Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of the Following Under NYSE Arca Equities Rule 8.200: ProShares Short DJ-UBS Natural Gas, ProShares Ultra DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural Gas, 28483-28489 [2011-11967]
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Federal Register / Vol. 76, No. 95 / Tuesday, May 17, 2011 / Notices
the date of the hearing (if ordered) and
any postponements thereof. At any time
after said date, the Commission may
issue an order granting the application
upon request or upon the Commission’s
own motion.
SECURITIES AND EXCHANGE
COMMISSION
For the Commission, by the Division of
Corporation Finance, pursuant to delegated
authority.
Elizabeth M. Murphy,
Secretary.
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of the Following Under NYSE Arca
Equities Rule 8.200: ProShares Short
DJ–UBS Natural Gas, ProShares Ultra
DJ–UBS Natural Gas and ProShares
UltraShort DJ–UBS Natural Gas
[FR Doc. 2011–12064 Filed 5–16–11; 8:45 am]
BILLING CODE 8011–01–P
May 11, 2011.
SECURITIES AND EXCHANGE
COMMISSION
Emcdonald on DSK2BSOYB1PROD with NOTICES
Sunshine Act Meeting
Notice is hereby given, pursuant to
the provisions of the Government in the
Sunshine Act, Public Law 94–409, that
the Securities and Exchange
Commission will hold a Closed Meeting
on Thursday, May 19, 2011 at 2 p.m.
Commissioners, Counsel to the
Commissioners, the Secretary to the
Commission, and recording secretaries
will attend the Closed Meeting. Certain
staff members who have an interest in
the matters also may be present.
The General Counsel of the
Commission, or his designee, has
certified that, in his opinion, one or
more of the exemptions set forth in 5
U.S.C. 552b(c)(3), (5), (7), 9(B) and (10)
and 17 CFR 200.402(a)(3), (5), (7), 9(ii)
and (10), permit consideration of the
scheduled matters at the Closed
Meeting.
Commissioner Paredes, as duty
officer, voted to consider the items
listed for the Closed Meeting in a closed
session, and determined that no earlier
notice thereof was possible.
The subject matter of the Closed
Meeting scheduled for Thursday, May
19, 2011 will be:
Institution and settlement of
injunctive actions;
Institution and settlement of
administrative proceedings; and other
matters relating to enforcement
proceedings.
At times, changes in Commission
priorities require alterations in the
scheduling of meeting items.
For further information and to
ascertain what, if any, matters have been
added, deleted or postponed, please
contact: The Office of the Secretary at
(202) 551–5400.
Dated: May 13, 2011.
Cathy H. Ahn,
Deputy Secretary.
[Release No. 34–64464; File No. SR–
NYSEArca–2011–24]
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’) 1 and Rule 19b–4 thereunder,2
notice is hereby given that, on April 28,
2011, NYSE Arca, Inc. (the ‘‘Exchange’’
or ‘‘NYSE Arca’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) 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 under
NYSE Arca Equities Rule 8.200:
ProShares Short DJ–UBS Natural Gas,
ProShares Ultra DJ–UBS Natural Gas
and ProShares UltraShort DJ–UBS
Natural Gas. 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.
[FR Doc. 2011–12191 Filed 5–13–11; 4:15 pm]
1 15
BILLING CODE 8011–01–P
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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 shares
(‘‘Shares’’) of the following pursuant to
NYSE Arca Equities Rule 8.200:
ProShares Short DJ–UBS Natural Gas,
ProShares Ultra DJ–UBS Natural Gas
and ProShares UltraShort DJ–UBS
Natural Gas (each a ‘‘Fund’’ and,
collectively, the ‘‘Funds’’).4 Each of the
Funds is a series of the ProShares Trust
II (‘‘Trust’’), a Delaware statutory trust.
ProShare Capital Management LLC
(‘‘Sponsor’’) is the Trust’s Sponsor, and
Wilmington Trust Company is the
Trust’s trustee. Brown Brothers
Harriman & Co. (‘‘Administrator’’) serves
as the administrator, custodian and
transfer agent of the Funds. SEI
Investments Distribution Co.
(‘‘Distributor’’) serves as distributor of
the Shares.
The Exchange notes that the
Commission has previously approved
the listing and trading of other series of
the Commodities and Currency Trust
(now known as ProShares Trust II) both
on the American Stock Exchange LLC 5
and on NYSE Arca pursuant to unlisted
trading privileges (‘‘UTP’’),6 and listing
on NYSE Arca.7 In addition, the
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 Post-Effective Amendment No. 1 dated May
28, 2010 (File No. 333–163511) and Post-Effective
Amendment No. 4 dated April 13, 2011 (File No.
333–163511) to the Funds’ Registration Statement
on Form S–3 (‘‘Registration Statements’’). The
description of the Funds and the Shares contained
herein are based on the Registration Statements.
5 See Securities Exchange Act Release No. 58161
(July 15, 2008), 73 FR 42380 (July 21, 2008) (SR–
Amex–2008–39) (‘‘Amex Proposal’’).
6 See Securities Exchange Act Release No. 58163
(July 15, 2008), 73 FR 42391 (July 21, 2008) (SR–
NYSEArca–2008–73).
7 See Securities Exchange Act Release No. 58457
(September 3, 2008), 73 FR 52711 (September 10,
2008) (SR–NYSEArca–2008–91). The series of the
Trust approved for Exchange listing by the
Commission included the Ultra DJ–AIG Commodity
ProShares, UltraShort DJ–AIG Commodity
ProShares, Ultra DJ–AIG Agriculture ProShares,
UltraShort DJ–AIG Agriculture ProShares, Ultra DJ–
AIG Crude Oil ProShares, UltraShort DJ–AIG Crude
Oil ProShares, Ultra Gold ProShares, UltraShort
Gold ProShares, Ultra Silver ProShares, UltraShort
Continued
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Federal Register / Vol. 76, No. 95 / Tuesday, May 17, 2011 / Notices
Commission has approved other
exchange-traded investment products
linked to the performance of underlying
commodities.8 The Exchange further
notes that the shares of other ProShares
UltraFunds and UltraShort Funds based
on various securities indexes have
previously been approved by the
Commission.9
According to the Registration
Statements, the Funds seek daily
investment results (before fees and
expenses) that correspond to the inverse
(opposite) of the daily performance, a
multiple of the daily performance or an
inverse multiple of the daily
performance of the benchmark index for
each of the Funds (the ‘‘Benchmark’’ or
‘‘Index’’), the Dow Jones-UBS Natural
Gas Sub-Index.10
The Index is comprised of New York
Mercantile Exchange (‘‘NYMEX’’)
Natural Gas futures contracts (‘‘Natural
Gas Futures Contracts’’).11 The Index is
intended to reflect the performance of
natural gas as measured by the
performance of Natural Gas Futures
Contracts, including roll costs, without
regard to income earned on cash
positions. It rolls (or sells its existing
position prior to settlement while
purchasing a new position further from
settlement) the component Natural Gas
Futures Contracts every other month as
follows in the table below. The roll for
each Index component occurs over a
period of five NYMEX business days.
Month
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Component Natural Gas
Contract ........................
Mar
Mar
May
May
Jul
Jul
Sep
Sep
Nov
Nov
Jan
Jan
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The Funds will utilize Natural Gas
Futures Contracts and, under limited
circumstances, swap agreements, as
described below, to produce
economically ‘‘inverse,’’ ‘‘leveraged,’’ and
‘‘inverse leveraged’’ investment results
for the respective Funds.12 For each
dollar invested in the Funds, each Fund
will seek the requisite exposure in
Natural Gas Futures Contracts to pursue
its respective investment objective. The
Sponsor does not intend to invest
directly in any commodity.
According to the Registration
Statements, each of the Funds uses
investment techniques that include the
use of any one or a combination of
Natural Gas Futures Contracts, and may
include swap agreements. The Funds’
investment techniques may involve a
small investment relative to the amount
of investment exposure assumed and
may result in losses exceeding the
amounts invested. Such techniques,
particularly when used to create
leverage, may expose the Funds to
potentially dramatic changes (losses or
gains) in the value of their investments
and imperfect correlation between the
value of the investments and the
security or index.
If ProShares Short DJ–UBS Natural
Gas is successful in meeting its
objective, its value on a given day
(before fees and expenses) should gain
approximately as much on a percentage
basis as its Benchmark when the
Benchmark falls on a given day.
Conversely, its value on a given day
(before fees and expenses) should lose
approximately as much on a percentage
basis as the Benchmark when the
Benchmark rises on a given day. If the
ProShares Ultra DJ–UBS Natural Gas
Fund is successful in meeting its
objective, its value (before fees and
expenses) should gain approximately
twice as much on a percentage basis as
the Benchmark when it rises on a given
day. Conversely, its value (before fees
and expenses) should lose
approximately twice as much on a
percentage basis as the Benchmark
when it declines on a given day. If the
Silver ProShares, Ultra Euro ProShares, UltraShort
Euro ProShares, Ultra Yen ProShares and
UltraShort Yen ProShares. See also Securities
Exchange Act Release No. 58647 (September 25,
2008), 73 FR 57399 (October 2, 2008) (SR–
NYSEArca–2008–99) (notice of filing and
immediate effectiveness relating to the names of the
Trust and the funds of the Trust, among other
matters).
8 See, e.g., Securities Exchange Act Release Nos.
57456 (March 7, 2008), 73 FR 13599 (March 13,
2008) (SR–NYSEArca–2007–91) (order granting
accelerated approval for NYSE Arca listing the
iShares GS Commodity Trusts); 59781 (April 17,
2009), 74 FR 18771 (April 24, 2009) (SR–
NYSEArca–2009–28) (order granting accelerated
approval for NYSE Arca listing the ETFS Silver
Trust); 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); 61219 (December 22, 2009), 74
FR 68886 (December 29, 2009) (order approving
listing on NYSE Arca of the ETFS Platinum Trust);
61220 (December 22, 2009), 74 FR 68895 (December
29, 2009) (order approving listing on NYSE Arca of
the ETFS Palladium Trust).
9 See Securities Exchange Act Release Nos. 52553
(October 3, 2005), 70 FR 59100 (October 11, 2005)
(SR–Amex–2004–62) (approving the listing and
trading of shares of the xtraShares Trust); 54040
(June 23, 2006), 71 FR 37629 (June 30, 2006) (SR–
Amex2006–41) (approving the listing and trading of
shares of the ProShares Trust); 55117 (January 17,
2007), 72 FR 3442 (January 25, 2007) (SR–Amex
2006–101) (approving the listing and trading of
shares of the ProShares Trust); 56592 (October 1,
2007), 72 FR 57364 (October 9, 2007) (SR–Amex–
2007–60) (approving the listing and trading of 6
funds of the ProShares Trust based on international
equity indexes); and 56998 (December 19, 2007), 72
FR 73404 (December 27, 2007) (SR–Amex–2007–
104) (approving the listing and trading of shares of
the ProShares Trust).
10 CME Group Index Services LLC (‘‘CME
Indexes’’), a joint venture between Dow Jones &
Company, Inc. (‘‘Dow Jones’’ or ‘‘Index Provider’’)
and CME Group Inc. (‘‘CME Group’’), and UBS
Securities LLC (‘‘UBS’’) have entered into a nonexclusive license agreement providing for the use
of the Index in connection with the Funds.
UBS, a co-sponsor of the Index, is a registered
broker-dealer and has represented to the Exchange
that it will: (1) Implement and maintain procedures
reasonably designed to prevent the use and
dissemination by relevant personnel of UBS, in
violation of applicable laws, rules, and regulations,
of material non-public information relating to
changes in the composition or method of
computation or calculation of the Index; and (2)
periodically review the requirements of such
procedures as they relate to certain personnel of
UBS directly responsible for such changes.
CME Indexes, a co-sponsor of the Index, is not
engaged in the business of trading in commodities
or securities. CME Group, together with its
subsidiaries, operates derivatives exchanges. CME
Group maintains a Code of Conduct applicable to
all personnel that prohibits disclosure of any
confidential information obtained during the course
of one’s employment and the use or disclosure of
any material non-public information relating to
changes to the composition of the Index or changes
to the Index methodology in violation of applicable
laws, rules or regulations. For a transitional period,
certain Dow Jones employees are providing indexrelated services to CME Indexes. Dow Jones also
maintains a Code of Conduct applicable to all
personnel that prohibits disclosure of any
confidential information relating to changes to the
composition of the Index or changes to the Index
methodology obtained during the course of one’s
employment and the use of any material non-public
information in violation of applicable laws, rules or
regulations.
11 Natural gas futures volume on NYMEX for 2009
and 2010 (through December 31, 2010) was
47,864,639 contracts and 64,350,673 contracts,
respectively. As of December 31, 2010, NYMEX
open interest for all natural gas futures was 772,104
contracts, and the approximate value of all
outstanding contracts was $35,664,257,310 billion.
Open interest as of December 31, 2010 for the near
month contract was 166,757 contracts and the near
month contract value was $7,345,645,850 ($4.405
per MMBtu and 10,000 MMBtu per contract). The
position accountability limits for all months is
12,000 contracts and the total value of contracts if
position accountability limits were reached would
be approximately $528,600,000 million (based on
the $4.405 contract price). As of December 31, 2010,
open interest in natural gas swaps cleared on the
NYMEX was approximately 1,493,013 contracts,
with an approximate value of $16,463,384,003
($4.411 per MMBtu and 2,500 MMBtu per contract).
Natural gas futures are also traded on ICE Futures
Europe (‘‘ICE’’) and the European Energy Exchange.
12 Terms relating to the Funds, the Shares and the
Index referred to, but not defined, herein are
defined in the Registration Statements.
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Federal Register / Vol. 76, No. 95 / Tuesday, May 17, 2011 / Notices
ProShares UltraShort DJ–UBS Natural
Gas Fund is successful in meeting its
objective, its value (before fees and
expenses) should gain approximately
twice as much on a percentage basis as
the Benchmark when it declines on a
given day. Conversely, its value (before
fees and expenses) should lose
approximately twice as much on a
percentage basis as the Benchmark
when it rises on a given day.
In seeking to achieve each Fund’s
daily investment objective, the Sponsor
uses a mathematical approach to
investing. Using this approach, the
Sponsor determines the type, quantity
and mix of investment positions that the
Sponsor believes in combination should
produce daily returns consistent with a
Fund’s objective. The Sponsor relies
upon a pre-determined model to
generate orders that result in
repositioning each Fund’s investments
in accordance with its daily investment
objectives.
A number of factors may affect a
Fund’s ability to achieve a high degree
of correlation with its Benchmark, and
there can be no guarantee that a Fund
will achieve a high degree of
correlation. While the Funds do not
expect that their daily returns will
deviate adversely from their respective
daily investment objectives, several
factors may affect their ability to achieve
this correlation. Among these factors are
a Fund’s expenses, including fees,
transaction costs and the cost of the
investment techniques employed by that
Fund, bid-ask spreads, a Fund’s Share
prices being rounded to the nearest cent,
changes to a Benchmark that are not
disseminated in advance and the need
to conform a Fund’s portfolio holdings
to comply with investment restrictions
or policies or regulatory or tax law
requirements.
The Funds will obtain exposure to the
Index through Natural Gas Futures
Contracts. Any futures contracts held by
the Funds are expected to be the Natural
Gas Futures Contracts. To the extent
that Dow Jones alters the construction or
composition of the Index to include
natural gas futures contracts that trade
on a different exchange, the Funds may
so invest in such futures contracts.
According to the Registration
Statements, each Fund seeks to achieve
its investment objective by investing
under normal market conditions in
Natural Gas Futures Contracts. In the
event position accountability rules are
reached with respect to Natural Gas
Futures Contracts, the Sponsor may, in
its commercially reasonable judgment,
cause the Funds to obtain exposure
through swaps referencing the Index or
particular Natural Gas Futures
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Contracts, or invest in other futures
contracts or swaps not based on the
particular Natural Gas Futures Contracts
if such instruments tend to exhibit
trading prices or returns that correlate
with the Index or any Natural Gas
Futures Contract and will further the
investment objective of such Fund.13
Each Fund may also invest in swaps if
the market for a specific futures contract
experiences emergencies (e.g., natural
disaster, terrorist attack or an act of God)
or disruptions (e.g., a trading halt or a
flash crash) that prevent such Fund
from obtaining the appropriate amount
of investment exposure to the affected
Natural Gas Futures Contracts directly
or to other futures contracts.14
The Sponsor expects the Funds to
have a statistical correlation 15 over time
of ¥.95 or better (for ProShares Short
DJ–UBS Natural Gas and ProShares
UltraShort DJ–UBS Natural Gas) and
+.95 or better (for ProShares Ultra DJ–
UBS Natural Gas) when correlating the
daily return of a Fund’s Net Asset Value
(‘‘NAV’’) against the daily return of its
relevant Index or Benchmark.
Each Fund may also invest in cash,
cash equivalents and/or U.S. Treasury
Securities or other high credit quality
short-term fixed-income or similar
securities (such as shares of money
market funds, bank deposits, bank
money market accounts, certain variable
rate-demand notes and repurchase
agreements collateralized by
government securities) that will serve as
collateral for any futures contracts or
swap agreements held by the Funds.
Futures Contracts Held by the Funds
All open futures contracts held by the
Funds will be traded on the NYMEX
and will be calculated at their then
current market value, based upon the
settlement price for that particular
futures contract traded on the date with
respect to which NAV is being
determined; provided that, if a futures
contract could not be liquidated on such
13 To the extent practicable, the Funds will invest
in swaps cleared through the facilities of a
centralized clearing house.
14 According to the Registration Statements, the
Sponsor will also attempt to mitigate the Funds’
credit risk by transacting only with large, wellcapitalized institutions using measures designed to
determine the creditworthiness of a counterparty.
The Sponsor will take various steps to limit
counterparty credit risk, as described in the
Registration Statements.
15 Correlation is the strength of the relationship
between (1) the change in a Fund’s NAV and (2) the
change in the underlying Index or Benchmark. The
statistical measure of correlation is known as the
‘‘correlation coefficient.’’ A correlation coefficient of
+1 indicates a perfect positive correlation while a
value of ¥1 indicates a perfect negative (inverse)
correlation. A value of zero would mean that there
is no correlation between the two variables.
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day, due to the operation of daily limits
or other rules of the exchange upon
which that position is traded or
otherwise, the Sponsor may in its sole
discretion choose to determine a fair
value price as the basis for determining
the market value of such position for
such day. The Sponsor will, in good
faith, establish an appropriate
methodology for determining such fair
value prices, based on factors it deems
relevant, including the prices of other
instruments that provide an indication
of the fair value price of the future
contracts. For example, the Sponsor
expects that such fair value
determinations would be based on
publicly traded options prices of
Natural Gas Futures Contracts, if
available and relevant.
Net Asset Value
According to the Registration
Statements, the NAV of each Fund is
calculated by the value of its total assets
including, but not limited to, all cash
and cash equivalents or other debt
securities, less total liabilities, each
determined on the basis of generally
accepted accounting principles. In
particular, the NAV includes any
unrealized profit or loss on open
Natural Gas Futures Contracts and swap
agreements, and any other credit or
debit accruing to a Fund, but unpaid or
not received.
The NAV per Share of each Fund will
be computed by dividing the value of
the net assets of such Fund (i.e., the
value of its total assets, less total
liabilities) by its total number of Shares
outstanding. Expenses and fees are
accrued daily and taken into account for
purposes of determining NAV. The NAV
of each Fund is calculated by the
Administrator and is determined each
business day as described in the
Registration Statements.
Creation and Redemption of Shares
According to the Registration
Statements, the Funds create and
redeem Shares from time to time, but
only in one or more Creation Units. A
Creation Unit is a block of 50,000 Shares
of a Fund. Creation Units may be
created or redeemed only by Authorized
Participants, as described in the
Registration Statements. Except when
aggregated in Creation Units, the Shares
are not redeemable securities.
Authorized Participants may pay a fixed
and variable transaction fee in
connection with each order to create or
redeem a Creation Unit. Authorized
Participants may sell the Shares
included in the Creation Units they
purchase from the Funds to other
investors. On any business day, an
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Emcdonald on DSK2BSOYB1PROD with NOTICES
Authorized Participant may place an
order with the Distributor to create one
or more Creation Units. An order to
create or redeem Shares must be placed
by 1:30 p.m. Eastern Time (‘‘E.T.’’). The
total cash payment required to create
each Creation Unit is the NAV of 50,000
Shares of the applicable Fund on the
purchase order date plus the applicable
transaction fee.
According to the Registration
Statements, the procedures by which an
Authorized Participant can redeem one
or more Creation Units mirror the
procedures for the creation of Creation
Units. On any business day, an
Authorized Participant may place an
order with the Distributor to redeem one
or more Creation Units. Individual
shareholders may not redeem directly
from a Fund.
By placing a redemption order, an
Authorized Participant agrees to deliver
the Creation Units to be redeemed
through the Depository Trust
Company’s book-entry system to the
applicable Fund not later than noon
E.T., on the third business day
immediately following the redemption
order date (T+3). 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 Creation Unit(s) of
such Fund requested in the Authorized
Participant’s redemption order as of the
time of the calculation of such Fund’s
NAV on the redemption order date, less
transaction fees, as described in the
Registration Statements.
Availability of Information Regarding
the Shares
The Web site for the Funds (https://
www.proshares.com) and/or the
Exchange, which are publicly accessible
at no charge, will contain the following
information: (a) The current NAV per
Share daily and the prior business day’s
NAV per Share; (b) calculation of the
premium or discount of the closing
market price against the NAV per Share;
(c) the Prospectus; and (d) other
applicable quantitative information.
The NAV per Share will be calculated
and disseminated daily. One or more
major market data vendors will
disseminate for the Funds on a daily
basis information with respect to the
‘‘Indicative Fund Value’’ (as discussed
below), recent NAV per Share and
Shares outstanding. The Exchange will
also make available on its Web site
(https://www.nyse.com) daily trading
volume of the Shares, closing prices of
the Shares, and the NAV per Share. The
intra-day futures prices, closing price
and settlement prices of the futures
contracts held by the Funds are also
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available from the NYMEX, automated
quotation systems, published or other
public sources, or on-line information
services such as Bloomberg or Reuters.
Quotation and last-sale information for
the Shares will be available via the
Consolidated Tape Association (‘‘CTA’’)
high-speed line.
Portfolio Disclosure
Each Fund’s total portfolio
composition will be disclosed on the
Funds’ Web site or another relevant
Web site as determined by the Trust
and/or the Exchange. The Trust will
provide Web site disclosure of portfolio
holdings daily and will include, as
applicable, the names and notional
value (in U.S. dollars) of Natural Gas
Futures Contracts and swap agreements,
if any, cash equivalents and amount of
cash held in the portfolio of each Fund.
This public Web site disclosure of the
portfolio composition of each Fund will
occur at the same time as the disclosure
by the Sponsor of the portfolio
composition to Authorized Participants,
so that all market participants are
provided portfolio composition
information at the same time. Therefore,
the same portfolio information will be
provided on the public Web site as well
as in electronic files provided to
Authorized Participants. Accordingly,
each investor will have access to the
current portfolio composition of each
Fund through the Funds’ Web site, and/
or at the Exchange’s Web site.
Availability of Information About the
Benchmarks
The daily closing Index level and the
percentage change in the daily closing
Index level for the Index will be
publicly available on various Web sites,
e.g., https://www.bloomberg.com. The
Index level will be disseminated by one
or more major market data vendors and
will be updated at least every 15
seconds during the Exchange’s Core
Trading Session, except for that period
after the end of the NYMEX Natural Gas
pit trading session at 2:30 p.m. E.T., at
which point the Index value will be
static. Data regarding the Index is also
available from the Index Provider to
subscribers. In addition, data is
available for the Natural Gas Futures
Contracts in the Index and for other
futures contracts from those futures
exchanges that list and trade futures
contracts on such commodity. Several
independent data vendors also package
and disseminate index data in various
value-added formats (including vendors
displaying both Index constituents and
Index levels and vendors displaying
Index levels only).
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Dissemination of Net Asset Value and
Indicative Fund Value
The NAV for the Funds’ Shares will
be calculated by the Administrator once
a day and will be disseminated daily to
all market participants. The NAV
calculation time for the Funds is 2:30
p.m. E.T.16 The Exchange will obtain a
representation (prior to listing of the
Funds) from the Trust that the NAV per
Share will be calculated daily and made
available to all market participants at
the same time. In addition, the Sponsor
will cause to be made available on a
daily basis the total payment required to
create each Creation Unit of the
applicable Fund on the purchase order
date in connection with the issuance of
the respective Shares.
In order to provide updated
information relating to each Fund for
use by investors, professionals and
persons wishing to create or redeem the
Shares, one or more major market data
vendors will disseminate an updated
Indicative Fund Value (‘‘IFV’’). The IFV
will be disseminated on a per-Share
basis at least every 15 seconds during
Exchange’s Core Trading Session
trading hours of 9:30 a.m. to 4 p.m. E.T.
The IFV will be calculated based on the
cash required for creations and
redemptions for a Fund (prior
calculated NAV) adjusted to reflect the
price changes of such Fund’s holdings.
The value of a Share may be
influenced by non-concurrent trading
hours between NYSE Arca and NYMEX
when the Shares are traded on NYSE
Arca after normal trading hours of
NYMEX. The IFV will be updated
during the NYSE Arca Core Trading
Session when Natural Gas Futures
Contracts held by the Funds are traded.
However, a static IFV will be
disseminated between the close of
trading of Natural Gas Futures Contracts
and the close of the NYSE Arca Core
Trading Session.
Criteria for Initial and Continued Listing
The Funds will be subject to the
criteria in NYSE Arca Equity Rule 8.200
and Commentary .02 thereto for initial
and continued listing of the Shares.
The minimum number of Shares for
each Fund to be outstanding at the start
of trading will be 100,000 Shares. The
Exchange believes that this anticipated
16 The Commission previously has approved a
commodity-based trust security 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; and 61219 (December 22,
2009), 74 FR 68886 (December 29, 2009) (SR–
NYSEArca–2009–95) (order approving listing of
ETFS Platinum Trust).
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minimum number of Shares for each
Fund to be outstanding at the start of
trading is sufficient to provide adequate
market liquidity and to further the
objectives of the Funds. The Exchange
represents that, for the initial and
continued listing of the Shares, the
Funds will be in compliance with NYSE
Arca Equities Rule 5.3 and Rule 10A–3
under the Act.
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
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
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’’
rule 17 or by the halt or suspension of
trading of the underlying futures
contracts.
The Exchange represents that the
Exchange may halt trading during the
day in which an interruption to the
dissemination of the Index value, IFV or
the value of the underlying futures
contracts occurs. If the interruption to
the dissemination of the Index value,
IFV or the value of the underlying
17 See
NYSE Arca Equities Rule 7.12.
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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.
Suitability
Currently, NYSE Arca Equities Rule
9.2(a) (Diligence as to Accounts)
provides that an ETP Holder, before
recommending a transaction in any
security, must have reasonable grounds
to believe that the recommendation is
suitable for the customer based on any
facts disclosed by the customer as to its
other security holdings and as to its
financial situation and needs. Further,
the rule provides, with a limited
exception, that prior to the execution of
a transaction recommended to a noninstitutional customer, the ETP Holder
must make reasonable efforts to obtain
information concerning the customer’s
financial status, tax status, investment
objectives, and any other information
that such ETP Holder believes would be
useful to make a recommendation.
Prior to the commencement of
trading, the Exchange will inform its
ETP Holders of the suitability
requirements of NYSE Arca Equities
Rule 9.2(a) in an Information Bulletin.
Specifically, ETP Holders will be
reminded in the Information Bulletin
that, in recommending transactions in
the Shares, they must have a reasonable
basis to believe that (1) the
recommendation is suitable for a
customer given reasonable inquiry
concerning the customer’s investment
objectives, financial situation, needs,
and any other information known by
such member, and (2) the customer can
evaluate the special characteristics, and
is able to bear the financial risks, of an
investment in the Shares. In connection
with the suitability obligation, the
Information Bulletin will also provide
that members must make reasonable
efforts to obtain the following
information: (1) The customer’s
financial status; (2) the customer’s tax
status; (3) the customer’s investment
objectives; and (4) such other
information used or considered to be
reasonable by such member or
registered representative in making
recommendations to the customer.
In addition, FINRA has implemented
increased sales practice and customer
margin requirements for FINRA
members applicable to leveraged ETFs
(which include the Shares) and options
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28487
on leveraged ETFs, as described in
FINRA Regulatory Notices 09–31 (June
2009), 09–53 (August 2009) and 09–65
(November 2009) (‘‘FINRA Regulatory
Notices’’). ETP Holders that carry
customer accounts will be required to
follow the FINRA guidance set forth in
these notices.
As disclosed in the Registration
Statement, the Funds seek leveraged,
inverse, or leveraged inverse returns on
a daily basis, and the Funds do not seek
to achieve their stated investment
objective over a period of time greater
than one day because mathematical
compounding prevents the Funds from
perfectly achieving such results.
Accordingly, results over periods of
time greater than one day typically will
not be a leveraged multiple (+200%),
the inverse (¥100%) or a leveraged
inverse multiple (¥200%) of the period
return of the Benchmark and may differ
significantly from these multiples. The
Exchange’s Information Bulletin
regarding the Funds, described below,
will provide information regarding the
suitability of an investment in the
Shares, as stated in the Registration
Statement.
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
surveillance focuses 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 can obtain market
surveillance information, including
customer identity information, with
respect to transactions occurring on the
NYMEX, which is a member of the
Intermarket Surveillance Group (‘‘ISG’’).
A list of ISG members is available at
https://www.isgportal.org.18
18 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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In addition, with respect to the Funds’
futures contracts traded on exchanges,
not more than 10% of the weight of
such futures contracts 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
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 IFV 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 IFV is
disseminated; (5) a static IFV will be
disseminated between the close of
trading Natural Gas Futures Contracts
on the NYMEX and the close of the
NYSE Arca Core Trading Session; (6)
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 (7) 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 reference the FINRA Regulatory
Notices regarding sales practice and
customer margin requirements for
FINRA members applicable to leveraged
ETFs and options on leveraged ETFs.
The Information Bulletin will also
discuss any exemptive, no-action and
interpretive relief granted by the
Commission from any rules under the
Act.
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 Commodity Futures Trading
Commission 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. The Bulletin will disclose
that information about the Shares of the
Funds is publicly available on the
Funds’ Web site.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) 19 that an
exchange have rules that are designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to remove
impediments to, and perfect the
mechanism of a free and open market
and, in general, to protect investors and
the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Equities
Rule 8.200 and Commentary .02 thereto.
The Exchange has in place surveillance
procedures that are adequate to properly
monitor trading in the Shares in all
trading sessions and to deter and detect
violations of Exchange rules and
applicable Federal securities laws. The
Exchange may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. Any futures contracts held
by the Funds are expected to be the
Natural Gas Futures Contracts, which
are traded on NYMEX, an ISG member.
The intra-day futures prices, closing
price and settlement prices of the
futures contracts held by the Funds are
also available from the NYMEX,
automated quotation systems, published
or other public sources, or on-line
information services. Quotation and
last-sale information for the Shares will
be available via CTA. Each Fund’s total
portfolio composition will be disclosed
on the Funds’ Web site or another
relevant Web site.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that a large amount of
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19 15
PO 00000
U.S.C. 78f(b)(5).
Frm 00075
Fmt 4703
Sfmt 4703
information is publicly available
regarding the Funds and the Shares,
thereby promoting market transparency.
The Index level will be disseminated by
one or more major market data vendors
and will be updated at least every 15
seconds during the Exchange’s Core
Trading Session, except for that period
after the end of the NYMEX Natural Gas
pit trading session at 2:30 p.m. E.T., at
which point the Index value will be
static. The NAV per Share will be
calculated daily and made available to
all market participants at the same time.
One or more major market data vendors
will disseminate for the Funds on a
daily basis information with respect to
the IFV, recent NAV per Share and
Shares outstanding. Trading in Shares of
the Funds will be halted if the circuit
breaker parameters in NYSE Arca
Equities Rule 7.12 have been reached or
because of market conditions or for
reasons that, in the view of the
Exchange, make trading in the Shares
inadvisable. Moreover, 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. The Information
Bulletin will also reference the FINRA
Regulatory Notices regarding sales
practice and customer margin
requirements for FINRA members
applicable to leveraged ETFs and
options on leveraged ETFs.
The proposed rule change is designed
to perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest in that
it will facilitate the listing and trading
of additional types of actively-managed
exchange-traded products that will
enhance competition among market
participants, to the benefit of investors
and the marketplace. As noted above,
the Exchange has in place surveillance
procedures relating to trading in the
Shares and may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. In addition, as noted above,
investors will have ready access to
information regarding the Funds’
holdings, IFV, and quotation and lastsale information for the Shares.
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.
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Federal Register / Vol. 76, No. 95 / Tuesday, May 17, 2011 / Notices
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 (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
the proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
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, on official
business days between the hours of 10
a.m. and 3 p.m. Copies of such filing
also will be available for inspection and
copying at the principal office of the
Exchange. All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2011–24 and should be
submitted on or before June 7, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–11967 Filed 5–16–11; 8:45 am]
BILLING CODE 8011–01–P
Electronic Comments
Self-Regulatory Organizations; EDGA
Exchange, Inc.; Notice of Filing and
Immediate Effectiveness of Proposed
Rule To Amend EDGA Rule 11.9 To
Introduce Additional Routing Options
to the Rule
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64466; File No. SR–EDGA–
2011–16]
May 11, 2011.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
• Send paper comments in triplicate
notice is hereby given that on May 5,
to Elizabeth M. Murphy, Secretary,
2011, the EDGA Exchange, Inc. (the
Securities and Exchange Commission,
‘‘Exchange’’ or the ‘‘EDGA’’) filed with
100 F Street, NE., Washington, DC
the Securities and Exchange
20549–1090.
Commission (‘‘Commission’’) the
All submissions should refer to File
proposed rule change as described in
Number SR–NYSEArca–2011–24. This
Items I and II below, which items have
file number should be included on the
been prepared by the self-regulatory
subject line if e-mail is used. To help the
organization. The Commission is
Commission process and review your
publishing this notice to solicit
comments more efficiently, please use
comments on the proposed rule change
only one method. The Commission will
from interested persons.
post all comments on the Commission’s
I. Self-Regulatory Organization’s
Internet Web site (https://www.sec.gov/
Statement of the Terms of Substance of
rules/sro.shtml). Copies of the
the Proposed Rule Change
submission, all subsequent
amendments, all written statements
The Exchange proposes to introduce
with respect to the proposed rule
additional routing options to Rule 11.9
change that are filed with the
Commission, and all written
20 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
communications relating to the
2 17 CFR 240.19b–4.
proposed rule change between the
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Paper Comments
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and amend existing routing options. The
text of the proposed rule change is
available on the Exchange’s Web site at
https://www.directedge.com, at the
Exchange’s principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of, and basis for,
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item IV below. The
self-regulatory organization has
prepared summaries, set forth in
Sections A, B and C below, of the most
significant aspects of such statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
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:
• 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–2011–24 on the
subject line.
28489
Sfmt 4703
The Exchange’s current list of routing
options are codified in Rule 11.9(b)(3).
In this filing, the Exchange proposes to
amend Rule 11.9(b)(3) to add three new
additional strategies and amend other
ones.
In Rule 11.9(b)(3), the Exchange
describes that its system (‘‘System’’)
provides a variety of routing options.
Routing options may be combined with
all available order types and times-inforce, with the exception of order types
and times-in-force whose terms are
inconsistent with the terms of a
particular routing option. The System
will consider the quotations only of
accessible markets. The term ‘‘System
routing table’’ refers to the proprietary
process for determining the specific
trading venues to which the System
routes orders and the order in which it
routes them. The Exchange reserves the
right to maintain a different System
routing table for different routing
options and to modify the System
routing table at any time without notice.
The new System routing options are
described in more detail below.
The Exchange proposes to introduce
the ROBB and ROCO routing strategies
and add them to Rules 11.9(b)(3)(c)(vi)–
(vii). ROBB/ROCO are routing options
under which an order checks the
System for available shares and then are
sent to destinations on the System
routing table. If shares remain
unexecuted after routing, they are
posted on the book, unless otherwise
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]]>Agencies
[Federal Register Volume 76, Number 95 (Tuesday, May 17, 2011)]
[Notices]
[Pages 28483-28489]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11967]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64464; File No. SR-NYSEArca-2011-24]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the Following Under
NYSE Arca Equities Rule 8.200: ProShares Short DJ-UBS Natural Gas,
ProShares Ultra DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS
Natural Gas
May 11, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on April 28, 2011, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission (the
``Commission'') 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
under NYSE Arca Equities Rule 8.200: ProShares Short DJ-UBS Natural
Gas, ProShares Ultra DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS
Natural Gas. 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 shares (``Shares'') of the following pursuant to NYSE Arca
Equities Rule 8.200: ProShares Short DJ-UBS Natural Gas, ProShares
Ultra DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural Gas
(each a ``Fund'' and, collectively, the ``Funds'').\4\ Each of the
Funds is a series of the ProShares Trust II (``Trust''), a Delaware
statutory trust. ProShare Capital Management LLC (``Sponsor'') is the
Trust's Sponsor, and Wilmington Trust Company is the Trust's trustee.
Brown Brothers Harriman & Co. (``Administrator'') serves as the
administrator, custodian and transfer agent of the Funds. SEI
Investments Distribution Co. (``Distributor'') serves as distributor of
the Shares.
---------------------------------------------------------------------------
\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 Post-Effective Amendment No. 1 dated May 28, 2010 (File
No. 333-163511) and Post-Effective Amendment No. 4 dated April 13,
2011 (File No. 333-163511) to the Funds' Registration Statement on
Form S-3 (``Registration Statements''). The description of the Funds
and the Shares contained herein are based on the Registration
Statements.
---------------------------------------------------------------------------
The Exchange notes that the Commission has previously approved the
listing and trading of other series of the Commodities and Currency
Trust (now known as ProShares Trust II) both on the American Stock
Exchange LLC \5\ and on NYSE Arca pursuant to unlisted trading
privileges (``UTP''),\6\ and listing on NYSE Arca.\7\ In addition, the
[[Page 28484]]
Commission has approved other exchange-traded investment products
linked to the performance of underlying commodities.\8\ The Exchange
further notes that the shares of other ProShares UltraFunds and
UltraShort Funds based on various securities indexes have previously
been approved by the Commission.\9\
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\5\ See Securities Exchange Act Release No. 58161 (July 15,
2008), 73 FR 42380 (July 21, 2008) (SR-Amex-2008-39) (``Amex
Proposal'').
\6\ See Securities Exchange Act Release No. 58163 (July 15,
2008), 73 FR 42391 (July 21, 2008) (SR-NYSEArca-2008-73).
\7\ See Securities Exchange Act Release No. 58457 (September 3,
2008), 73 FR 52711 (September 10, 2008) (SR-NYSEArca-2008-91). The
series of the Trust approved for Exchange listing by the Commission
included the Ultra DJ-AIG Commodity ProShares, UltraShort DJ-AIG
Commodity ProShares, Ultra DJ-AIG Agriculture ProShares, UltraShort
DJ-AIG Agriculture ProShares, Ultra DJ-AIG Crude Oil ProShares,
UltraShort DJ-AIG Crude Oil ProShares, Ultra Gold ProShares,
UltraShort Gold ProShares, Ultra Silver ProShares, UltraShort Silver
ProShares, Ultra Euro ProShares, UltraShort Euro ProShares, Ultra
Yen ProShares and UltraShort Yen ProShares. See also Securities
Exchange Act Release No. 58647 (September 25, 2008), 73 FR 57399
(October 2, 2008) (SR-NYSEArca-2008-99) (notice of filing and
immediate effectiveness relating to the names of the Trust and the
funds of the Trust, among other matters).
\8\ See, e.g., Securities Exchange Act Release Nos. 57456 (March
7, 2008), 73 FR 13599 (March 13, 2008) (SR-NYSEArca-2007-91) (order
granting accelerated approval for NYSE Arca listing the iShares GS
Commodity Trusts); 59781 (April 17, 2009), 74 FR 18771 (April 24,
2009) (SR-NYSEArca-2009-28) (order granting accelerated approval for
NYSE Arca listing the ETFS Silver Trust); 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);
61219 (December 22, 2009), 74 FR 68886 (December 29, 2009) (order
approving listing on NYSE Arca of the ETFS Platinum Trust); 61220
(December 22, 2009), 74 FR 68895 (December 29, 2009) (order
approving listing on NYSE Arca of the ETFS Palladium Trust).
\9\ See Securities Exchange Act Release Nos. 52553 (October 3,
2005), 70 FR 59100 (October 11, 2005) (SR-Amex-2004-62) (approving
the listing and trading of shares of the xtraShares Trust); 54040
(June 23, 2006), 71 FR 37629 (June 30, 2006) (SR-Amex2006-41)
(approving the listing and trading of shares of the ProShares
Trust); 55117 (January 17, 2007), 72 FR 3442 (January 25, 2007) (SR-
Amex 2006-101) (approving the listing and trading of shares of the
ProShares Trust); 56592 (October 1, 2007), 72 FR 57364 (October 9,
2007) (SR-Amex-2007-60) (approving the listing and trading of 6
funds of the ProShares Trust based on international equity indexes);
and 56998 (December 19, 2007), 72 FR 73404 (December 27, 2007) (SR-
Amex-2007-104) (approving the listing and trading of shares of the
ProShares Trust).
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According to the Registration Statements, the Funds seek daily
investment results (before fees and expenses) that correspond to the
inverse (opposite) of the daily performance, a multiple of the daily
performance or an inverse multiple of the daily performance of the
benchmark index for each of the Funds (the ``Benchmark'' or ``Index''),
the Dow Jones-UBS Natural Gas Sub-Index.\10\
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\10\ CME Group Index Services LLC (``CME Indexes''), a joint
venture between Dow Jones & Company, Inc. (``Dow Jones'' or ``Index
Provider'') and CME Group Inc. (``CME Group''), and UBS Securities
LLC (``UBS'') have entered into a non-exclusive license agreement
providing for the use of the Index in connection with the Funds.
UBS, a co-sponsor of the Index, is a registered broker-dealer
and has represented to the Exchange that it will: (1) Implement and
maintain procedures reasonably designed to prevent the use and
dissemination by relevant personnel of UBS, in violation of
applicable laws, rules, and regulations, of material non-public
information relating to changes in the composition or method of
computation or calculation of the Index; and (2) periodically review
the requirements of such procedures as they relate to certain
personnel of UBS directly responsible for such changes.
CME Indexes, a co-sponsor of the Index, is not engaged in the
business of trading in commodities or securities. CME Group,
together with its subsidiaries, operates derivatives exchanges. CME
Group maintains a Code of Conduct applicable to all personnel that
prohibits disclosure of any confidential information obtained during
the course of one's employment and the use or disclosure of any
material non-public information relating to changes to the
composition of the Index or changes to the Index methodology in
violation of applicable laws, rules or regulations. For a
transitional period, certain Dow Jones employees are providing
index-related services to CME Indexes. Dow Jones also maintains a
Code of Conduct applicable to all personnel that prohibits
disclosure of any confidential information relating to changes to
the composition of the Index or changes to the Index methodology
obtained during the course of one's employment and the use of any
material non-public information in violation of applicable laws,
rules or regulations.
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The Index is comprised of New York Mercantile Exchange (``NYMEX'')
Natural Gas futures contracts (``Natural Gas Futures Contracts'').\11\
The Index is intended to reflect the performance of natural gas as
measured by the performance of Natural Gas Futures Contracts, including
roll costs, without regard to income earned on cash positions. It rolls
(or sells its existing position prior to settlement while purchasing a
new position further from settlement) the component Natural Gas Futures
Contracts every other month as follows in the table below. The roll for
each Index component occurs over a period of five NYMEX business days.
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\11\ Natural gas futures volume on NYMEX for 2009 and 2010
(through December 31, 2010) was 47,864,639 contracts and 64,350,673
contracts, respectively. As of December 31, 2010, NYMEX open
interest for all natural gas futures was 772,104 contracts, and the
approximate value of all outstanding contracts was $35,664,257,310
billion. Open interest as of December 31, 2010 for the near month
contract was 166,757 contracts and the near month contract value was
$7,345,645,850 ($4.405 per MMBtu and 10,000 MMBtu per contract). The
position accountability limits for all months is 12,000 contracts
and the total value of contracts if position accountability limits
were reached would be approximately $528,600,000 million (based on
the $4.405 contract price). As of December 31, 2010, open interest
in natural gas swaps cleared on the NYMEX was approximately
1,493,013 contracts, with an approximate value of $16,463,384,003
($4.411 per MMBtu and 2,500 MMBtu per contract). Natural gas futures
are also traded on ICE Futures Europe (``ICE'') and the European
Energy Exchange.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Month Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
--------------------------------------------------------------------------------------------------------------------------------------------------------
Component Natural Gas Contract.. Mar Mar May May Jul Jul Sep Sep Nov Nov Jan Jan
--------------------------------------------------------------------------------------------------------------------------------------------------------
The Funds will utilize Natural Gas Futures Contracts and, under
limited circumstances, swap agreements, as described below, to produce
economically ``inverse,'' ``leveraged,'' and ``inverse leveraged''
investment results for the respective Funds.\12\ For each dollar
invested in the Funds, each Fund will seek the requisite exposure in
Natural Gas Futures Contracts to pursue its respective investment
objective. The Sponsor does not intend to invest directly in any
commodity.
---------------------------------------------------------------------------
\12\ Terms relating to the Funds, the Shares and the Index
referred to, but not defined, herein are defined in the Registration
Statements.
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According to the Registration Statements, each of the Funds uses
investment techniques that include the use of any one or a combination
of Natural Gas Futures Contracts, and may include swap agreements. The
Funds' investment techniques may involve a small investment relative to
the amount of investment exposure assumed and may result in losses
exceeding the amounts invested. Such techniques, particularly when used
to create leverage, may expose the Funds to potentially dramatic
changes (losses or gains) in the value of their investments and
imperfect correlation between the value of the investments and the
security or index.
If ProShares Short DJ-UBS Natural Gas is successful in meeting its
objective, its value on a given day (before fees and expenses) should
gain approximately as much on a percentage basis as its Benchmark when
the Benchmark falls on a given day. Conversely, its value on a given
day (before fees and expenses) should lose approximately as much on a
percentage basis as the Benchmark when the Benchmark rises on a given
day. If the ProShares Ultra DJ-UBS Natural Gas Fund is successful in
meeting its objective, its value (before fees and expenses) should gain
approximately twice as much on a percentage basis as the Benchmark when
it rises on a given day. Conversely, its value (before fees and
expenses) should lose approximately twice as much on a percentage basis
as the Benchmark when it declines on a given day. If the
[[Page 28485]]
ProShares UltraShort DJ-UBS Natural Gas Fund is successful in meeting
its objective, its value (before fees and expenses) should gain
approximately twice as much on a percentage basis as the Benchmark when
it declines on a given day. Conversely, its value (before fees and
expenses) should lose approximately twice as much on a percentage basis
as the Benchmark when it rises on a given day.
In seeking to achieve each Fund's daily investment objective, the
Sponsor uses a mathematical approach to investing. Using this approach,
the Sponsor determines the type, quantity and mix of investment
positions that the Sponsor believes in combination should produce daily
returns consistent with a Fund's objective. The Sponsor relies upon a
pre-determined model to generate orders that result in repositioning
each Fund's investments in accordance with its daily investment
objectives.
A number of factors may affect a Fund's ability to achieve a high
degree of correlation with its Benchmark, and there can be no guarantee
that a Fund will achieve a high degree of correlation. While the Funds
do not expect that their daily returns will deviate adversely from
their respective daily investment objectives, several factors may
affect their ability to achieve this correlation. Among these factors
are a Fund's expenses, including fees, transaction costs and the cost
of the investment techniques employed by that Fund, bid-ask spreads, a
Fund's Share prices being rounded to the nearest cent, changes to a
Benchmark that are not disseminated in advance and the need to conform
a Fund's portfolio holdings to comply with investment restrictions or
policies or regulatory or tax law requirements.
The Funds will obtain exposure to the Index through Natural Gas
Futures Contracts. Any futures contracts held by the Funds are expected
to be the Natural Gas Futures Contracts. To the extent that Dow Jones
alters the construction or composition of the Index to include natural
gas futures contracts that trade on a different exchange, the Funds may
so invest in such futures contracts.
According to the Registration Statements, each Fund seeks to
achieve its investment objective by investing under normal market
conditions in Natural Gas Futures Contracts. In the event position
accountability rules are reached with respect to Natural Gas Futures
Contracts, the Sponsor may, in its commercially reasonable judgment,
cause the Funds to obtain exposure through swaps referencing the Index
or particular Natural Gas Futures Contracts, or invest in other futures
contracts or swaps not based on the particular Natural Gas Futures
Contracts if such instruments tend to exhibit trading prices or returns
that correlate with the Index or any Natural Gas Futures Contract and
will further the investment objective of such Fund.\13\ Each Fund may
also invest in swaps if the market for a specific futures contract
experiences emergencies (e.g., natural disaster, terrorist attack or an
act of God) or disruptions (e.g., a trading halt or a flash crash) that
prevent such Fund from obtaining the appropriate amount of investment
exposure to the affected Natural Gas Futures Contracts directly or to
other futures contracts.\14\
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\13\ To the extent practicable, the Funds will invest in swaps
cleared through the facilities of a centralized clearing house.
\14\ According to the Registration Statements, the Sponsor will
also attempt to mitigate the Funds' credit risk by transacting only
with large, well-capitalized institutions using measures designed to
determine the creditworthiness of a counterparty. The Sponsor will
take various steps to limit counterparty credit risk, as described
in the Registration Statements.
---------------------------------------------------------------------------
The Sponsor expects the Funds to have a statistical correlation
\15\ over time of -.95 or better (for ProShares Short DJ-UBS Natural
Gas and ProShares UltraShort DJ-UBS Natural Gas) and +.95 or better
(for ProShares Ultra DJ-UBS Natural Gas) when correlating the daily
return of a Fund's Net Asset Value (``NAV'') against the daily return
of its relevant Index or Benchmark.
---------------------------------------------------------------------------
\15\ Correlation is the strength of the relationship between (1)
the change in a Fund's NAV and (2) the change in the underlying
Index or Benchmark. The statistical measure of correlation is known
as the ``correlation coefficient.'' A correlation coefficient of +1
indicates a perfect positive correlation while a value of -1
indicates a perfect negative (inverse) correlation. A value of zero
would mean that there is no correlation between the two variables.
---------------------------------------------------------------------------
Each Fund may also invest in cash, cash equivalents and/or U.S.
Treasury Securities or other high credit quality short-term fixed-
income or similar securities (such as shares of money market funds,
bank deposits, bank money market accounts, certain variable rate-demand
notes and repurchase agreements collateralized by government
securities) that will serve as collateral for any futures contracts or
swap agreements held by the Funds.
Futures Contracts Held by the Funds
All open futures contracts held by the Funds will be traded on the
NYMEX and will be calculated at their then current market value, based
upon the settlement price for that particular futures contract traded
on the date with respect to which NAV is being determined; provided
that, if a futures contract could not be liquidated on such day, due to
the operation of daily limits or other rules of the exchange upon which
that position is traded or otherwise, the Sponsor may in its sole
discretion choose to determine a fair value price as the basis for
determining the market value of such position for such day. The Sponsor
will, in good faith, establish an appropriate methodology for
determining such fair value prices, based on factors it deems relevant,
including the prices of other instruments that provide an indication of
the fair value price of the future contracts. For example, the Sponsor
expects that such fair value determinations would be based on publicly
traded options prices of Natural Gas Futures Contracts, if available
and relevant.
Net Asset Value
According to the Registration Statements, the NAV of each Fund is
calculated by the value of its total assets including, but not limited
to, all cash and cash equivalents or other debt securities, less total
liabilities, each determined on the basis of generally accepted
accounting principles. In particular, the NAV includes any unrealized
profit or loss on open Natural Gas Futures Contracts and swap
agreements, and any other credit or debit accruing to a Fund, but
unpaid or not received.
The NAV per Share of each Fund will be computed by dividing the
value of the net assets of such Fund (i.e., the value of its total
assets, less total liabilities) by its total number of Shares
outstanding. Expenses and fees are accrued daily and taken into account
for purposes of determining NAV. The NAV of each Fund is calculated by
the Administrator and is determined each business day as described in
the Registration Statements.
Creation and Redemption of Shares
According to the Registration Statements, the Funds create and
redeem Shares from time to time, but only in one or more Creation
Units. A Creation Unit is a block of 50,000 Shares of a Fund. Creation
Units may be created or redeemed only by Authorized Participants, as
described in the Registration Statements. Except when aggregated in
Creation Units, the Shares are not redeemable securities. Authorized
Participants may pay a fixed and variable transaction fee in connection
with each order to create or redeem a Creation Unit. Authorized
Participants may sell the Shares included in the Creation Units they
purchase from the Funds to other investors. On any business day, an
[[Page 28486]]
Authorized Participant may place an order with the Distributor to
create one or more Creation Units. An order to create or redeem Shares
must be placed by 1:30 p.m. Eastern Time (``E.T.''). The total cash
payment required to create each Creation Unit is the NAV of 50,000
Shares of the applicable Fund on the purchase order date plus the
applicable transaction fee.
According to the Registration Statements, the procedures by which
an Authorized Participant can redeem one or more Creation Units mirror
the procedures for the creation of Creation Units. On any business day,
an Authorized Participant may place an order with the Distributor to
redeem one or more Creation Units. Individual shareholders may not
redeem directly from a Fund.
By placing a redemption order, an Authorized Participant agrees to
deliver the Creation Units to be redeemed through the Depository Trust
Company's book-entry system to the applicable Fund not later than noon
E.T., on the third business day immediately following the redemption
order date (T+3). 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 Creation Unit(s) of such Fund requested in the
Authorized Participant's redemption order as of the time of the
calculation of such Fund's NAV on the redemption order date, less
transaction fees, as described in the Registration Statements.
Availability of Information Regarding the Shares
The Web site for the Funds (https://www.proshares.com) and/or the
Exchange, which are publicly accessible at no charge, will contain the
following information: (a) The current NAV per Share daily and the
prior business day's NAV per Share; (b) calculation of the premium or
discount of the closing market price against the NAV per Share; (c) the
Prospectus; and (d) other applicable quantitative information.
The NAV per Share will be calculated and disseminated daily. One or
more major market data vendors will disseminate for the Funds on a
daily basis information with respect to the ``Indicative Fund Value''
(as discussed below), recent NAV per Share and Shares outstanding. The
Exchange will also make available on its Web site (https://www.nyse.com)
daily trading volume of the Shares, closing prices of the Shares, and
the NAV per Share. The intra-day futures prices, closing price and
settlement prices of the futures contracts held by the Funds are also
available from the NYMEX, automated quotation systems, published or
other public sources, or on-line information services such as Bloomberg
or Reuters. Quotation and last-sale information for the Shares will be
available via the Consolidated Tape Association (``CTA'') high-speed
line.
Portfolio Disclosure
Each Fund's total portfolio composition will be disclosed on the
Funds' Web site or another relevant Web site as determined by the Trust
and/or the Exchange. The Trust will provide Web site disclosure of
portfolio holdings daily and will include, as applicable, the names and
notional value (in U.S. dollars) of Natural Gas Futures Contracts and
swap agreements, if any, cash equivalents and amount of cash held in
the portfolio of each Fund. This public Web site disclosure of the
portfolio composition of each Fund will occur at the same time as the
disclosure by the Sponsor of the portfolio composition to Authorized
Participants, so that all market participants are provided portfolio
composition information at the same time. Therefore, the same portfolio
information will be provided on the public Web site as well as in
electronic files provided to Authorized Participants. Accordingly, each
investor will have access to the current portfolio composition of each
Fund through the Funds' Web site, and/or at the Exchange's Web site.
Availability of Information About the Benchmarks
The daily closing Index level and the percentage change in the
daily closing Index level for the Index will be publicly available on
various Web sites, e.g., https://www.bloomberg.com. The Index level will
be disseminated by one or more major market data vendors and will be
updated at least every 15 seconds during the Exchange's Core Trading
Session, except for that period after the end of the NYMEX Natural Gas
pit trading session at 2:30 p.m. E.T., at which point the Index value
will be static. Data regarding the Index is also available from the
Index Provider to subscribers. In addition, data is available for the
Natural Gas Futures Contracts in the Index and for other futures
contracts from those futures exchanges that list and trade futures
contracts on such commodity. Several independent data vendors also
package and disseminate index data in various value-added formats
(including vendors displaying both Index constituents and Index levels
and vendors displaying Index levels only).
Dissemination of Net Asset Value and Indicative Fund Value
The NAV for the Funds' Shares will be calculated by the
Administrator once a day and will be disseminated daily to all market
participants. The NAV calculation time for the Funds is 2:30 p.m.
E.T.\16\ The Exchange will obtain a representation (prior to listing of
the Funds) from the Trust that the NAV per Share will be calculated
daily and made available to all market participants at the same time.
In addition, the Sponsor will cause to be made available on a daily
basis the total payment required to create each Creation Unit of the
applicable Fund on the purchase order date in connection with the
issuance of the respective Shares.
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\16\ The Commission previously has approved a commodity-based
trust security 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; and 61219 (December
22, 2009), 74 FR 68886 (December 29, 2009) (SR-NYSEArca-2009-95)
(order approving listing of ETFS Platinum Trust).
---------------------------------------------------------------------------
In order to provide updated information relating to each Fund for
use by investors, professionals and persons wishing to create or redeem
the Shares, one or more major market data vendors will disseminate an
updated Indicative Fund Value (``IFV''). The IFV will be disseminated
on a per-Share basis at least every 15 seconds during Exchange's Core
Trading Session trading hours of 9:30 a.m. to 4 p.m. E.T. The IFV will
be calculated based on the cash required for creations and redemptions
for a Fund (prior calculated NAV) adjusted to reflect the price changes
of such Fund's holdings.
The value of a Share may be influenced by non-concurrent trading
hours between NYSE Arca and NYMEX when the Shares are traded on NYSE
Arca after normal trading hours of NYMEX. The IFV will be updated
during the NYSE Arca Core Trading Session when Natural Gas Futures
Contracts held by the Funds are traded. However, a static IFV will be
disseminated between the close of trading of Natural Gas Futures
Contracts and the close of the NYSE Arca Core Trading Session.
Criteria for Initial and Continued Listing
The Funds will be subject to the criteria in NYSE Arca Equity Rule
8.200 and Commentary .02 thereto for initial and continued listing of
the Shares.
The minimum number of Shares for each Fund to be outstanding at the
start of trading will be 100,000 Shares. The Exchange believes that
this anticipated
[[Page 28487]]
minimum number of Shares for each Fund to be outstanding at the start
of trading is sufficient to provide adequate market liquidity and to
further the objectives of the Funds. The Exchange represents that, for
the initial and continued listing of the Shares, the Funds will be in
compliance with NYSE Arca Equities Rule 5.3 and Rule 10A-3 under the
Act.
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 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 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'' rule \17\ or by the halt or suspension of trading of the
underlying futures contracts.
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\17\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------
The Exchange represents that the Exchange may halt trading during
the day in which an interruption to the dissemination of the Index
value, IFV or the value of the underlying futures contracts occurs. If
the interruption to the dissemination of the Index value, IFV 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.
Suitability
Currently, NYSE Arca Equities Rule 9.2(a) (Diligence as to
Accounts) provides that an ETP Holder, before recommending a
transaction in any security, must have reasonable grounds to believe
that the recommendation is suitable for the customer based on any facts
disclosed by the customer as to its other security holdings and as to
its financial situation and needs. Further, the rule provides, with a
limited exception, that prior to the execution of a transaction
recommended to a non-institutional customer, the ETP Holder must make
reasonable efforts to obtain information concerning the customer's
financial status, tax status, investment objectives, and any other
information that such ETP Holder believes would be useful to make a
recommendation.
Prior to the commencement of trading, the Exchange will inform its
ETP Holders of the suitability requirements of NYSE Arca Equities Rule
9.2(a) in an Information Bulletin. Specifically, ETP Holders will be
reminded in the Information Bulletin that, in recommending transactions
in the Shares, they must have a reasonable basis to believe that (1)
the recommendation is suitable for a customer given reasonable inquiry
concerning the customer's investment objectives, financial situation,
needs, and any other information known by such member, and (2) the
customer can evaluate the special characteristics, and is able to bear
the financial risks, of an investment in the Shares. In connection with
the suitability obligation, the Information Bulletin will also provide
that members must make reasonable efforts to obtain the following
information: (1) The customer's financial status; (2) the customer's
tax status; (3) the customer's investment objectives; and (4) such
other information used or considered to be reasonable by such member or
registered representative in making recommendations to the customer.
In addition, FINRA has implemented increased sales practice and
customer margin requirements for FINRA members applicable to leveraged
ETFs (which include the Shares) and options on leveraged ETFs, as
described in FINRA Regulatory Notices 09-31 (June 2009), 09-53 (August
2009) and 09-65 (November 2009) (``FINRA Regulatory Notices''). ETP
Holders that carry customer accounts will be required to follow the
FINRA guidance set forth in these notices.
As disclosed in the Registration Statement, the Funds seek
leveraged, inverse, or leveraged inverse returns on a daily basis, and
the Funds do not seek to achieve their stated investment objective over
a period of time greater than one day because mathematical compounding
prevents the Funds from perfectly achieving such results. Accordingly,
results over periods of time greater than one day typically will not be
a leveraged multiple (+200%), the inverse (-100%) or a leveraged
inverse multiple (-200%) of the period return of the Benchmark and may
differ significantly from these multiples. The Exchange's Information
Bulletin regarding the Funds, described below, will provide information
regarding the suitability of an investment in the Shares, as stated in
the Registration Statement.
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 surveillance focuses 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 can obtain market surveillance information, including
customer identity information, with respect to transactions occurring
on the NYMEX, which is a member of the Intermarket Surveillance Group
(``ISG''). A list of ISG members is available at https://www.isgportal.org.\18\
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\18\ 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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[[Page 28488]]
In addition, with respect to the Funds' futures contracts traded on
exchanges, not more than 10% of the weight of such futures contracts 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 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 IFV 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 IFV is disseminated; (5) a static IFV will be
disseminated between the close of trading Natural Gas Futures Contracts
on the NYMEX and the close of the NYSE Arca Core Trading Session; (6)
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 (7) 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 reference the FINRA Regulatory Notices regarding sales practice
and customer margin requirements for FINRA members applicable to
leveraged ETFs and options on leveraged ETFs. The Information Bulletin
will also discuss any exemptive, no-action and interpretive relief
granted by the Commission from any rules under the Act.
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
Commodity Futures Trading Commission 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. The Bulletin will disclose that information
about the Shares of the Funds is publicly available on the Funds' Web
site.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \19\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\19\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule 8.200
and Commentary .02 thereto. The Exchange has in place surveillance
procedures that are adequate to properly monitor trading in the Shares
in all trading sessions and to deter and detect violations of Exchange
rules and applicable Federal securities laws. The Exchange may obtain
information via ISG from other exchanges that are members of ISG or
with which the Exchange has entered into a comprehensive surveillance
sharing agreement. Any futures contracts held by the Funds are expected
to be the Natural Gas Futures Contracts, which are traded on NYMEX, an
ISG member. The intra-day futures prices, closing price and settlement
prices of the futures contracts held by the Funds are also available
from the NYMEX, automated quotation systems, published or other public
sources, or on-line information services. Quotation and last-sale
information for the Shares will be available via CTA. Each Fund's total
portfolio composition will be disclosed on the Funds' Web site or
another relevant Web site.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that a large amount of information is publicly available regarding the
Funds and the Shares, thereby promoting market transparency. The Index
level will be disseminated by one or more major market data vendors and
will be updated at least every 15 seconds during the Exchange's Core
Trading Session, except for that period after the end of the NYMEX
Natural Gas pit trading session at 2:30 p.m. E.T., at which point the
Index value will be static. The NAV per Share will be calculated daily
and made available to all market participants at the same time. One or
more major market data vendors will disseminate for the Funds on a
daily basis information with respect to the IFV, recent NAV per Share
and Shares outstanding. Trading in Shares of the Funds will be halted
if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have
been reached or because of market conditions or for reasons that, in
the view of the Exchange, make trading in the Shares inadvisable.
Moreover, 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. The
Information Bulletin will also reference the FINRA Regulatory Notices
regarding sales practice and customer margin requirements for FINRA
members applicable to leveraged ETFs and options on leveraged ETFs.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
additional types of actively-managed exchange-traded products that will
enhance competition among market participants, to the benefit of
investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures relating to trading in the Shares and may
obtain information via ISG from other exchanges that are members of ISG
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, as noted above, investors
will have ready access to information regarding the Funds' holdings,
IFV, and quotation and last-sale information for the Shares.
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.
[[Page 28489]]
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 (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve 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:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2011-24 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-2011-24. 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, on official business days between
the hours of 10 a.m. and 3 p.m. Copies of such filing also will be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NYSEArca-2011-24 and should be submitted on or before June 7, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-11967 Filed 5-16-11; 8:45 am]
BILLING CODE 8011-01-P
