[Federal Register Volume 76, Number 147 (Monday, August 1, 2011)]
[Notices]
[Pages 45885-45895]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-19329]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-64967; File No. SR-NYSEArca-2011-48]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change To List and Trade Shares of the Teucrium Wheat
Fund, the Teucrium Soybean Fund and the Teucrium Sugar Fund Under NYSE
Arca Equities Rule 8.200, Commentary .02
July 26, 2011.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that, on July 11, 2011, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the Exchange. The Commission
is publishing this notice to solicit comments on the proposed rule
change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade shares of the Teucrium
Wheat Fund, the Teucrium Soybean Fund and the Teucrium Sugar Fund under
NYSE Arca Equities Rule 8.200. The text of the proposed rule change is
available on the Exchange's Web site at http://www.nyse.com, at the
Exchange's principal office and at the Commission's Public Reference
Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
NYSE Arca Equities Rule 8.200, Commentary .02 permits the trading
of Trust Issued Receipts (``TIRs'') either by listing or pursuant to
unlisted trading privileges (``UTP'').\3\ The Exchange proposes to list
and trade shares (``Shares'') of the Teucrium Wheat Fund, the Teucrium
Soybean Fund and the Teucrium Sugar Fund (each a
[[Page 45886]]
``Fund'' and, collectively, the ``Funds'') pursuant to NYSE Arca
Equities Rule 8.200.
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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.
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The Exchange notes that the Commission has previously approved the
listing and trading of other issues of TIRs on the American Stock
Exchange LLC,\4\ trading on NYSE Arca pursuant to UTP,\5\ and listing
on NYSE Arca.\6\ Among these is the Teucrium Corn Fund, a series of the
Teucrium Commodity Trust (``Trust'').\7\ In addition, the Commission
has approved the listing and trading of other exchange-traded fund-like
products linked to the performance of underlying commodities.\8\
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\4\ See, e.g., Securities Exchange Act Release No. 58161 (July
15, 2008), 73 FR 42380 (July 21, 2008) (SR-Amex-2008-39).
\5\ See, e.g., Securities Exchange Act Release No. 58163 (July
15, 2008), 73 FR 42391 (July 21, 2008) (SR-NYSEArca-2008-73).
\6\ See, e.g., Securities Exchange Act Release No. 58457
(September 3, 2008), 73 FR 52711 (September 10, 2008) (SR-NYSEArca-
2008-91).
\7\ See Securities Exchange Act Release No. 62213 (June 3,
2010), 75 FR 32828 (June 9, 2010) (SR-NYSEArca-2010-22) (order
approving listing on the Exchange of Teucrium Corn Fund).
\8\ See, e.g., Securities Exchange Act Release Nos. 57456 (March
7, 2008), 73 FR 13599 (March 13, 2008) (SR-NYSEArca-2007-91) (order
granting accelerated approval for NYSE Arca listing the iShares GS
Commodity Trusts); 59781 (April 17, 2009), 74 FR 18771 (April 24,
2009) (SR-NYSEArca-2009-28) (order granting accelerated approval for
NYSE Arca listing the ETFS Silver Trust); 59895 (May 8, 2009), 74 FR
22993 (May 15, 2009) (SR-NYSEArca-2009-40) (order granting
accelerated approval for NYSE Arca listing the ETFS Gold Trust);
61219 (December 22, 2009), 74 FR 68886 (December 29, 2009) (SR-
NYSEArca-2009-95) (order approving listing on NYSE Arca of the ETFS
Platinum Trust).
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The Shares represent beneficial ownership interests in the Funds,
as described in the Registration Statements for the Funds.\9\ The Funds
are commodity pools that are series of the Trust, a Delaware statutory
trust. The Funds are managed and controlled by Teucrium Trading, LLC
(``Sponsor''). The Sponsor is a Delaware limited liability company that
is registered as a commodity pool operator (``CPO'') with the Commodity
Futures Trading Commission (``CFTC'') and is a member of the National
Futures Association.
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\9\ See Amendment No. 3 to Form S-1 for Teucrium Commodity
Trust, dated June 3, 2011 (File No. 333-167591) relating to the
Teucrium Wheat Fund; Amendment No. 3 to Form S-1 for Teucrium
Commodity Trust, dated June 3, 2011 (File No. 333-167590) relating
to the Teucrium Soybean Fund; and Amendment No. 3 to Form S-1 for
Teucrium Commodity Trust, dated June 3, 2011 (File No. 333-167585)
relating to the Teucrium Sugar Fund (each, a ``Registration
Statement,'' and, collectively, the ``Registration Statements'').
The discussion herein relating to the Trust and the Shares is based,
in part, on the Registration Statements.
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Teucrium Wheat Fund
According to the Registration Statement, the investment objective
of the Fund is to have the daily changes in percentage terms of the
Shares' net asset value (``NAV'') reflect the daily changes in
percentage terms of a weighted average of the closing settlement prices
for three futures contracts for wheat (wheat futures contracts
generally referred to herein as ``Wheat Futures Contracts'') that are
traded on the Chicago Board of Trade (``CBOT''), specifically: (1) The
second-to-expire CBOT Wheat Futures Contract, weighted 35%, (2) the
third-to-expire CBOT Wheat Futures Contract, weighted 30%, and (3) the
CBOT Wheat Futures Contract expiring in the December following the
expiration month of the third-to-expire contract, weighted 35%. (This
weighted average of the three referenced Wheat Futures Contracts is
referred to herein as the ``Wheat Benchmark,'' and the three Wheat
Futures Contracts that at any given time make up the Wheat Benchmark
are referred to herein as the ``Wheat Benchmark Component Futures
Contracts'').\10\
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\10\ Wheat futures volume on CBOT for 2010 and 2011 (through
April 29, 2011) was 23,058,783 contracts and 8,860,135 contracts,
respectively. As of April 29, 2011, open interest for wheat futures
was 456,851 contracts. The contract price was $40,062.50 (801.25
cents per bushel and 5,000 bushels per contract). The approximate
value of all outstanding contracts was $18.3 billion. The position
limits for all months is 6,500 contracts and the total value of
contracts if position limits were reached would be approximately
$260.4 million (based on the $40,062.50 contract price).
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The Fund seeks to achieve its investment objective by investing
under normal market conditions \11\ in Wheat Benchmark Component
Futures Contracts or, in certain circumstances, in other Wheat Futures
Contracts traded on the CBOT, the Kansas City Board of Trade
(``KCBT''), or the Minneapolis Grain Exchange (``MGEX''), or Wheat
Futures Contracts traded on foreign exchanges. In addition, and to a
limited extent, the Fund also may invest in exchange-traded options on
Wheat Futures Contracts, and in wheat-based swap agreements that are
cleared through the CBOT or its affiliated provider of clearing
services (``Cleared Wheat Swaps'') in furtherance of the Fund's
investment objective.\12\
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\11\ The term ``under normal market conditions'' includes, but
is not limited to, the absence of extreme volatility or trading
halts in the fixed income markets or the financial markets
generally; operational issues causing dissemination of inaccurate
market information; or force majeure type events such as systems
failure, natural or man-made disaster, act of God, armed conflict,
act of terrorism, riot or labor disruption or any similar
intervening circumstance.
\12\ According to the Registration Statement, a swap agreement
is a bilateral contract to exchange a periodic stream of payments
determined by reference to a notional amount, with payment typically
made between the parties on a net basis. For example, in the case of
a wheat swap, the Fund may be obligated to pay a fixed price per
bushel of wheat and be entitled to receive an amount per bushel
equal to the current value of an index of wheat prices, the price of
a specified Wheat Futures Contract, or the average price of a group
of Wheat Futures Contracts such as the Wheat Benchmark.
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Specifically, once position limits in CBOT Wheat Futures Contracts
are reached, the Fund's intention is to invest first in Cleared Wheat
Swaps to the extent permitted under the position limits applicable to
Cleared Wheat Swaps and appropriate in light of the liquidity in the
Cleared Wheat Swaps market, and then, using its commercially reasonable
judgment, in other Wheat Futures Contracts (i.e., Wheat Futures
Contracts traded on KCBT, MGEX or traded on foreign exchanges) or
instruments such as cash-settled options on Wheat Futures Contracts and
forward contracts, swaps other than Cleared Wheat Swaps, and other
over-the-counter transactions that are based on the price of wheat and
Wheat Futures Contracts (collectively, ``Other Wheat Interests,'' and
together with Wheat Futures Contracts and Cleared Wheat Swaps, ``Wheat
Interests''). By utilizing certain or all of these investments, the
Sponsor will endeavor to cause the Fund's performance to closely track
that of the Wheat Benchmark. The circumstances under which such
investments in Other Wheat Interests may be utilized (e.g., imposition
of position limits) are discussed below.
Wheat Futures Contracts traded on the CBOT expire on a specified
day in five different months: March, May, July, September and December.
For example, in terms of the Wheat Benchmark, in June of a given year
the next-to-expire or ``spot month'' Wheat Futures Contract will expire
in July of that year, and the Wheat Benchmark Component Futures
Contracts will be the contracts expiring in September of that year (the
second-to-expire contract), December of that year (the third-to-expire
contract), and December of the following year. As another example, in
November of a given year, the Wheat Benchmark Component Futures
Contracts will be the contracts expiring in March, May and December of
the following year.
According to the Registration Statement, the Fund seeks to achieve
its investment objective primarily by investing in Wheat Interests such
that daily changes in the Fund's NAV will be
[[Page 45887]]
expected to closely track the changes in the Wheat Benchmark. The
Fund's positions in Wheat Interests will be changed or ``rolled'' on a
regular basis in order to track the changing nature of the Wheat
Benchmark. For example, five times a year (on the date on which a Wheat
Futures Contract expires), the second-to-expire Wheat Futures Contract
will become the next-to-expire Wheat Futures Contract and will no
longer be a Wheat Benchmark Component Futures Contract, and the Fund's
investments will have to be changed accordingly.\13\
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\13\ For each of the Funds, in order that the Fund's trading
does not cause unwanted market movements and to make it more
difficult for third parties to profit by trading based on such
expected market movements, the Fund's investments typically will not
be rolled entirely on that day, but rather will typically be rolled
over a period of several days.
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Consistent with achieving the Fund's investment objective of
closely tracking the Wheat Benchmark, the Sponsor may for certain
reasons cause the Fund to enter into or hold Cleared Wheat Swaps and/or
Other Wheat Interests. For example, certain Cleared Wheat Swaps have
standardized terms similar to, and are priced by reference to, a
corresponding Wheat Benchmark Component Futures Contract. Additionally,
Other Wheat Interests that do not have standardized terms and are not
exchange-traded (``over-the-counter'' Wheat Interests), can generally
be structured as the parties desire. Therefore, the Fund might enter
into multiple Cleared Wheat Swaps and/or over-the-counter Wheat
Interests intended to exactly replicate the performance of each of the
three Wheat Benchmark Component Futures Contracts, or a single over-
the-counter Wheat Interest designed to replicate the performance of the
Wheat Benchmark as a whole. According to the Registration Statement,
assuming that there is no default by a counterparty to an over-the-
counter Wheat Interest, the performance of the over-the-counter Wheat
Interest will necessarily correlate exactly with the performance of the
Wheat Benchmark or the applicable Wheat Benchmark Component Futures
Contract.\14\ The Fund might also enter into or hold over-the-counter
Wheat Interests to facilitate effective trading, consistent with the
discussion of the Fund's ``roll'' strategy in the preceding paragraph.
In addition, the Fund might enter into or hold over-the-counter Wheat
Interests that would be expected to alleviate overall deviation between
the Fund's performance and that of the Wheat Benchmark that may result
from certain market and trading inefficiencies or other reasons.
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\14\ According to the Registration Statements, the Funds face
the risk of non-performance by the counterparties to over-the-
counter contracts. Unlike in futures contracts, the counterparty to
these contracts is generally a single bank or other financial
institution, rather than a clearing organization backed by a group
of financial institutions. As a result, there will be greater
counterparty credit risk in these transactions. The creditworthiness
of each potential counterparty will be assessed by the Sponsor. The
Sponsor will assess or review, as appropriate, the creditworthiness
of each potential or existing counterparty to an over-the-counter
contract pursuant to guidelines approved by the Sponsor. The
creditworthiness of existing counterparties will be reviewed
periodically by the Sponsor.
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The Fund will invest in Wheat Interests to the fullest extent
possible without being leveraged or unable to satisfy its expected
current or potential margin or collateral obligations with respect to
its investments in Wheat Interests.\15\ After fulfilling such margin
and collateral requirements, the Fund will invest the remainder of its
proceeds from the sale of baskets in obligations of the United States
government (``Treasury Securities'') or cash equivalents, and/or hold
such assets in cash (generally in interest-bearing accounts).
Therefore, the focus of the Sponsor in managing the Fund is investing
in Wheat Interests and in Treasury Securities, cash and/or cash
equivalents. Each of the Funds will earn interest income from the
Treasury Securities and/or cash equivalents that it purchases and on
the cash it holds through each Fund's custodian, the Bank of New York
Mellon (the ``Custodian'' and the ``Administrator'').
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\15\ The Sponsor represents that the Fund will invest in Wheat
Interests in a manner consistent with the Fund's investment
objective and not to achieve additional leverage.
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The Sponsor endeavors to place the Fund's trades in Wheat Interests
and otherwise manage the Fund's investments so that the Fund's average
daily tracking error against the Wheat Benchmark will be less than 10
percent over any period of 30 trading days. More specifically, the
Sponsor will endeavor to manage the Fund so that A will be within plus/
minus 10 percent of B, where A is the average daily change in the
Fund's NAV for any period of 30 successive valuation days, i.e., any
trading day as of which the Fund calculates its NAV, and B is the
average daily change in the Wheat Benchmark over the same period.\16\
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\16\ For each of the Funds, the Sponsor believes that market
arbitrage opportunities will cause each Fund's respective Share
price on the NYSE Arca to closely track the Fund's NAV per Share.
The Sponsor believes that the net effect of this expected
relationship and the expected relationship described above between
the Fund's respective NAV and the respective benchmark will be that
the changes in the price of the Fund's Shares on the NYSE Arca will
closely track, in percentage terms, changes in such benchmark, less
expenses.
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According to the Registration Statement, the Sponsor employs a
``neutral'' investment strategy intended to track the changes in the
Wheat Benchmark regardless of whether the Wheat Benchmark goes up or
goes down. The Fund's ``neutral'' investment strategy is designed to
permit investors generally to purchase and sell the Fund's Shares for
the purpose of investing indirectly in the wheat market in a cost-
effective manner. Such investors may include participants in the wheat
industry and other industries seeking to hedge the risk of losses in
their wheat-related transactions, as well as investors seeking exposure
to the wheat market. The Sponsor does not intend to operate the Fund in
a fashion such that its per Share NAV will equal, in dollar terms, the
spot price of a bushel or other unit of wheat or the price of any
particular Wheat Futures Contract.
According to the Registration Statement, the CFTC and U.S.
designated contract markets such as the CBOT may establish position
limits on the maximum net long or net short futures contracts in
commodity interests that any person or group of persons under common
trading control (other than as a hedge) may hold, own or control.\17\
For example, the current position limit for investments at any one time
in CBOT Wheat Futures Contracts are 600 spot month contracts, 5,000
contracts expiring in any other single month, and 6,500 contracts total
for all months. Cleared Wheat Swaps are subject to position limits that
are substantially identical to, but measured separately from, the
limits on Wheat Futures Contracts. Position limits are fixed ceilings
that the Fund would not be able to exceed without specific exchange
authorization. Under current law, all Wheat Futures Contracts traded on
a particular exchange that are held under the control of the Sponsor,
including those held by any future series of the Trust, are aggregated
in determining the application of applicable position limits.
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\17\ According to the Registration Statement, position limits
generally impose a fixed ceiling on aggregate holdings in futures
contracts relating to a particular commodity, and may also impose
separate ceilings on contracts expiring in any one month, contracts
expiring in the spot month, and/or contracts in certain specified
final days of trading.
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In addition to position limits, the exchanges may establish daily
price fluctuation limits on futures contracts. The daily price
fluctuation limit establishes the maximum amount that
[[Page 45888]]
the price of futures contracts may vary either up or down from the
previous day's settlement price. Once the daily price fluctuation limit
has been reached in a particular futures contract, no trades may be
made at a price beyond that limit.\18\ Position limits, accountability
levels, and daily price fluctuation limits set by the exchanges have
the potential to cause tracking error, which could cause the price of
Shares to substantially vary from the Wheat Benchmark and prevent an
investor from being able to effectively use the Fund as a way to hedge
against wheat-related losses or as a way to indirectly invest in wheat.
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\18\ For example, the CBOT imposes a $3,000 per contract price
fluctuation limit for Wheat Futures Contracts. This limit is
initially based off of the previous trading day's settlement price.
If two or more Wheat Futures Contract months within the first five
listed non-spot contracts close at the limit, the daily price limit
increases to $4,500 per contract for the next business day and to
$6,750 for the next business day.
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The Fund does not intend to limit the size of the offering and will
attempt to expose substantially all of its proceeds to the wheat market
utilizing Wheat Interests. If the Fund encounters position limits,
accountability levels, or price fluctuation limits for Wheat Futures
Contracts and/or Cleared Wheat Swaps on the CBOT, it may then, if
permitted under applicable regulatory requirements, purchase Other
Wheat Interests and/or Wheat Futures Contracts listed on other domestic
or foreign exchanges. However, the Wheat Futures Contracts available on
such foreign exchanges may have different underlying sizes, deliveries,
and prices. In addition, the Wheat Futures Contracts available on these
exchanges may be subject to their own position limits and
accountability levels. In any case, notwithstanding the potential
availability of these instruments in certain circumstances, position
limits could force the Fund to limit the number of Creation Baskets (as
defined below) that it sells.\19\
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\19\ With respect to each of the Funds, there will be no
specified limit on the maximum amount of Creation Baskets that can
be sold. At some point, however, applicable position limits may
practically limit the number of Creation Baskets that will be sold
if the Sponsor determines that the other investment alternatives
available to a Fund at that time will not enable it to meet its
stated investment objective.
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Teucrium Soybean Fund
According to the Registration Statement, the investment objective
of the Fund is to have the daily changes in percentage terms of the
Shares' NAV reflect the daily changes in percentage terms of a weighted
average of the closing settlement prices for three futures contracts
for soybeans (soybean futures contracts generally referred to herein as
``Soybean Futures Contracts'') that are traded on the CBOT. Except as
described in the following paragraph, the three Soybean Futures
Contracts will be: (1) Second-to-expire CBOT Soybean Futures Contract,
weighted 35%, (2) the third-to-expire CBOT Soybean Futures Contract,
weighted 30%, and (3) the CBOT Soybean Futures Contract expiring in the
November following the expiration month of the third-to-expire
contract, weighted 35%. The weighted average of the three Soybean
Futures Contracts is referred to herein as the ``Soybean Benchmark,''
and the three Soybean Futures Contracts that at any given time make up
the Soybean Benchmark are referred to herein as the ``Soybean Benchmark
Component Futures Contracts.'' The circumstances under which such
investments in Other Soybean Interests may be utilized (e.g.,
imposition of position limits) are discussed below.\20\
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\20\ Soybean futures volume on CBOT for 2010 and 2011 (through
April 29, 2011) was 36,962,868 contracts and 16,197,385 contracts,
respectively. As of April 29, 2011, open interest for soybean
futures was 572,959 contracts. The contract price was $69,700.00
(1394 cents per bushel and 5,000 bushels per contract). The
approximate value of all outstanding contracts was $39.9 billion.
The position limits for all months is 6,500 contracts and the total
value of contracts if position limits were reached would be
approximately $453 million (based on the $69,700.00 contract price).
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Soybean Futures Contracts traded on the CBOT expire on a specified
day in seven different months: January, March, May, July, August,
September and November. However, there is generally a less liquid
market for the Soybean Futures Contracts expiring in August (the
``August Contract'') and September (the ``September Contract'' and,
together with the August Contract, the ``Excluded Contracts''), and the
Sponsor has determined not to incorporate the Excluded Contracts into
the Soybean Benchmark calculation. Accordingly, during the period when
the Excluded Contracts are the second-to-expire and third-to-expire
Soybean Futures Contract, the fourth-to-expire and fifth-to-expire
Soybean Futures Contracts will take the place of the second-to-expire
and third-to-expire Soybean Futures Contracts, respectively, as Soybean
Benchmark Component Futures Contracts. Similarly, when the August
Contract is the third-to-expire Soybean Futures Contract, the fifth-to-
expire Soybean Futures Contract will take the place of the August
Contract as a Soybean Benchmark Component Futures Contract, and when
the September Contract is the second-to-expire Soybean Futures
Contract, the third-to-expire and fourth-to-expire Soybean Futures
Contracts will be Soybean Benchmark Component Futures Contracts.\21\
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\21\ See the Registration Statement for additional information
regarding specific Soybean Futures Contracts that will be used in
the calculation of the Soybean Benchmark at any point in a given
year, based on the same 35%/30%/35% weighting methodology described
above.
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According to the Registration Statement, the Fund seeks to achieve
its investment objective by investing under normal market conditions in
Soybean Benchmark Component Futures Contracts or, in certain
circumstances, in other Soybean Futures Contracts traded on CBOT or
Soybean Futures Contracts traded on foreign exchanges. In addition, and
to a limited extent, the Fund also may invest in exchange-traded
options on Soybean Futures Contracts and in soybean-based swap
agreements that are cleared through the CBOT or its affiliated provider
of clearing services (``Cleared Soybean Swaps'') in furtherance of the
Fund's investment objective.
Specifically, once CBOT position limits in Soybean Futures
Contracts are reached, the Fund's intention is to invest first in
Cleared Soybean Swaps to the extent permitted under the CBOT position
limits applicable to Cleared Soybean Swaps and appropriate in light of
the liquidity in the Cleared Soybean Swaps market, and then, using its
commercially reasonable judgment, in other Soybean Futures Contracts
(i.e., Soybean Futures Contracts traded on foreign exchanges) and
instruments such as cash-settled options on Soybean Futures Contracts
and forward contracts, swaps other than Cleared Soybean Swaps, and
other over-the-counter transactions that are based on the price of
soybeans and Soybean Futures Contracts (collectively, ``Other Soybean
Interests,'' and together with Soybean Futures Contracts and Cleared
Soybean Swaps, ``Soybean Interests'').
The Fund seeks to achieve its investment objective primarily by
investing in Soybean Interests such that daily changes in the Fund's
NAV will be expected to closely track the changes in the Soybean
Benchmark. The Fund's positions in Soybean Interests will be changed or
``rolled'' on a regular basis in order to track the changing nature of
the Soybean Benchmark. For example, five times a year (on the date on
which certain Soybean Futures Contracts expire), a particular Soybean
Futures Contract will no longer be a Soybean Benchmark Component
Futures Contract, and the Fund's investments will have to be changed
accordingly.
[[Page 45889]]
According to the Registration Statement, consistent with achieving
the Fund's investment objective of closely tracking the Soybean
Benchmark, the Sponsor may for certain reasons cause the Fund to enter
into or hold Cleared Soybean Swaps and/or Other Soybean Interests. For
example, certain Cleared Soybean Swaps have standardized terms similar
to, and are priced by reference to, a corresponding Soybean Benchmark
Component Futures Contract. Additionally, Other Soybean Interests that
do not have standardized terms and are not exchange-traded (``over-the-
counter'' Soybean Interests) can generally be structured as the parties
desire. Therefore, the Fund might enter into multiple Cleared Soybean
Swaps and/or over-the-counter Soybean Interests intended to exactly
replicate the performance of each of the three Soybean Benchmark
Component Futures Contracts, or a single over-the-counter Soybean
Interest designed to replicate the performance of the Soybean Benchmark
as a whole. According to the Registration Statement, assuming that
there is no default by a counterparty to an over-the-counter Soybean
Interest, the performance of the over-the-counter Soybean Interest will
necessarily correlate exactly with the performance of the Soybean
Benchmark or the applicable Soybean Benchmark Component Futures
Contract. The Fund might also enter into or hold over-the-counter
Soybean Interests to facilitate effective trading, consistent with the
discussion of the Fund's ``roll'' strategy in the preceding paragraph.
In addition, the Fund might enter into or hold over-the-counter Soybean
Interests that would be expected to alleviate overall deviation between
the Fund's performance and that of the Soybean Benchmark that may
result from certain market and trading inefficiencies or other reasons.
The Fund will invest in Soybean Interests to the fullest extent
possible without being leveraged or unable to satisfy its expected
current or potential margin or collateral obligations with respect to
its investments in Soybean Interests.\22\ After fulfilling such margin
and collateral requirements, the Fund will invest the remainder of its
proceeds from the sale of baskets in Treasury Securities or cash
equivalents, and/or hold such assets in cash (generally in interest-
bearing accounts). Therefore, the focus of the Sponsor in managing the
Fund is investing in Soybean Interests and in Treasury Securities, cash
and/or cash equivalents.
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\22\ The Sponsor represents that the Fund will invest in Soybean
Interests in a manner consistent with the Fund's investment
objective and not to achieve additional leverage.
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The Sponsor endeavors to place the Fund's trades in Soybean
Interests and otherwise manage the Fund's investments so that the
Fund's average daily tracking error against the Soybean Benchmark will
be less than 10 percent over any period of 30 trading days. More
specifically, the Sponsor will endeavor to manage the Fund so that A
will be within plus/minus 10 percent of B, where A is the average daily
change in the Fund's NAV for any period of 30 successive valuation
days, i.e., any trading day as of which the Fund calculates its NAV,
and B is the average daily change in the Soybean Benchmark over the
same period.
The Sponsor employs a ``neutral'' investment strategy intended to
track the changes in the Soybean Benchmark regardless of whether the
Soybean Benchmark goes up or goes down. The Fund's ``neutral''
investment strategy is designed to permit investors generally to
purchase and sell the Fund's Shares for the purpose of investing
indirectly in the soybean market in a cost-effective manner. Such
investors may include participants in the soybean industry and other
industries seeking to hedge the risk of losses in their soybean-related
transactions, as well as investors seeking exposure to the soybean
market. The Sponsor does not intend to operate the Fund in a fashion
such that its per Share NAV will equal, in dollar terms, the spot price
of a bushel or other unit of soybean or the price of any particular
Soybean Futures Contract.
The CFTC's position limits for Soybean Futures Contracts (including
related options) are 600 spot month contracts, 6,500 contracts expiring
in any other single month, and 10,000 contracts for all months.
Position limits could in certain circumstances effectively limit the
number of Creation Baskets that the Fund can sell but, because the Fund
is new, it is not expected to reach asset levels that would cause these
position limits to be implicated in the near future. Cleared Soybean
Swaps are subject to position limits that are substantially identical
to, but measured separately from, the positions limits applicable to
Soybean Futures Contracts. Under current law, all Soybean Futures
Contracts that are held under the control of the Sponsor, including
those held by any future series of the Trust, are aggregated in
determining the application of applicable position limits.
According to the Registration Statement, in contrast to position
limits, accountability levels are not fixed ceilings, but rather
thresholds above which an exchange may exercise greater scrutiny and
control over an investor, including by imposing position limits on the
investor. In light of the position limits discussed above, the CBOT has
not set any accountability levels for Soybean Futures Contracts.
According to the Registration Statement, the CBOT imposes a $0.70
per bushel ($3,500 per contract) daily price fluctuation limit for
Soybean Futures Contracts. Once the daily price fluctuation limit has
been reached in a particular Soybean Futures Contract, no trades may be
made at a price beyond that limit. If two or more Soybean Futures
Contract months within the first seven listed non-spot contracts close
at the limit, the daily price limit increases to $1.05 per bushel
($5,250 per contract) the next business day and to $1.60 per bushel
($8,000 per contract) the next business day. These limits are based off
the previous trading day's settlement price. Position limits and daily
price fluctuation limits set by the CFTC and the exchanges have the
potential to cause tracking error, which could cause the price of
Shares to substantially vary from the Soybean Benchmark and prevent an
investor from being able to effectively use the Fund as a way to hedge
against soybean-related losses or as a way to indirectly invest in
soybeans.
The Fund does not intend to limit the size of the offering and will
attempt to expose substantially all of its proceeds to the soybean
market utilizing Soybean Interests. If the Fund encounters position
limits or price fluctuation limits for Soybean Futures Contracts and/or
Cleared Soybean Swaps on the CBOT, it may then, if permitted under
applicable regulatory requirements, purchase Other Soybean Interests
and/or Soybean Futures Contracts listed on foreign exchanges. However,
the Soybean Futures Contracts available on such foreign exchanges may
have different underlying sizes, deliveries, and prices. In addition,
the Soybean Futures Contracts available on these exchanges may be
subject to their own position limits or similar restrictions. In any
case, notwithstanding the potential availability of these instruments
in certain circumstances, position limits could force the Fund to limit
the number of Creation Baskets (as defined below) that it sells.\23\
---------------------------------------------------------------------------
\23\ See note 19, supra.
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Teucrium Sugar Fund
According to the Registration Statement, the investment objective
of the Fund is to have the daily changes in percentage terms of the
Shares' NAV
[[Page 45890]]
reflect the daily changes in percentage terms of a weighted average of
the closing settlement prices for three futures contracts for sugar
(sugar futures contracts generally referred to herein as ``Sugar
Futures Contracts'') that are traded on ICE Futures US (``ICE
Futures''), specifically: (1) The second-to-expire Sugar No. 11 Futures
Contract (a ``Sugar No. 11 Futures Contract''), weighted 35%, (2) the
third-to-expire Sugar No. 11 Futures Contract, weighted 30%, and (3)
the Sugar No. 11 Futures Contract expiring in the March following the
expiration month of the third-to-expire contract, weighted 35%. The
weighted average of the three Sugar No. 11 Futures Contracts is
referred to herein as the ``Sugar Benchmark,'' and the three Sugar No.
11 Futures Contracts that at any given time make up the Sugar Benchmark
are referred to herein as the ``Sugar Benchmark Component Futures
Contracts.'' \24\
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\24\ Sugar futures volume on ICE Futures for 2010 and 2011
(through April 29, 2011) was 27,848,391 contracts and 9,045,069
contracts, respectively. As of April 29, 2011, open interest for
sugar futures was 570,948 contracts. The contract price was
$24,920.00 (22.25 cents per pound and 112,000 pounds per contract).
The approximate value of all outstanding contracts was $14.2
billion. The position limits for all months is 15,000 contracts and
the total value of contracts if position limits were reached would
be approximately $373.8 million (based on the $24,920.00 contract
price).
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The Fund seeks to achieve its investment objective by investing
under normal market conditions in Sugar Benchmark Component Futures
Contracts or, in certain circumstances, in other Sugar Futures
Contracts traded on ICE Futures or the New York Mercantile Exchange
(``NYMEX''), or Sugar Futures Contracts traded on foreign exchanges. In
addition, and to a limited extent, the Fund also may invest in
exchange-traded options on Sugar Futures Contracts and in sugar-based
swap agreements that are cleared through ICE Futures or its affiliated
provider of clearing services (``Cleared Sugar Swaps'') in furtherance
of the Fund's investment objective.
Specifically, once accountability levels in Sugar No. 11 Futures
Contracts traded on ICE Futures are reached, the Fund's intention is to
invest first in Cleared Sugar Swaps to the extent permitted under the
accountability levels applicable to Cleared Sugar Swaps and appropriate
in light of the liquidity in the Cleared Sugar Swaps market, and then,
using its commercially reasonable judgment, in other Sugar Futures
Contracts (i.e., Sugar Futures Contracts traded on the NYMEX or foreign
exchanges) and instruments such as cash-settled options on Sugar
Futures Contracts and forward contracts, swaps other than Cleared Sugar
Swaps, and other over-the-counter transactions that are based on the
price of sugar and Sugar Futures Contracts (collectively, ``Other Sugar
Interests,'' and together with Sugar Futures Contracts and Cleared
Sugar Swaps, ``Sugar Interests'').
Sugar No. 11 Futures Contracts traded on the ICE Futures expire on
a specified day in four different months: March, May, July, and
October. For example, in terms of the Sugar Benchmark, in June of a
given year (``year 1'') the next-to-expire or ``spot month'' Sugar No.
11 Futures Contract will expire in July of year 1, and the Sugar
Benchmark Component Futures Contracts will be the contracts expiring in
October of year 1 (the second-to-expire contract), March of year 2 (the
third-to-expire contract), and March of year 3. As another example, in
November of year 1 the Sugar Benchmark Component Futures Contracts will
be the contracts expiring in May of year 2, July of year 2, and March
of year 3.
The Fund seeks to achieve its investment objective primarily by
investing in Sugar Interests such that daily changes in the Fund's NAV
will be expected to closely track the changes in the Sugar Benchmark.
The Fund's positions in Sugar Interests will be changed or ``rolled''
on a regular basis in order to track the changing nature of the Sugar
Benchmark. For example, four times a year (on the date on which a Sugar
No. 11 Futures Contract expires), a particular Sugar No. 11 Futures
Contract will no longer be a Sugar Benchmark Component Futures
Contract, and the Fund's investments will have to be changed
accordingly.
Consistent with achieving the Fund's investment objective of
closely tracking the Sugar Benchmark, the Sponsor may for certain
reasons cause the Fund to enter into or hold Cleared Sugar Swaps and/or
Other Sugar Interests. For example, certain Cleared Sugar Swaps have
standardized terms similar to, and are priced by reference to, a
corresponding Sugar Benchmark Component Futures Contract. Additionally,
Other Sugar Interests that do not have standardized terms and are not
exchange-traded, referred to as ``over-the-counter'' Sugar Interests,
can generally be structured as the parties desire. Therefore, the Fund
might enter into multiple Cleared Sugar Swaps and/or over-the-counter
Sugar Interests intended to exactly replicate the performance of each
of the three Sugar Benchmark Component Futures Contracts, or a single
over-the-counter Sugar Interest designed to replicate the performance
of the Sugar Benchmark as a whole. According to the Registration
Statement, assuming that there is no default by a counterparty to an
over-the-counter Sugar Interest, the performance of the over-the-
counter Sugar Interest will necessarily correlate exactly with the
performance of the Sugar Benchmark or the applicable Sugar Benchmark
Component Futures Contract. The Fund might also enter into or hold
over-the-counter Sugar Interests other than Sugar Benchmark Component
Futures Contracts to facilitate effective trading, consistent with the
discussion of the Fund's ``roll'' strategy in the preceding paragraph.
In addition, the Fund might enter into or hold over-the-counter Sugar
Interests that would be expected to alleviate overall deviation between
the Fund's performance and that of the Sugar Benchmark that may result
from certain market and trading inefficiencies or other reasons.
The Fund will invest in Sugar Interests to the fullest extent
possible without being leveraged or unable to satisfy its expected
current or potential margin or collateral obligations with respect to
its investments in Sugar Interests.\25\ After fulfilling such margin
and collateral requirements, the Fund will invest the remainder of its
proceeds from the sale of baskets in Treasury Securities or cash
equivalents, and/or hold such assets in cash (generally in interest-
bearing accounts). Therefore, the focus of the Sponsor in managing the
Fund is investing in Sugar Interests and in Treasury Securities, cash
and/or cash equivalents.
---------------------------------------------------------------------------
\25\ The Sponsor represents that the Fund will invest in Sugar
Interests in a manner consistent with the Fund's investment
objective and not to achieve additional leverage.
---------------------------------------------------------------------------
The Sponsor endeavors to place the Fund's trades in Sugar Interests
and otherwise manage the Fund's investments so that the Fund's average
daily tracking error against the Sugar Benchmark will be less than 10
percent over any period of 30 trading days. More specifically, the
Sponsor will endeavor to manage the Fund so that A will be within plus/
minus 10 percent of B, where A is the average daily change in the
Fund's NAV for any period of 30 successive valuation days, i.e., any
trading day as of which the Fund calculates its NAV, and B is the
average daily change in the Sugar Benchmark over the same period.
The Sponsor employs a ``neutral'' investment strategy intended to
track the changes in the Sugar Benchmark regardless of whether the
Sugar Benchmark goes up or goes down. The Fund's ``neutral'' investment
strategy is
[[Page 45891]]
designed to permit investors generally to purchase and sell the Fund's
Shares for the purpose of investing indirectly in the sugar market in a
cost-effective manner. Such investors may include participants in the
sugar industry and other industries seeking to hedge the risk of losses
in their sugar-related transactions, as well as investors seeking
exposure to the sugar market. The Sponsor does not intend to operate
the Fund in a fashion such that its per Share NAV will equal, in dollar
terms, the spot price of a pound or other unit of sugar or the price of
any particular Sugar Futures Contract.
U.S. designated contract markets such as the ICE Futures and the
NYMEX have established accountability levels on the maximum net long or
net short Sugar Futures Contracts that any person or group of persons
under common trading control may hold, own or control. For example, the
current ICE Futures-established accountability level for investments in
Sugar No. 11 Futures Contracts for any one month is 10,000, and the
accountability level for all combined months is 15,000. While
accountability levels are not fixed ceilings, they are thresholds above
which the exchange may exercise greater scrutiny and control over an
investor, including limiting an investor to holding no more Sugar No.
11 Futures Contracts than the amount established by the accountability
level. Cleared Sugar Swaps are subject to an ICE Futures accountability
level of 10,000 swap positions for all months combined. This limit is
measured separately from the accountability levels on Sugar No. 11
Futures Contracts. Under current law, all Sugar Futures Contracts
traded on a particular exchange that are held under the control of the
Sponsor, including those held by any future series of the Trust, are
aggregated in determining the application of applicable accountability
levels. The Fund does not intend to invest in Sugar Futures Contracts
or Cleared Sugar Swaps in excess of any applicable accountability
levels.
According to the Registration Statement, the CFTC has not currently
set position limits for Sugar Futures Contracts, and ICE Futures and
NYMEX have established such position limits only on spot month Sugar
No. 11 Futures Contracts. Cleared Sugar Swaps are subject to ICE
Futures position limits that are substantially identical to, but
measured separately from, the limits on Sugar No. 11 Futures Contracts.
However, because the Fund does not expect to hold spot month contracts
at any time when these position limits would be applicable, it is
unlikely that these limits will come into play. Currently, the ICE
Futures and the NYMEX have not imposed maximum daily price fluctuation
limits on Sugar Futures Contracts. Accountability levels, position
limits and daily price fluctuation limits set by the CFTC and the
exchanges have the potential to cause tracking error, which could cause
the price of Shares to substantially vary from the Sugar Benchmark and
prevent an investor from being able to effectively use the Fund as a
way to hedge against sugar-related losses or as a way to indirectly
invest in sugar.
The Fund does not intend to limit the size of the offering and will
attempt to expose substantially all of its proceeds to the sugar market
utilizing Sugar Interests. If the Fund encounters accountability
levels, position limits, or price fluctuation limits for Sugar Futures
Contracts and/or Cleared Sugar Swaps on ICE Futures, it may then, if
permitted under applicable regulatory requirements, purchase Other
Sugar Interests and/or Sugar Futures Contracts listed on the NYMEX or
foreign exchanges. However, the Sugar Futures Contracts available on
such foreign exchanges may have different underlying sizes, deliveries,
and prices. In addition, the Sugar Futures Contracts available on these
exchanges may be subject to their own position limits and
accountability levels. In any case, notwithstanding the potential
availability of these instruments in certain circumstances, position
limits could force the Fund to limit the number of Creation Baskets
that it sells.\26\
---------------------------------------------------------------------------
\26\ See note 19, supra.
---------------------------------------------------------------------------
Creation and Redemption of Shares
The Funds create and redeem Shares only in blocks called ``Creation
Baskets'' and ``Redemption Baskets,'' respectively, each consisting of
50,000 Shares. Only Authorized Purchasers may purchase or redeem
Creation Baskets or Redemption Baskets. An Authorized Purchaser is
under no obligation to create or redeem baskets, and an Authorized
Purchaser is under no obligation to offer to the public Shares of any
baskets it does create. Baskets are generally created when there is a
demand for Shares, including, but not limited to, when the market price
per Share is at (or perceived to be at) a premium to the NAV per Share.
Similarly, baskets are generally redeemed when the market price per
Share is at (or perceived to be at) a discount to the NAV per Share.
Retail investors seeking to purchase or sell Shares on any day are
expected to effect such transactions in the secondary market, on the
NYSE Arca, at the market price per Share, rather than in connection
with the creation or redemption of baskets.
The total deposit required to create each basket (``Creation Basket
Deposit'') is the amount of Treasury Securities and/or cash that is in
the same proportion to the total assets of each Fund (net of estimated
accrued but unpaid fees, expenses and other liabilities) on the
purchase order date as the number of Shares to be created under the
purchase order is in proportion to the total number of Shares
outstanding on the purchase order date. The redemption distribution
from each Fund will consist of a transfer to the redeeming Authorized
Purchaser of an amount of Treasury Securities and/or cash that is in
the same proportion to the total assets of such Fund (net of estimated
accrued but unpaid fees, expenses and other liabilities) on the date
the order to redeem is properly received as the number of Shares to be
redeemed under the redemption order is in proportion to the total
number of Shares outstanding on the date the order is received.
The Funds will meet the initial and continued listing requirements
applicable to TIRs in NYSE Arca Equities Rule 8.200 and Commentary .02
thereto. With respect to application of Rule 10A-3 \27\ under the Act,
the Trust relies on the exception contained in Rule 10A-3(c)(7).\28\ A
minimum of 100,000 Shares for each Fund will be outstanding as of the
start of trading on the Exchange.
---------------------------------------------------------------------------
\27\ 17 CFR 240.10A-3.
\28\ 17 CFR 240.10A-3(c)(7).
---------------------------------------------------------------------------
A more detailed description of Wheat Interests, Soybean Interests
and Sugar Interests and other aspects of the applicable commodities
markets, as well as investment risks, are set forth in the Registration
Statements. All terms relating to the Funds that are referred to, but
not defined in, this proposed rule change are defined in the
Registration Statements.
Availability of Information Regarding the Shares
The Web site for the Funds (http://www.teucriumwheatfund.com,
http://www.teucriumsoybeanfund.com and http://www.teucriumsugarfund.com, respectively) 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 midpoint of the bid-
ask price in
[[Page 45892]]
relation to the NAV as of the time the NAV is calculated (the ``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 Funds will also disseminate the Funds' holdings on a daily basis on
the Funds' respective Web sites.
The NAV for the Funds will be calculated by the Administrator once
a day and will be disseminated daily to all market participants at the
same time.\29\ The Exchange also will disseminate on a daily basis via
the Consolidated Tape Association (``CTA'') information with respect to
recent NAV, and Shares outstanding. The Exchange will also make
available on its Web site daily trading volume of each of the Shares,
closing prices of such Shares, and the corresponding NAV. The closing
price and settlement prices of the Wheat Futures Contracts and Soybean
Futures Contracts are also readily available from the CBOT, and of the
Sugar No. 11 Futures Contracts from ICE Futures. In addition, such
prices are available from automated quotation systems, published or
other public sources, or on-line information services such as Bloomberg
or Reuters. Each benchmark will be disseminated by one or more major
market data vendors every 15 seconds during the NYSE Arca Core Trading
Session of 9:30 a.m. to 4:00 p.m. E.T. Quotation and last-sale
information regarding the Shares will be disseminated through the
facilities of the CTA. In addition, the Exchange will provide a
hyperlink on its Web site at http://www.nyx.com to the Funds' Web
sites, which will display all intraday and closing benchmark levels,
the intraday Indicative Trust Value (see below), and NAV.
---------------------------------------------------------------------------
\29\ For each Fund, the NAV will be calculated by taking the
current market value of the Fund's total assets and subtracting any
liabilities. Under the Funds' current operational procedures, the
Administrator will generally calculate the NAV of the Funds' Shares
as of 4:00 p.m. Eastern Time (``E.T.''). The NAV for a particular
trading day will be released after 4:15 p.m. E.T.
---------------------------------------------------------------------------
The daily settlement prices for the Wheat Futures Contracts and
Soybeans Futures Contracts are publicly available on the Web site of
the CBOT (http://www.cmegroup.com) and, for the Sugar No. 11 Futures
Contracts, on the Web site of ICE Futures (http://www.theice.com). In
addition, various data vendors and news publications publish futures
prices and data. The Exchange represents that quotation and last sale
information for the Wheat Futures Contracts, Soybean Futures Contracts
and Sugar No. 11 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 such contracts is available by subscription from
Reuters and Bloomberg. The CBOT and ICE Futures also provide delayed
futures information on current and past trading sessions and market
news free of charge on their Web sites. The specific contract
specifications for such contracts are also available at the CBOT and
ICE Futures Web sites, as well as other financial informational
sources. The spot price of wheat, soybeans and sugar also is available
on a 24-hour basis from major market data vendors.
Each Fund will provide Web site disclosure of portfolio holdings
daily and will include, as applicable, the names, quantity, price and
market value of Wheat, Soybean and Sugar Benchmark Component Futures
Contracts, as applicable, and other financial instruments, if any, and
the characteristics of such instruments and cash equivalents, and
amount of cash held in the portfolios 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 Purchasers 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 sites as well
as in electronic files provided to Authorized Purchasers. Accordingly,
each investor will have access to the current portfolio composition of
the Funds through the Funds' Web sites.
Dissemination of Indicative Trust Value
In addition, in order to provide updated information relating to
the Funds for use by investors and market professionals, an updated
Indicative Trust Value (``ITV'') will be calculated. The ITV is
calculated by using the prior day's closing NAV per Share of each Fund
as a base and updating that value throughout the trading day to reflect
changes in the value of the Wheat, Soybean and Sugar Benchmark
Component Futures Contracts, as applicable, and other financial
instruments, if any. As stated in the Registration Statements, changes
in the value of Treasury Securities and cash equivalents will not be
included in the calculation of the ITV. The ITV disseminated during
NYSE Arca trading hours should not be viewed as an actual real time
update of the NAV, which is calculated only once a day.
The ITV will be disseminated on a per Share basis by one or more
major market data vendors every 15 seconds during the NYSE Arca Core
Trading Session. The normal trading hours for Wheat Futures Contracts
on the CBOT are 10:30 a.m. E.T. to 2:15 p.m. E.T. The normal trading
hours for Soybean Futures Contracts on the CBOT are 10:30 a.m. E.T. to
2:15 p.m. E.T. Thus, there is a gap in time at the end of each day
during which the Funds' Shares are traded on the NYSE Arca, but real-
time CBOT trading prices for Wheat Futures Contracts and Soybean
Futures Contracts traded on CBOT are not available. As a result, during
those gaps there will be no update to the ITV. Therefore, a static ITV
will be disseminated, between the close of trading on CBOT of Wheat
Futures Contracts and Soybean Futures Contracts and the close of the
NYSE Arca Core Trading Session.
The normal trading hours for Sugar No. 11 Futures Contracts on ICE
Futures are 3:30 a.m. E.T. to 2:00 p.m. E.T. Thus, there is a gap in
time at the end of each day during which the Teucrium Sugar Fund's
Shares are traded on NYSE Arca, but real-time ICE Futures trading
prices for Sugar Futures Contracts traded on ICE Futures are not
available. As a result, during those gaps there will be no update to
the ITV. Therefore, a static ITV will be disseminated, between the
close of trading on ICE Futures of Sugar No. 11 Futures Contracts and
the close of the NYSE Arca Core Trading Session. The value of Shares of
each Fund may be influenced by non-concurrent trading hours between
NYSE Arca and the CBOT and ICE Futures, as applicable, when such Shares
are traded on NYSE Arca after normal trading hours of the applicable
futures contracts on CBOT or ICE Futures.
The Exchange believes that dissemination of the ITV provides
additional information regarding each Fund that is not otherwise
available to the public and is useful to professionals and investors in
connection with the related Shares trading on the Exchange or the
creation or redemption of such Shares.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's
[[Page 45893]]
existing rules governing the trading of equity securities. Shares will
trade on the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in NYSE Arca Equities Rule
7.6, Commentary .03, the minimum price variation (``MPV'') for quoting
and entry of orders in equity securities traded on the NYSE Arca
Marketplace is $0.01, with the exception of securities that are priced
less than $1.00 for which the MPV for order entry is $0.0001.
The trading of the Shares will be subject to NYSE Arca Equities
Rule 8.200, Commentary .02(e), which sets forth certain restrictions on
ETP Holders acting as registered Market Makers in TIRs to facilitate
surveillance. See ``Surveillance'' below for more information.
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares. Trading may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. These may include: (1) The extent to
which trading is not occurring in the underlying futures contracts, or
(2) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present. In addition,
trading in Shares will be subject to trading halts caused by
extraordinary market volatility pursuant to the Exchange's ``circuit
breaker'' rule \30\ or by the halt or suspension of trading of the
underlying futures contracts.
---------------------------------------------------------------------------
\30\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------
The Exchange represents that the Exchange may halt trading during
the day in which an interruption to the dissemination of the ITV or the
value of the underlying futures contracts or the applicable benchmark
occurs. If the interruption to the dissemination of the ITV, the value
of the underlying futures contracts or the applicable benchmark
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.
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 included in, or options, futures or options on futures on,
Shares through ETP Holders, in connection with such ETP Holders'
proprietary or customer trades through ETP Holders which they effect on
any relevant market. The Exchange can obtain market surveillance
information, including customer identity information, with respect to
transactions occurring on exchanges that are members of the Intermarket
Surveillance Group (``ISG'') or with which the Exchange has in place a
comprehensive surveillance sharing agreement. With respect to the
Teucrium Wheat Fund, the Exchange can obtain market surveillance
information from CBOT, KCBT and MGEX in that CBOT is a member of ISG
and the Exchange has in place a comprehensive surveillance sharing
agreement with KCBT and MGEX. Likewise, with respect to the Teucrium
Soybean Fund, the Exchange can obtain market surveillance information
from CBOT as a member of ISG. With respect to the Teucrium Sugar Fund,
the Exchange can obtain market surveillance information from NYMEX and
ICE Futures in that both such exchanges are ISG members. A list of ISG
members is available at http://www.isgportal.org.\31\
---------------------------------------------------------------------------
\31\ The Exchange notes that not all Wheat Interests, Soybean
Interests and Sugar Interests may trade on markets that are members
of ISG or with which the Exchange has in place a comprehensive
surveillance sharing agreement.
---------------------------------------------------------------------------
In addition, with respect to the Funds' futures contracts traded on
exchanges, not more than 10% of the weight of such futures contracts in
the aggregate shall consist of components whose principal trading
market is not a member of ISG or is a market with which the Exchange
does not have a comprehensive surveillance sharing agreement.
The Exchange also has a general policy prohibiting the distribution
of material, non-public information by its employees.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an Information Bulletin of the special characteristics
and risks associated with trading the Shares. Specifically, the
Information Bulletin will discuss the following: (1) The risks involved
in trading the Shares during the Opening and Late Trading Sessions when
an updated ITV will not be calculated or publicly disseminated; (2) the
procedures for purchases and redemptions of Shares in Creation Baskets
and Redemption Baskets (and that Shares are not individually
redeemable); (3) NYSE Arca Equities Rule 9.2(a), which imposes a duty
of due diligence on its ETP Holders to learn the essential facts
relating to every customer prior to trading the Shares; (4) how
information regarding the ITV is disseminated; (5) that a static ITV
will be disseminated, between the close of trading on the applicable
futures exchange and the close of the NYSE Arca Core Trading Session;
(6) the requirement that ETP Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (7) trading information.
In addition, the Information Bulletin will advise ETP Holders,
prior to the commencement of trading, of the prospectus delivery
requirements applicable to the Funds. The Exchange notes that investors
purchasing Shares directly from each Fund will receive a prospectus.
ETP Holders purchasing Shares from each Fund 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.
In addition, the Information Bulletin will reference that the Funds
are subject to various fees and expenses described in the Registration
Statements. The Information Bulletin will also reference that the CFTC
has regulatory jurisdiction over the trading of wheat, soybean and
sugar futures contracts traded on U.S. markets.
The Information Bulletin will also disclose the trading hours of
the Shares of each Fund and that the NAV for the Shares is calculated
after 4:00 p.m. E.T. each trading day. The Bulletin will
[[Page 45894]]
disclose that information about the Shares of each Fund is publicly
available on the Funds' Web sites.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \32\ 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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\32\ 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 Wheat, Soybean and
Sugar Benchmark Component Futures Contracts are traded on futures
exchanges that are members of ISG or with which the Exchange has in
place a comprehensive surveillance sharing agreement. With respect to
the Funds' futures contracts traded on exchanges, not more than 10% of
the weight of such futures contracts in the aggregate shall consist of
components whose principal trading market is not a member of ISG or is
a market with which the Exchange does not have a comprehensive
surveillance sharing agreement. The closing price and settlement prices
of the Wheat Futures Contracts and Soybean Futures Contracts are
readily available from the CBOT, and of the Sugar No. 11 Futures
Contracts from ICE Futures. In addition, such prices are available from
automated quotation systems, published or other public sources, or on-
line information services. Each benchmark will be disseminated by one
or more major market data vendors every 15 seconds during the NYSE Arca
Core Trading Session of 9:30 a.m. to 4:00 p.m. E.T. Quotation and last-
sale information regarding the Shares will be disseminated through the
facilities of the CTA. The ITV will be disseminated on a per Share
basis by one or more major market data vendors every 15 seconds during
the NYSE Arca Core Trading Session. The Exchange may halt trading
during the day in which the interruption to the dissemination of the
ITV or the value of the underlying futures contracts or applicable
benchmark occurs. If the interruption to the dissemination of the ITV,
the value of the underlying futures contracts or the applicable
benchmark 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 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. Quotation
and last sale information for the Wheat Futures Contracts, Soybean
Futures Contracts and Sugar No. 11 Futures Contracts are widely
disseminated through a variety of major market data vendors worldwide.
Complete real-time data for such contracts is available by subscription
from Reuters and Bloomberg. The CBOT and ICE Futures also provide
delayed futures information on current and past trading sessions and
market news free of charge on their Web sites. Each benchmark will be
disseminated by one or more major market data vendors every 15 seconds
during the NYSE Arca Core Trading Session of 9:30 a.m. to 4:00 p.m.
E.T. The spot price of wheat, soybeans and sugar also is available on a
24-hour basis from major market data vendors. Each Fund will provide
Web site disclosure of portfolio holdings daily and will include, as
applicable, the names, quantity, price and market value of Wheat,
Soybean and Sugar Benchmark Component Futures Contracts, as applicable,
and other financial instruments, if any, and the characteristics of
such instruments and cash equivalents, and amount of cash held in the
portfolios of the Funds. The NAV per Share will be calculated daily and
made available to all market participants at the same time. One or more
major market data vendors will disseminate for the Funds on a daily
basis information with respect to the recent NAV per Share and Shares
outstanding. NYSE Arca will calculate and disseminate every 15 seconds
throughout the NYSE Arca Core Trading Session an updated ITV.
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, ITV, 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 the proposed rule change, or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an e-mail to [email protected]. Please include
File
[[Page 45895]]
Number SR-NYSEArca-2011-48 on the subject line.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2011-48. This
file number should be included on the subject line if e-mail is used.
To help the Commission process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments,
all written statements with respect to the proposed rule change that
are filed with the Commission, and all written communications relating
to the proposed rule change between the Commission and any person,
other than those that may be withheld from the public in accordance
with the provisions of 5 U.S.C. 552, will be available for Web site
viewing and printing in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549, on official business days between
the hours of 10 a.m. and 3 p.m. Copies of such filing also will be
available for inspection and copying at the principal office of the
Exchange. All comments received will be posted without change; the
Commission does not edit personal identifying information from
submissions. You should submit only information that you wish to make
available publicly. All submissions should refer to File Number SR-
NYSEArca-2011-48 and should be submitted on or August 22, 2011.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\33\
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\33\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-19329 Filed 7-29-11; 8:45 am]
BILLING CODE 8011-01-P