Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change Relating to the Listing and Trading of FactorShares Funds, 9843-9846 [2011-3824]

Download as PDF Federal Register / Vol. 76, No. 35 / Tuesday, February 22, 2011 / Notices SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63915; File No. SR– NYSEArca–2010–121] Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting Approval of Proposed Rule Change Relating to the Listing and Trading of FactorShares Funds February 15, 2011. I. Introduction On December 22, 2010, NYSE Arca, Inc. (‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a proposed rule change to list and trade shares (‘‘Shares’’) of 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, ‘‘Funds’’) under NYSE Arca Equities Rule 8.200, Commentary .02. The proposed rule change was published for comment in the Federal Register on January 10, 2011.3 The Commission received no comments on the proposal. This order grants approval of the proposed rule change. II. Description of the Proposal The Exchange proposes to list and trade the Shares of the Funds under NYSE Arca Equities Rule 8.200, Commentary .02. 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, which represent units of fractional beneficial undivided interest in and ownership of such Fund.4 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 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 63636 (January 3, 2011), 76 FR 1477 (‘‘Notice’’). 4 See Pre-Effective Amendment No. 3 to Form S– 1, dated November 3, 2010, for each Fund (individually, a ‘‘Registration Statement,’’ and, collectively, ‘‘Registration Statements’’) (File Nos. 333–164754, 333–164758, 333–164757, 333–164756 and 333–164755, respectively). All Funds, other than the FactorShares 2X: TBond Bull/S&P500 Bear, are also referred to herein as ‘‘Leveraged Funds,’’ and FactorShares 2X: TBond Bull/S&P500 Bear is referred to herein as the ‘‘Leveraged Inverse Fund.’’ mstockstill on DSKH9S0YB1PROD with NOTICES 2 17 VerDate Mar<15>2010 16:51 Feb 18, 2011 Jkt 223001 (‘‘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 (‘‘Administrator’’) as the Administrator, the Transfer Agent, and the Custodian of each Fund. In addition, each Fund has appointed Foreside Fund Services, LLC (‘‘Distributor’’) 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. Underlying Indexes and Sub-Indexes The Standard & Poor’s Factor Index Series (‘‘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, ‘‘Sub-Indexes’’). The Long Sub-Index is composed of the long front Index Futures Contract (‘‘Long Index Futures Contract’’).5 The Short SubIndex is composed of the short front Index Futures Contract (‘‘Short Index Futures Contract’’).6 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. 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, to reflect the difference in the daily return between two market segments. 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 (‘‘Index Sponsor’’) is the Index Sponsor for the Indexes and is the calculation agent for the Indexes and Sub-Indexes.7 The Long Sub-Index 5 The term ‘‘long front’’ refers to a long position in the near month contract. 6 The term ‘‘short front’’ refers to a short position in the near month contract. 7 The Exchange represents that the Index Sponsor is not affiliated with a broker-dealer. PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 9843 tracks the changes in the Long Index Futures Contract, and the Short SubIndex tracks the changes in the Short Index Futures Contract. 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. Funds 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. By simultaneously buying and selling two benchmark Index Futures Contracts (or, as necessary, substantively equivalent combinations of Substitute Futures and Financial Instruments),8 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). Thus, 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. 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. Each Fund will hold a portfolio of Index Futures Contracts, each of which are traded on various futures markets in 8 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. E:\FR\FM\22FEN1.SGM 22FEN1 9844 Federal Register / Vol. 76, No. 35 / Tuesday, February 22, 2011 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES 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.9 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 would prevent the Fund from obtaining the appropriate amount of investment exposure to the affected Index Futures Contract.10 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. A Fund’s underlying 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 nearmonth short Index Futures Contract. 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 SubIndex, plus the return on a risk free component. 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 9 The Exchange represents that, to the extent practicable, a Fund will invest in swaps cleared through the facilities of a centralized clearing house. 10 The Managing Owner will 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 in the Registration Statements. VerDate Mar<15>2010 16:51 Feb 18, 2011 Jkt 223001 and short positions around the net asset value (‘‘NAV’’) calculation time. The purpose of daily rebalancing is to reposition each Fund’s investments in accordance with its daily investment objective. Each Fund will have a leverage ratio of approximately 4:1 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 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. 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 PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 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. 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. 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. 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’’). E:\FR\FM\22FEN1.SGM 22FEN1 Federal Register / Vol. 76, No. 35 / Tuesday, February 22, 2011 / Notices 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. 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. 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. 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. mstockstill on DSKH9S0YB1PROD with NOTICES 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. 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 Contract11 and a leveraged short 11 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 VerDate Mar<15>2010 16:51 Feb 18, 2011 Jkt 223001 position in the Equity Index Futures Contract. 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. 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 Contract12 and a leveraged short position in the Equity Index Futures Contract. Additional information regarding the Funds and the Shares, the Indexes and Sub-Indexes, the Index Futures Contracts, investment strategies, risks, creation and redemption procedures, calculation and dissemination of NAV and NAV calculation times, fees, portfolio holdings and disclosure policies, distributions and taxes, availability of information, trading rules and halts, and surveillance procedures, among other things, can be found in the Registration Statements and in the Notice, as applicable.13 III. Discussion and Commission’s Findings The Commission has carefully reviewed the proposed rule change and finds that it is consistent with the requirements of Section 6 of the Act14 and the rules and regulations thereunder applicable to a national securities exchange.15 In particular, the Commission finds that the proposal is consistent with Section 6(b)(5) of the Act,16 which requires, among other things, that the Exchange’s rules be because the performance of the Oil Index Futures Contract is dependent upon and reflects the changes in the price of light sweet crude oil. 12 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. 13 See Notice and Registration Statements, supra notes 3 and 4. 14 15 U.S.C. 78f. 15 In approving this proposed rule change, the Commission notes that it has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 16 15 U.S.C. 78f(b)(5). PO 00000 Frm 00106 Fmt 4703 Sfmt 4703 9845 designed to promote just and equitable principles of trade, to remove impediments to and perfect the mechanism of a free and open market and a national market system, and, in general, to protect investors and the public interest. The Commission notes that the Shares must comply with the requirements of NYSE Arca Equities Rule 8.200 and Commentary .02 thereto to be listed and traded on the Exchange. The Commission finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Act,17 which sets forth Congress’ finding that it is in the public interest and appropriate for the protection of investors and the maintenance of fair and orderly markets to assure the availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities. Quotation and last-sale information regarding the Shares will be disseminated through the facilities of the Consolidated Tape Association. The Index Sponsor will publish the intra-day level of each Index and Sub-Index once every 15 seconds during the NYSE Arca Core Trading Session on the consolidated tape, Reuters, and/or Bloomberg, and the closing level of each Index and SubIndexes daily on its Web site. In addition, the Indicative Index Value (‘‘IIV’’) per Share of each Fund will be 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. Further, 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, 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. The closing prices and settlement prices of Index Futures Contracts are available from the New York Mercantile Exchange (‘‘NYMEX’’), the Chicago Mercantile Exchange, Inc. (‘‘CME’’), the COMEX division of NYMEX (‘‘COMEX’’), and the Intercontinental Exchange Inc. (‘‘ICE’’), automated quotation systems, published or other public sources, and on-line information services such as Bloomberg 17 15 E:\FR\FM\22FEN1.SGM U.S.C. 78k–1(a)(1)(C)(iii). 22FEN1 mstockstill on DSKH9S0YB1PROD with NOTICES 9846 Federal Register / Vol. 76, No. 35 / Tuesday, February 22, 2011 / Notices or Reuters. The specific contract specifications for the Index Futures Contracts are also available on those Web sites, as well as on other financial informational sources. 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 NAV for each Fund will be calculated by the Administrator once a day as of the first to settle of the corresponding Index Futures Contracts, but in no event after 4 p.m. E.T. The Exchange will disseminate on a daily basis via the Consolidated Tape Association information with respect to recent NAV, Shares outstanding, and the daily trading volume of the Shares. The Web site for the Funds and/or the Exchange will contain: (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 Commission further believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. The Commission notes that the 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. 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, the Exchange will halt trading in the Shares until such time as the NAV is available to all market participants. Further, the Exchange may halt trading during the day in which an interruption to the dissemination to the IIV, the Indexes, the Sub-Indexes, or the value of the underlying futures contracts occurs. If such interruption 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.18 Trading in the Shares will be subject to NYSE Arca Equities Rule 8.200, Commentary .02(e), which sets forth certain restrictions on 18 Trading may also 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. VerDate Mar<15>2010 16:51 Feb 18, 2011 Jkt 223001 ETP Holders acting as registered Market Makers in Trust Issued Receipts to facilitate surveillance. The Exchange represents that the Index Sponsor has implemented procedures designed to prevent the use and dissemination of material, non-public information regarding the Indexes. The Exchange has represented that the Shares are deemed to be equity securities subject to the Exchange’s existing rules governing the trading of equity securities. In support of this proposal, the Exchange has made representations, including: (1) The Funds will meet the initial and continued listing requirements applicable to Trust Issued Receipts in NYSE Arca Equities Rule 8.200 and Commentary .02 thereto. (2) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions. (3) The Exchange’s surveillance 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. In addition, with respect to components traded on exchanges, not more than 10% of the weight of a Fund’s portfolio in the aggregate will consist of components whose principal trading market is not a member of the Intermarket Surveillance Group or is a market with which the Exchange does not have a comprehensive surveillance sharing agreement. (4) Prior to the commencement of trading, the Exchange will inform its ETP Holders in an Information Bulletin of the special characteristics and risks associated with trading the Shares. Specifically, the Information Bulletin will discuss the following: (a) 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; (b) the procedures for purchases and redemptions of Shares in Creation Baskets and Redemption Baskets (and that Shares are not individually redeemable); (c) 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; (d) how information regarding the IIV is disseminated; (e) 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 (f) trading information.19 19 The Information Bulletin will further advise ETP Holders that FINRA has implemented PO 00000 Frm 00107 Fmt 4703 Sfmt 4703 (5) 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.20 (6) A minimum of 100,000 Shares for each Fund will be outstanding as of the start of trading on the Exchange. This approval order is based on the Exchange’s representations.21 For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act22 and the rules and regulations thereunder applicable to a national securities exchange. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,23 that the proposed rule change (SR–NYSEArca– 2010–121), be, and it hereby is, approved. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Cathy H. Ahn, Deputy Secretary. [FR Doc. 2011–3824 Filed 2–18–11; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63914; File No. SR–Phlx– 2011–15] Self-Regulatory Organizations; Notice of Filing of Proposed Rule Change by NASDAQ OMX PHLX LLC to Expand the $2.50 Strike Price Program February 15, 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 February 2, 2011, NASDAQ OMX PHLX LLC (‘‘Phlx’’ or ‘‘Exchange’’) filed with the 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). 20 17 CFR 240.10A–3. 21 The Commission notes that it does not regulate the market for futures in which the Fund plans to take positions, which is the responsibility of the CFTC. The CFTC has the authority to set limits on the positions that any person may take in futures. These limits may be directly set by the CFTC or by the markets on which the futures are traded. The Commission has no role in establishing position limits on futures, even though such limits could impact an exchange-traded product that is under the jurisdiction of the Commission. 22 15 U.S.C. 78f(b)(5). 23 15 U.S.C. 78s(b)(2). 24 17 CFR 200.30–3(a)(12). 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. E:\FR\FM\22FEN1.SGM 22FEN1

Agencies

[Federal Register Volume 76, Number 35 (Tuesday, February 22, 2011)]
[Notices]
[Pages 9843-9846]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-3824]



[[Page 9843]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63915; File No. SR-NYSEArca-2010-121]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change Relating to the Listing and Trading of 
FactorShares Funds

February 15, 2011.

I. Introduction

    On December 22, 2010, NYSE Arca, Inc. (``Exchange'') filed with the 
Securities and Exchange Commission (``Commission''), pursuant to 
Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ 
and Rule 19b-4 thereunder,\2\ a proposed rule change to list and trade 
shares (``Shares'') of 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, ``Funds'') 
under NYSE Arca Equities Rule 8.200, Commentary .02. The proposed rule 
change was published for comment in the Federal Register on January 10, 
2011.\3\ The Commission received no comments on the proposal. This 
order grants approval of the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 63636 (January 3, 
2011), 76 FR 1477 (``Notice'').
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II. Description of the Proposal

    The Exchange proposes to list and trade the Shares of the Funds 
under NYSE Arca Equities Rule 8.200, Commentary .02. 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, 
which represent units of fractional beneficial undivided interest in 
and ownership of such Fund.\4\
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    \4\ See Pre-Effective Amendment No. 3 to Form S-1, dated 
November 3, 2010, for each Fund (individually, a ``Registration 
Statement,'' and, collectively, ``Registration Statements'') (File 
Nos. 333-164754, 333-164758, 333-164757, 333-164756 and 333-164755, 
respectively). All Funds, other than the FactorShares 2X: TBond 
Bull/S&P500 Bear, are also referred to herein as ``Leveraged 
Funds,'' and FactorShares 2X: TBond Bull/S&P500 Bear is referred to 
herein as the ``Leveraged Inverse Fund.''
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    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 (``Administrator'') as 
the Administrator, the Transfer Agent, and the Custodian of each Fund. 
In addition, each Fund has appointed Foreside Fund Services, LLC 
(``Distributor'') 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.

Underlying Indexes and Sub-Indexes

    The Standard & Poor's Factor Index Series (``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, ``Sub-Indexes''). The 
Long Sub-Index is composed of the long front Index Futures Contract 
(``Long Index Futures Contract'').\5\ The Short Sub-Index is composed 
of the short front Index Futures Contract (``Short Index Futures 
Contract'').\6\ 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.
---------------------------------------------------------------------------

    \5\ The term ``long front'' refers to a long position in the 
near month contract.
    \6\ 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, to reflect the difference in the daily return 
between two market segments. 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 (``Index Sponsor'') is the Index Sponsor for the 
Indexes and is the calculation agent for the Indexes and Sub-
Indexes.\7\ The Long Sub-Index tracks the changes in the Long Index 
Futures Contract, and the Short Sub-Index tracks the changes in the 
Short Index Futures Contract.
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    \7\ The Exchange represents that the Index Sponsor is not 
affiliated with a broker-dealer.
---------------------------------------------------------------------------

    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.

Funds

    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. By simultaneously 
buying and selling two benchmark Index Futures Contracts (or, as 
necessary, substantively equivalent combinations of Substitute Futures 
and Financial Instruments),\8\ 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). Thus, 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. 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.
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    \8\ 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.
---------------------------------------------------------------------------

    Each Fund will hold a portfolio of Index Futures Contracts, each of 
which are traded on various futures markets in

[[Page 9844]]

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.\9\ 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 would 
prevent the Fund from obtaining the appropriate amount of investment 
exposure to the affected Index Futures Contract.\10\
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    \9\ The Exchange represents that, to the extent practicable, a 
Fund will invest in swaps cleared through the facilities of a 
centralized clearing house.
    \10\ The Managing Owner will 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 in the 
Registration Statements.
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    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.
    A Fund's underlying 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. 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.
    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. The 
purpose of daily rebalancing is to reposition each Fund's investments 
in accordance with its daily investment objective.
    Each Fund will have a leverage ratio of approximately 4:1 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 
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.

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.

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.

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. 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'').

[[Page 9845]]

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. 
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.

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. 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[reg] Futures.

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. 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\11\ and a leveraged short position in the Equity Index 
Futures Contract.
---------------------------------------------------------------------------

    \11\ 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.
---------------------------------------------------------------------------

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. 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\12\ and a leveraged short position in the Equity Index Futures 
Contract.
---------------------------------------------------------------------------

    \12\ 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.
---------------------------------------------------------------------------

    Additional information regarding the Funds and the Shares, the 
Indexes and Sub-Indexes, the Index Futures Contracts, investment 
strategies, risks, creation and redemption procedures, calculation and 
dissemination of NAV and NAV calculation times, fees, portfolio 
holdings and disclosure policies, distributions and taxes, availability 
of information, trading rules and halts, and surveillance procedures, 
among other things, can be found in the Registration Statements and in 
the Notice, as applicable.\13\
---------------------------------------------------------------------------

    \13\ See Notice and Registration Statements, supra notes 3 and 
4.
---------------------------------------------------------------------------

III. Discussion and Commission's Findings

    The Commission has carefully reviewed the proposed rule change and 
finds that it is consistent with the requirements of Section 6 of the 
Act\14\ and the rules and regulations thereunder applicable to a 
national securities exchange.\15\ In particular, the Commission finds 
that the proposal is consistent with Section 6(b)(5) of the Act,\16\ 
which requires, among other things, that the Exchange's rules be 
designed to promote just and equitable principles of trade, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system, and, in general, to protect investors and the 
public interest. The Commission notes that the Shares must comply with 
the requirements of NYSE Arca Equities Rule 8.200 and Commentary .02 
thereto to be listed and traded on the Exchange.
---------------------------------------------------------------------------

    \14\ 15 U.S.C. 78f.
    \15\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \16\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\17\ which sets forth Congress' finding that it is in the public 
interest and appropriate for the protection of investors and the 
maintenance of fair and orderly markets to assure the availability to 
brokers, dealers, and investors of information with respect to 
quotations for and transactions in securities. Quotation and last-sale 
information regarding the Shares will be disseminated through the 
facilities of the Consolidated Tape Association. The Index Sponsor will 
publish the intra-day level of each Index and Sub-Index once every 15 
seconds during the NYSE Arca Core Trading Session on the consolidated 
tape, Reuters, and/or Bloomberg, and the closing level of each Index 
and Sub-Indexes daily on its Web site. In addition, the Indicative 
Index Value (``IIV'') per Share of each Fund will be 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. Further, 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, 
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. The closing 
prices and settlement prices of Index Futures Contracts are available 
from the New York Mercantile Exchange (``NYMEX''), the Chicago 
Mercantile Exchange, Inc. (``CME''), the COMEX division of NYMEX 
(``COMEX''), and the Intercontinental Exchange Inc. (``ICE''), 
automated quotation systems, published or other public sources, and on-
line information services such as Bloomberg

[[Page 9846]]

or Reuters. The specific contract specifications for the Index Futures 
Contracts are also available on those Web sites, as well as on other 
financial informational sources. 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 NAV for 
each Fund will be calculated by the Administrator once a day as of the 
first to settle of the corresponding Index Futures Contracts, but in no 
event after 4 p.m. E.T. The Exchange will disseminate on a daily basis 
via the Consolidated Tape Association information with respect to 
recent NAV, Shares outstanding, and the daily trading volume of the 
Shares. The Web site for the Funds and/or the Exchange will contain: 
(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.
---------------------------------------------------------------------------

    \17\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    The Commission further believes that the proposal to list and trade 
the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the 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. 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, the Exchange 
will halt trading in the Shares until such time as the NAV is available 
to all market participants. Further, the Exchange may halt trading 
during the day in which an interruption to the dissemination to the 
IIV, the Indexes, the Sub-Indexes, or the value of the underlying 
futures contracts occurs. If such interruption 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.\18\ Trading in 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. The Exchange represents 
that the Index Sponsor has implemented procedures designed to prevent 
the use and dissemination of material, non-public information regarding 
the Indexes.
---------------------------------------------------------------------------

    \18\ Trading may also 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.
---------------------------------------------------------------------------

    The Exchange has represented that the Shares are deemed to be 
equity securities subject to the Exchange's existing rules governing 
the trading of equity securities. In support of this proposal, the 
Exchange has made representations, including:
    (1) The Funds will meet the initial and continued listing 
requirements applicable to Trust Issued Receipts in NYSE Arca Equities 
Rule 8.200 and Commentary .02 thereto.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The Exchange's surveillance 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. In addition, with respect to components traded on 
exchanges, not more than 10% of the weight of a Fund's portfolio in the 
aggregate will consist of components whose principal trading market is 
not a member of the Intermarket Surveillance Group or is a market with 
which the Exchange does not have a comprehensive surveillance sharing 
agreement.
    (4) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (a) 
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; (b) the procedures for purchases and redemptions of 
Shares in Creation Baskets and Redemption Baskets (and that Shares are 
not individually redeemable); (c) 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; 
(d) how information regarding the IIV is disseminated; (e) 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 (f) trading information.\19\
---------------------------------------------------------------------------

    \19\ 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).
---------------------------------------------------------------------------

    (5) 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.\20\
---------------------------------------------------------------------------

    \20\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (6) A minimum of 100,000 Shares for each Fund will be outstanding 
as of the start of trading on the Exchange. This approval order is 
based on the Exchange's representations.\21\
---------------------------------------------------------------------------

    \21\ The Commission notes that it does not regulate the market 
for futures in which the Fund plans to take positions, which is the 
responsibility of the CFTC. The CFTC has the authority to set limits 
on the positions that any person may take in futures. These limits 
may be directly set by the CFTC or by the markets on which the 
futures are traded. The Commission has no role in establishing 
position limits on futures, even though such limits could impact an 
exchange-traded product that is under the jurisdiction of the 
Commission.
---------------------------------------------------------------------------

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act\22\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-NYSEArca-2010-121), be, and 
it hereby is, approved.
---------------------------------------------------------------------------

    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-3824 Filed 2-18-11; 8:45 am]
BILLING CODE 8011-01-P