Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Proposed Rule Change Relating to the Listing and Trading of Twelve Funds of the Direxion Shares ETF Trust II Under NYSE Arca Equities Rule 8.200, 58881-58889 [2012-23461]
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Federal Register / Vol. 77, No. 185 / Monday, September 24, 2012 / Notices
imposed by the Nasdaq Market Center
prior to Nasdaq exchange registration
and separation from FINRA (then
NASD) in 2006. Prior to 2006, the
business decision was made not to
assess late fees under NASD Rule 7080;
however, the rule inadvertently was not
deleted from the rulebook and
subsequently was included in the
FINRA/Nasdaq TRF rules. Because
members historically have not been
assessed late fees under this rule and
the Business Member has determined
not to do so in the future, FINRA is
proposing to delete Rule 7640A.
19(b)(3)(A) of the Act 9 and Rule 19b–
4(f)(6) thereunder.10
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is necessary or appropriate in the
public interest, for the protection of
investors, or otherwise in furtherance of
the purposes of the Act. If the
Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
2. Statutory Basis
FINRA believes that the proposed rule
change is consistent with the provisions
of Section 15A of the Act,7 in general,
and with Sections 15A(b)(5) and (6) of
the Act,8 in particular, which require,
among other things, that FINRA rules
provide for the equitable allocation of
reasonable dues, fees and other charges
among members and issuers and other
persons using any facility or system that
FINRA operates or controls, and that
FINRA rules not be designed to permit
unfair discrimination between
customers, issuers, brokers or dealers.
FINRA believes that the proposed rule
change is reasonable, equitable and nondiscriminatory in that it is eliminating
a fee provision that the Business
Member has determined is not
necessary and the change applies to all
FINRA/Nasdaq TRF users.
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:
B. Self-Regulatory Organization’s
Statement on Burden on Competition
FINRA does not believe that the
proposed rule change will result in any
burden on competition that is not
necessary or appropriate in furtherance
of the purposes of the Act.
TKELLEY on DSK3SPTVN1PROD with NOTICES
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule
change does not: (i) Significantly affect
the protection of investors or the public
interest; (ii) impose any significant
burden on competition; and (iii) become
operative for 30 days from the date on
which it was filed, or such shorter time
as the Commission may designate, it has
become effective pursuant to Section
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml ); or
• Send an email to rulecomments@sec.gov. Please include File
Number SR–FINRA–2012–043 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–FINRA–2012–043. This file
number should be included on the
subject line if email is used.
To help the Commission process and
review your comments more efficiently,
please use only one method. The
Commission will post all comments on
the Commission’s Internet Web site
(https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room on official business
days between the hours of 10 a.m. and
3 p.m. Copies of such filing also will be
available for inspection and copying at
the principal office of FINRA. All
comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly. All
submissions should refer to File
Number SR–FINRA–2012–043, and
should be submitted on or before
October 15, 2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.11
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–23449 Filed 9–21–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67882; File No. SR–
NYSEArca–2012–102]
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change Relating to the Listing
and Trading of Twelve Funds of the
Direxion Shares ETF Trust II Under
NYSE Arca Equities Rule 8.200
September 18, 2012.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (‘‘Act’’
or ‘‘Exchange Act’’) 1 and Rule 19b–4
thereunder,2 notice is hereby given that,
on September 5, 2012, NYSE Arca, Inc.
(‘‘Exchange’’ or ‘‘NYSE Arca’’) filed
with the Securities and Exchange
Commission (‘‘Commission’’) the
proposed rule change as described in
Items I and II below, which Items have
been prepared by the Exchange. The
Commission is publishing this notice to
solicit comments on the proposed rule
change from interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of twelve funds of the
Direxion Shares ETF Trust II under
NYSE Arca Equities Rule 8.200,
Commentary .02. The text of the
proposed rule change is available on the
Exchange’s Web site at www.nyse.com,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
11 17
7 15
U.S.C. 78o–3.
8 15 U.S.C. 78o–3(b)(5) and (6).
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9 15
U.S.C. 78s(b)(3)(A).
10 17 CFR 240.19b–4(f)(6).
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CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
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Federal Register / Vol. 77, No. 185 / Monday, September 24, 2012 / Notices
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
Statutory Basis for, the Proposed Rule
Change
1. Purpose
TKELLEY on DSK3SPTVN1PROD with NOTICES
NYSE Arca Equities Rule 8.200,
Commentary .02 permits the trading of
Trust Issued Receipts (‘‘TIRs’’) either by
listing or pursuant to unlisted trading
privileges (‘‘UTP’’).3 The Exchange
proposes to list and trade the shares
(‘‘Shares’’) of the following pursuant to
NYSE Arca Equities Rule 8.200:
Direxion Daily Gold Bear 1X Shares;
Direxion Daily Gold Bull 3X Shares;
Direxion Daily Gold Bear 3X Shares;
Direxion Daily Silver Bear 1X Shares;
Direxion Daily Silver Bull 3X Shares;
Direxion Daily Silver Bear 3X Shares;
Direxion Daily Japanese Yen Bull 3X
Shares; Direxion Daily Japanese Yen
Bear 3X Shares; Direxion Daily Dollar
Bull 3X Shares; Direxion Daily Dollar
Bear 3X Shares; Direxion Daily Euro
Bull 3X Shares; and Direxion Daily Euro
Bear 3X Shares (each a ‘‘Fund’’ and,
collectively, ‘‘Funds’’).4 All Funds
except for the Direxion Daily Gold Bear
1X Shares and Direxion Daily Silver
Bear 1X Shares are also referred to
herein as ‘‘Leveraged Funds,’’ and the
Direxion Daily Gold Bear 1X Shares and
Direxion Daily Silver Bear 1X Shares are
also referred to herein as ‘‘Bear 1X
Funds.’’ 5
3 Commentary .02 to NYSE Arca Equities Rule
8.200 applies to TIRs that invest in ‘‘Financial
Instruments.’’ The term ‘‘Financial Instruments,’’ as
defined in Commentary .02(b)(4) to NYSE Arca
Equities Rule 8.200, means any combination of
investments, including cash; securities; options on
securities and indices; futures contracts; options on
futures contracts; forward contracts; equity caps,
collars, and floors; and swap agreements.
4 See Pre-Effective Amendment No. 1 to Form S–
1, dated October 13, 2010 (‘‘Registration
Statement’’) (File No. 333–168227). The description
of the Funds and the Shares contained herein is
based, in part, on the Registration Statement.
5 Terms relating to the Funds and the Shares
referred to, but not defined, herein are defined in
the Registration Statement.
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Each Leveraged Fund seeks a multiple
or inverse multiple (plus or minus
300%) of the return (before fees and
expenses) of its target benchmark
commodity or currency on a given day.
The Leveraged Funds seek to provide
daily leveraged investment results,
before fees and expenses, which
correspond to the performance of an
underlying benchmark commodity or
currency.
Each Bear 1X Fund seeks¥100% of
the return (before fees and expenses) of
its target benchmark commodity on a
given day. The Bear 1X Funds seek to
provide daily investment results, before
fees and expenses, which inversely
correspond to the performance of an
underlying benchmark commodity.
The Exchange notes that the
Commission has previously approved
other issues of TIRs, including leveraged
TIRs, for listing and trading on the
American Stock Exchange LLC
(‘‘Amex’’),6 trading on NYSE Arca
pursuant to UTP,7 and listing and
trading on NYSE Arca.8 In addition, the
Commission has approved the listing
and trading of other exchange-traded
fund-like products linked to the
performance of underlying commodities
and currencies.9
Overview of the Funds
The Shares will be issued by Direxion
Shares ETF Trust II (‘‘Trust’’), a
Delaware statutory trust. Direxion Asset
Management, LLC will be the sponsor
(‘‘Sponsor’’) for the Trust. The Bank of
New York Mellon (‘‘Administrator’’)
will serve as the Funds’ transfer agent,
administrator and custodian. Foreside
Fund Services, LLC (‘‘Distributor’’), will
serve as the distributor of the Shares.
According to the Registration
Statement, the Leveraged Funds will
seek daily leveraged investment results
and are intended to be used as shortterm trading vehicles. The Leveraged
Funds with the word ‘‘Bull’’ in their
name (collectively, ‘‘Leveraged Bull
Funds’’) will attempt to provide daily
leveraged investment results (before fees
and expenses) that correlate positively
to three times (300%) the daily return of
a target benchmark, meaning a
Leveraged Bull Fund will attempt to
move in the same direction as the target
benchmark. The Leveraged Funds with
the word ‘‘Bear’’ in their name
(collectively, ‘‘Leveraged Bear Funds’’)
will attempt to provide daily leveraged
investment results (before fees and
expenses) that correlate to the inverse
(opposite) of three times the return of a
target benchmark, meaning that the
Leveraged Bear Funds will attempt to
move in the opposite or inverse
direction of the target benchmark.
The Bear 1X Funds will attempt to
provide daily investment results (before
fees and expenses) that correlate to the
inverse (opposite) of the return of a
target benchmark commodity, meaning
that the Bear 1X Funds will attempt to
move in the opposite or inverse
direction of a target benchmark
commodity.
6 See, e.g., Securities Exchange Act Release No.
58161 (July 15, 2008), 73 FR 42380 (July 21, 2008)
(SR–Amex–2008–39) (order approving amendments
to Amex Rule 1202, Commentary .07 and listing on
Amex of 14 funds of the Commodities and Currency
Trust).
7 See, e.g., Securities Exchange Act Release No.
58162 (July 15, 2008), 73 FR 42391 (July 21, 2008)
(SR–NYSEArca–2008–73) (notice of effectiveness of
UTP trading on NYSE Arca of 14 funds of the
Commodities and Currency Trust).
8 See, e.g., Securities Exchange Act Release No.
58457 (September 3, 2008), 73 FR 52711 (September
10, 2008) (SR–NYSEArca–2008–91) (order
approving listing and trading on NYSE Arca of 14
funds of the Commodities and Currency Trust).
9 See, e.g., Securities Exchange Act Release Nos.
54020 (June 20, 2006), 71 FR 36579 (June 27, 2006)
(SR–NYSE–2006–35) (order approving listing and
trading on the New York Stock Exchange (‘‘NYSE’’)
of six CurrencyShares Trusts); 55585 (April 5,
2007), 72 FR 18500 (April 12, 2007) (SR–NYSE–
2006–75) (order approving listing and trading on
NYSE of the iShares GS Commodity Light Energy
Indexed Trust; iShares GS Commodity Industrial
Metals Indexed Trust; iShares GS Commodity
Livestock Indexed Trust; and iShares GS
Commodity Non-Energy Indexed Trust); 56932
(December 7, 2007), 72 FR 71178 (December 14,
2007) (SR–NYSEArca–2007–112) (order granting
accelerated approval to list and trade iShares S&P
GSCI Commodity-Indexed Trust); and 59895 (May
8, 2009), 74 FR 22993 (May 15, 2009) (SR–
NYSEArca–2009–40) (order granting accelerated
approval to list and trade the ETFS Gold Trust).
Principal Investment Strategies
According to the Registration
Statement, in seeking to achieve each
Fund’s daily investment objective, the
Sponsor will use statistical and
quantitative analysis to determine the
investments each Fund makes and the
techniques it employs. Using this
approach, the Sponsor will determine
the type, quantity and mix of
investment positions that the Sponsor
believes in combination should produce
daily returns consistent with a Fund’s
objective. The Sponsor will rely upon a
pre-determined model to generate
orders that result in repositioning each
Fund’s investments in accordance with
its daily investment objective. As a
consequence, if a Fund is performing as
designed, the return of the applicable
benchmark (as discussed below) will
dictate the return for that Fund. Each
Fund will pursue its investment
objective regardless of market
conditions and will not take defensive
positions.
As described in the Registration
Statement, each of the Direxion Daily
Gold Bear 1X Shares, Direxion Daily
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Federal Register / Vol. 77, No. 185 / Monday, September 24, 2012 / Notices
TKELLEY on DSK3SPTVN1PROD with NOTICES
Gold Bull 3X Shares and Direxion Daily
Gold Bear 3X Shares (collectively,
‘‘Gold Funds’’) and Direxion Daily
Silver Bear 1X Shares, Direxion Daily
Silver Bull 3X Shares and Direxion
Daily Silver Bear 3X Shares
(collectively, ‘‘Silver Funds,’’ and
collectively with the Gold Funds,
‘‘Commodity Funds’’) will seek to
achieve its investment objective by
investing in futures contracts related to
its benchmark commodity. As such, the
Gold Funds will invest in gold futures
contracts traded on the Commodity
Exchange, Inc. (‘‘COMEX,’’ an affiliate
of the CME Group, Inc. (‘‘CME’’)) (‘‘Gold
Futures Contracts’’), and the Silver
Funds will invest in silver futures
contracts traded on COMEX (‘‘Silver
Futures Contracts,’’ and, collectively
with Gold Futures Contracts,
‘‘Commodity Futures Contracts’’).10 For
each of the Commodity Funds, in the
event position limits or position
accountability levels are reached with
respect to the applicable Commodity
Futures Contracts, or if trading of such
Commodity Futures Contracts is
suspended due to price fluctuation
limits being reached or if the CME
imposes any other suspension or
limitation on trading in a Commodity
Futures Contract, the Sponsor may, in
its commercially reasonable judgment,
cause the Commodity Funds to obtain
exposure through cash-settled,
exchange-traded options on Commodity
Futures Contracts, as applicable, and
forward contracts, swaps,11 and other
over-the-counter transactions that are
based on the price of Commodity
Futures Contracts, as applicable, if such
instruments tend to exhibit trading
prices or returns that correlate with any
Commodity Futures Contract and will
further the investment objective of such
Commodity Fund (collectively,
‘‘Commodity Financial Instruments’’).12
10 Gold and Silver Futures Contracts traded on
COMEX are the global benchmark contracts and
most liquid futures contracts in the world for each
respective commodity. As of March 15, 2012, open
interest in Gold Futures Contracts and Silver
Futures Contracts traded on the CME was $23.7
billion and $8.5 billion, respectively. Gold Futures
Contracts and Silver Futures Contracts had an
average daily trading volume in 2011 of 138,964
contracts and 63,913 contracts, respectively. The
trading hours for the Gold Futures Contracts and
Silver Futures Contracts are 8:20 a.m. until 1:30
p.m. Eastern Time (‘‘E.T.’’).
11 To the extent practicable, the Commodity
Funds will invest in swaps cleared through the
facilities of a centralized clearing house.
12 According to the Registration Statement, each
Fund will enter into swap agreements and other
over-the-counter transactions only with large,
established and well capitalized financial
institutions that meet certain credit quality
standards and monitoring policies. Each Fund will
use various techniques to minimize credit risk
including early termination or reset and payment,
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The Gold Funds’ benchmark will be
the daily last sale price occurring on or
before 4 p.m. E.T. of a standard Gold
Futures Contract for 100 troy ounces of
gold, specified by the CME to be of a
grade and quality that shall assay to a
minimum of 995 fineness, as measured
in U.S. Dollars and cents per troy ounce
with a minimum fluctuation of $0.10
per troy ounce (‘‘Gold Benchmark
Futures Contract’’). The Silver Funds’
benchmark will be the daily last sale
price occurring on or before 4 p.m. E.T.
of a standard Silver Futures Contract for
5,000 troy ounces of silver, specified by
the CME to be at a grade and quality that
shall assay to a minimum of 999
fineness, as measured in U.S. Dollars
and cents per troy ounce with a
minimum fluctuation of $0.10 per troy
ounce (‘‘Silver Benchmark Futures
Contract’’). For both the Gold
Benchmark Futures Contract and the
Silver Benchmark Futures Contract, the
last sale price value will be calculated
as the last sale price published by the
CME on or before 4 p.m. E.T. for the
current active month Commodity
Futures Contract.13 The last sale price
and benchmark valuation may reflect
trades occurring and published by the
CME outside the normal trading session
for the applicable Commodity Futures
Contract.
Each of the Direxion Daily Japanese
Yen Bull 3X Shares and Direxion Daily
Japanese Yen Bear 3X Shares
(collectively, ‘‘Yen Funds’’); Direxion
using different counterparties and limiting the net
amount due from any individual counterparty.
13 By way of example, with respect to the
Direxion Daily Gold Bull 3X Shares, pursuant to the
Fund’s investment strategy, in the event position
limits or position accountability levels are reached
with respect to the Gold Benchmark Futures
Contract, or if trading of the Gold Benchmark
Futures Contract is suspended due to price
fluctuation limits being reached or if the CME
imposes any other suspension or limitation on
trading, the Sponsor may cause the Fund to obtain
exposure through cash-settled, exchange-traded
options on the Gold Benchmark Futures Contract
and forward contracts, swaps and other over-thecounter transactions that are based on the price of
the Gold Benchmark Futures Contract if such
instruments tend to exhibit trading prices or returns
that correlate with any Gold Benchmark Futures
Contract and will further the investment objective
of the Fund. Thus, for example, if the Fund were
to have $7 million in net assets, the Sponsor would
seek to obtain $21 million in exposure to the price
of gold and would invest in Gold Futures Contracts
directly and, if the Fund reaches a point where
position limits or accountability levels in Gold
Futures Contracts become applicable, in cleared
long swap positions, as practicable in the Sponsor’s
commercially reasonable judgment, or general
swaps referencing the Gold Futures Contracts. The
particular ratio of Gold Futures Contracts and cash
held would be dependent on the Sponsor’s view of
what will best meet the investment objective of the
Fund (i.e., 300% exposure to Gold Futures
Contracts). Conversely, in the case of a Bear 1X
Fund, the Sponsor will utilize short positions to
similarly gain the target exposure.
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Daily Dollar Bull 3X Shares and
Direxion Daily Dollar Bear 3X Shares
(collectively, ‘‘Dollar Funds’’); and
Direxion Daily Euro Bull 3X Shares and
Direxion Daily Euro Bear 3X Shares
(collectively, ‘‘Euro Funds,’’ and
collectively with the Yen Funds and
Dollar Funds, ‘‘Currency Funds’’) will
seek to achieve its investment objective
by investing in futures contracts related
to its benchmark currency. As such, the
Yen Funds will invest in Japanese Yen
futures contracts traded on the CME
(‘‘Yen Futures Contracts’’), the Euro
Funds will invest in Euro futures traded
on the CME (‘‘Euro Futures Contracts’’),
and the Dollar Funds will invest in U.S.
Dollar Index futures contracts traded on
the ICE Futures U.S. (‘‘ICE’’) (‘‘Dollar
Futures Contracts,’’ and, collectively
with Yen Futures Contracts and Euro
Futures Contracts, ‘‘Currency Futures
Contracts’’).14 For each Currency Fund
except the Dollar Funds, which invest
in futures contracts that do not have
position limits, accountability levels or
price fluctuation limits, in the event
position limits or position
accountability levels are reached with
respect to the applicable Currency
Futures Contracts, or if trading of such
Currency Futures Contracts is
suspended due to price fluctuation
limits being reached or if the CME or
ICE (with respect to the Dollar Funds),
as applicable, imposes any other
suspension or limitation on trading in a
Currency Futures Contract, the Sponsor
may, in its commercially reasonable
judgment, cause the Currency Funds to
obtain exposure through cash-settled,
exchange-traded options on Currency
Futures Contracts, as applicable, and
forward contracts, swaps,15 and other
over-the-counter transactions that are
based on the price of Currency Futures
Contracts, as applicable, if such
instruments tend to exhibit trading
prices or returns that correlate with any
Currency Futures Contract and will
further the investment objective of such
14 The CME constitutes the largest regulated
foreign exchange marketplace in the world, with
over $100 billion in daily liquidity. As of March 15,
2012, open interest in Euro Futures Contracts and
Yen Futures Contracts traded on the CME and, for
Dollar Futures Contracts, on the ICE, were $42.7
billion, $20.8 billion, and $4.8 billion, respectively.
Euro Futures Contracts, Yen Futures Contracts, and
Dollar Futures Contracts had an average daily
trading volume in 2011 of 325,103, 106,824, and
27,258 contracts, respectively. The trading hours for
the Euro Futures Contracts and Yen Futures
Contracts are 8:20 a.m. until 3 p.m. E.T., and the
trading hours for the Dollar Futures Contracts are
8 p.m. E.T. until 5 p.m. E.T. the following day.
15 To the extent practicable, the Currency Funds
will invest in swaps cleared through the facilities
of a centralized clearing house.
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TKELLEY on DSK3SPTVN1PROD with NOTICES
Currency Fund (collectively, ‘‘Currency
Financial Instruments’’).
The benchmark for the Yen Funds
will be the last sale price occurring on
or before 4 p.m. E.T. of a standard Yen
Futures Contract for 12,500,000
Japanese Yen, priced in U.S. Dollars and
traded on the CME (‘‘Yen Benchmark
Futures Contract’’). The benchmark for
the Euro Funds will be the last sale
price occurring on or before 4 p.m. E.T.
of a standard Euro Futures Contract for
125,000 Euro, priced in U.S. Dollars and
traded on the CME (‘‘Euro Benchmark
Futures Contract’’). For both the Yen
Benchmark Futures Contract and Euro
Benchmark Futures Contract, the last
sale price value will be calculated as the
last sale price published by the CME on
or before 4 p.m. E.T. for the current
active month Currency Futures
Contract. The last sale price and
benchmark valuation may reflect trades
occurring and published by the CME
outside the normal trading session for
the applicable Currency Futures
Contract.
The benchmark for the Dollar Funds
will be the last sale price occurring on
or before 4 p.m. E.T. of a standard Dollar
Futures Contract for $1,000 times the
U.S. Dollar Index value as measured in
U.S. Dollars and traded on the ICE
(‘‘Dollar Benchmark Futures Contract’’
and, collectively with the Gold
Benchmark Futures Contract, Silver
Benchmark Futures Contract, Yen
Benchmark Futures Contract, and the
Euro Benchmark Futures Contract,
‘‘Benchmark Futures Contracts’’). The
U.S. Dollar Index indicates the general
international value of the U.S. Dollar.16
The U.S. Dollar Index does this by
geometrically weighting the exchange
rates between the U.S. Dollar and six
major world currencies. The U.S. Dollar
Index consists of the following six
currencies: Euro, Japanese Yen, British
Pound, Canadian Dollar, Swedish
Krona, and Swiss Franc. The
components and weightings are held
constant, and have not changed since
the introduction of the Euro. Because
the U.S. Dollar Index is geometrically
weighted, holding the individual
currencies in their specified weights
will not necessarily mimic U.S. Dollar
Index moves. The last sale price for the
Dollar Benchmark Futures Contract will
be calculated using the last sale price
published by the ICE on or before 4 p.m.
E.T. for the current active month Dollar
Futures Contract.
In seeking its investment objective,
each Fund will invest in Commodity or
Currency Futures Contracts, as
applicable, including (but not limited
to) 17 the Fund’s related Benchmark
Futures Contract, as well as Commodity
or Currency Financial Instruments in
certain circumstances. Assets of each
Fund not invested in Commodity
Futures Contracts, Currency Futures
Contracts, or other Commodity
Financial Instruments or Currency
Financial Instruments, as applicable,
will be held in cash or invested in cash
equivalents and/or U.S. Treasury
Securities or other high credit quality
short-term fixed-income or similar
securities (such as shares of money
market funds, bank deposits, bank
money market accounts, certain variable
rate-demand notes, and repurchase
agreements collateralized by
government securities, whether
denominated in U.S. or the applicable
foreign currency with respect to a
Currency Fund) that serve as collateral
for Commodity Futures Contracts,
Currency Futures Contracts, and
Commodity or Currency Financial
Instruments, as applicable.
At the close of the U.S. equity markets
each trading day, each Fund will
position its portfolio to ensure that the
Fund’s exposure to its benchmark is
consistent with the Fund’s stated goals.
The impact of market movements
during the day will determine whether
a portfolio needs to be repositioned. If
the target benchmark has risen on a
given day, a Leveraged Bull Fund’s net
assets should rise, meaning their
exposure may need to be increased.
Conversely, if the target benchmark has
fallen on a given day, a Leveraged Bull
Fund’s net assets should fall, meaning
their exposure may need to be reduced.
If a Leveraged Bull Fund is successful
in meeting its objective, its value in a
given day (before fees and expenses)
16 The U.S. Dollar Index was created by the U.S.
Federal Reserve in 1973. Following the ending of
the 1944 Bretton Woods Agreement, which had
established a system of fixed exchange rates, the
U.S. Federal Reserve Bank began the calculation of
the U.S. Dollar Index to provide an external
bilateral trade-weighted average of the U.S. Dollar
as it freely floated against global currencies. Futures
contracts based on the U.S. Dollar Index were listed
on November 20, 1985, and are now available only
on the ICE electronic trading platform. Options on
the futures contracts began trading on September 3,
1986, and are available both on the ICE electronic
trading platform and on the ICE options trading
floor.
17 A Fund, in seeking to achieve its investment
objective by investing in futures contracts related to
its target benchmark, may be invested in futures
contracts that are not the current active month
futures contracts on which the Fund’s target
benchmark is based. For example, if, on a date in
September 2012, the current active month futures
contract with respect to a target benchmark is
December 2012, a Fund may have a portion of its
assets in the October 2012 or February 2013
contracts. A Fund may use this flexibility, for
example, in case of liquidity issues with respect to
the applicable, current active month futures
contracts or when deciding when to roll the Fund’s
assets into the next current active month contract.
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should gain approximately three times
as much on a percentage basis as its
corresponding benchmark when the
benchmark rises during a given day.
Conversely, its value in a given day
(before fees and expenses) should lose
approximately three times as much on
a percentage basis as the corresponding
benchmark when the benchmark
declines during a given day. Each
Leveraged Bull Fund will acquire long
exposure through investment in
Commodity or Currency Futures
Contracts, including (but not limited to)
the applicable Benchmark Futures
Contracts, and, once position limits or
position accountability levels are
reached, trading of such Commodity or
Currency Futures Contracts is
suspended due to price fluctuation
limits being reached, or if the CME or
ICE, as applicable, imposes any other
suspension or limitation on trading in a
Commodity or Currency Futures
Contract, in Commodity Financial
Instruments or Currency Financial
Instruments, as applicable, such that
each Leveraged Bull Fund has
approximately 300% exposure to the
corresponding benchmark at the time of
the net asset value (‘‘NAV’’) calculation.
If a Leveraged Bear Fund is successful
in meeting its objective, its value in a
given day (before fees and expenses)
should gain approximately three times
as much on a percentage basis as its
corresponding benchmark loses when
the benchmark falls in a given day.
Conversely, its value in a given day
(before fees and expenses) should lose
approximately three times as much on
a percentage basis as the corresponding
benchmark gains when the benchmark
rises in a given day. Each Leveraged
Bear Fund will acquire short exposure
through investment in Commodity or
Currency Futures Contracts, including
(but not limited to) the applicable
Benchmark Futures Contracts, and, once
position limits or position
accountability levels are reached,
trading of such Commodity or Currency
Futures Contracts is suspended due to
price fluctuation limits being reached,
or if the CME or ICE, as applicable,
imposes any other suspension or
limitation on trading in a Commodity or
Currency Futures Contract, in
Commodity Financial Instruments or
Currency Financial Instruments, as
applicable, such that each Leveraged
Bear Fund has approximately ¥300%
exposure to the corresponding
benchmark at the time of the NAV
calculation.
If a Bear 1X Fund is successful in
meeting its objective, its value in a given
day (before fees and expenses) should
gain approximately an equal amount on
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a percentage basis as its corresponding
benchmark when the benchmark falls in
a given day. Conversely, its value in a
given day (before fees and expenses)
should lose approximately an equal
amount on a percentage basis as the
corresponding benchmark when the
benchmark rises in a given day. Each
Bear 1X Fund will acquire short
exposure through investment in
Commodity Futures Contracts,
including (but not limited to) the
applicable Benchmark Futures
Contracts, and, once position limits or
position accountability levels, if
applicable, are reached, trading of the
Commodity Futures Contracts is
suspended due to price fluctuation
limits being reached, or if the CME
imposes any other suspension or
limitation on trading in a Commodity
Futures Contract, a Bear 1X Fund may
invest in Commodity Financial
Instruments such that each Bear 1X
Fund has approximately ¥100%
exposure to the corresponding
benchmark at the time of the NAV
calculation.
In the event that trading of a
Commodity or Currency Futures
Contract is suspended due to price
fluctuation limits being reached for that
futures contract, or CME or ICE, as
applicable imposes any other
suspension or limitation on trading in a
Commodity or Currency Futures
Contract, the related Fund or Funds may
be limited in their ability to seek their
investment objective until trading
resumes.
Creation and Redemption of Shares
Each Fund will create and redeem
Shares in ‘‘Creation Unit’’ size of 50,000
Shares or aggregations thereof. Except
when aggregated in Creation Units, the
Shares are not redeemable securities.
Shares may be created or redeemed only
through authorized participants, as
described in the Registration Statement.
On any day other than a day when
any of the NYSE Arca, the NYSE, and,
as applicable to the underlying
benchmark, the CME, ICE, or COMEX
(collectively, ‘‘Futures Exchanges’’) is
closed for regular trading (‘‘Business
Day’’), an authorized participant may
place an order with the Distributor to
create one or more Creation Units.
Purchase orders must be placed prior to
3:30 p.m. E.T. in order to avoid higher
transaction fees, but in no instances may
purchase orders be placed after 4 p.m.
E.T., as described in the Registration
Statement. Although trading in a Fund’s
respective benchmark may continue
beyond that time on any given trading
day, the Sponsor has elected to require
orders be placed prior to that time in
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18:54 Sep 21, 2012
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order to facilitate efficient operation of
the Funds and give the Funds adequate
time to reposition their portfolios, strike
the NAV for the Funds and prepare the
needed value and portfolio composition
disclosures for the following Business
Day’s trading. If a purchase order is
received prior to the cut-off time, the
day on which the Distributor receives a
valid purchase order is the purchase
order date. If the purchase order is
received after the applicable cut-off
time, the purchase order date will be the
next day. Purchase orders are
irrevocable. The total cash payment
required to create each Creation Unit
will be the NAV of 50,000 Shares of the
applicable 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 will mirror the
procedures for the creation of Creation
Units. On any Business Day, an
authorized participant may place an
order with the Distributor to redeem one
or more Creation Units. Redemption
orders must be placed by 3:30 p.m. E.T.
in order to avoid higher transaction fees,
but in no instances may redemption
orders be placed after 4 p.m. E.T. If a
redemption order is received prior to
the applicable cut-off time, the day on
which the Distributor receives a valid
redemption order is the redemption
order date. If the redemption order is
received after the applicable cut-off
time, the redemption order date will be
the next day. Redemption orders are
irrevocable. The redemption proceeds
from a Fund will consist of the cash
redemption amount. The cash
redemption amount will be equal to the
NAV of the number of Creation Unit(s)
of such Fund requested in the
authorized participant’s redemption
order as of the time of the calculation of
such Fund’s NAV on the redemption
order date, less transaction fees.
Intraday Indicative Value (‘‘IIV’’)
The IIV with respect to each Fund is
an indicator of the value of the
Commodity Futures Contracts and
Currency Futures Contracts, as
applicable; Commodity Financial
Instruments and Currency Financial
Instruments, if any; and cash and
receivables less liabilities of a Fund at
the time the IIV is disseminated. The IIV
with respect to each Fund, updated
every 15 seconds, will be widely
disseminated by one or more major
market data vendors during the NYSE
Arca Core Trading Session.18 However,
18 Currently, it is the Exchange’s understanding
that several major market data vendors display and/
or make widely available IIVs taken from the
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58885
circumstances may arise in which the
NYSE Arca Core Trading Session is in
progress, but trading in Commodity or
Currency Futures Contracts is not
occurring. Such circumstances may
result from reasons including, but not
limited to, the CME or ICE, as
applicable, having a separate holiday
schedule than the NYSE Arca, the CME,
or ICE closing prior to the close of the
NYSE Arca, price fluctuation limits
being reached in a Commodity or
Currency Futures Contract, or the CME
or ICE, as applicable, imposing any
other suspension or limitation on
trading in a Commodity or Currency
Futures Contract. In such instances, the
value of the applicable Commodity or
Currency Futures Contracts, as well as
Commodity or Currency Financial
Instruments whose value is derived
from the Commodity or Currency
Futures Contracts, held by the Funds
would be static or priced by the Fund
at the applicable early cut-off time of the
exchange trading the applicable
Commodity or Currency Futures
Contract. Moreover, any cash held by
the Funds for collateralization purposes
will be invested in short term treasury
vehicles that do not have market
exposure, such that their value would
change throughout the trading day. As
such, during such periods, the
disseminated IIV for the affected Fund
or Funds will be static.
The IIV should not be viewed as an
actual real time update of the NAV
because NAV is calculated only once at
the end of each trading day. The IIV also
should not be viewed as a precise value
of the Shares.
The value of a Share of a Fund may
be influenced by non-concurrent trading
hours between NYSE Arca and the
Futures Exchanges. As a result, during
periods when the NYSE Arca is open
and one or more of the applicable
futures exchanges is closed, trading
spreads and the resulting premium or
discount on the Shares may widen and,
therefore, increase the difference
between the price of the Shares and the
NAV of the Shares.
According to the Registration
Statement, dissemination of the IIV
provides additional information that is
not otherwise available to the public
and may be useful to investors and
market professionals in connection with
the trading of Shares. Investors and
market professionals will be able
throughout the trading day to compare
the market price of a Fund and the IIV.
If the market price of Shares diverges
significantly from the IIV, market
Consolidated Tape Association (‘‘CTA’’) or other
data feeds.
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professionals may have an incentive to
execute arbitrage trades. Such arbitrage
trades can tighten the tracking between
the market price of a Fund and the IIV
and thus can be beneficial to all market
participants.
Availability of Information Regarding
the Shares
The current trading price per Share of
each Fund (quoted in U.S. Dollars) will
be published continuously under its
ticker symbol as trades occur
throughout each trading day via CTA,
Reuters and/or Bloomberg.
The Web site for the Funds and/or the
Exchange, which are publicly accessible
at no charge, will contain the following
information: (a) The current NAV per
Share daily and the prior Business Day’s
NAV and the reported closing price; (b)
the mid-point of the bid-ask price in
relation to the NAV as of the time the
NAV is calculated (‘‘Bid-Ask Price’’); (c)
calculation of the premium or discount
of such price against such NAV; (d) the
Bid-Ask Price of Shares determined
using the highest bid and lowest offer as
of the time of calculation of the NAV;
(e) data in chart form displaying the
frequency distribution of discounts and
premiums of the Bid-Ask Price against
the NAV, within appropriate ranges for
each of the four (4) previous calendar
quarters; (f) the prospectus; and (g) other
applicable quantitative information.
The NAV means the total assets of a
Fund including, but not limited to, all
cash and cash equivalents or other debt
securities less total liabilities of such
Fund, each determined on the basis of
generally accepted accounting
principles in the United States,
consistently applied under the accrual
method of accounting. NAV will be
calculated at 4 p.m. E.T. Additional
information regarding calculation of
NAV is included in the Registration
Statement.
The NAV for each Fund will be
calculated by the Administrator once a
day and will be disseminated daily to
all market participants at the same time.
The Exchange also will disseminate on
a daily basis via CTA information with
respect to the recent NAV and Shares
outstanding. Quotation and last-sale
information regarding the Shares will be
disseminated through the facilities of
the CTA.
The closing and daily settlement
prices for the Commodity Futures
Contracts and Currency Futures
Contracts are publicly available on the
Web site of the CME (www.cmegroup.
com) and ICE (www.theice.com), as
applicable. Intraday prices for the
Commodity and Currency Futures
Contracts, updated at least every 15
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18:54 Sep 21, 2012
Jkt 226001
seconds, also are publicly available
through major market data vendors. In
addition, various data vendors and news
publications publish futures prices and
data. The Exchange represents that
futures quotes and last sale information
for the Commodity Futures Contracts
and Currency Futures Contracts are
widely disseminated through a variety
of major market data vendors
worldwide, including Bloomberg and
Reuters. In addition, the Exchange
further represents that complete realtime data for Commodity Futures
Contracts and Currency Futures
Contracts is available by subscription
from Reuters and Bloomberg. The
applicable specific contract
specifications for Commodity Futures
Contracts and Currency Futures
Contracts are also available from the
CME and ICE Web sites referenced
above, as well as other financial
informational sources. Real-time
dissemination of spot pricing for gold,
silver, Yen, Euro, and currencies
included in the U.S. Dollar Index is
available on a 24-hour basis worldwide
from various major market data vendors.
In addition, there is a considerable
amount of foreign currency price and
market information available on public
Web sites and through professional and
subscription services, including price
information with respect to currencies
included in the U.S. Dollar Index. In
most instances, real-time information is
only available for a fee, and information
available free of charge is subject to
delay (typically, 15 to 20 minutes). The
U.S. Dollar Index value is disseminated
every 15 seconds by major market data
vendors during the Exchange’s Core
Trading Session.
Complete real-time data for foreign
currency futures and options prices
traded on the CME and NASDAQ OMX
PHLX (‘‘PHLX’’), respectively, are also
available by subscription from
information service providers. The CME
and PHLX also provide delayed futures
and options information on current and
past trading sessions and market news
free of charge on their respective Web
sites. Pricing information for futures and
options on futures on the U.S. Dollar
Index is available from the ICE Web site
and major market data vendors.
The value of the benchmarks, updated
at least every 15 seconds during the
NYSE Arca Core Trading Session, will
be disseminated by one or more major
market data vendors.
The Sponsor will publish the NAV of
each Fund and the NAV per Share of
each Fund daily.
The most recent end-of-day NAV of
each Fund will be published under its
own symbol as of the close of business
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by major market data vendors and on
the Sponsor’s Web site. In addition, the
most recent end-of-day NAV of each
Fund will be published the following
morning via the CTA.
The Funds will provide Web site
disclosure of portfolio holdings daily
and will include, as applicable, the
names and value (in U.S. Dollars) of
Commodity Futures Contracts and
Currency Futures Contracts, as
applicable; Commodity Financial
Instruments and Currency Financial
Instruments, if any; and the amount of
cash and/or cash equivalents 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 Sponsor of the
portfolio composition to authorized
participants so that all market
participants are provided portfolio
composition information at the same
time. Therefore, the same portfolio
information will be provided on the
public Web site as well as in electronic
files provided to authorized
participants. Accordingly, each investor
will have access to the current portfolio
composition of the Funds through the
Funds’ Web site.
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 Equity
Trading Permit (‘‘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 certain
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
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trading is not occurring in Commodity
Futures Contracts, Currency Futures
Contracts, Commodity Financial
Instruments, and/or Currency Financial
Instruments, as applicable, held by the
Funds, 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 19 or by the halt or
suspension of trading of Commodity
Futures Contracts, Currency Futures
Contracts, Commodity Financial
Instruments, and/or Currency Financial
Instruments, as applicable. The
Exchange represents that the Exchange
may halt trading during the day in
which an interruption to the
dissemination of the IIV, trading in the
applicable Commodity or Currency
Futures Contract for each Fund, or to
trading in Currency or Commodity
Financial Instruments, as described
above, occurs for each Fund. If the
interruption to the dissemination of the
IIV, trading in the applicable
Commodity or Currency Futures
Contract for each Fund, or to trading in
Currency or Commodity Financial
Instruments, as applicable, 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. The Exchange represents
that, for the initial and continued listing
of the Shares, the Funds must be in
compliance with NYSE Arca Equities
Rule 5.3 and Rule 10A–3 under the
Act.20 A minimum of 100,000 Shares for
each Fund will be outstanding as of the
start of trading on the Exchange.
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
19 See
20 17
NYSE Arca Equities Rule 7.12.
CFR 240.10A–3.
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18:54 Sep 21, 2012
Jkt 226001
rules and applicable federal securities
laws.
The Exchange’s current trading
surveillances focus on detecting
securities trading outside their normal
patterns. When such situations are
detected, surveillance analysis follows
and investigations are opened, where
appropriate, to review the behavior of
all relevant parties for all relevant
trading violations. The Exchange is able
to obtain information regarding trading
in the Shares, the physical commodities
or currencies underlying options,
futures or options on futures through
ETP Holders, in connection with such
ETP Holders’ proprietary or customer
trades which they effect through ETP
Holders on any relevant market. The
Exchange can obtain market
surveillance information, including
customer identity information, with
respect to transactions occurring on the
Futures Exchanges, including
transactions in cash-settled options on
Commodity or Currency Futures
Contracts, which are members of the
Intermarket Surveillance Group
(‘‘ISG’’).21
The Exchange also has a general
policy prohibiting the distribution of
material, non-public information by its
employees.
Suitability
Currently, NYSE Arca Equities Rule
9.2(a) (Diligence as to Accounts)
provides that an ETP Holder, before
recommending a transaction in any
security, must have reasonable grounds
to believe that the recommendation is
suitable for the customer based on any
facts disclosed by the customer as to its
other security holdings and as to its
financial situation and needs. Further,
the rule provides, with a limited
exception, that prior to the execution of
a transaction recommended to a noninstitutional customer, the ETP Holder
must make reasonable efforts to obtain
information concerning the customer’s
financial status, tax status, investment
objectives, and any other information
that such ETP Holder believes would be
useful to make a recommendation.
Prior to the commencement of
trading, the Exchange will inform its
ETP Holders of the suitability
requirements of NYSE Arca Equities
Rule 9.2(a) in an Information Bulletin.
Specifically, ETP Holders will be
reminded in the Information Bulletin
that, in recommending transactions in
21 For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all
components of the portfolio for the Funds may
trade on markets that are members of ISG or with
which the Exchange has in place a comprehensive
surveillance sharing agreement.
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58887
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 ETP Holder, 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 ETP Holders 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 ETP Holder 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
exchange-traded funds (which include
the Shares) and options on leveraged
exchange-traded funds, as described in
FINRA Regulatory Notices 09–31 (June
2009), 09–53 (August 2009) and 09–65
(November 2009) (collectively, ‘‘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, each Leveraged Fund will
seek a multiple or inverse multiple (plus
or minus 300%) of the return (before
fees and expenses) of its target
benchmark commodity or currency on a
given day, and each Bear 1X Fund will
seek ¥100% of the return (before fees
and expenses) of its target benchmark
commodity on a given day. Over a
period of time in excess of one day, the
cumulative percentage increase or
decrease in the NAV of the Shares of a
Fund may diverge significantly from a
multiple or inverse multiple of the
cumulative percentage decrease or
increase in the relevant benchmark due
to a compounding effect. 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.
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
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will discuss the following: (1) The risks
involved in trading the Shares during
the Opening and Late Trading Sessions
when an updated IIV will not be
calculated or publicly disseminated; (2)
except for the Dollar Funds, a static IIV
may be disseminated between the close
of trading of all applicable Commodity
or Currency Futures Contracts on
Futures Exchanges and the close of the
NYSE Arca Core Trading Session; (3)
the procedures for purchases and
redemptions of Shares in Creation Units
(and that Shares are not individually
redeemable); (4) 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; (5)
how information regarding the IIV is
disseminated; (6) the requirement that
ETP Holders deliver a prospectus to
investors purchasing newly issued
Shares prior to or concurrently with the
confirmation of a transaction; and (7)
trading information.
In addition, the Information Bulletin
will advise ETP Holders, prior to the
commencement of trading, of the
prospectus delivery requirements
applicable to the Funds. The Exchange
notes that investors purchasing Shares
directly from the Funds will receive a
prospectus. ETP Holders purchasing
Shares from the Funds for resale to
investors will deliver a prospectus to
such investors. The Information Bulletin
will also discuss any exemptive, noaction and interpretive relief granted by
the Commission from any rules under
the Act.
The Information Bulletin will further
advise ETP Holders that FINRA has
implemented increased sales practice
and customer margin requirements for
FINRA members applicable to leveraged
exchange-traded funds (which include
the Shares) and options on leveraged
exchange-traded funds, as described in
the FINRA Regulatory Notices.
In addition, the Information Bulletin
will reference that the Funds are subject
to various fees and expenses described
in the Registration Statements. The
Information Bulletin will also reference
that the Commodity Futures Trading
Commission has regulatory jurisdiction
over the trading of futures contracts
traded on U.S. markets.
The Information Bulletin will also
disclose the trading hours of the Shares
of the Funds and that the NAV for the
Shares is calculated after 4 p.m. E.T.
each trading day. The Bulletin will
disclose that information about the
Shares of the Funds is publicly available
on the Funds’ Web site.
VerDate Mar<15>2010
18:54 Sep 21, 2012
Jkt 226001
2. Statutory Basis
The basis under the Exchange Act for
this proposed rule change is the
requirement under Section 6(b)(5) 22
that an exchange have rules that are
designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to remove impediments to, and
perfect the mechanism of a free and
open market and, in general, to protect
investors and the public interest.
The Exchange believes that the
proposed rule change is designed to
prevent fraudulent and manipulative
acts and practices in that the Shares will
be listed and traded on the Exchange
pursuant to the initial and continued
listing criteria in NYSE Arca Equities
Rule 8.200 and Commentary .02 thereto.
The Exchange has in place surveillance
procedures that are adequate to properly
monitor trading in the Shares in all
trading sessions and to deter and detect
violations of Exchange rules and
applicable Federal securities laws. The
Exchange may obtain information via
ISG from other exchanges that are
members of ISG or with which the
Exchange has entered into a
comprehensive surveillance sharing
agreement. The intra-day futures prices,
closing price and settlement prices of
the Commodity or Currency Futures
Contracts held by the Funds are also
available from the COMEX, CME, ICE,
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. Each of the
Commodity Funds will seek to achieve
its investment objective by primarily
investing in Commodity Futures
Contracts. For each of the Commodity
Funds, in the event position limits or
position accountability levels are
reached with respect to the applicable
Commodity Futures Contracts, or if
trading of such Commodity Futures
Contracts is suspended due [sic] price
fluctuation limits being reached or if the
CME imposes any other suspension or
limitation on trading in a Commodity
Futures Contract, the Sponsor may, in
its commercially reasonable judgment,
cause the Commodity Funds to obtain
exposure through cash-settled,
exchange-traded options on Commodity
Futures Contracts, as applicable, and
forward contracts, swaps, and other
over-the-counter transactions that are
based on the price of Commodity
22 15
PO 00000
U.S.C. 78f(b)(5).
Frm 00087
Fmt 4703
Sfmt 4703
Futures Contracts, as applicable, if such
instruments tend to exhibit trading
prices or returns that correlate with any
Commodity Futures Contract and will
further the investment objective of such
Commodity Fund. Each of the Currency
Funds will seek to achieve its
investment objective primarily by
investing in Currency Futures Contracts.
For each Currency Fund (except the
Dollar Funds), in the event position
limits or position accountability levels
are reached with respect to the
applicable Currency Futures Contracts,
or if trading of such Currency Futures
Contracts is suspended due to price
fluctuation limits being reached or if the
CME or ICE (with respect to the Dollar
Funds), as applicable, imposes any
other suspension or limitation on
trading in a Currency Futures Contract,
the Sponsor may, in its commercially
reasonable judgment, cause the
Currency Funds to obtain exposure
through cash-settled, exchange-traded
options on Currency Futures Contracts,
as applicable, and forward contracts,
swaps, and other over-the-counter
transactions that are based on the price
of Currency Futures Contracts, as
applicable, if such instruments tend to
exhibit trading prices or returns that
correlate with any Currency Futures
Contract and will further the investment
objective of such Currency Fund. To the
extent practicable, the Commodity
Funds and Currency Funds will invest
in swaps cleared through the facilities of
a centralized clearing house. Each Fund
will enter into swap agreements and
other over-the-counter transactions only
with large, established and well
capitalized financial institutions that
meet certain credit quality standards
and monitoring policies. Each Fund will
use various techniques to minimize
credit risk including early termination
or reset and payment, using different
counterparties and limiting the net
amount due from any individual
counterparty. The Exchange represents
that the Exchange may halt trading
during the day in which an interruption
to the dissemination of the IIV, trading
in the applicable Commodity or
Currency Futures Contract for each
Fund, or trading in Currency or
Commodity Financial Instruments, as
described above, occurs for each Fund.
If the interruption to the dissemination
of the IIV, trading in the applicable
Commodity or Currency Futures
Contract for each Fund, or to trading in
Currency or Commodity Financial
Instruments, as applicable, persists past
the trading day in which it occurred, the
Exchange will halt trading no later than
the beginning of the trading day
E:\FR\FM\24SEN1.SGM
24SEN1
Federal Register / Vol. 77, No. 185 / Monday, September 24, 2012 / Notices
TKELLEY on DSK3SPTVN1PROD with NOTICES
following the interruption. The value of
the benchmarks will be calculated and
disseminated at least every 15 seconds
during the NYSE Arca Core Trading
Session. The Exchange will inform its
ETP Holders in an Information Bulletin
of the special characteristics and risks
associated with trading the Shares and
that FINRA has implemented increased
sales practice and customer margin
requirements for FINRA members
applicable to leveraged exchange-traded
funds and options on leveraged
exchange-traded funds, as described in
the FINRA Regulatory Notices.
The proposed rule change is designed
to promote just and equitable principles
of trade and to protect investors and the
public interest in that a large amount of
information is publicly available
regarding the Funds and the Shares,
thereby promoting market transparency.
The 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. The IIV with respect to
each Fund, updated every 15 seconds,
will be widely disseminated by one or
more major market data vendors during
the NYSE Arca Core Trading Session.
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 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, IIV, 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.
VerDate Mar<15>2010
18:54 Sep 21, 2012
Jkt 226001
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants or Others
No written comments were solicited
or received with respect to the proposed
rule change.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such 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
58889
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 also
will be available for inspection and
copying at the principal office of the
Exchange. All comments received will
be posted without change; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–
NYSEArca–2012–102 and should be
submitted on or before October 15,
2012.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.23
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2012–23461 Filed 9–21–12; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–67881; File No. SR–
NYSEArca–2012–101]
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
NYSEArca–2012–102 on the subject
line.
Self-Regulatory Organizations; NYSE
Arca, Inc.; Notice of Filing of Proposed
Rule Change To List and Trade Shares
of the PowerShares S&P 500 Downside
Hedged Portfolio Under NYSE Arca
Equities Rule 8.600
Paper Comments
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule
19b–4 thereunder,2 notice is hereby
given that, on September 6, 2012, NYSE
Arca, Inc. (‘‘Exchange’’ or ‘‘NYSE Arca’’)
filed with the Securities and Exchange
Commission (‘‘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.
• 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–2012–102. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (https://www.sec.gov/
rules/sro.shtml.) Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
PO 00000
Frm 00088
Fmt 4703
Sfmt 4703
September 18, 2012.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to list and
trade shares of the PowerShares S&P
23 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\24SEN1.SGM
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]]>Agencies
[Federal Register Volume 77, Number 185 (Monday, September 24, 2012)]
[Notices]
[Pages 58881-58889]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-23461]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-67882; File No. SR-NYSEArca-2012-102]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing and Trading of Twelve
Funds of the Direxion Shares ETF Trust II Under NYSE Arca Equities Rule
8.200
September 18, 2012.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 thereunder,\2\ notice
is hereby given that, on September 5, 2012, NYSE Arca, Inc.
(``Exchange'' or ``NYSE Arca'') filed with the Securities and Exchange
Commission (``Commission'') the proposed rule change as described in
Items I and II below, which Items have been prepared by the Exchange.
The Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of twelve funds of
the Direxion Shares ETF Trust II under NYSE Arca Equities Rule 8.200,
Commentary .02. The text of the proposed rule change is available on
the Exchange's Web site at www.nyse.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
[[Page 58882]]
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
Statutory Basis for, the Proposed Rule Change
1. Purpose
NYSE Arca Equities Rule 8.200, Commentary .02 permits the trading
of Trust Issued Receipts (``TIRs'') either by listing or pursuant to
unlisted trading privileges (``UTP'').\3\ The Exchange proposes to list
and trade the shares (``Shares'') of the following pursuant to NYSE
Arca Equities Rule 8.200: Direxion Daily Gold Bear 1X Shares; Direxion
Daily Gold Bull 3X Shares; Direxion Daily Gold Bear 3X Shares; Direxion
Daily Silver Bear 1X Shares; Direxion Daily Silver Bull 3X Shares;
Direxion Daily Silver Bear 3X Shares; Direxion Daily Japanese Yen Bull
3X Shares; Direxion Daily Japanese Yen Bear 3X Shares; Direxion Daily
Dollar Bull 3X Shares; Direxion Daily Dollar Bear 3X Shares; Direxion
Daily Euro Bull 3X Shares; and Direxion Daily Euro Bear 3X Shares (each
a ``Fund'' and, collectively, ``Funds'').\4\ All Funds except for the
Direxion Daily Gold Bear 1X Shares and Direxion Daily Silver Bear 1X
Shares are also referred to herein as ``Leveraged Funds,'' and the
Direxion Daily Gold Bear 1X Shares and Direxion Daily Silver Bear 1X
Shares are also referred to herein as ``Bear 1X Funds.'' \5\
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\3\ Commentary .02 to NYSE Arca Equities Rule 8.200 applies to
TIRs that invest in ``Financial Instruments.'' The term ``Financial
Instruments,'' as defined in Commentary .02(b)(4) to NYSE Arca
Equities Rule 8.200, means any combination of investments, including
cash; securities; options on securities and indices; futures
contracts; options on futures contracts; forward contracts; equity
caps, collars, and floors; and swap agreements.
\4\ See Pre-Effective Amendment No. 1 to Form S-1, dated October
13, 2010 (``Registration Statement'') (File No. 333-168227). The
description of the Funds and the Shares contained herein is based,
in part, on the Registration Statement.
\5\ Terms relating to the Funds and the Shares referred to, but
not defined, herein are defined in the Registration Statement.
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Each Leveraged Fund seeks a multiple or inverse multiple (plus or
minus 300%) of the return (before fees and expenses) of its target
benchmark commodity or currency on a given day. The Leveraged Funds
seek to provide daily leveraged investment results, before fees and
expenses, which correspond to the performance of an underlying
benchmark commodity or currency.
Each Bear 1X Fund seeks-100% of the return (before fees and
expenses) of its target benchmark commodity on a given day. The Bear 1X
Funds seek to provide daily investment results, before fees and
expenses, which inversely correspond to the performance of an
underlying benchmark commodity.
The Exchange notes that the Commission has previously approved
other issues of TIRs, including leveraged TIRs, for listing and trading
on the American Stock Exchange LLC (``Amex''),\6\ trading on NYSE Arca
pursuant to UTP,\7\ and listing and trading on NYSE Arca.\8\ In
addition, the Commission has approved the listing and trading of other
exchange-traded fund-like products linked to the performance of
underlying commodities and currencies.\9\
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\6\ See, e.g., Securities Exchange Act Release No. 58161 (July
15, 2008), 73 FR 42380 (July 21, 2008) (SR-Amex-2008-39) (order
approving amendments to Amex Rule 1202, Commentary .07 and listing
on Amex of 14 funds of the Commodities and Currency Trust).
\7\ See, e.g., Securities Exchange Act Release No. 58162 (July
15, 2008), 73 FR 42391 (July 21, 2008) (SR-NYSEArca-2008-73) (notice
of effectiveness of UTP trading on NYSE Arca of 14 funds of the
Commodities and Currency Trust).
\8\ See, e.g., Securities Exchange Act Release No. 58457
(September 3, 2008), 73 FR 52711 (September 10, 2008) (SR-NYSEArca-
2008-91) (order approving listing and trading on NYSE Arca of 14
funds of the Commodities and Currency Trust).
\9\ See, e.g., Securities Exchange Act Release Nos. 54020 (June
20, 2006), 71 FR 36579 (June 27, 2006) (SR-NYSE-2006-35) (order
approving listing and trading on the New York Stock Exchange
(``NYSE'') of six CurrencyShares Trusts); 55585 (April 5, 2007), 72
FR 18500 (April 12, 2007) (SR-NYSE-2006-75) (order approving listing
and trading on NYSE of the iShares GS Commodity Light Energy Indexed
Trust; iShares GS Commodity Industrial Metals Indexed Trust; iShares
GS Commodity Livestock Indexed Trust; and iShares GS Commodity Non-
Energy Indexed Trust); 56932 (December 7, 2007), 72 FR 71178
(December 14, 2007) (SR-NYSEArca-2007-112) (order granting
accelerated approval to list and trade iShares S&P GSCI Commodity-
Indexed Trust); and 59895 (May 8, 2009), 74 FR 22993 (May 15, 2009)
(SR-NYSEArca-2009-40) (order granting accelerated approval to list
and trade the ETFS Gold Trust).
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Overview of the Funds
The Shares will be issued by Direxion Shares ETF Trust II
(``Trust''), a Delaware statutory trust. Direxion Asset Management, LLC
will be the sponsor (``Sponsor'') for the Trust. The Bank of New York
Mellon (``Administrator'') will serve as the Funds' transfer agent,
administrator and custodian. Foreside Fund Services, LLC
(``Distributor''), will serve as the distributor of the Shares.
According to the Registration Statement, the Leveraged Funds will
seek daily leveraged investment results and are intended to be used as
short-term trading vehicles. The Leveraged Funds with the word ``Bull''
in their name (collectively, ``Leveraged Bull Funds'') will attempt to
provide daily leveraged investment results (before fees and expenses)
that correlate positively to three times (300%) the daily return of a
target benchmark, meaning a Leveraged Bull Fund will attempt to move in
the same direction as the target benchmark. The Leveraged Funds with
the word ``Bear'' in their name (collectively, ``Leveraged Bear
Funds'') will attempt to provide daily leveraged investment results
(before fees and expenses) that correlate to the inverse (opposite) of
three times the return of a target benchmark, meaning that the
Leveraged Bear Funds will attempt to move in the opposite or inverse
direction of the target benchmark.
The Bear 1X Funds will attempt to provide daily investment results
(before fees and expenses) that correlate to the inverse (opposite) of
the return of a target benchmark commodity, meaning that the Bear 1X
Funds will attempt to move in the opposite or inverse direction of a
target benchmark commodity.
Principal Investment Strategies
According to the Registration Statement, in seeking to achieve each
Fund's daily investment objective, the Sponsor will use statistical and
quantitative analysis to determine the investments each Fund makes and
the techniques it employs. Using this approach, the Sponsor will
determine the type, quantity and mix of investment positions that the
Sponsor believes in combination should produce daily returns consistent
with a Fund's objective. The Sponsor will rely upon a pre-determined
model to generate orders that result in repositioning each Fund's
investments in accordance with its daily investment objective. As a
consequence, if a Fund is performing as designed, the return of the
applicable benchmark (as discussed below) will dictate the return for
that Fund. Each Fund will pursue its investment objective regardless of
market conditions and will not take defensive positions.
As described in the Registration Statement, each of the Direxion
Daily Gold Bear 1X Shares, Direxion Daily
[[Page 58883]]
Gold Bull 3X Shares and Direxion Daily Gold Bear 3X Shares
(collectively, ``Gold Funds'') and Direxion Daily Silver Bear 1X
Shares, Direxion Daily Silver Bull 3X Shares and Direxion Daily Silver
Bear 3X Shares (collectively, ``Silver Funds,'' and collectively with
the Gold Funds, ``Commodity Funds'') will seek to achieve its
investment objective by investing in futures contracts related to its
benchmark commodity. As such, the Gold Funds will invest in gold
futures contracts traded on the Commodity Exchange, Inc. (``COMEX,'' an
affiliate of the CME Group, Inc. (``CME'')) (``Gold Futures
Contracts''), and the Silver Funds will invest in silver futures
contracts traded on COMEX (``Silver Futures Contracts,'' and,
collectively with Gold Futures Contracts, ``Commodity Futures
Contracts'').\10\ For each of the Commodity Funds, in the event
position limits or position accountability levels are reached with
respect to the applicable Commodity Futures Contracts, or if trading of
such Commodity Futures Contracts is suspended due to price fluctuation
limits being reached or if the CME imposes any other suspension or
limitation on trading in a Commodity Futures Contract, the Sponsor may,
in its commercially reasonable judgment, cause the Commodity Funds to
obtain exposure through cash-settled, exchange-traded options on
Commodity Futures Contracts, as applicable, and forward contracts,
swaps,\11\ and other over-the-counter transactions that are based on
the price of Commodity Futures Contracts, as applicable, if such
instruments tend to exhibit trading prices or returns that correlate
with any Commodity Futures Contract and will further the investment
objective of such Commodity Fund (collectively, ``Commodity Financial
Instruments'').\12\
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\10\ Gold and Silver Futures Contracts traded on COMEX are the
global benchmark contracts and most liquid futures contracts in the
world for each respective commodity. As of March 15, 2012, open
interest in Gold Futures Contracts and Silver Futures Contracts
traded on the CME was $23.7 billion and $8.5 billion, respectively.
Gold Futures Contracts and Silver Futures Contracts had an average
daily trading volume in 2011 of 138,964 contracts and 63,913
contracts, respectively. The trading hours for the Gold Futures
Contracts and Silver Futures Contracts are 8:20 a.m. until 1:30 p.m.
Eastern Time (``E.T.'').
\11\ To the extent practicable, the Commodity Funds will invest
in swaps cleared through the facilities of a centralized clearing
house.
\12\ According to the Registration Statement, each Fund will
enter into swap agreements and other over-the-counter transactions
only with large, established and well capitalized financial
institutions that meet certain credit quality standards and
monitoring policies. Each Fund will use various techniques to
minimize credit risk including early termination or reset and
payment, using different counterparties and limiting the net amount
due from any individual counterparty.
---------------------------------------------------------------------------
The Gold Funds' benchmark will be the daily last sale price
occurring on or before 4 p.m. E.T. of a standard Gold Futures Contract
for 100 troy ounces of gold, specified by the CME to be of a grade and
quality that shall assay to a minimum of 995 fineness, as measured in
U.S. Dollars and cents per troy ounce with a minimum fluctuation of
$0.10 per troy ounce (``Gold Benchmark Futures Contract''). The Silver
Funds' benchmark will be the daily last sale price occurring on or
before 4 p.m. E.T. of a standard Silver Futures Contract for 5,000 troy
ounces of silver, specified by the CME to be at a grade and quality
that shall assay to a minimum of 999 fineness, as measured in U.S.
Dollars and cents per troy ounce with a minimum fluctuation of $0.10
per troy ounce (``Silver Benchmark Futures Contract''). For both the
Gold Benchmark Futures Contract and the Silver Benchmark Futures
Contract, the last sale price value will be calculated as the last sale
price published by the CME on or before 4 p.m. E.T. for the current
active month Commodity Futures Contract.\13\ The last sale price and
benchmark valuation may reflect trades occurring and published by the
CME outside the normal trading session for the applicable Commodity
Futures Contract.
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\13\ By way of example, with respect to the Direxion Daily Gold
Bull 3X Shares, pursuant to the Fund's investment strategy, in the
event position limits or position accountability levels are reached
with respect to the Gold Benchmark Futures Contract, or if trading
of the Gold Benchmark Futures Contract is suspended due to price
fluctuation limits being reached or if the CME imposes any other
suspension or limitation on trading, the Sponsor may cause the Fund
to obtain exposure through cash-settled, exchange-traded options on
the Gold Benchmark Futures Contract and forward contracts, swaps and
other over-the-counter transactions that are based on the price of
the Gold Benchmark Futures Contract if such instruments tend to
exhibit trading prices or returns that correlate with any Gold
Benchmark Futures Contract and will further the investment objective
of the Fund. Thus, for example, if the Fund were to have $7 million
in net assets, the Sponsor would seek to obtain $21 million in
exposure to the price of gold and would invest in Gold Futures
Contracts directly and, if the Fund reaches a point where position
limits or accountability levels in Gold Futures Contracts become
applicable, in cleared long swap positions, as practicable in the
Sponsor's commercially reasonable judgment, or general swaps
referencing the Gold Futures Contracts. The particular ratio of Gold
Futures Contracts and cash held would be dependent on the Sponsor's
view of what will best meet the investment objective of the Fund
(i.e., 300% exposure to Gold Futures Contracts). Conversely, in the
case of a Bear 1X Fund, the Sponsor will utilize short positions to
similarly gain the target exposure.
---------------------------------------------------------------------------
Each of the Direxion Daily Japanese Yen Bull 3X Shares and Direxion
Daily Japanese Yen Bear 3X Shares (collectively, ``Yen Funds'');
Direxion Daily Dollar Bull 3X Shares and Direxion Daily Dollar Bear 3X
Shares (collectively, ``Dollar Funds''); and Direxion Daily Euro Bull
3X Shares and Direxion Daily Euro Bear 3X Shares (collectively, ``Euro
Funds,'' and collectively with the Yen Funds and Dollar Funds,
``Currency Funds'') will seek to achieve its investment objective by
investing in futures contracts related to its benchmark currency. As
such, the Yen Funds will invest in Japanese Yen futures contracts
traded on the CME (``Yen Futures Contracts''), the Euro Funds will
invest in Euro futures traded on the CME (``Euro Futures Contracts''),
and the Dollar Funds will invest in U.S. Dollar Index futures contracts
traded on the ICE Futures U.S. (``ICE'') (``Dollar Futures Contracts,''
and, collectively with Yen Futures Contracts and Euro Futures
Contracts, ``Currency Futures Contracts'').\14\ For each Currency Fund
except the Dollar Funds, which invest in futures contracts that do not
have position limits, accountability levels or price fluctuation
limits, in the event position limits or position accountability levels
are reached with respect to the applicable Currency Futures Contracts,
or if trading of such Currency Futures Contracts is suspended due to
price fluctuation limits being reached or if the CME or ICE (with
respect to the Dollar Funds), as applicable, imposes any other
suspension or limitation on trading in a Currency Futures Contract, the
Sponsor may, in its commercially reasonable judgment, cause the
Currency Funds to obtain exposure through cash-settled, exchange-traded
options on Currency Futures Contracts, as applicable, and forward
contracts, swaps,\15\ and other over-the-counter transactions that are
based on the price of Currency Futures Contracts, as applicable, if
such instruments tend to exhibit trading prices or returns that
correlate with any Currency Futures Contract and will further the
investment objective of such
[[Page 58884]]
Currency Fund (collectively, ``Currency Financial Instruments'').
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\14\ The CME constitutes the largest regulated foreign exchange
marketplace in the world, with over $100 billion in daily liquidity.
As of March 15, 2012, open interest in Euro Futures Contracts and
Yen Futures Contracts traded on the CME and, for Dollar Futures
Contracts, on the ICE, were $42.7 billion, $20.8 billion, and $4.8
billion, respectively. Euro Futures Contracts, Yen Futures
Contracts, and Dollar Futures Contracts had an average daily trading
volume in 2011 of 325,103, 106,824, and 27,258 contracts,
respectively. The trading hours for the Euro Futures Contracts and
Yen Futures Contracts are 8:20 a.m. until 3 p.m. E.T., and the
trading hours for the Dollar Futures Contracts are 8 p.m. E.T. until
5 p.m. E.T. the following day.
\15\ To the extent practicable, the Currency Funds will invest
in swaps cleared through the facilities of a centralized clearing
house.
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The benchmark for the Yen Funds will be the last sale price
occurring on or before 4 p.m. E.T. of a standard Yen Futures Contract
for 12,500,000 Japanese Yen, priced in U.S. Dollars and traded on the
CME (``Yen Benchmark Futures Contract''). The benchmark for the Euro
Funds will be the last sale price occurring on or before 4 p.m. E.T. of
a standard Euro Futures Contract for 125,000 Euro, priced in U.S.
Dollars and traded on the CME (``Euro Benchmark Futures Contract'').
For both the Yen Benchmark Futures Contract and Euro Benchmark Futures
Contract, the last sale price value will be calculated as the last sale
price published by the CME on or before 4 p.m. E.T. for the current
active month Currency Futures Contract. The last sale price and
benchmark valuation may reflect trades occurring and published by the
CME outside the normal trading session for the applicable Currency
Futures Contract.
The benchmark for the Dollar Funds will be the last sale price
occurring on or before 4 p.m. E.T. of a standard Dollar Futures
Contract for $1,000 times the U.S. Dollar Index value as measured in
U.S. Dollars and traded on the ICE (``Dollar Benchmark Futures
Contract'' and, collectively with the Gold Benchmark Futures Contract,
Silver Benchmark Futures Contract, Yen Benchmark Futures Contract, and
the Euro Benchmark Futures Contract, ``Benchmark Futures Contracts'').
The U.S. Dollar Index indicates the general international value of the
U.S. Dollar.\16\ The U.S. Dollar Index does this by geometrically
weighting the exchange rates between the U.S. Dollar and six major
world currencies. The U.S. Dollar Index consists of the following six
currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish
Krona, and Swiss Franc. The components and weightings are held
constant, and have not changed since the introduction of the Euro.
Because the U.S. Dollar Index is geometrically weighted, holding the
individual currencies in their specified weights will not necessarily
mimic U.S. Dollar Index moves. The last sale price for the Dollar
Benchmark Futures Contract will be calculated using the last sale price
published by the ICE on or before 4 p.m. E.T. for the current active
month Dollar Futures Contract.
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\16\ The U.S. Dollar Index was created by the U.S. Federal
Reserve in 1973. Following the ending of the 1944 Bretton Woods
Agreement, which had established a system of fixed exchange rates,
the U.S. Federal Reserve Bank began the calculation of the U.S.
Dollar Index to provide an external bilateral trade-weighted average
of the U.S. Dollar as it freely floated against global currencies.
Futures contracts based on the U.S. Dollar Index were listed on
November 20, 1985, and are now available only on the ICE electronic
trading platform. Options on the futures contracts began trading on
September 3, 1986, and are available both on the ICE electronic
trading platform and on the ICE options trading floor.
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In seeking its investment objective, each Fund will invest in
Commodity or Currency Futures Contracts, as applicable, including (but
not limited to) \17\ the Fund's related Benchmark Futures Contract, as
well as Commodity or Currency Financial Instruments in certain
circumstances. Assets of each Fund not invested in Commodity Futures
Contracts, Currency Futures Contracts, or other Commodity Financial
Instruments or Currency Financial Instruments, as applicable, will be
held in cash or invested in cash equivalents and/or U.S. Treasury
Securities or other high credit quality short-term fixed-income or
similar securities (such as shares of money market funds, bank
deposits, bank money market accounts, certain variable rate-demand
notes, and repurchase agreements collateralized by government
securities, whether denominated in U.S. or the applicable foreign
currency with respect to a Currency Fund) that serve as collateral for
Commodity Futures Contracts, Currency Futures Contracts, and Commodity
or Currency Financial Instruments, as applicable.
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\17\ A Fund, in seeking to achieve its investment objective by
investing in futures contracts related to its target benchmark, may
be invested in futures contracts that are not the current active
month futures contracts on which the Fund's target benchmark is
based. For example, if, on a date in September 2012, the current
active month futures contract with respect to a target benchmark is
December 2012, a Fund may have a portion of its assets in the
October 2012 or February 2013 contracts. A Fund may use this
flexibility, for example, in case of liquidity issues with respect
to the applicable, current active month futures contracts or when
deciding when to roll the Fund's assets into the next current active
month contract.
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At the close of the U.S. equity markets each trading day, each Fund
will position its portfolio to ensure that the Fund's exposure to its
benchmark is consistent with the Fund's stated goals. The impact of
market movements during the day will determine whether a portfolio
needs to be repositioned. If the target benchmark has risen on a given
day, a Leveraged Bull Fund's net assets should rise, meaning their
exposure may need to be increased. Conversely, if the target benchmark
has fallen on a given day, a Leveraged Bull Fund's net assets should
fall, meaning their exposure may need to be reduced.
If a Leveraged Bull Fund is successful in meeting its objective,
its value in a given day (before fees and expenses) should gain
approximately three times as much on a percentage basis as its
corresponding benchmark when the benchmark rises during a given day.
Conversely, its value in a given day (before fees and expenses) should
lose approximately three times as much on a percentage basis as the
corresponding benchmark when the benchmark declines during a given day.
Each Leveraged Bull Fund will acquire long exposure through investment
in Commodity or Currency Futures Contracts, including (but not limited
to) the applicable Benchmark Futures Contracts, and, once position
limits or position accountability levels are reached, trading of such
Commodity or Currency Futures Contracts is suspended due to price
fluctuation limits being reached, or if the CME or ICE, as applicable,
imposes any other suspension or limitation on trading in a Commodity or
Currency Futures Contract, in Commodity Financial Instruments or
Currency Financial Instruments, as applicable, such that each Leveraged
Bull Fund has approximately 300% exposure to the corresponding
benchmark at the time of the net asset value (``NAV'') calculation.
If a Leveraged Bear Fund is successful in meeting its objective,
its value in a given day (before fees and expenses) should gain
approximately three times as much on a percentage basis as its
corresponding benchmark loses when the benchmark falls in a given day.
Conversely, its value in a given day (before fees and expenses) should
lose approximately three times as much on a percentage basis as the
corresponding benchmark gains when the benchmark rises in a given day.
Each Leveraged Bear Fund will acquire short exposure through investment
in Commodity or Currency Futures Contracts, including (but not limited
to) the applicable Benchmark Futures Contracts, and, once position
limits or position accountability levels are reached, trading of such
Commodity or Currency Futures Contracts is suspended due to price
fluctuation limits being reached, or if the CME or ICE, as applicable,
imposes any other suspension or limitation on trading in a Commodity or
Currency Futures Contract, in Commodity Financial Instruments or
Currency Financial Instruments, as applicable, such that each Leveraged
Bear Fund has approximately -300% exposure to the corresponding
benchmark at the time of the NAV calculation.
If a Bear 1X Fund is successful in meeting its objective, its value
in a given day (before fees and expenses) should gain approximately an
equal amount on
[[Page 58885]]
a percentage basis as its corresponding benchmark when the benchmark
falls in a given day. Conversely, its value in a given day (before fees
and expenses) should lose approximately an equal amount on a percentage
basis as the corresponding benchmark when the benchmark rises in a
given day. Each Bear 1X Fund will acquire short exposure through
investment in Commodity Futures Contracts, including (but not limited
to) the applicable Benchmark Futures Contracts, and, once position
limits or position accountability levels, if applicable, are reached,
trading of the Commodity Futures Contracts is suspended due to price
fluctuation limits being reached, or if the CME imposes any other
suspension or limitation on trading in a Commodity Futures Contract, a
Bear 1X Fund may invest in Commodity Financial Instruments such that
each Bear 1X Fund has approximately -100% exposure to the corresponding
benchmark at the time of the NAV calculation.
In the event that trading of a Commodity or Currency Futures
Contract is suspended due to price fluctuation limits being reached for
that futures contract, or CME or ICE, as applicable imposes any other
suspension or limitation on trading in a Commodity or Currency Futures
Contract, the related Fund or Funds may be limited in their ability to
seek their investment objective until trading resumes.
Creation and Redemption of Shares
Each Fund will create and redeem Shares in ``Creation Unit'' size
of 50,000 Shares or aggregations thereof. Except when aggregated in
Creation Units, the Shares are not redeemable securities. Shares may be
created or redeemed only through authorized participants, as described
in the Registration Statement.
On any day other than a day when any of the NYSE Arca, the NYSE,
and, as applicable to the underlying benchmark, the CME, ICE, or COMEX
(collectively, ``Futures Exchanges'') is closed for regular trading
(``Business Day''), an authorized participant may place an order with
the Distributor to create one or more Creation Units. Purchase orders
must be placed prior to 3:30 p.m. E.T. in order to avoid higher
transaction fees, but in no instances may purchase orders be placed
after 4 p.m. E.T., as described in the Registration Statement. Although
trading in a Fund's respective benchmark may continue beyond that time
on any given trading day, the Sponsor has elected to require orders be
placed prior to that time in order to facilitate efficient operation of
the Funds and give the Funds adequate time to reposition their
portfolios, strike the NAV for the Funds and prepare the needed value
and portfolio composition disclosures for the following Business Day's
trading. If a purchase order is received prior to the cut-off time, the
day on which the Distributor receives a valid purchase order is the
purchase order date. If the purchase order is received after the
applicable cut-off time, the purchase order date will be the next day.
Purchase orders are irrevocable. The total cash payment required to
create each Creation Unit will be the NAV of 50,000 Shares of the
applicable 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 will mirror the procedures for the creation of
Creation Units. On any Business Day, an authorized participant may
place an order with the Distributor to redeem one or more Creation
Units. Redemption orders must be placed by 3:30 p.m. E.T. in order to
avoid higher transaction fees, but in no instances may redemption
orders be placed after 4 p.m. E.T. If a redemption order is received
prior to the applicable cut-off time, the day on which the Distributor
receives a valid redemption order is the redemption order date. If the
redemption order is received after the applicable cut-off time, the
redemption order date will be the next day. Redemption orders are
irrevocable. The redemption proceeds from a Fund will consist of the
cash redemption amount. The cash redemption amount will be equal to the
NAV of the number of Creation Unit(s) of such Fund requested in the
authorized participant's redemption order as of the time of the
calculation of such Fund's NAV on the redemption order date, less
transaction fees.
Intraday Indicative Value (``IIV'')
The IIV with respect to each Fund is an indicator of the value of
the Commodity Futures Contracts and Currency Futures Contracts, as
applicable; Commodity Financial Instruments and Currency Financial
Instruments, if any; and cash and receivables less liabilities of a
Fund at the time the IIV is disseminated. The IIV with respect to each
Fund, updated every 15 seconds, will be widely disseminated by one or
more major market data vendors during the NYSE Arca Core Trading
Session.\18\ However, circumstances may arise in which the NYSE Arca
Core Trading Session is in progress, but trading in Commodity or
Currency Futures Contracts is not occurring. Such circumstances may
result from reasons including, but not limited to, the CME or ICE, as
applicable, having a separate holiday schedule than the NYSE Arca, the
CME, or ICE closing prior to the close of the NYSE Arca, price
fluctuation limits being reached in a Commodity or Currency Futures
Contract, or the CME or ICE, as applicable, imposing any other
suspension or limitation on trading in a Commodity or Currency Futures
Contract. In such instances, the value of the applicable Commodity or
Currency Futures Contracts, as well as Commodity or Currency Financial
Instruments whose value is derived from the Commodity or Currency
Futures Contracts, held by the Funds would be static or priced by the
Fund at the applicable early cut-off time of the exchange trading the
applicable Commodity or Currency Futures Contract. Moreover, any cash
held by the Funds for collateralization purposes will be invested in
short term treasury vehicles that do not have market exposure, such
that their value would change throughout the trading day. As such,
during such periods, the disseminated IIV for the affected Fund or
Funds will be static.
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\18\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available IIVs
taken from the Consolidated Tape Association (``CTA'') or other data
feeds.
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The IIV should not be viewed as an actual real time update of the
NAV because NAV is calculated only once at the end of each trading day.
The IIV also should not be viewed as a precise value of the Shares.
The value of a Share of a Fund may be influenced by non-concurrent
trading hours between NYSE Arca and the Futures Exchanges. As a result,
during periods when the NYSE Arca is open and one or more of the
applicable futures exchanges is closed, trading spreads and the
resulting premium or discount on the Shares may widen and, therefore,
increase the difference between the price of the Shares and the NAV of
the Shares.
According to the Registration Statement, dissemination of the IIV
provides additional information that is not otherwise available to the
public and may be useful to investors and market professionals in
connection with the trading of Shares. Investors and market
professionals will be able throughout the trading day to compare the
market price of a Fund and the IIV. If the market price of Shares
diverges significantly from the IIV, market
[[Page 58886]]
professionals may have an incentive to execute arbitrage trades. Such
arbitrage trades can tighten the tracking between the market price of a
Fund and the IIV and thus can be beneficial to all market participants.
Availability of Information Regarding the Shares
The current trading price per Share of each Fund (quoted in U.S.
Dollars) will be published continuously under its ticker symbol as
trades occur throughout each trading day via CTA, Reuters and/or
Bloomberg.
The Web site for the Funds and/or the Exchange, which are publicly
accessible at no charge, will contain the following information: (a)
The current NAV per Share daily and the prior Business Day's NAV and
the reported closing price; (b) the mid-point of the bid-ask price in
relation to the NAV as of the time the NAV is calculated (``Bid-Ask
Price''); (c) calculation of the premium or discount of such price
against such NAV; (d) the Bid-Ask Price of Shares determined using the
highest bid and lowest offer as of the time of calculation of the NAV;
(e) data in chart form displaying the frequency distribution of
discounts and premiums of the Bid-Ask Price against the NAV, within
appropriate ranges for each of the four (4) previous calendar quarters;
(f) the prospectus; and (g) other applicable quantitative information.
The NAV means the total assets of a Fund including, but not limited
to, all cash and cash equivalents or other debt securities less total
liabilities of such Fund, each determined on the basis of generally
accepted accounting principles in the United States, consistently
applied under the accrual method of accounting. NAV will be calculated
at 4 p.m. E.T. Additional information regarding calculation of NAV is
included in the Registration Statement.
The NAV for each Fund will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time. The Exchange also will disseminate on a daily basis via CTA
information with respect to the recent NAV and Shares outstanding.
Quotation and last-sale information regarding the Shares will be
disseminated through the facilities of the CTA.
The closing and daily settlement prices for the Commodity Futures
Contracts and Currency Futures Contracts are publicly available on the
Web site of the CME (www.cmegroup.com) and ICE (www.theice.com), as
applicable. Intraday prices for the Commodity and Currency Futures
Contracts, updated at least every 15 seconds, also are publicly
available through major market data vendors. In addition, various data
vendors and news publications publish futures prices and data. The
Exchange represents that futures quotes and last sale information for
the Commodity Futures Contracts and Currency Futures Contracts are
widely disseminated through a variety of major market data vendors
worldwide, including Bloomberg and Reuters. In addition, the Exchange
further represents that complete real-time data for Commodity Futures
Contracts and Currency Futures Contracts is available by subscription
from Reuters and Bloomberg. The applicable specific contract
specifications for Commodity Futures Contracts and Currency Futures
Contracts are also available from the CME and ICE Web sites referenced
above, as well as other financial informational sources. Real-time
dissemination of spot pricing for gold, silver, Yen, Euro, and
currencies included in the U.S. Dollar Index is available on a 24-hour
basis worldwide from various major market data vendors.
In addition, there is a considerable amount of foreign currency
price and market information available on public Web sites and through
professional and subscription services, including price information
with respect to currencies included in the U.S. Dollar Index. In most
instances, real-time information is only available for a fee, and
information available free of charge is subject to delay (typically, 15
to 20 minutes). The U.S. Dollar Index value is disseminated every 15
seconds by major market data vendors during the Exchange's Core Trading
Session.
Complete real-time data for foreign currency futures and options
prices traded on the CME and NASDAQ OMX PHLX (``PHLX''), respectively,
are also available by subscription from information service providers.
The CME and PHLX also provide delayed futures and options information
on current and past trading sessions and market news free of charge on
their respective Web sites. Pricing information for futures and options
on futures on the U.S. Dollar Index is available from the ICE Web site
and major market data vendors.
The value of the benchmarks, updated at least every 15 seconds
during the NYSE Arca Core Trading Session, will be disseminated by one
or more major market data vendors.
The Sponsor will publish the NAV of each Fund and the NAV per Share
of each Fund daily.
The most recent end-of-day NAV of each Fund will be published under
its own symbol as of the close of business by major market data vendors
and on the Sponsor's Web site. In addition, the most recent end-of-day
NAV of each Fund will be published the following morning via the CTA.
The Funds will provide Web site disclosure of portfolio holdings
daily and will include, as applicable, the names and value (in U.S.
Dollars) of Commodity Futures Contracts and Currency Futures Contracts,
as applicable; Commodity Financial Instruments and Currency Financial
Instruments, if any; and the amount of cash and/or cash equivalents
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 Sponsor of the portfolio composition to authorized
participants so that all market participants are provided portfolio
composition information at the same time. Therefore, the same portfolio
information will be provided on the public Web site as well as in
electronic files provided to authorized participants. Accordingly, each
investor will have access to the current portfolio composition of the
Funds through the Funds' Web site.
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
Equity Trading Permit (``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 certain 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
[[Page 58887]]
trading is not occurring in Commodity Futures Contracts, Currency
Futures Contracts, Commodity Financial Instruments, and/or Currency
Financial Instruments, as applicable, held by the Funds, 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 \19\ or by the halt or suspension of trading of
Commodity Futures Contracts, Currency Futures Contracts, Commodity
Financial Instruments, and/or Currency Financial Instruments, as
applicable. The Exchange represents that the Exchange may halt trading
during the day in which an interruption to the dissemination of the
IIV, trading in the applicable Commodity or Currency Futures Contract
for each Fund, or to trading in Currency or Commodity Financial
Instruments, as described above, occurs for each Fund. If the
interruption to the dissemination of the IIV, trading in the applicable
Commodity or Currency Futures Contract for each Fund, or to trading in
Currency or Commodity Financial Instruments, as applicable, 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.
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\19\ See NYSE Arca Equities Rule 7.12.
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The Funds will meet the initial and continued listing requirements
applicable to TIRs in NYSE Arca Equities Rule 8.200 and Commentary .02
thereto. The Exchange represents that, for the initial and continued
listing of the Shares, the Funds must be in compliance with NYSE Arca
Equities Rule 5.3 and Rule 10A-3 under the Act.\20\ A minimum of
100,000 Shares for each Fund will be outstanding as of the start of
trading on the Exchange.
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\20\ 17 CFR 240.10A-3.
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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, the physical
commodities or currencies underlying options, futures or options on
futures through ETP Holders, in connection with such ETP Holders'
proprietary or customer trades which they effect through ETP Holders on
any relevant market. The Exchange can obtain market surveillance
information, including customer identity information, with respect to
transactions occurring on the Futures Exchanges, including transactions
in cash-settled options on Commodity or Currency Futures Contracts,
which are members of the Intermarket Surveillance Group (``ISG'').\21\
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\21\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of the
portfolio for the Funds may trade on markets that are members of ISG
or with which the Exchange has in place a comprehensive surveillance
sharing agreement.
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The Exchange also has a general policy prohibiting the distribution
of material, non-public information by its employees.
Suitability
Currently, NYSE Arca Equities Rule 9.2(a) (Diligence as to
Accounts) provides that an ETP Holder, before recommending a
transaction in any security, must have reasonable grounds to believe
that the recommendation is suitable for the customer based on any facts
disclosed by the customer as to its other security holdings and as to
its financial situation and needs. Further, the rule provides, with a
limited exception, that prior to the execution of a transaction
recommended to a non-institutional customer, the ETP Holder must make
reasonable efforts to obtain information concerning the customer's
financial status, tax status, investment objectives, and any other
information that such ETP Holder believes would be useful to make a
recommendation.
Prior to the commencement of trading, the Exchange will inform its
ETP Holders of the suitability requirements of NYSE Arca Equities Rule
9.2(a) in an Information Bulletin. Specifically, ETP Holders will be
reminded in the Information Bulletin that, in recommending transactions
in the Shares, they must have a reasonable basis to believe that (1)
the recommendation is suitable for a customer given reasonable inquiry
concerning the customer's investment objectives, financial situation,
needs, and any other information known by such ETP Holder, 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 ETP Holders 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 ETP
Holder 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
exchange-traded funds (which include the Shares) and options on
leveraged exchange-traded funds, as described in FINRA Regulatory
Notices 09-31 (June 2009), 09-53 (August 2009) and 09-65 (November
2009) (collectively, ``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, each Leveraged Fund
will seek a multiple or inverse multiple (plus or minus 300%) of the
return (before fees and expenses) of its target benchmark commodity or
currency on a given day, and each Bear 1X Fund will seek -100% of the
return (before fees and expenses) of its target benchmark commodity on
a given day. Over a period of time in excess of one day, the cumulative
percentage increase or decrease in the NAV of the Shares of a Fund may
diverge significantly from a multiple or inverse multiple of the
cumulative percentage decrease or increase in the relevant benchmark
due to a compounding effect. 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.
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
[[Page 58888]]
will discuss the following: (1) The risks involved in trading the
Shares during the Opening and Late Trading Sessions when an updated IIV
will not be calculated or publicly disseminated; (2) except for the
Dollar Funds, a static IIV may be disseminated between the close of
trading of all applicable Commodity or Currency Futures Contracts on
Futures Exchanges and the close of the NYSE Arca Core Trading Session;
(3) the procedures for purchases and redemptions of Shares in Creation
Units (and that Shares are not individually redeemable); (4) 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; (5) how information regarding the IIV is
disseminated; (6) the requirement that ETP Holders deliver a prospectus
to investors purchasing newly issued Shares prior to or concurrently
with the confirmation of a transaction; and (7) trading information.
In addition, the Information Bulletin will advise ETP Holders,
prior to the commencement of trading, of the prospectus delivery
requirements applicable to the Funds. The Exchange notes that investors
purchasing Shares directly from the Funds will receive a prospectus.
ETP Holders purchasing Shares from the Funds for resale to investors
will deliver a prospectus to such investors. The Information Bulletin
will also discuss any exemptive, no-action and interpretive relief
granted by the Commission from any rules under the Act.
The Information Bulletin will further advise ETP Holders that FINRA
has implemented increased sales practice and customer margin
requirements for FINRA members applicable to leveraged exchange-traded
funds (which include the Shares) and options on leveraged exchange-
traded funds, as described in the FINRA Regulatory Notices.
In addition, the Information Bulletin will reference that the Funds
are subject to various fees and expenses described in the Registration
Statements. The Information Bulletin will also reference that the
Commodity Futures Trading Commission has regulatory jurisdiction over
the trading of futures contracts traded on U.S. markets.
The Information Bulletin will also disclose the trading hours of
the Shares of the Funds and that the NAV for the Shares is calculated
after 4 p.m. E.T. each trading day. The Bulletin will disclose that
information about the Shares of the Funds is publicly available on the
Funds' Web site.
2. Statutory Basis
The basis under the Exchange Act for this proposed rule change is
the requirement under Section 6(b)(5) \22\ that an exchange have rules
that are designed to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\22\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in NYSE Arca Equities Rule 8.200
and Commentary .02 thereto. The Exchange has in place surveillance
procedures that are adequate to properly monitor trading in the Shares
in all trading sessions and to deter and detect violations of Exchange
rules and applicable Federal securities laws. The Exchange may obtain
information via ISG from other exchanges that are members of ISG or
with which the Exchange has entered into a comprehensive surveillance
sharing agreement. The intra-day futures prices, closing price and
settlement prices of the Commodity or Currency Futures Contracts held
by the Funds are also available from the COMEX, CME, ICE, 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. Each of the Commodity Funds will seek to achieve its
investment objective by primarily investing in Commodity Futures
Contracts. For each of the Commodity Funds, in the event position
limits or position accountability levels are reached with respect to
the applicable Commodity Futures Contracts, or if trading of such
Commodity Futures Contracts is suspended due [sic] price fluctuation
limits being reached or if the CME imposes any other suspension or
limitation on trading in a Commodity Futures Contract, the Sponsor may,
in its commercially reasonable judgment, cause the Commodity Funds to
obtain exposure through cash-settled, exchange-traded options on
Commodity Futures Contracts, as applicable, and forward contracts,
swaps, and other over-the-counter transactions that are based on the
price of Commodity Futures Contracts, as applicable, if such
instruments tend to exhibit trading prices or returns that correlate
with any Commodity Futures Contract and will further the investment
objective of such Commodity Fund. Each of the Currency Funds will seek
to achieve its investment objective primarily by investing in Currency
Futures Contracts. For each Currency Fund (except the Dollar Funds), in
the event position limits or position accountability levels are reached
with respect to the applicable Currency Futures Contracts, or if
trading of such Currency Futures Contracts is suspended due to price
fluctuation limits being reached or if the CME or ICE (with respect to
the Dollar Funds), as applicable, imposes any other suspension or
limitation on trading in a Currency Futures Contract, the Sponsor may,
in its commercially reasonable judgment, cause the Currency Funds to
obtain exposure through cash-settled, exchange-traded options on
Currency Futures Contracts, as applicable, and forward contracts,
swaps, and other over-the-counter transactions that are based on the
price of Currency Futures Contracts, as applicable, if such instruments
tend to exhibit trading prices or returns that correlate with any
Currency Futures Contract and will further the investment objective of
such Currency Fund. To the extent practicable, the Commodity Funds and
Currency Funds will invest in swaps cleared through the facilities of a
centralized clearing house. Each Fund will enter into swap agreements
and other over-the-counter transactions only with large, established
and well capitalized financial institutions that meet certain credit
quality standards and monitoring policies. Each Fund will use various
techniques to minimize credit risk including early termination or reset
and payment, using different counterparties and limiting the net amount
due from any individual counterparty. The Exchange represents that the
Exchange may halt trading during the day in which an interruption to
the dissemination of the IIV, trading in the applicable Commodity or
Currency Futures Contract for each Fund, or trading in Currency or
Commodity Financial Instruments, as described above, occurs for each
Fund. If the interruption to the dissemination of the IIV, trading in
the applicable Commodity or Currency Futures Contract for each Fund, or
to trading in Currency or Commodity Financial Instruments, as
applicable, persists past the trading day in which it occurred, the
Exchange will halt trading no later than the beginning of the trading
day
[[Page 58889]]
following the interruption. The value of the benchmarks will be
calculated and disseminated at least every 15 seconds during the NYSE
Arca Core Trading Session. The Exchange will inform its ETP Holders in
an Information Bulletin of the special characteristics and risks
associated with trading the Shares and that FINRA has implemented
increased sales practice and customer margin requirements for FINRA
members applicable to leveraged exchange-traded funds and options on
leveraged exchange-traded funds, as described in the FINRA Regulatory
Notices.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that a large amount of information is publicly available regarding the
Funds and the Shares, thereby promoting market transparency. The 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. The IIV
with respect to each Fund, updated every 15 seconds, will be widely
disseminated by one or more major market data vendors during the NYSE
Arca Core Trading Session.
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 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, IIV, 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 (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(A) By order approve or disapprove such proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-NYSEArca-2012-102 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-2012-102. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (https://www.sec.gov/rules/sro.shtml.) Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-NYSEArca-2012-102 and should
be submitted on or before October 15, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-23461 Filed 9-21-12; 8:45 am]
BILLING CODE 8011-01-P
