury Bonds. The Treasury Index Futures
Contract serves as a proxy for 30-Year U.S. Treasury Bonds because the
performance of the Treasury Index Futures Contract is dependent upon
and reflects the changes in the price of the underlying 30-Year U.S.
Treasury Bonds.
In order to pursue its investment objective, the FactorShares 2X:
S&P500 Bull/TBond Bear will seek to invest approximately +200% of the
value of its Fund Equity (i.e., the estimated NAV) in the front month
Equity Index Futures Contract and/or Substitute Futures and Financial
Instruments, as applicable. Simultaneously, the Fund seeks to invest
approximately -200% of the value of its Fund Equity in the front month
Treasury Index Futures Contract and/or Substitute Futures and Financial
Instruments, as applicable. Around the NAV Calculation Time, and in
order to continue to pursue its daily investment objective, the Fund
seeks to rebalance daily its front month Equity Index Futures Contracts
and/or Substitute Futures and Financial Instruments, as applicable, to
equal approximately +200% of the value of its Fund Equity. Similarly,
around the NAV Calculation Time, the Fund will seek to rebalance daily
its front month Treasury Index Futures Contract and/or Substitute
Futures and Financial Instruments, as applicable, to equal
approximately -200% of the value of its Fund Equity.
FactorShares 2X: TBond Bull/S&P500 Bear
The FactorShares 2X: TBond Bull/S&P500 Bear is designed for
investors who believe the long-dated U.S. Treasury market segment will
increase in value relative to the large-cap U.S. equity market segment.
According to its Registration Statement, the objective of the
FactorShares 2X: TBond Bull/S&P500 Bear will be to seek to track
approximately -200% of the daily return of the S&P U.S. Equity Risk
Premium Total Return Index. The Fund will seek to track the spread or
the difference in daily returns between the interest rate and U.S.
equity market segments by primarily establishing a leveraged long
position in the Treasury Index Futures Contract and a leveraged short
position in the Equity Index Futures Contract.
The Treasury Index Futures Contract provides an exposure to the
interest rate market segment with respect to 30-Year U.S. Treasury
Bonds. The Treasury Index Futures Contract is a futures contract that
provides and permits investors to invest in a substitute instrument in
place of the underlying, speculate or hedge, as applicable, in the
direction of interest rates with respect to long-term Treasury Bonds.
The Treasury Index Futures Contract serves as a proxy for 30-Year U.S.
Treasury Bonds because the performance of the Treasury Index Futures
Contract is dependent upon and reflects the changes in the price of the
underlying 30-Year U.S. Treasury Bonds. The Equity Index Futures
Contract provides an exposure to the S&P 500[supreg] Index. The Equity
Index Futures Contract is a futures contract that provides and permits
investors to invest in a substitute instrument in place of the
underlying, speculate or hedge, as applicable, in large-cap U.S.
equities. The Equity Index Futures Contract serves as a proxy for
large-cap U.S. equities because the performance of the Equity Index
Futures Contract is dependent upon and reflects the changes in the S&P
500[supreg].
In order to pursue its investment objective, the FactorShares 2X:
TBond Bull/S&P500 Bear will seek to invest approximately +200% of the
value of its Fund Equity (i.e., the estimated NAV) in the front month
Treasury Index Futures Contract and/or Substitute Futures and Financial
Instruments, as applicable. Simultaneously, the Fund will seek to
invest approximately - 200% of the value of its Fund Equity in the
front month Equity Index Futures Contract and/or Substitute Futures and
Financial Instruments, as applicable. Around the NAV Calculation Time,
and in order to continue to pursue its daily investment objective, the
Fund will seek to rebalance daily its front month Treasury Index
Futures Contracts and/or Substitute Futures and Financial Instruments,
as applicable, to equal approximately +200% of the value of its Fund
Equity. Similarly, around the NAV Calculation Time, the Fund will seek
to rebalance daily its front month Equity Index Futures Contract and/or
Substitute Futures and Financial Instruments, as applicable, to equal
approximately - 200% of the value of its Fund Equity.
FactorShares 2X: S&P500 Bull/USD Bear
The FactorShares 2X: S&P500 Bull/USD Bear is designed for investors
who believe the large-cap U.S. equity market segment will increase in
value relative to the general indication of the international value of
the U.S. dollar. According to its Registration Statement, the objective
of the FactorShares 2X: S&P500 Bull/USD Bear will be to seek to track
approximately +200% of the daily return of the S&P 500 Non-U.S. Dollar
Index. The Fund will seek to track the spread or the difference in
daily returns between the U.S. equity and currency market segments by
primarily establishing a leveraged long position in the Equity Index
Futures Contract, and a leveraged short position in the U.S. Dollar
Index[supreg] Futures (``Currency Index Futures Contract'').
The Equity Index Futures Contract provides an exposure to the S&P
500[supreg] Index. The Equity Index Futures Contract is a futures
contract that provides and permits investors to invest in a substitute
instrument in place of the underlying, speculate or hedge, as
applicable, in large-cap U.S. equities. The Equity Index Futures
Contract serves as a proxy for large-cap U.S. equities because the
performance of the Equity Index Futures Contract is dependent upon and
reflects the changes in the S&P 500[supreg]. The Currency Index Futures
Contract provides an exposure to the international value of the U.S.
dollar. The Currency Index Futures Contract is a futures contract that
provides and permits investors to invest in a substitute instrument in
place of the underlying, speculate or hedge, as applicable, in the
direction of the U.S. dollar relative to a basket of six major world
currencies. The Currency Index Futures Contract serves as a proxy for
the international value of the U.S. dollar relative to the six major
world currencies because the performance of the Currency Index Futures
Contract is dependent upon and reflects the changes in the U.S. Dollar
Index (USDX[supreg]), which is an index which reflects the performance
of each of the underlying basket of six major world currencies relative
to the U.S. dollar.
In order to pursue its investment objective, the FactorShares 2X:
S&P500 Bull/USD Bear will seek to invest approximately +200% of the
value of its Fund Equity (i.e., the estimated NAV) in the front month
Equity Index Futures Contract and/or Substitute Futures and Financial
Instruments, as applicable. Simultaneously, the Fund seeks to invest
approximately -200% of the value of its Fund Equity in the front month
Currency Index Futures Contract
[[Page 1482]]
and/or Substitute Futures and Financial Instruments, as applicable.
Around the NAV Calculation Time, and in order to continue to pursue its
daily investment objective, the Fund seeks to rebalance daily its front
month Equity Index Futures Contracts and/or Substitute Futures and
Financial Instruments, as applicable, to equal approximately +200% of
the value of its Fund Equity. Similarly, around the NAV Calculation
Time, the Fund will seek to rebalance daily its front month Currency
Index Futures Contract and/or Substitute Futures and Financial
Instruments, as applicable, to equal approximately -200% of the value
of its Fund Equity.
FactorShares 2X: Oil Bull/S&P500 Bear
The FactorShares 2X: Oil Bull/S&P500 Bear is designed for investors
who believe that crude oil will increase in value relative to the
large-cap U.S. equity market segment. According to its Registration
Statement, the objective of the FactorShares 2X: Oil Bull/S&P500 Bear
will be to seek to track approximately +200% of the daily return of the
S&P Crude Oil-Equity Spread Total Return Index. The Fund will seek to
track the spread or the difference in daily returns between the oil and
U.S. equity market segments by primarily establishing a leveraged long
position in the Oil Index Futures Contract, as defined below, and a
leveraged short position in the Equity Index Futures Contract.
The Oil Index Futures Contract provides an exposure to the oil
market segment with respect to light sweet crude oil. The Oil Index
Futures Contract is a futures contract that provides and permits
investors to invest in a substitute instrument in place of the
underlying, speculate or hedge, as applicable, in the direction of the
value of light sweet crude oil. The Oil Index Futures Contract serves
as a proxy for light sweet crude oil because the performance of the Oil
Index Futures Contract is dependent upon and reflects the changes in
the price of light sweet crude oil. The Equity Index Futures Contract
provides an exposure to the S&P 500[supreg] Index. The Equity Index
Futures Contract is a futures contract that provides and permits
investors to invest in a substitute instrument in place of the
underlying, speculate or hedge, as applicable, in large-cap U.S.
equities. The Equity Index Futures Contract serves as a proxy for
large-cap U.S. equities because the performance of the Equity Index
Futures Contract is dependent upon and reflects the changes in the S&P
500[supreg].
In order to pursue its investment objective, the FactorShares 2X:
Oil Bull/S&P500 Bear will seek to invest approximately +200% of the
value of its Fund Equity (i.e., the estimated NAV) in the front month
Oil Index Futures Contract and/or Substitute Futures and Financial
Instruments, as applicable. Simultaneously, the Fund will seek to
invest approximately-200% of the value of its Fund Equity in the front
month Equity Index Futures Contract and/or Substitute Futures and
Financial Instruments, as applicable. Around the NAV Calculation Time,
and in order to continue to pursue its daily investment objective, the
Fund will seek to rebalance daily its front month Oil Index Futures
Contracts and/or Substitute Futures and Financial Instruments, as
applicable, to equal approximately +200% of the value of its Fund
Equity. Similarly, around the NAV Calculation Time, the Fund will seek
to rebalance daily its front month Equity Index Futures Contract and/or
Substitute Futures and Financial Instruments, as applicable, to equal
approximately -200% of the value of its Fund Equity.
FactorShares 2X: Gold Bull/S&P500 Bear
The FactorShares 2X: Gold Bull/S&P500 Bear is designed for
investors who believe that gold will increase in value relative to the
large-cap U.S. equity market segment. According to its Registration
Statement, the objective of the FactorShares 2X: Gold Bull/S&P500 Bear
will be to seek to track approximately +200% of the daily return of the
S&P Gold-Equity Spread Total Return Index. The Fund will seek to track
the spread or the difference in daily returns between the gold and U.S.
equity market segments by primarily establishing a leveraged long
position in the Gold Index Futures Contract, as defined below, and a
leveraged short position in the Equity Index Futures Contract.
The Gold Index Futures Contract provides an exposure to the
precious metals market segment with respect to gold. The Gold Index
Futures Contract is a futures contract that provides and permits
investors to invest in a substitute instrument in place of the
underlying, speculate or hedge, as applicable, in the direction of the
value of gold. The Gold Index Futures Contract serves as a proxy for
gold because the performance of the Gold Index Futures Contract is
dependent upon and reflects the changes in the price of gold. The
Equity Index Futures Contract provides an exposure to the S&P
500[supreg] Index. The Equity Index Futures Contract is a futures
contract that provides and permits investors to invest in a substitute
instrument in place of the underlying, speculate or hedge, as
applicable, in large-cap U.S. equities. The Equity Index Futures
Contract serves as a proxy for large-cap U.S. equities because the
performance of the Equity Index Futures Contract is dependent upon and
reflects the changes in the S&P 500[supreg].
In order to pursue its investment objective, the FactorShares 2X:
Gold Bull/S&P500 Bear will seek to invest approximately +200% of the
value of its Fund Equity (i.e., the estimated NAV) in the front month
Gold Index Futures Contract and/or Substitute Futures and Financial
Instruments, as applicable. Simultaneously, the Fund will seek to
invest approximately - 200% of the value of its Fund Equity in the
front month Equity Index Futures Contract and/or Substitute Futures and
Financial Instruments, as applicable. Around the NAV Calculation Time,
and in order to continue to pursue its daily investment objective, the
Fund will seek to rebalance daily its front month Gold Index Futures
Contracts and/or Substitute Futures and Financial Instruments, as
applicable, to equal approximately +200% of the value of its Fund
Equity. Similarly, around the NAV Calculation Time, the Fund will seek
to rebalance daily its front month Equity Index Futures Contract and/or
Substitute Futures and Financial Instruments, as applicable, to equal
approximately- 200% of the value of its Fund Equity.
Net Asset Value
According to each Registration Statement, NAV, in respect of a
Fund, means the total assets of the applicable 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 futures
contracts, Financial Instruments (if any), and any other credit or
debit accruing to a Fund but unpaid or not received by a Fund. All open
futures contracts traded on a United States exchange are calculated at
their then current market value, which are based upon the settlement
price for that particular futures contract traded on the applicable
United States exchange on the date with respect to which NAV is being
determined; provided, that if a futures contract traded on a United
States exchange could not be liquidated on such day, due to the
operation of daily limits or
[[Page 1483]]
other rules of the exchange upon which that position is traded or
otherwise, the settlement price on the most recent day on which the
position could have been liquidated will be the basis for determining
the market value of such position for such day. The current market
value of all open futures contracts traded on a non-United States
exchange, to the extent applicable, are based upon the settlement price
for that particular futures contract traded on the applicable non-
United States exchange on the date with respect to which NAV is being
determined; provided further, that if a futures contract traded on a
non-United States exchange, to the extent applicable, could not be
liquidated on such day, due to the operation of daily limits (if
applicable) or other rules of the exchange upon which that position is
traded or otherwise, the settlement price on the most recent day on
which the position could have been liquidated will be the basis for
determining the market value of such position for such day. The
Managing Owner may in its discretion (and under extraordinary
circumstances, including, but not limited to, periods during which a
settlement price of a futures contract is not available due to exchange
limit orders or force majeure type events such as systems failure,
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance) value any asset of a Fund pursuant to such other
principles as the Managing Owner deems fair and equitable so long as
such principles are consistent with normal industry standards. Interest
earned on any Fund's futures brokerage account, if applicable, will be
accrued at least monthly. The amount of any distribution will be a
liability of such Fund from the day when the distribution is declared
until it is paid.
The NAV of each Fund is calculated as of the first to settle of the
corresponding Index Futures Contracts, provided that no Fund will
calculate its NAV after 4 p.m. Eastern Time (``E.T.''). For example,
the futures exchanges on which the E-mini Standard and Poor's 500 Stock
Price IndexTM Futures (Long Index Futures Contracts) and the
30-Year U.S. Treasury Bond Futures (Short Index Futures Contracts) of
the FactorShares 2X: S&P500 Bull/TBond Bear fund settle at 4:15 p.m.
E.T. and 3 p.m. E.T., respectively. Therefore, as detailed in the table
below, the FactorShares 2X: S&P500 Bull/TBond Bear fund will calculate
its NAV, or NAV Calculation Time, as of 3 p.m. E.T.
---------------------------------------------------------------------------
\21\ The Commission previously has approved commodity-based or
currency-based trust securities for which the NAV is calculated
earlier than 4 p.m., E.T. See, e.g., Securities Exchange Act Release
Nos. 50603 (October 28, 2004), 69 FR 64614 (November 5, 2004) (SR-
NYSE-2004-22) (order approving listing of streetTRACKS Gold Trust);
52843 (November 28, 2005), 70 FR 72486 (December 5, 2005) (SR-NYSE-
2005-65) (order approving listing of Euro Currency Trust); and 61219
(December 22, 2009), 74 FR 68886 (December 29, 2009) (SR-NYSEArca-
2009-95) (order approving listing of ETFS Platinum Trust).
\22\ Because the first to settle Index Futures Contracts for the
FactorShares 2X: Oil Bull/S&P500 Bear and FactorShares 2X: Gold
Bull/S&P500 Bear funds are each different than the first to settle
Index Futures Contracts for the remaining Funds, the NAV Calculation
Time for each of the FactorShares 2X: Oil Bull/S&P500 Bear and
FactorShares 2X: Gold Bull/S&P500 Bear funds differ from the
remaining Funds.
---------------------------------------------------------------------------
Fund NAV Calculation Times (E.T.):
----------------------------------------------------------------------------------------------------------------
Long Index Futures Short Index Futures
Fund Contract: settlement Contract: settlement First to settle/NAV Calculation
time time Time \21\
----------------------------------------------------------------------------------------------------------------
FactorShares 2X: S&P500 Bull/TBond E-mini Standard and 30 Year U.S. 3 p.m.
Bear. Poor's 500 Stock Treasury Bond
Price Index\TM\ Futures: 3 p.m.
Futures: 4:15 p.m.
FactorShares 2X: TBond Bull/S&P500 30 Year U.S. Treasury E-mini Standard and 3 p.m.
Bear. Bond Futures: 3 p.m. Poor's 500 Stock
Price Index\TM\
Futures: 4:15 p.m.
FactorShares 2X: S&P500 Bull/USD E-mini Standard and U.S. Dollar 3 p.m.
Bear. Poor's 500 Stock Index[supreg]
Price Index\TM\ Futures:.
Futures: 4:15 p.m. 3 p.m...............
FactorShares 2X: Oil Bull/S&P500 Light Sweet Crude Oil E-mini Standard and 2:30 p.m.
Bear \22\. Futures: 2:30 p.m. Poor's 500 Stock
Price Index\TM\
Futures: 4:15 p.m.
FactorShares 2X: Gold Bull/S&P500 Gold Futures: 1:30 E-mini Standard and 1:30 p.m.
Bear. p.m. Poor's 500 Stock
Price Index\TM\
Futures: 4:15 p.m.
----------------------------------------------------------------------------------------------------------------
A Fund's daily NAV may reflect the closing settlement price and/or
the last traded value just before the NAV Calculation Time, as
applicable, for each of its Index Futures Contracts. A Fund's daily NAV
will reflect the closing settlement price for each of its Index Futures
Contracts if an Index Future Contract's closing settlement price is
determined at or just before the NAV Calculation Time. If the exchange
on which a Fund's Index Futures Contract does not determine the closing
settlement price at or just before the NAV Calculation Time, then the
last traded value for that Index Futures Contract up until (but
excluding) the NAV Calculation Time will be reflected in the NAV.
For example, the closing settlement price of the 30-Year U.S.
Treasury Bond Futures occurs at or around 3 p.m. E.T., or just before
the NAV Calculation Time for the FactorShares 2X: S&P500 Bull/TBond
Bear. Accordingly, the Index Futures Contract price used to determine
the NAV for 30-Year U.S. Treasury Bond Futures positions held by the
FactorShares 2X: S&P500 Bull/TBond Bear will be the corresponding
closing settlement price of 30-Year U.S. Treasury Bond Futures as
reported by CME. However, the closing settlement price for the E-mini
Standard and Poor's 500 Stock Price IndexTM Futures is
determined at or around 4:15 p.m. E.T., which occurs 75 minutes after
the NAV Calculation Time of FactorShares 2X: S&P500 Bull/TBond Bear.
Therefore, the Index Futures Contract price used to determine the NAV
for E-mini Standard and Poor's 500 Stock Price IndexTM
Futures positions held by the FactorShares 2X: S&P500 Bull/TBond Bear
will be the last traded value for the E-mini Standard and Poor's 500
Stock Price IndexTM Futures up until (but excluding) 3 p.m.
E.T.
In calculating the NAV of a Fund, the settlement value of a
Financial Instrument is determined by applying the terms as provided
under the applicable Financial Instrument. However, in the event that
an underlying Index Futures Contract is not trading due to the
operation of daily limits or otherwise, the Managing Owner may in its
sole discretion choose to value the Fund's Financial Instruments
referencing such Index Futures Contract on a fair value basis in order
to calculate the Fund's NAV.
NAV per Fund Share, in respect of a Fund, is the NAV of the Fund
divided by the number of its outstanding Fund Shares.
[[Page 1484]]
Pricing Information Available on the NYSE Arca and Other Sources
According to the Registration Statements, the Index Sponsor will
calculate the Indicative Index Value (``IIV'') of each Index on a total
return basis. In order to calculate the IIV, the Index Sponsor polls
Reuters every 15 seconds of each trading day to determine the real-time
value of each of the following components of each Index: Price of the
underlying Long Index Futures Contracts; price of the underlying Short
Index Futures Contracts; and the pro-rated risk free rate, which is the
3-month U.S. Treasury bill, with respect to each applicable Index. The
Index Sponsor then applies a set of rules to the above values to create
the indicative level of each Long Sub-Index and each Short Sub-Index,
and in turn, each Index. The IIV and closing level of each Index and
Sub-Index will be calculated until the last to settle of NYSE Arca or
the last to settle of the exchanges on which the Fund's Index Futures
Contracts are traded, provided, however, that no IIV will be calculated
after 4:15 p.m. E.T. (``Index Calculation Time''). These rules are
consistent with the rules which the Index Sponsor applies at the end of
each trading day to calculate the closing level of each Index and Sub-
Index. A similar polling process is applied to the U.S. Treasury bills,
or any other applicable Fixed Income Instruments, to determine the
indicative value of the Fixed Income Instruments held by each Fund
every 15 seconds throughout the trading day.
An Index and Sub-Index value will be calculated on each business
day as determined by the futures exchanges on which each Index's Long
Index Futures Contract and/or a Short Index Futures Contract trades.
The Index Sponsor will continue to calculate each Index and Sub-Index
even on days when the futures exchanges on which each Index's Long
Index Futures Contract and/or a Short Index Futures Contract trades are
open and NYSE Arca is closed.
The IIV per Share of each Fund is calculated by applying the
percentage price change of each Fund's holdings in futures contracts
(and/or Substitute Futures and Financial Instruments, as applicable) to
the last published NAV of each Fund and will be disseminated (in U.S.
dollars) by one or more market data vendors every 15 seconds during the
NYSE Arca Core Trading Session of 9:30 a.m. to 4 p.m. E.T.
The current trading price per Share of each Fund (quoted in U.S.
dollars) will be published continuously under its own ticker symbol as
trades occur throughout each trading day on the consolidated tape,
Reuters and/or Bloomberg.
The Index Sponsor publishes the intra-day level of each Index and
Sub-Index, which is available to subscribers. The intra-day level of
each Index and Sub-Index is also published once every 15 seconds during
the NYSE Arca Core Trading Session on the consolidated tape, Reuters
and/or Bloomberg.
The Index Sponsor publishes the closing level of each Index and the
Sub-Indexes daily at the Index Sponsor's Web site at https://www.standardandpoors.com. The most recent end-of-day closing level of
each Index and Sub-Index is published under its own symbol as of the
close of business for NYSE Arca each trading day on the consolidated
tape, Reuters and/or Bloomberg, or any successor thereto.
The Managing Owner publishes the NAV of each Fund and the NAV per
Share of each Fund daily. The most recent end-of-day NAV of each Fund
is published under its own symbol as of the close of business on
Reuters and/or Bloomberg and on the Managing Owner's Web site at https://www.factorshares.net, or any successor thereto. In addition, the most
recent end-of-day NAV of each Fund is published the following morning
on the consolidated tape.
The Funds will provide Web site disclosure of the portfolio
holdings daily and will include, as applicable, the names and value (in
U.S. dollars) of Index Futures Contracts, Substitute Futures and
Financial Instruments, as applicable, and characteristics of these
Index Futures Contracts and Substitute Futures and Financial
Instruments, as applicable, and Fixed Income Instruments, and the
amount of cash held in the portfolio of the Funds. This Web site
disclosure of the portfolio composition of the Funds 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
Funds' 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 the Funds through the Managing
Owner's Web site.
Creation and Redemption of Shares
Each Fund creates and redeems Shares from time-to-time, but only in
one or more Baskets. A Basket is a block of 100,000 Shares. Baskets may
be created or redeemed only by Authorized Participants, as described in
the Registration Statements, except that the initial Baskets will be
created by the Initial Purchaser. Except when aggregated in Baskets,
the Shares are not redeemable securities. Authorized Participants pay a
transaction fee of $500 in connection with each order to create or
redeem one or more Baskets. Authorized Participants may sell the Shares
included in the Baskets they purchase from the Funds to other
investors.
On any business day, an Authorized Participant may place an order
with the Distributor to create one or more Baskets. For purposes of
processing both purchase and redemption orders, a ``business day''
means any day other than a day when banks in New York City are required
or permitted to be closed. Purchase orders must be placed by no later
than 5 hours prior to the close of NYSE Arca, which would be
customarily 11 a.m. E.T. However, from time-to-time, NYSE Arca may have
an early close at, for example, 1 p.m. E.T. (e.g., day after
Thanksgiving). On these days, purchase orders must be placed by no
later than 8 a.m. E.T., which would be 5 hours prior to the early close
of NYSE Arca. The day on which the Distributor receives a valid
purchase order is the purchase order date. Purchase orders are
irrevocable. By placing a purchase order, and prior to delivery of such
Baskets, an Authorized Participant's DTC account will be charged the
non-refundable transaction fee due for the purchase order.
Determination of Required Payment
The total cash payment required to create each Basket is the NAV of
100,000 Shares of the applicable Fund as of the NAV Calculation Time,
on the purchase order date. Baskets are issued as of noon, E.T., on the
business day immediately following the purchase order date at the
applicable NAV per Share as of the NAV Calculation Time, on the
purchase order date, but only if the required payment has been timely
received.
Because orders to purchase Baskets must be placed by no later than
5 hours prior to the close of NYSE Arca, but the total payment required
to create a Basket will not be determined until the NAV Calculation
Time on the date the purchase order is received, Authorized
Participants will not know the total amount of the
