Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change To List and Trade Shares of ProShares Short VIX Short-Term Futures ETF, ProShares Short VIX Mid-Term Futures ETF, ProShares Ultra VIX Short-Term Futures ETF, ProShares Ultra VIX Mid-Term Futures ETF, ProShares UltraShort VIX Short-Term Futures ETF, and ProShares UltraShort VIX Mid-Term Futures ETF Under NYSE Arca Equities Rule 8.200, Commentary .02, 28493-28498 [2011-12017]
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Federal Register / Vol. 76, No. 95 / Tuesday, May 17, 2011 / Notices
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–11972 Filed 5–16–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–64470; File No. SR–
NYSEArca–2011–23]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of ProShares Short VIX Short-Term
Futures ETF, ProShares Short VIX MidTerm Futures ETF, ProShares Ultra VIX
Short-Term Futures ETF, ProShares
Ultra VIX Mid-Term Futures ETF,
ProShares UltraShort VIX Short-Term
Futures ETF, and ProShares UltraShort
VIX Mid-Term Futures ETF Under NYSE
Arca Equities Rule 8.200, Commentary
.02
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.
Emcdonald on DSK2BSOYB1PROD with NOTICES
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 ProShares Short VIX
Short-Term Futures ETF, ProShares
Short VIX Mid-Term Futures ETF,
ProShares Ultra VIX Short-Term Futures
ETF, ProShares Ultra VIX Mid-Term
Futures ETF, ProShares UltraShort VIX
Short-Term Futures ETF, and ProShares
UltraShort VIX Mid-Term Futures ETF
under NYSE Arca Equities Rule 8.200,
Commentary .02. The text of the
proposed rule change is available at the
Exchange, the Commission’s Public
Reference Room, and http://
www.nyse.com.
11 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
self-regulatory organization included
statements concerning the purpose of,
and basis for, the proposed rule change
and discussed any comments it received
on the proposed rule change. The text
of those statements may be examined at
the places specified in Item IV below.
The Exchange has prepared summaries,
set forth in sections A, B, and C below,
of the most significant parts of such
statements.
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 ProShares Short VIX ShortTerm Futures ETF, ProShares Short VIX
Mid-Term Futures ETF (the ‘‘Short
Funds’’), ProShares Ultra VIX ShortTerm Futures ETF, ProShares Ultra VIX
Mid-Term Futures ETF (the ‘‘Ultra
Funds’’), ProShares UltraShort VIX
Short-Term Futures ETF, and ProShares
UltraShort VIX Mid-Term Futures ETF
(the ‘‘UltraShort Funds’’ and, together
with the Short and Ultra Funds, the
‘‘Funds’’) under NYSE Arca Equities
Rule 8.200, Commentary .02.4 The
Funds seek, on a daily basis, to provide
investment results (before fees and
expenses) that correspond to the inverse
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 The Commission previously has approved
listing on the Exchange under Commentary .02 to
NYSE Arca Equities Rule 8.200 of certain securities
issuers. See, e.g., Securities Exchange Act Release
Nos. 58457 (September 3, 2008), 73 FR 52711
(September 10, 2008) (SR–NYSEArca–2008–91)
(order granting accelerated approval to list on NYSE
Arca of 14 ProShares funds); 63610 (December 27,
2010), 76 FR 199 (January 3, 2011) (SR–NYSEArca–
2010–101) (order approving listing and trading of
the ProShares VIX Short-Term Futures ETF and the
ProShares VIX Mid-Term Futures ETF). See also
Securities Exchange Act Release No. 58968
(November 17, 2008), 73 FR 71082 (November 24,
2008) (SR–NYSEArca–2008–111) (order granting
accelerated approval of proposed rule change to
amend NYSE Arca Equities Rule 5.2(j)(6)(v) to add
CBOE Volatility Index (VIX) Futures to the
definition of Futures Reference Asset).
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28493
of the daily performance, a multiple of
the daily performance or an inverse
multiple of the daily performance of a
benchmark that seeks to offer exposure
to market volatility through publicly
traded futures markets. The benchmark
for ProShares Short VIX Short-Term
Futures ETF, ProShares Ultra VIX ShortTerm Futures ETF, and ProShares
UltraShort VIX Short-Term Futures ETF
is the S&P 500 VIX Short-Term Futures
Index, and the benchmark for ProShares
Short VIX Mid-Term Futures ETF,
ProShares Ultra VIX Mid-Term Futures
ETF, and ProShares UltraShort VIX
Mid-Term Futures ETF is the S&P 500
VIX Mid-Term Futures Index (each, an
‘‘Index,’’ and, collectively, the
‘‘Indexes’’).5 The Funds will take long
(in the case of the Ultra Funds) and
short (in the case of the Short and
UltraShort Funds) positions in futures
contracts based on the Chicago Board
Options Exchange (‘‘CBOE’’) Volatility
Index (‘‘VIX’’) and, under limited
circumstances, swap agreements (as
further described herein), to pursue
their respective investment objectives.
Each Fund also may invest in cash or
cash equivalents such as U.S. Treasury
securities or other high credit quality
short-term fixed-income or similar
securities (including shares of money
market funds, bank deposits, bank
money market accounts, certain variable
rate-demand notes and repurchase
agreements collateralized by
government securities) that may serve as
collateral for the futures contracts and
swap agreements.
Each Fund acquires exposure through
VIX futures contracts traded on the
CBOE Futures Exchange (‘‘CFE’’) (‘‘VIX
Futures Contracts’’) such that each Fund
has exposure intended to approximate
the inverse of the daily performance, a
multiple of the daily performance or an
inverse multiple of the daily
performance of its respective Index at
the time of the net asset value (‘‘NAV’’)
calculation.6
ProShare Capital Management LLC
(‘‘Sponsor’’), a Maryland limited liability
company, serves as the Sponsor of
ProShares Trust II (the ‘‘Trust’’). The
Sponsor is a commodity pool operator
and commodity trading advisor.7 Brown
5 Standard & Poor’s Financial Services LLC, the
index sponsor with respect to the Indexes, is not a
broker-dealer and has implemented procedures
designed to prevent the use and dissemination of
material, non-public information regarding the
Indexes.
6 Terms relating to the Funds, the Shares and the
Indexes referred to, but not defined, herein are
defined in the Registration Statement.
7 The Funds have filed a registration statement on
Form S–3 under the Securities Act of 1933. See
Post-Effective Amendment No. 4 dated April 13,
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17MYN1
28494
Federal Register / Vol. 76, No. 95 / Tuesday, May 17, 2011 / Notices
Emcdonald on DSK2BSOYB1PROD with NOTICES
Brothers Harriman & Co. serves as the
administrator (the ‘‘Administrator’’),
custodian and transfer agent of the
Funds and their respective Shares. SEI
Investments Distribution Co.
(‘‘Distributor’’) serves as Distributor of
the Shares. Wilmington Trust Company,
a Delaware banking corporation, is the
sole trustee of the Trust.
According to the Registration
Statement, each Fund seeks to achieve
its investment objective by investing
under normal market conditions in VIX
Futures Contracts.8 In the event position
accountability rules are reached with
respect to VIX Futures Contracts, the
Sponsor, may, in its commercially
reasonable judgment, cause such Fund
to obtain exposure through swaps
referencing the relevant Index or
particular VIX Futures Contracts, or
invest in other futures contracts or
swaps not based on the particular VIX
Futures Contracts if such instruments
tend to exhibit trading prices or returns
that correlate with the Indexes or any
VIX Futures Contract and will further
the investment objective of such Fund.9
The Funds 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 a Fund from
obtaining the appropriate amount of
investment exposure to the affected VIX
Futures Contracts directly or to other
futures contracts.10
According to the Registration
Statement, if the Short Funds are
successful in meeting their objectives,
their values (before fees and expenses)
should gain approximately as much on
a percentage basis as their respective
Index when it declines on a given day.
Conversely, their values (before fees and
expenses) should lose approximately as
2011 (File No. 333–163511) to the Trust’s
Registration Statement on Form S–3 (‘‘Registration
Statement’’). The description of the Funds and the
Shares contained herein are based on the
Registration Statement.
8 The term ‘‘under normal conditions’’ includes,
but is not limited to, the absence of extreme
volatility or trading halts in the futures markets or
the financial markets generally; operational issues
causing dissemination of inaccurate market
information; or force majeure type events such as
systems failure, natural or man-made disaster, act
of God, armed conflict, act of terrorism, riot or labor
disruption or any similar intervening circumstance.
9 To the extent practicable, the Funds will invest
in swaps cleared through the facilities of a
centralized clearing house.
10 According to the Registration Statement, 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 Statement.
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16:21 May 16, 2011
Jkt 223001
much on a percentage basis as their
respective Index when it rises on a
given day.
If the Ultra Funds are successful in
meeting their objectives, their values
(before fees and expenses) should gain
approximately twice as much on a
percentage basis as their respective
Index when it rises on a given day.
Conversely, their values (before fees and
expenses) should lose approximately
twice as much on a percentage basis as
their respective Index when it declines
on a given day.
If the UltraShort Funds are successful
in meeting their objectives, their values
(before fees and expenses) should gain
approximately twice as much on a
percentage basis as their respective
Index when it declines on a given day.
Conversely, their values (before fees and
expenses) should lose approximately
twice as much on a percentage basis as
their respective Index when it rises on
a given day.
Each of the Funds uses investment
techniques that include the use of any
one or a combination of VIX Futures
Contracts and may, if applicable,
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.
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 simple
inverse correlation (¥100%), multiple
correlation (+200%) or multiple inverse
correlation (¥200%) of the period
return of the corresponding Index and
may differ significantly.
According to the Registration
Statement, each Fund is not actively
managed by traditional methods, which
typically involve effecting changes in
the composition of a portfolio on the
basis of judgments relating to economic,
financial and market considerations
with a view toward obtaining positive
results under all market conditions.
Rather, the Sponsor seeks to cause the
NAV to track the inverse of the daily
performance, a multiple of the daily
performance or an inverse multiple of
the daily performance of an Index even
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Frm 00081
Fmt 4703
Sfmt 4703
during periods in which that benchmark
is flat or moving in a manner which
causes the NAV of a Fund to decline.
In seeking to achieve each Fund’s
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
returns consistent with such Fund’s
objective. The Sponsor relies upon a
pre-determined model to generate
orders that result in repositioning the
Funds’ investments in accordance with
their respective investment objectives.
VIX Futures Contracts
The Indexes are comprised of, and the
value of the Funds will be based on, VIX
Futures Contracts. VIX Futures
Contracts are measures of the market’s
expectation of the level of VIX at certain
points in the future, and as such will
behave differently than current or spot
VIX values.11 The Funds are not linked
to the VIX, and in many cases the
Indexes, and by extension the Funds,
could significantly underperform or
outperform the VIX.
While the VIX represents a measure of
the current expected volatility of the
S&P 500 over the next 30 days, the
prices of VIX Futures Contracts are
based on the current expectation of
what the expected 30-day volatility will
be at a particular time in the future (on
the expiration date). To illustrate, on
January 31, 2011, the VIX was 19.53 and
the price of the February 2011 VIX
Futures Contracts expiring on February
16, 2011 was 19.10. In this example, the
price of the VIX represented the 30-day
implied, or ‘‘spot,’’ volatility (the
volatility expected for the period from
January 31 to March 2, 2011) of the S&P
500, and the February VIX futures
represented forward implied volatility
(the volatility expected for the period
from February 16, 2011 to March 16,
2011) of the S&P 500.12 The VIX Futures
11 VIX is the ticker symbol for the CBOE Volatility
Index, a popular measure of implied volatility.
According to the Registration Statement, the goal of
the VIX is to estimate the implied volatility of the
S&P 500 over the next 30 days. A relatively high
level of the VIX corresponds to a more volatile U.S.
equity market as expressed by more costly options
on the S&P 500 Index. The VIX represents one
measure of the market’s expectation of the volatility
over the next 30 day period. It is a composite value
of options on the S&P 500 Index. The formula used
to calculate the composite value utilizes current
market prices for a series of out-of-the-money calls
and puts for the front month and second month
expirations.
12 As of January 31, 2011, there was VIX Futures
Contracts open interest on CFE of 163,396 contracts
with a value of open interest of $3,461,984,900.
Total CFE trading volume in 2010 in VIX Futures
Contracts was 4,402,616 contracts, with average
daily volume of 17,741 contracts. Total volume
E:\FR\FM\17MYN1.SGM
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Federal Register / Vol. 76, No. 95 / Tuesday, May 17, 2011 / Notices
Contracts trade from 8:20 a.m. Eastern
Time (‘‘E.T.’’) to 4:15 p.m. E.T.
Emcdonald on DSK2BSOYB1PROD with NOTICES
The S&P 500 VIX Short-Term Futures
Index and S&P 500 VIX Mid-Term
Futures Index
According to the Registration
Statement, the Indexes act as a measure
of volatility as reflected by the price of
certain VIX Futures Contracts (the
‘‘Index Components’’), with the price of
each VIX Futures Contract reflecting the
market’s expectation of future volatility.
Each Index seeks to reflect the returns
that are potentially available from
holding an unleveraged long position in
certain VIX Futures Contracts.
Unlike the Indexes, the VIX, which is
not a benchmark for any Fund, is
calculated based on the prices of put
and call options on the S&P 500, which
are traded on the CBOE.
The S&P 500 VIX Short-Term Futures
Index employs rules for selecting the
Index Components and a formula to
calculate a level for the Index from the
prices of these components.
Specifically, the Index Components
represent the prices of the two near-term
VIX futures months, replicating a
position that rolls the nearest month
VIX Futures Contract to the next month
VIX Futures Contract on a daily basis in
equal fractional amounts. This results in
a constant weighted average maturity of
one month. The roll period begins on
the Tuesday prior to the monthly CFE
VIX Futures Contracts settlement date
and runs through the Tuesday prior to
the subsequent month’s CFE VIX
Futures Contract settlement date.
The S&P 500 VIX Mid-Term Futures
Index also employs rules for selecting
the Index Components and a formula to
calculate the level of the Index from the
prices of these components.
Specifically, the Index Components
represent the prices for four contract
months of VIX Futures Contracts,
representing a market-based estimation
of constant maturity, five month
forward implied VIX values. The S&P
500 VIX Mid-Term Futures Index
measures the return from a rolling long
position in the fourth, fifth, sixth and
seventh month VIX Futures Contracts,
and rolls continuously throughout each
month while maintaining positions in
the fifth and sixth month contracts. This
results in a constant weighted average
maturity of five months.
Calculation of the Indexes
The level of each Index is calculated
in accordance with the method
year-to-date (through January 31, 2011) is 779,493
contracts, with average daily volume of 38,975
contracts. (Source: Bloomberg and CBOE).
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16:21 May 16, 2011
Jkt 223001
described in the Registration Statement.
The level of each Index will be
published at least every 15 seconds both
in real time from 9:30 a.m. to 4:15 p.m.
E.T. and at the close of trading on each
Business Day by Bloomberg L.P. and
Reuters.13
The Index Components comprising
each Index represent the prices of
certain futures contracts on the VIX.
Each Index takes a daily rolling long
position in contracts of specified
maturities and is intended to reflect the
returns that are potentially available
through an unleveraged investment in
those contracts. The S&P 500 VIX ShortTerm Futures Index measures the return
from a rolling long position in the first
and second month VIX Futures
Contracts. The Index rolls continuously
throughout each month from the first
month VIX Futures Contract into the
second month VIX Futures Contract.
The S&P 500 VIX Mid-Term Futures
Index measures the return from a rolling
long position in the fourth, fifth, sixth
and seventh month VIX Futures
Contracts. The Index rolls continuously
throughout each month from the fourth
month contract into the seventh month
contract while maintaining positions in
the fifth month and sixth month
contracts.
The Indexes roll on a daily basis.
According to the Registration Statement,
one of the effects of daily rolling is to
maintain a constant weighted average
maturity for the underlying futures
contracts. Unlike equities, which
typically entitle the holder to a
continuing stake in a corporation,
futures contracts normally specify a
certain date for the delivery of the
underlying asset or financial instrument
or, in the case of futures contracts
relating to indices such as the VIX, a
certain date for payment in cash of an
amount determined by the level of the
underlying index. The Indexes operate
by selling, on a daily basis, Index
Components with a nearby settlement
date and purchasing Index Components
with a longer-dated settlement date. The
roll for each contract occurs on each
Business Day according to a predetermined schedule that has the effect
of keeping constant the weighted
average maturity of the relevant Index
Components. This process is known as
‘‘rolling’’ a futures position, and each
Index is a ‘‘rolling index.’’ The constant
weighted average maturity for the
13 A ‘‘Business Day’’ means any day other than a
day when any of the NYSE, the NYSE Arca, the
CBOE, or the CFE or other exchange material to the
valuation or operation of the Funds, or the
calculation of the VIX, options contracts underlying
the VIX, VIX Futures Contracts or the Indexes is
closed for trading.
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Sfmt 4703
28495
futures underlying the S&P 500 VIX
Short-Term Futures Index is one month
and for the futures underlying the S&P
500 VIX Mid-Term Futures Index, five
months.
Because the Indexes incorporate this
process of rolling futures positions on a
daily basis, and the Funds, in general,
also roll their positions on a daily basis,
the daily roll is not anticipated to be a
significant source of tracking error
between a Fund and its respective
Index. The Indexes are based on VIX
Futures Contracts and not the VIX, and
as such neither the Funds nor the
Indexes are expected to track the VIX.
Purchases and Redemptions of Creation
Units
The Funds will create and redeem
Shares from time to time in one or more
Creation Units. A Creation Unit is a
block of 50,000 Shares. Except when
aggregated in Creation Units, the Shares
are not redeemable securities.
On any Business Day, an Authorized
Participant may place an order with the
Distributor to create one or more
Creation Units.14 The total cash
payment required to create each
Creation Unit is the NAV of 50,000
Shares of each Fund on the purchase
order date plus the applicable
transaction fee.
The procedures by which an
Authorized Participant can redeem one
or more Creation Units mirror the
procedures for the purchase of Creation
Units. On any Business Day, an
Authorized Participant may place an
order with the Distributor to redeem one
or more Creation Units. 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 a
Fund requested in the Authorized
Participant’s redemption order as of the
time of the calculation of a Fund’s NAV
on the redemption order date, less
transaction fees.
Availability of Information Regarding
the Shares
The NAV for the Funds’ Shares will
be calculated by the Administrator once
a day and will be disseminated daily to
all market participants at the same
time.15 The Exchange will make
14 Authorized Participants have a cut-off time of
12 p.m. E.T. to place creation and redemption
orders.
15 According to the Registration Statement, NAV
means the total assets of the Funds including, but
not limited to, all cash and cash equivalents or
other debt securities less total liabilities of the
Funds, each determined on the basis of generally
accepted accounting principles in the United States,
consistently applied under the accrual method of
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Emcdonald on DSK2BSOYB1PROD with NOTICES
28496
Federal Register / Vol. 76, No. 95 / Tuesday, May 17, 2011 / Notices
available on its Web site daily trading
volume of each of the Shares, closing
prices of such Shares, and number of
Shares outstanding.
The intra-day, closing and settlement
prices of the Index Components are also
readily available from the Web sites of
the CFE (http://www.cfe.cboe.com),
automated quotation systems, published
or other public sources, or on-line
information services such as Bloomberg
or Reuters. Complete real-time data for
component futures underlying the
Indexes is available by subscription
from Reuters and Bloomberg. The CFE
also provides delayed futures
information on current and past trading
sessions and market news free of charge
on its Web site. The specific contract
specifications for component futures
underlying the Indexes are also
available on such Web sites, as well as
other financial informational sources.
Quotation and last-sale information
regarding the Shares will be
disseminated through the facilities of
the Consolidated Tape Association
(‘‘CTA’’). In addition, the Funds’ Web
site at http://www.proshares.com will
display the end of day closing Index
levels and NAV.
The Funds will provide Web site
disclosure of portfolio holdings daily
and will include, as applicable, the
notional value (in U.S. dollars) of VIX
Futures Contracts, other financial
instruments, if any, cash equivalents,
and amount of cash held in the portfolio
of the Funds. This Web site disclosure
of the portfolio composition of the
Funds will occur at the same time as the
disclosure by the Funds of the portfolio
composition to Authorized Participants
so that all market participants are
provided portfolio composition
information at the same time. Therefore,
the same portfolio information will be
provided on the public Web site as well
as in electronic files provided to
Authorized Participants. Accordingly,
each investor will have access to the
current portfolio composition of the
Funds through the Funds’ Web site.
In addition, in order to provide
updated information relating to the
Funds for use by investors and market
professionals, an updated Indicative
Optimized Portfolio Value (‘‘IOPV’’) will
be calculated. The IOPV is an indicator
of the value of the VIX Futures
Contracts and cash and/or cash
equivalents less liabilities of a Fund at
the time the IOPV is disseminated.
NYSE Arca will calculate and
disseminate every 15 seconds
throughout the NYSE Arca Core Trading
accounting. Each Fund’s NAV is calculated at 4:15
p.m. E.T.
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16:21 May 16, 2011
Jkt 223001
Session (9:30 a.m. to 4 p.m. E.T.) an
updated IOPV. The IOPV will be
calculated by the NYSE Arca using the
prior day’s closing net assets of a Fund
as a base and updating throughout the
trading day changes in the value of such
Fund’s holdings.
The IOPV is published on the NYSE
Arca’s Web site and is available through
on-line information services such as
Bloomberg and Reuters.
The IOPV disseminated during the
Core Trading Session should not be
viewed as an actual real time update of
the NAV, which is calculated only once
a day. The IOPV also should not be
viewed as a precise value of the Shares.
The Exchange believes that
dissemination of the IOPV provides
additional information regarding the
Funds that is not otherwise available to
the public and is useful to professionals
and investors in connection with the
related Shares trading on the Exchange
or the creation or redemption of such
Shares.
Additional information regarding the
Funds and the Shares, including
investment strategies, risks, creation and
redemption procedures, fees, portfolio
holdings disclosure policies,
distributions and taxes is included in
the Registration Statement.
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
TIRs 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
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Sfmt 4703
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 16 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 IOPV, the value of
an Index, the VIX or the value of the
underlying VIX Futures Contracts
occurs. If an interruption to the
dissemination of the IOPV, the value of
an Index, the VIX or the value of the
underlying VIX 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.
The Funds will meet the initial and
continued listing requirements
applicable to TIRs in NYSE Arca
Equities Rule 8.200 and Commentary
.02 thereto. With respect to application
of Rule 10A–3 under the Act,17 the
Funds must be in compliance with
NYSE Arca Equities Rule 5.3 and Rule
10A–3 under the Act. A minimum of
100,000 Shares of each of the Funds will
be outstanding as of the start of trading
on the Exchange.
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
16 See
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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) (the ‘‘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. Unlike conventional stockbased indexes and funds, it is not
expected that the VIX Futures Indexes
or the Funds will generally rise over
time. In addition, 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 TIRs, 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
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16:21 May 16, 2011
Jkt 223001
deter and detect violations of Exchange
rules and applicable Federal securities
laws.
The Exchange’s current trading
surveillances focus on detecting
securities trading outside their normal
patterns. When such situations are
detected, surveillance analysis follows
and investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations. The Exchange is able
to obtain information regarding trading
in the Shares, options, futures or
options on futures on Shares through
ETP Holders, in connection with such
ETP Holders’ proprietary or customer
trades through ETP Holders which they
effect on any relevant market. The
Exchange can obtain market
surveillance information, including
customer identity information, with
respect to transactions occurring on the
exchanges that are members of the
Intermarket Surveillance Group (‘‘ISG’’),
including the CBOE and CFE, or with
which the Exchange has entered into a
comprehensive surveillance sharing
agreement.18 A list of ISG members is
available at http://www.isgportal.org.19
In addition, with respect to any
Fund’s holdings of 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 IOPV will not be
calculated or publicly disseminated; (2)
the procedures for purchases and
18 Telephone call among Michael Cavalier, Chief
Counsel, Exchange, and Tim Malinowski, Senior
Director, Global Index and Exchange Traded Funds,
Exchange, and Ed Cho and Kristie Diemer, Special
Counsels, Division, Commission, on May 11, 2011,
clarifying the Exchange’s ability to obtain
surveillance information.
19 The Exchange notes that not all components of
the Funds’ holdings 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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28497
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)
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 (5) trading
information.
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 Statement. The
Information Bulletin will also reference
that the Commodity Futures Trading
Commission has regulatory jurisdiction
over futures contracts traded on U.S.
markets.
The Information Bulletin will also
disclose the trading hours of the Shares
of the Funds and that the NAV for the
Shares is calculated after 4:15 p.m. E.T.
each trading day. The Bulletin will
disclose that information about the
Shares of the Funds is publicly available
on the Funds’ Web site.
2. Statutory Basis
The basis under the Act for this
proposed rule change is the requirement
under Section 6(b)(5) 20 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
20 15
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Federal Register / Vol. 76, No. 95 / Tuesday, May 17, 2011 / Notices
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. Under normal market
conditions, the Funds will invest in VIX
Futures Contracts, which are traded on
CFE, 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 CFE, 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.
One or more major market data vendors
will disseminate the level of each Index
at least every 15 seconds both in real
time from 9:30 a.m. to 4:15 p.m. E.T.
and at the close of trading on each
Business Day. 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 recent NAV per Share and
Shares outstanding. NYSE Arca will
calculate and disseminate every 15
seconds throughout the NYSE Arca Core
Trading Session an updated IOPV.
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
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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, IOPV, 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.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period
up to 90 days (i) as the Commission may
designate if it finds such longer period
to be appropriate and publishes its
reasons for so finding or (ii) as to which
the self-regulatory organization
consents, the Commission will:
(A) By order approve or disapprove
the proposed rule change, or
(B) Institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
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Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (http://www.sec.gov/
rules/sro.shtml); or
• Send an e-mail to rulecomments@sec.gov. Please include File
Number SR–NYSEArca–2011–23 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–2011–23. 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 (http://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 the filing will
also 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 No. SR–NYSEArca–
2011–23 and should be submitted on or
before June 7, 2011.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.21
Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011–12017 Filed 5–16–11; 8:45 am]
BILLING CODE 8011–01–P
21 17
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[Federal Register Volume 76, Number 95 (Tuesday, May 17, 2011)]
[Notices]
[Pages 28493-28498]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-12017]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64470; File No. SR-NYSEArca-2011-23]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of ProShares Short VIX
Short-Term Futures ETF, ProShares Short VIX Mid-Term Futures ETF,
ProShares Ultra VIX Short-Term Futures ETF, ProShares Ultra VIX Mid-
Term Futures ETF, ProShares UltraShort VIX Short-Term Futures ETF, and
ProShares UltraShort VIX Mid-Term Futures ETF Under NYSE Arca Equities
Rule 8.200, Commentary .02
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.
---------------------------------------------------------------------------
\11\ 17 CFR 200.30-3(a)(12).
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of ProShares Short
VIX Short-Term Futures ETF, ProShares Short VIX Mid-Term Futures ETF,
ProShares Ultra VIX Short-Term Futures ETF, ProShares Ultra VIX Mid-
Term Futures ETF, ProShares UltraShort VIX Short-Term Futures ETF, and
ProShares UltraShort VIX Mid-Term Futures ETF under NYSE Arca Equities
Rule 8.200, Commentary .02. The text of the proposed rule change is
available at the Exchange, the Commission's Public Reference Room, and
http://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 ProShares Short VIX Short-Term Futures
ETF, ProShares Short VIX Mid-Term Futures ETF (the ``Short Funds''),
ProShares Ultra VIX Short-Term Futures ETF, ProShares Ultra VIX Mid-
Term Futures ETF (the ``Ultra Funds''), ProShares UltraShort VIX Short-
Term Futures ETF, and ProShares UltraShort VIX Mid-Term Futures ETF
(the ``UltraShort Funds'' and, together with the Short and Ultra Funds,
the ``Funds'') under NYSE Arca Equities Rule 8.200, Commentary .02.\4\
The Funds seek, on a daily basis, to provide investment results (before
fees and expenses) that correspond to the inverse of the daily
performance, a multiple of the daily performance or an inverse multiple
of the daily performance of a benchmark that seeks to offer exposure to
market volatility through publicly traded futures markets. The
benchmark for ProShares Short VIX Short-Term Futures ETF, ProShares
Ultra VIX Short-Term Futures ETF, and ProShares UltraShort VIX Short-
Term Futures ETF is the S&P 500 VIX Short-Term Futures Index, and the
benchmark for ProShares Short VIX Mid-Term Futures ETF, ProShares Ultra
VIX Mid-Term Futures ETF, and ProShares UltraShort VIX Mid-Term Futures
ETF is the S&P 500 VIX Mid-Term Futures Index (each, an ``Index,'' and,
collectively, the ``Indexes'').\5\ The Funds will take long (in the
case of the Ultra Funds) and short (in the case of the Short and
UltraShort Funds) positions in futures contracts based on the Chicago
Board Options Exchange (``CBOE'') Volatility Index (``VIX'') and, under
limited circumstances, swap agreements (as further described herein),
to pursue their respective investment objectives. Each Fund also may
invest in cash or cash equivalents such as U.S. Treasury securities or
other high credit quality short-term fixed-income or similar securities
(including shares of money market funds, bank deposits, bank money
market accounts, certain variable rate-demand notes and repurchase
agreements collateralized by government securities) that may serve as
collateral for the futures contracts and swap agreements.
---------------------------------------------------------------------------
\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\ The Commission previously has approved listing on the
Exchange under Commentary .02 to NYSE Arca Equities Rule 8.200 of
certain securities issuers. See, e.g., Securities Exchange Act
Release Nos. 58457 (September 3, 2008), 73 FR 52711 (September 10,
2008) (SR-NYSEArca-2008-91) (order granting accelerated approval to
list on NYSE Arca of 14 ProShares funds); 63610 (December 27, 2010),
76 FR 199 (January 3, 2011) (SR-NYSEArca-2010-101) (order approving
listing and trading of the ProShares VIX Short-Term Futures ETF and
the ProShares VIX Mid-Term Futures ETF). See also Securities
Exchange Act Release No. 58968 (November 17, 2008), 73 FR 71082
(November 24, 2008) (SR-NYSEArca-2008-111) (order granting
accelerated approval of proposed rule change to amend NYSE Arca
Equities Rule 5.2(j)(6)(v) to add CBOE Volatility Index (VIX)
Futures to the definition of Futures Reference Asset).
\5\ Standard & Poor's Financial Services LLC, the index sponsor
with respect to the Indexes, is not a broker-dealer and has
implemented procedures designed to prevent the use and dissemination
of material, non-public information regarding the Indexes.
---------------------------------------------------------------------------
Each Fund acquires exposure through VIX futures contracts traded on
the CBOE Futures Exchange (``CFE'') (``VIX Futures Contracts'') such
that each Fund has exposure intended to approximate the inverse of the
daily performance, a multiple of the daily performance or an inverse
multiple of the daily performance of its respective Index at the time
of the net asset value (``NAV'') calculation.\6\
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\6\ Terms relating to the Funds, the Shares and the Indexes
referred to, but not defined, herein are defined in the Registration
Statement.
---------------------------------------------------------------------------
ProShare Capital Management LLC (``Sponsor''), a Maryland limited
liability company, serves as the Sponsor of ProShares Trust II (the
``Trust''). The Sponsor is a commodity pool operator and commodity
trading advisor.\7\ Brown
[[Page 28494]]
Brothers Harriman & Co. serves as the administrator (the
``Administrator''), custodian and transfer agent of the Funds and their
respective Shares. SEI Investments Distribution Co. (``Distributor'')
serves as Distributor of the Shares. Wilmington Trust Company, a
Delaware banking corporation, is the sole trustee of the Trust.
---------------------------------------------------------------------------
\7\ The Funds have filed a registration statement on Form S-3
under the Securities Act of 1933. See Post-Effective Amendment No. 4
dated April 13, 2011 (File No. 333-163511) to the Trust's
Registration Statement on Form S-3 (``Registration Statement''). The
description of the Funds and the Shares contained herein are based
on the Registration Statement.
---------------------------------------------------------------------------
According to the Registration Statement, each Fund seeks to achieve
its investment objective by investing under normal market conditions in
VIX Futures Contracts.\8\ In the event position accountability rules
are reached with respect to VIX Futures Contracts, the Sponsor, may, in
its commercially reasonable judgment, cause such Fund to obtain
exposure through swaps referencing the relevant Index or particular VIX
Futures Contracts, or invest in other futures contracts or swaps not
based on the particular VIX Futures Contracts if such instruments tend
to exhibit trading prices or returns that correlate with the Indexes or
any VIX Futures Contract and will further the investment objective of
such Fund.\9\ The Funds 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 a Fund from obtaining the
appropriate amount of investment exposure to the affected VIX Futures
Contracts directly or to other futures contracts.\10\
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\8\ The term ``under normal conditions'' includes, but is not
limited to, the absence of extreme volatility or trading halts in
the futures markets or the financial markets generally; operational
issues causing dissemination of inaccurate market information; or
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or
labor disruption or any similar intervening circumstance.
\9\ To the extent practicable, the Funds will invest in swaps
cleared through the facilities of a centralized clearing house.
\10\ According to the Registration Statement, 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 Statement.
---------------------------------------------------------------------------
According to the Registration Statement, if the Short Funds are
successful in meeting their objectives, their values (before fees and
expenses) should gain approximately as much on a percentage basis as
their respective Index when it declines on a given day. Conversely,
their values (before fees and expenses) should lose approximately as
much on a percentage basis as their respective Index when it rises on a
given day.
If the Ultra Funds are successful in meeting their objectives,
their values (before fees and expenses) should gain approximately twice
as much on a percentage basis as their respective Index when it rises
on a given day. Conversely, their values (before fees and expenses)
should lose approximately twice as much on a percentage basis as their
respective Index when it declines on a given day.
If the UltraShort Funds are successful in meeting their objectives,
their values (before fees and expenses) should gain approximately twice
as much on a percentage basis as their respective Index when it
declines on a given day. Conversely, their values (before fees and
expenses) should lose approximately twice as much on a percentage basis
as their respective Index when it rises on a given day.
Each of the Funds uses investment techniques that include the use
of any one or a combination of VIX Futures Contracts and may, if
applicable, 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.
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 simple inverse correlation (-100%), multiple
correlation (+200%) or multiple inverse correlation (-200%) of the
period return of the corresponding Index and may differ significantly.
According to the Registration Statement, each Fund is not actively
managed by traditional methods, which typically involve effecting
changes in the composition of a portfolio on the basis of judgments
relating to economic, financial and market considerations with a view
toward obtaining positive results under all market conditions. Rather,
the Sponsor seeks to cause the NAV to track the inverse of the daily
performance, a multiple of the daily performance or an inverse multiple
of the daily performance of an Index even during periods in which that
benchmark is flat or moving in a manner which causes the NAV of a Fund
to decline.
In seeking to achieve each Fund's 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 returns
consistent with such Fund's objective. The Sponsor relies upon a pre-
determined model to generate orders that result in repositioning the
Funds' investments in accordance with their respective investment
objectives.
VIX Futures Contracts
The Indexes are comprised of, and the value of the Funds will be
based on, VIX Futures Contracts. VIX Futures Contracts are measures of
the market's expectation of the level of VIX at certain points in the
future, and as such will behave differently than current or spot VIX
values.\11\ The Funds are not linked to the VIX, and in many cases the
Indexes, and by extension the Funds, could significantly underperform
or outperform the VIX.
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\11\ VIX is the ticker symbol for the CBOE Volatility Index, a
popular measure of implied volatility. According to the Registration
Statement, the goal of the VIX is to estimate the implied volatility
of the S&P 500 over the next 30 days. A relatively high level of the
VIX corresponds to a more volatile U.S. equity market as expressed
by more costly options on the S&P 500 Index. The VIX represents one
measure of the market's expectation of the volatility over the next
30 day period. It is a composite value of options on the S&P 500
Index. The formula used to calculate the composite value utilizes
current market prices for a series of out-of-the-money calls and
puts for the front month and second month expirations.
---------------------------------------------------------------------------
While the VIX represents a measure of the current expected
volatility of the S&P 500 over the next 30 days, the prices of VIX
Futures Contracts are based on the current expectation of what the
expected 30-day volatility will be at a particular time in the future
(on the expiration date). To illustrate, on January 31, 2011, the VIX
was 19.53 and the price of the February 2011 VIX Futures Contracts
expiring on February 16, 2011 was 19.10. In this example, the price of
the VIX represented the 30-day implied, or ``spot,'' volatility (the
volatility expected for the period from January 31 to March 2, 2011) of
the S&P 500, and the February VIX futures represented forward implied
volatility (the volatility expected for the period from February 16,
2011 to March 16, 2011) of the S&P 500.\12\ The VIX Futures
[[Page 28495]]
Contracts trade from 8:20 a.m. Eastern Time (``E.T.'') to 4:15 p.m.
E.T.
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\12\ As of January 31, 2011, there was VIX Futures Contracts
open interest on CFE of 163,396 contracts with a value of open
interest of $3,461,984,900. Total CFE trading volume in 2010 in VIX
Futures Contracts was 4,402,616 contracts, with average daily volume
of 17,741 contracts. Total volume year-to-date (through January 31,
2011) is 779,493 contracts, with average daily volume of 38,975
contracts. (Source: Bloomberg and CBOE).
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The S&P 500 VIX Short-Term Futures Index and S&P 500 VIX Mid-Term
Futures Index
According to the Registration Statement, the Indexes act as a
measure of volatility as reflected by the price of certain VIX Futures
Contracts (the ``Index Components''), with the price of each VIX
Futures Contract reflecting the market's expectation of future
volatility. Each Index seeks to reflect the returns that are
potentially available from holding an unleveraged long position in
certain VIX Futures Contracts.
Unlike the Indexes, the VIX, which is not a benchmark for any Fund,
is calculated based on the prices of put and call options on the S&P
500, which are traded on the CBOE.
The S&P 500 VIX Short-Term Futures Index employs rules for
selecting the Index Components and a formula to calculate a level for
the Index from the prices of these components. Specifically, the Index
Components represent the prices of the two near-term VIX futures
months, replicating a position that rolls the nearest month VIX Futures
Contract to the next month VIX Futures Contract on a daily basis in
equal fractional amounts. This results in a constant weighted average
maturity of one month. The roll period begins on the Tuesday prior to
the monthly CFE VIX Futures Contracts settlement date and runs through
the Tuesday prior to the subsequent month's CFE VIX Futures Contract
settlement date.
The S&P 500 VIX Mid-Term Futures Index also employs rules for
selecting the Index Components and a formula to calculate the level of
the Index from the prices of these components. Specifically, the Index
Components represent the prices for four contract months of VIX Futures
Contracts, representing a market-based estimation of constant maturity,
five month forward implied VIX values. The S&P 500 VIX Mid-Term Futures
Index measures the return from a rolling long position in the fourth,
fifth, sixth and seventh month VIX Futures Contracts, and rolls
continuously throughout each month while maintaining positions in the
fifth and sixth month contracts. This results in a constant weighted
average maturity of five months.
Calculation of the Indexes
The level of each Index is calculated in accordance with the method
described in the Registration Statement. The level of each Index will
be published at least every 15 seconds both in real time from 9:30 a.m.
to 4:15 p.m. E.T. and at the close of trading on each Business Day by
Bloomberg L.P. and Reuters.\13\
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\13\ A ``Business Day'' means any day other than a day when any
of the NYSE, the NYSE Arca, the CBOE, or the CFE or other exchange
material to the valuation or operation of the Funds, or the
calculation of the VIX, options contracts underlying the VIX, VIX
Futures Contracts or the Indexes is closed for trading.
---------------------------------------------------------------------------
The Index Components comprising each Index represent the prices of
certain futures contracts on the VIX. Each Index takes a daily rolling
long position in contracts of specified maturities and is intended to
reflect the returns that are potentially available through an
unleveraged investment in those contracts. The S&P 500 VIX Short-Term
Futures Index measures the return from a rolling long position in the
first and second month VIX Futures Contracts. The Index rolls
continuously throughout each month from the first month VIX Futures
Contract into the second month VIX Futures Contract. The S&P 500 VIX
Mid-Term Futures Index measures the return from a rolling long position
in the fourth, fifth, sixth and seventh month VIX Futures Contracts.
The Index rolls continuously throughout each month from the fourth
month contract into the seventh month contract while maintaining
positions in the fifth month and sixth month contracts.
The Indexes roll on a daily basis. According to the Registration
Statement, one of the effects of daily rolling is to maintain a
constant weighted average maturity for the underlying futures
contracts. Unlike equities, which typically entitle the holder to a
continuing stake in a corporation, futures contracts normally specify a
certain date for the delivery of the underlying asset or financial
instrument or, in the case of futures contracts relating to indices
such as the VIX, a certain date for payment in cash of an amount
determined by the level of the underlying index. The Indexes operate by
selling, on a daily basis, Index Components with a nearby settlement
date and purchasing Index Components with a longer-dated settlement
date. The roll for each contract occurs on each Business Day according
to a pre-determined schedule that has the effect of keeping constant
the weighted average maturity of the relevant Index Components. This
process is known as ``rolling'' a futures position, and each Index is a
``rolling index.'' The constant weighted average maturity for the
futures underlying the S&P 500 VIX Short-Term Futures Index is one
month and for the futures underlying the S&P 500 VIX Mid-Term Futures
Index, five months.
Because the Indexes incorporate this process of rolling futures
positions on a daily basis, and the Funds, in general, also roll their
positions on a daily basis, the daily roll is not anticipated to be a
significant source of tracking error between a Fund and its respective
Index. The Indexes are based on VIX Futures Contracts and not the VIX,
and as such neither the Funds nor the Indexes are expected to track the
VIX.
Purchases and Redemptions of Creation Units
The Funds will create and redeem Shares from time to time in one or
more Creation Units. A Creation Unit is a block of 50,000 Shares.
Except when aggregated in Creation Units, the Shares are not redeemable
securities.
On any Business Day, an Authorized Participant may place an order
with the Distributor to create one or more Creation Units.\14\ The
total cash payment required to create each Creation Unit is the NAV of
50,000 Shares of each Fund on the purchase order date plus the
applicable transaction fee.
---------------------------------------------------------------------------
\14\ Authorized Participants have a cut-off time of 12 p.m. E.T.
to place creation and redemption orders.
---------------------------------------------------------------------------
The procedures by which an Authorized Participant can redeem one or
more Creation Units mirror the procedures for the purchase of Creation
Units. On any Business Day, an Authorized Participant may place an
order with the Distributor to redeem one or more Creation Units. 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 a Fund requested in the Authorized Participant's
redemption order as of the time of the calculation of a Fund's NAV on
the redemption order date, less transaction fees.
Availability of Information Regarding the Shares
The NAV for the Funds' Shares will be calculated by the
Administrator once a day and will be disseminated daily to all market
participants at the same time.\15\ The Exchange will make
[[Page 28496]]
available on its Web site daily trading volume of each of the Shares,
closing prices of such Shares, and number of Shares outstanding.
---------------------------------------------------------------------------
\15\ According to the Registration Statement, NAV means the
total assets of the Funds including, but not limited to, all cash
and cash equivalents or other debt securities less total liabilities
of the Funds, each determined on the basis of generally accepted
accounting principles in the United States, consistently applied
under the accrual method of accounting. Each Fund's NAV is
calculated at 4:15 p.m. E.T.
---------------------------------------------------------------------------
The intra-day, closing and settlement prices of the Index
Components are also readily available from the Web sites of the CFE
(http://www.cfe.cboe.com), automated quotation systems, published or
other public sources, or on-line information services such as Bloomberg
or Reuters. Complete real-time data for component futures underlying
the Indexes is available by subscription from Reuters and Bloomberg.
The CFE also provides delayed futures information on current and past
trading sessions and market news free of charge on its Web site. The
specific contract specifications for component futures underlying the
Indexes are also available on such Web sites, as well as other
financial informational sources. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
Consolidated Tape Association (``CTA''). In addition, the Funds' Web
site at http://www.proshares.com will display the end of day closing
Index levels and NAV.
The Funds will provide Web site disclosure of portfolio holdings
daily and will include, as applicable, the notional value (in U.S.
dollars) of VIX Futures Contracts, other financial instruments, if any,
cash equivalents, and amount of cash held in the portfolio of the
Funds. This Web site disclosure of the portfolio composition of the
Funds will occur at the same time as the disclosure by the Funds of the
portfolio composition to Authorized Participants so that all market
participants are provided portfolio composition information at the same
time. Therefore, the same portfolio information will be provided on the
public Web site as well as in electronic files provided to Authorized
Participants. Accordingly, each investor will have access to the
current portfolio composition of the Funds through the Funds' Web site.
In addition, in order to provide updated information relating to
the Funds for use by investors and market professionals, an updated
Indicative Optimized Portfolio Value (``IOPV'') will be calculated. The
IOPV is an indicator of the value of the VIX Futures Contracts and cash
and/or cash equivalents less liabilities of a Fund at the time the IOPV
is disseminated. NYSE Arca will calculate and disseminate every 15
seconds throughout the NYSE Arca Core Trading Session (9:30 a.m. to 4
p.m. E.T.) an updated IOPV. The IOPV will be calculated by the NYSE
Arca using the prior day's closing net assets of a Fund as a base and
updating throughout the trading day changes in the value of such Fund's
holdings.
The IOPV is published on the NYSE Arca's Web site and is available
through on-line information services such as Bloomberg and Reuters.
The IOPV disseminated during the Core Trading Session should not be
viewed as an actual real time update of the NAV, which is calculated
only once a day. The IOPV also should not be viewed as a precise value
of the Shares.
The Exchange believes that dissemination of the IOPV provides
additional information regarding the Funds that is not otherwise
available to the public and is useful to professionals and investors in
connection with the related Shares trading on the Exchange or the
creation or redemption of such Shares.
Additional information regarding the Funds and the Shares,
including investment strategies, risks, creation and redemption
procedures, fees, portfolio holdings disclosure policies, distributions
and taxes is included in the Registration Statement.
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 TIRs 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 \16\ or by the halt or suspension of trading of the
underlying futures contracts.
---------------------------------------------------------------------------
\16\ 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 IOPV, the
value of an Index, the VIX or the value of the underlying VIX Futures
Contracts occurs. If an interruption to the dissemination of the IOPV,
the value of an Index, the VIX or the value of the underlying VIX
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.
The Funds will meet the initial and continued listing requirements
applicable to TIRs in NYSE Arca Equities Rule 8.200 and Commentary .02
thereto. With respect to application of Rule 10A-3 under the Act,\17\
the Funds must be in compliance with NYSE Arca Equities Rule 5.3 and
Rule 10A-3 under the Act. A minimum of 100,000 Shares of each of the
Funds will be outstanding as of the start of trading on the Exchange.
---------------------------------------------------------------------------
\17\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------
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
[[Page 28497]]
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) (the ``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.
Unlike conventional stock-based indexes and funds, it is not expected
that the VIX Futures Indexes or the Funds will generally rise over
time. In addition, 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 TIRs, to
monitor trading in the Shares. The Exchange represents that these
procedures are adequate to properly monitor Exchange trading of the
Shares in all trading sessions and to deter and detect violations of
Exchange rules and applicable Federal securities laws.
The Exchange's current trading surveillances focus on detecting
securities trading outside their normal patterns. When such situations
are detected, surveillance analysis follows and investigations are
opened, where appropriate, to review the behavior of all relevant
parties for all relevant trading violations. The Exchange is able to
obtain information regarding trading in the Shares, options, futures or
options on futures on Shares through ETP Holders, in connection with
such ETP Holders' proprietary or customer trades through ETP Holders
which they effect on any relevant market. The Exchange can obtain
market surveillance information, including customer identity
information, with respect to transactions occurring on the exchanges
that are members of the Intermarket Surveillance Group (``ISG''),
including the CBOE and CFE, or with which the Exchange has entered into
a comprehensive surveillance sharing agreement.\18\ A list of ISG
members is available at http://www.isgportal.org.\19\
---------------------------------------------------------------------------
\18\ Telephone call among Michael Cavalier, Chief Counsel,
Exchange, and Tim Malinowski, Senior Director, Global Index and
Exchange Traded Funds, Exchange, and Ed Cho and Kristie Diemer,
Special Counsels, Division, Commission, on May 11, 2011, clarifying
the Exchange's ability to obtain surveillance information.
\19\ The Exchange notes that not all components of the Funds'
holdings may trade on markets that are members of ISG or with which
the Exchange has in place a comprehensive surveillance sharing
agreement.
---------------------------------------------------------------------------
In addition, with respect to any Fund's holdings of 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 IOPV 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) 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 (5) trading information.
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
Statement. The Information Bulletin will also reference that the
Commodity Futures Trading Commission has regulatory jurisdiction over
futures contracts traded on U.S. markets.
The Information Bulletin will also disclose the trading hours of
the Shares of the Funds and that the NAV for the Shares is calculated
after 4:15 p.m. E.T. each trading day. The Bulletin will disclose that
information about the Shares of the Funds is publicly available on the
Funds' Web site.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \20\ 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.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------
The Exchange believes that the proposed rule change is designed to
[[Page 28498]]
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. Under normal market conditions, the Funds will
invest in VIX Futures Contracts, which are traded on CFE, 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 CFE, 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. One or
more major market data vendors will disseminate the level of each Index
at least every 15 seconds both in real time from 9:30 a.m. to 4:15 p.m.
E.T. and at the close of trading on each Business Day. 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 recent NAV per Share and Shares outstanding. NYSE Arca
will calculate and disseminate every 15 seconds throughout the NYSE
Arca Core Trading Session an updated IOPV. 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,
IOPV, 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.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2011-23 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-2011-23. 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 (http://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 the filing will also 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 No. SR-
NYSEArca-2011-23 and should be submitted on or before June 7, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Cathy H. Ahn,
Deputy Secretary.
[FR Doc. 2011-12017 Filed 5-16-11; 8:45 am]
BILLING CODE 8011-01-P