[Federal Register Volume 77, Number 15 (Tuesday, January 24, 2012)]
[Notices]
[Pages 3532-3539]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-1290]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-66180; File No. SR-NYSEArca-2012-04]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating To Listing and Trading of Shares of
Twenty-Six Series of ProShares Trust II Under NYSE Arca Equities Rule
8.200
January 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 January 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.
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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 following
under NYSE Arca Equities Rule 8.200: ProShares UltraPro Australian
Dollar, ProShares UltraPro Canadian Dollar, ProShares UltraPro Swiss
Franc, ProShares UltraPro Euro, ProShares UltraPro U.S. Dollar, and
ProShares UltraPro Yen (collectively, ``UltraPro Funds''); ProShares
UltraPro Short Australian Dollar, ProShares UltraPro Short Canadian
Dollar, ProShares UltraPro Short Swiss Franc, ProShares UltraPro Short
Euro, ProShares UltraPro Short U.S. Dollar, and ProShares UltraPro
Short Yen (collectively, ``UltraPro Short Funds''); ProShares Ultra
Australian Dollar, ProShares Ultra Canadian Dollar, ProShares Ultra
Swiss Franc and ProShares Ultra U.S. Dollar (collectively, ``Ultra
Funds''); ProShares UltraShort Australian Dollar, ProShares UltraShort
Canadian Dollar, ProShares UltraShort Swiss Franc and ProShares
UltraShort U.S. Dollar (collectively, ``UltraShort Funds''); and
ProShares Short Australian Dollar, ProShares Short Canadian Dollar,
ProShares Short Swiss Franc, ProShares Short Euro, ProShares Short U.S.
Dollar, and ProShares Short Yen (collectively, ``Short Funds''). The
text of the proposed rule change is available at the Exchange, the
Commission's Public Reference Room, and www.nyse.com.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
NYSE Arca Equities Rule 8.200, Commentary .02 permits the trading
of Trust Issued Receipts (``TIRs'') either by listing or pursuant to
unlisted trading privileges (``UTP'').\3\ The Exchange proposes to list
and trade shares (``Shares'') of the following pursuant to NYSE Arca
Equities Rule 8.200: ProShares UltraPro Australian Dollar, ProShares
UltraPro Canadian Dollar, ProShares UltraPro Swiss Franc, ProShares
UltraPro Euro, ProShares UltraPro U.S. Dollar, ProShares UltraPro Yen,
ProShares UltraPro Short Australian Dollar, ProShares UltraPro Short
Canadian Dollar, ProShares UltraPro Short Swiss Franc, ProShares
UltraPro Short Euro, ProShares UltraPro Short U.S. Dollar, ProShares
UltraPro Short Yen, ProShares Ultra Australian Dollar, ProShares Ultra
Canadian Dollar,
[[Page 3533]]
ProShares Ultra Swiss Franc, ProShares Ultra U.S. Dollar, ProShares
UltraShort Australian Dollar, ProShares UltraShort Canadian Dollar,
ProShares UltraShort Swiss Franc, ProShares UltraShort U.S. Dollar,
ProShares Short Australian Dollar, ProShares Short Canadian Dollar,
ProShares Short Swiss Franc, ProShares Short Euro, ProShares Short U.S.
Dollar, and ProShares Short Yen (each a ``Fund'' and, collectively,
``Funds'').\4\ Each of the Funds is a series of the ProShares Trust II
(``Trust''), a Delaware statutory trust. ProShare Capital Management
LLC (``Sponsor'') is the Trust's sponsor and Wilmington Trust Company
is the Trust's trustee. Brown Brothers Harriman & Co.
(``Administrator'') serves as the administrator, custodian and transfer
agent of the Funds. SEI Investments Distribution Co. (``Distributor'')
serves as distributor of the Shares.
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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 registration statement on Form S-1, dated December 22,
2011 (File No. 333-178707) (``Registration Statement''). The
description of the Funds and the Shares contained herein is based,
in part, on the Registration Statement.
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The Exchange notes that the Commission has previously approved the
listing and trading of other series of the Commodities and Currency
Trust (now known as ProShares Trust II) on the American Stock Exchange
LLC,\5\ trading on NYSE Arca pursuant to UTP \6\ and listing and
trading on NYSE Arca.\7\ The Exchange further notes that the shares of
other ProShares Ultra Funds, UltraShort Funds and Short Funds based on
various securities indexes have previously been approved by the
Commission.\8\
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\5\ See, e.g., Securities Exchange Act Release No. 58161 (July
15, 2008), 73 FR 42380 (July 21, 2008) (SR-Amex-2008-39).
\6\ See, e.g., Securities Exchange Act Release No. 58162 (July
15, 2008), 73 FR 42391 (July 21, 2008) (SR-NYSEArca-2008-73).
\7\ See, e.g., Securities Exchange Act Release No. 58457
(September 3, 2008), 73 FR 52711 (September 10, 2008) (SR-NYSEArca-
2008-91) (approving listing of certain leveraged ProShares Funds on
the Exchange).
\8\ See, e.g., Securities Exchange Act Release Nos. 52553
(October 3, 2005), 70 FR 59100 (October 11, 2005) (SR-Amex-2004-62)
(approving the listing and trading of shares of the xtraShares
Trust); 54040 (June 23, 2006), 71 FR 37629 (June 30, 2006) (SR-Amex-
2006-41) (approving the listing and trading of shares of the
ProShares Trust); 55117 (January 17, 2007), 72 FR 3442 (January 25,
2007) (SR-Amex 2006-101) (approving the listing and trading of
shares of the ProShares Trust); 56592 (October 1, 2007), 72 FR 57364
(October 9, 2007) (SR-Amex-2007-60) (approving the listing and
trading of 6 issues of shares of the ProShares Trust based on
international equity indexes); and 56998 (December 19, 2007), 72 FR
73404 (December 27, 2007) (SR-Amex-2007-104) (approving the listing
and trading of shares of the ProShares Trust).
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According to the Registration Statement, the UltraPro Funds seek
daily investment results (before fees and expenses) that correspond to
three times (+300%) the daily performance, whether positive or
negative, of their corresponding benchmark and the UltraPro Short Funds
seek daily investment results (before fees and expenses) that
correspond to three times the inverse (-300%) of the daily performance,
whether positive or negative, of their corresponding benchmark. The
Ultra Funds seek daily investment results (before fees and expenses)
that correspond to twice (+200%) the daily performance, whether
positive or negative, of their corresponding benchmarks and the
UltraShort Funds seek daily investment results (before fees and
expenses) that correspond to twice the inverse (-200%) of the daily
performance, whether positive or negative, of their corresponding
benchmarks. The Short Funds seek daily investment results (before fees
and expenses) that correspond to the inverse (-100%) of the daily
performance, whether positive or negative, of their corresponding
benchmarks. Each reference to a corresponding benchmark is a
``Benchmark'' and together, ``Benchmarks,'' as described below.
Each of the Funds will hold futures contracts on the applicable
Benchmark and, in the case of a Benchmark index, futures on such
Benchmark index or the Benchmark index components, traded on a United
States exchange (``Benchmark Futures Contracts'') and, to a limited
extent, forward contracts, as described below, to produce the
economically ``inverse,'' ``leveraged,'' and ``inverse leveraged''
investment results, as set forth by each Fund's investment
objective.\9\
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\9\ Terms relating to the Funds, the Shares and the Benchmarks
referred to, but not defined, herein are defined in the Registration
Statement.
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According to the Registration Statement, each Fund seeks to achieve
its investment objective by investing under normal market
conditions,\10\ in Benchmark Futures Contracts. In the event position
accountability rules or position limits are reached with respect to a
particular Benchmark Futures Contract, the Sponsor may, in its
commercially reasonable judgment, cause the relevant Fund to obtain
exposure through over-the-counter forward contracts referencing the
particular exchange rate, index or index components, or invest in other
forward contracts not based on the particular exchange rate, if such
instruments tend to exhibit trading prices or returns that correlate
with the Benchmarks or any Benchmark Futures Contract and will further
the investment objective of a Fund.\11\ A Fund may also invest in
forward contracts if the market for a specific Benchmark Futures
Contract experiences emergencies (e.g., natural disaster, terrorist
attack or an act of God) or disruptions (e.g., a trading halt or a
flash crash) to prevent a Fund from obtaining the appropriate amount of
investment exposure to the affected Benchmark Futures Contracts
directly.\12\
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\10\ The term ``under normal conditions'' [sic] includes, but is
not limited to, the absence of extreme volatility or trading halts
in the futures markets or the financial markets generally;
operational issues causing dissemination of inaccurate market
information; or force majeure type events such as systems failure,
natural or man-made disaster, act of God, armed conflict, act of
terrorism, riot or labor disruption or any similar intervening
circumstance.
\11\ To the extent practicable, the Funds will invest in forward
contracts cleared through the facilities of a centralized clearing
house.
\12\ According to the Registration Statement, the Sponsor will
also attempt to mitigate the Funds' credit risk by transacting only
with large, well-capitalized institutions using measures designed to
determine the creditworthiness of a counterparty. The Sponsor will
take various steps to limit counterparty credit risk, as described
in the Registration Statement.
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Each Fund will also invest in cash equivalents (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. dollars or the
applicable foreign currency) that serve or will serve as collateral for
the investments in futures and forward contracts. The Funds do not
currently intend to invest directly in any currency but may invest
directly in U.S. Treasury securities.
The Funds' investment in Benchmark Futures Contracts and forward
contracts may involve a small investment relative to the amount of
investment exposure assumed and may result in losses exceeding the
amounts invested. Such instruments, particularly when used to create
leverage, may expose the Funds to potentially dramatic changes (losses
or gains) in the value of the instruments and imperfect correlation
between the value of the instruments and the applicable Benchmark.
The Funds will not seek to achieve their stated investment
objective over a period of time greater than one day because
mathematical compounding prevents the Funds from perfectly achieving
such results. Accordingly, results over periods of time greater than
one day typically will not be a simple multiple (e.g., 2x, 3x, or -1x,
-2x, -3x) of the period return of the corresponding Benchmark and may
differ significantly.
If an UltraPro Fund (or UltraPro Short Fund) is successful in
meeting its
[[Page 3534]]
objective, its value on a given day (before fees and expenses) should
gain (or lose) approximately three times as much on a percentage basis
as its corresponding Benchmark when the Benchmark rises on a given day.
Conversely, its value on a given day (before fees and expenses) should
lose (or gain) approximately three times as much on a percentage basis
as the corresponding Benchmark when the Benchmark declines on a given
day.
If an Ultra Fund (or UltraShort Fund) is successful in meeting its
objective, its value on a given day (before fees and expenses) should
gain (or lose) approximately twice as much on a percentage basis as its
corresponding Benchmark when the Benchmark rises on a given day.
Conversely, its value on a given day (before fees and expenses) should
lose (or gain) approximately twice as much on a percentage basis as the
corresponding Benchmark when the Benchmark declines on a given day.
If a Short Fund is successful in meeting its objective, its value
on a given day (before fees and expenses) should gain approximately as
much on a percentage basis as the corresponding Benchmark when the
Benchmark declines on a given day. Conversely, its value on a given day
(before fees and expenses) should lose approximately as much on a
percentage basis as the corresponding Benchmark when the Benchmark
rises on a given day.
In seeking to achieve each Fund's daily investment objective, the
Sponsor will use a mathematical approach to investing. 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 objectives.
According to the Registration Statement, a number of factors may
affect a Fund's ability to achieve a high degree of correlation with
its Benchmark, and there can be no guarantee that a Fund will achieve a
high degree of correlation. While the Funds do not expect that their
daily returns will deviate adversely from their respective daily
investment objectives, several factors may affect their ability to
achieve this correlation. Among these factors are a Fund's expenses,
including fees, transaction costs and the cost of the investment
techniques employed by that Fund, bid-ask spreads, a Fund's Share
prices being rounded to the nearest cent, changes to a Benchmark that
are not disseminated in advance and the need to conform a Fund's
portfolio holdings to comply with investment restrictions or policies
or regulatory or tax law requirements.
ProShares UltraPro Australian Dollar, ProShares UltraPro Short
Australian Dollar, ProShares Ultra Australian Dollar, ProShares
UltraShort Australian Dollar, and ProShares Short Australian Dollar
These Funds will be designed to track a multiple, the inverse or an
inverse multiple of the daily performance of the Australian dollar spot
price versus the U.S. dollar (``AUD/USD''). The Benchmark for each of
these Funds will be the U.S. dollar price of the Australian dollar.
These Funds will use the 4 p.m. Eastern Time (``E.T.'') Australian
Dollar exchange rate as provided by Bloomberg, expressed in terms of
U.S. dollars per unit of foreign currency, as the basis for the
underlying Benchmark. The Australian dollar is the national currency of
Australia and the currency of the accounts of the Reserve Bank of
Australia, the Australian central bank. The official currency code for
the Australian dollar is ``AUD.'' The Australian dollar is referred to
in Australia as ``dollar.'' As with U.S. currency, 100 Australian cents
are equal to one Australian dollar. In Australia, unlike most other
countries, cash transactions are rounded to the nearest five cents. The
most commonly used symbol used to represent the Australian dollar is
``A$.''
As of December 30, 2011, open interest in AUD/USD futures contracts
traded on the Chicago Mercantile Exchange (``CME'') was $11.56 billion.
AUD/USD futures contracts had an average daily trading volume in 2011
of 123,006 contracts.
ProShares UltraPro Canadian Dollar, ProShares UltraPro Short Canadian
Dollar, ProShares Ultra Canadian Dollar, ProShares UltraShort Canadian
Dollar, and ProShares Short Canadian Dollar
These Funds will be designed to track a multiple, the inverse or an
inverse multiple of the daily performance of the Canadian dollar spot
price versus the U.S. dollar (CAD/USD). The Benchmark for each of these
Funds will be the U.S. dollar price of the Canadian dollar. These Funds
will use the 4 p.m. E.T. Canadian dollar exchange rate as provided by
Bloomberg, expressed in terms of U.S. dollars per unit of foreign
currency, as the basis for the underlying Benchmark. The Canadian
Dollar is the national currency of Canada and the currency of the
accounts of the Bank of Canada, the Canadian central bank. The official
currency code for the Canadian dollar is ``CAD.'' As with U.S.
currency, 100 Canadian cents are equal to one Canadian dollar.
As of December 30, 2011, open interest in CAD/USD futures contracts
traded on CME was $11.66 billion. CAD/USD futures contracts had an
average daily trading volume in 2011 of 89,667 contracts.
ProShares UltraPro Swiss Franc, ProShares UltraPro Short Swiss Franc,
ProShares Ultra Swiss Franc, ProShares UltraShort Swiss Franc, and
ProShares Short Swiss Franc
These Funds will be designed to track a multiple, the inverse or an
inverse multiple of the daily performance of the Swiss franc spot price
versus the U.S. dollar (``CHF/USD''). The Benchmark for each of these
Funds will be the U.S. dollar price of the Swiss Franc. These Funds
will use the 4 p.m. E.T. Swiss franc exchange rate as provided by
Bloomberg, expressed in terms of U.S. dollars per unit of foreign
currency, as the basis for the underlying Benchmark. The Swiss franc is
the national currency of Switzerland and Liechtenstein and the currency
of the accounts of the Swiss National Bank, the central bank of
Switzerland. The official currency code for the Swiss franc is ``CHF.''
Each Swiss franc is equal to 100 Swiss centimes.
As of December 30, 2011, open interest in CHF/USD futures contracts
traded on CME was $4.99 billion. CHF/USD futures contracts had an
average daily trading volume in 2011 of 40,955 contracts.
ProShares UltraPro Euro, ProShares UltraPro Short Euro, and ProShares
Short Euro
These Funds will be designed to track a multiple, the inverse, or
an inverse multiple of the daily change in the spot price of the euro
versus the U.S. dollar (``EUR/USD''). The Benchmark for each of these
Funds will be the U.S. dollar price of the Euro. These Funds will use
the 4 p.m. E.T. Euro exchange rate as provided by Bloomberg, expressed
in terms of U.S. dollars per unit of foreign currency, as the basis for
the underlying Benchmark. The Euro is the official currency of the
Eurozone, which consists of 17 European states including: Austria,
Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia,
Slovenia, and Spain. The Euro is managed and administered by the
European Central Bank and the European System of Central Banks. As of
December 30, 2011, open interest in
[[Page 3535]]
EUR\USD futures contracts traded on CME was $46.12 billion. EUR\USD
futures contracts had an average daily trading volume in 2011 of
336,947 contracts.
ProShares UltraPro U.S. Dollar, ProShares UltraPro Short U.S. Dollar,
ProShares Ultra U.S. Dollar, ProShares UltraShort U.S. Dollar, and
ProShares Short U.S. Dollar
These Funds will be designed to track a multiple, the inverse or an
inverse multiple of the daily performance of their Benchmark, the U.S.
Dollar Index (``U.S. Dollar Index'' or ``Index'').\13\ The U.S. Dollar
Index is a geometrically-averaged calculation of six currencies
weighted against the U.S. dollar. The six component currencies are the
Euro, Japanese yen, British pound, Canadian dollar, Swedish krona and
Swiss franc. The component currencies do not have the same weight. The
Euro has a weighting of 57.6%, the Japanese yen a weighting of 13.6%,
the British pound a weighting of 11.9%, the Canadian dollar a weighting
of 9.1%, the Swedish krona a weighting of 4.2% and the Swiss franc a
weighting of 3.6%. The U.S. Dollar Index is calculated by Bloomberg in
real time approximately every 15 seconds using the spot prices of the
Index's component currencies. The price used for the calculation of the
Index is the mid-point between the Bloomberg top of the book bid/offer
in the component currencies.
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\13\ 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 (``USDX'' or ``U.S.
Dollar Index futures contracts'') were listed on November 20, 1985,
and are now available only on the IntercontinentalExchange (``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 addition to the data on EUR/USD, CAD/USD, CHF/USD and JPY/USD
futures contracts stated herein, as of December 30, 2011, open interest
in U.S. Dollar Index futures contracts traded on ICE was $5.44 billion.
U.S. Dollar Index futures contracts had an average daily trading volume
in 2011 of 30,341 contracts. Open interest in British pound (``GBP/
USD'') futures contracts traded on the CME was $19.59 billion, and GBP/
USD futures contracts had an average daily trading volume in 2011 of
116,115 contracts. Open interest in Swedish krona (``SEK/USD'') futures
contracts traded on the CME was $16.79 million, and SEK/USD futures
contracts had an average daily trading volume of 8 contracts.
ProShares UltraPro Yen, ProShares UltraPro Short Yen, and ProShares
Short Yen
These Funds will be designed to track a multiple, the inverse or an
inverse multiple of the daily performance of the Japanese yen spot
price versus the U.S. dollar (``JPY/USD''). The Benchmark for each of
these Funds will be the U.S. dollar price of the Japanese yen. These
Funds will use the 4 p.m. E.T. Japanese yen exchange rate as provided
by Bloomberg, expressed in terms of U.S. dollars per unit of foreign
currency, as the basis for the underlying Benchmark. The Japanese yen
has been the official currency of Japan since 1871. The Bank of Japan
has been operating as the central bank of Japan since 1882. The
official currency code for the Japanese yen is ``YEN.''
As of December 30, 2011, open interest in JPY/USD futures contracts
traded on the CME was $25.75 billion. JPY/USD futures contracts had an
average daily trading volume in 2011 of 113,476 contracts.
Benchmark Futures Contracts Held by the Funds
All open Benchmark Futures Contracts held by the Funds will be
traded on a United States exchange and will be calculated at their then
current market value, based upon the last traded price before the net
asset value (``NAV'') calculation time, for that particular futures
contract traded on the applicable United States exchange on the date
with respect to which NAV is being determined; provided, that if a
futures contract traded on a United States exchange could not be
liquidated on such day, due to the operation of daily limits or other
rules of the exchange upon which that position is traded or otherwise,
the Sponsor may in its sole discretion choose to determine a fair value
price as the basis for determining the market value of such position
for such day.
The Benchmark Futures Contracts trade on the follow exchanges:
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Benchmark futures
Fund benchmarks contracts Exchange \14\
------------------------------------------------------------------------
Australian dollar/US dollar AUD/USD........... CME
exchange rate.
Canadian dollar/US dollar CAD/USD........... CME
exchange rate.
European euro/US dollar EUR/USD........... CME
exchange rate.
Japanese yen/US dollar exchange JPY/USD........... CME
rate.
Swiss franc/US dollar exchange CHF/USD........... CME
rate.
US Dollar Index................ USDX.............. ICE
CAD/USD........... CME
CHF/USD........... CME
EUR/USD........... CME
GBP/USD........... CME
JPY/USD........... CME
SEK/USD........... CME
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The daily 4 p.m. E.T. closing value for each Benchmark is published
daily on www.wsj.com. The value of the Benchmarks will be disseminated
by one or more major market data vendors and will be updated at least
every 15 seconds during the Exchange's Core Trading Session. Data
regarding the Benchmarks is also available from the respective
Benchmark provider to subscribers.\15\
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\14\ Each Benchmark Futures Contract trades electronically for
21 or more hours each trading session, beginning every Sunday
evening and closing for the week on the following Friday evening.
\15\ ICE Futures U.S., Inc. compiles, maintains, determines and
weights the components of the U.S. Dollar Index. The U.S. Dollar
Index and USDX are trademarks and service marks of ICE Futures U.S.,
Inc. registered in the United States, Great Britain, the European
Union and Japan and used under license. ICE Futures U.S., Inc. is
not engaged in the business of trading in commodities or securities
but operates a derivatives exchange. ICE Futures U.S., Inc.
maintains a Code of Conduct applicable to all personnel that
prohibits disclosure of any confidential information obtained during
the course of one's employment and the use or disclosure of any
material non-public information relating to changes to the
composition of the U.S. Dollar Index or changes to the U.S. Dollar
Index methodology in violation of applicable laws, rules or
regulations.
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[[Page 3536]]
Net Asset Value
According to the Registration Statement, the NAV of each Fund will
be total assets including, but not limited to, all cash and cash
equivalents or other debt securities, less total liabilities, each
determined on the basis of generally accepted accounting principles. In
particular, the NAV will include any unrealized profit or loss on
Benchmark Futures Contracts and other Fund holdings, and any other
credit or debit accruing to a Fund but unpaid or not received by a
Fund.
The NAV per Share of each Fund will be computed by dividing the
value of the net assets of such Fund (i.e., the value of its total
assets, less total liabilities) by its total number of Shares
outstanding. Expenses and fees will be accrued daily and taken into
account for purposes of determining NAV. The NAV of each Fund will be
calculated by the Administrator and will be determined each business
day as described in the Registration Statement.
Creation and Redemption of Shares
According to the Registration Statement, the Funds will create and
redeem Shares from time to time, but only in one or more ``Creation
Units.'' A Creation Unit is a block of 50,000 Shares of a Fund.
Creation Units may be created or redeemed only by authorized
participants, as described in the Registration Statement. Except when
aggregated in Creation Units, the Shares will not be redeemable
securities. Authorized participants may pay a fixed and variable
transaction fee in connection with each order to create or redeem a
Creation Unit. Authorized participants may sell the Shares included in
the Creation Units they purchase from the Funds to other investors. On
any business day, an authorized participant may place an order with the
Distributor to create one or more Creation Units. An order to create or
redeem Shares must be placed by 3 p.m. E.T. 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.
According to the Registration Statement, the procedures by which an
authorized participant can redeem one or more Creation Units will
mirror the procedures for the purchase of Creation Units. On any
business day, an authorized participant may place an order with the
Distributor to redeem one or more Creation Units. Individual
shareholders may not redeem directly from a Fund.
By placing a redemption order, an authorized participant agrees to
deliver the Creation Units to be redeemed through DTC's book-entry
system to the applicable Fund not later than noon E.T., on the third
business day immediately following the redemption order date (T+3). The
redemption proceeds from a Fund 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, as
described in the Registration Statement.
Availability of Information Regarding the Shares
The Web site for the Funds (www.proshares.com) and/or the Exchange,
which are publicly accessible at no charge, will contain the following
information: (a) The current NAV per Share daily and the prior business
day's NAV per Share; (b) calculation of the premium or discount of the
closing market price against the NAV per Share; (c) the prospectus; and
(d) other applicable quantitative information.
The NAV per Share will be calculated and disseminated daily. One or
more major market data vendors will disseminate for the Funds on a
daily basis information with respect to the corresponding Indicative
Optimized Portfolio Value (``IOPV'') (as discussed below), recent NAV
per Share and Shares outstanding. The Exchange will also make available
on its Web site (www.nyse.com) daily trading volume of the Shares,
closing prices of the Shares, and the NAV per Share. The intraday
pricing and settlement values of the Benchmark Futures Contracts held
by the Funds are also available from the CME, the ICE, and other public
sources or on-line information services such as www.ino.com. Real-time
dissemination of spot pricing for the Australian dollar, Canadian
dollar, Swiss franc, Euro and Japanese yen and data for the U.S. Dollar
Index are available from various major market data vendors. Quotation
and last sale information for the Shares will be available via the
Consolidated Tape Association (``CTA'') high-speed line.
Portfolio Disclosure
Each Fund's total portfolio composition will be disclosed on the
Funds' Web site or another relevant Web site as determined by the Trust
and/or the Exchange. The Trust will provide Web site disclosure of
portfolio holdings daily and will include, as applicable, the
description and notional value (in U.S. dollars) of the Funds'
investments in Benchmark Futures Contracts and forward contracts, if
any, cash equivalents and amount of cash held in the portfolio of each
Fund. This public Web site disclosure of the portfolio composition of
each Fund will occur at the same time as the disclosure by the Sponsor
of the portfolio composition to authorized participants, so that all
market participants are provided portfolio composition information at
the same time. Therefore, the same portfolio information will be
provided on the public Web site as well as in electronic files provided
to authorized participants. Accordingly, each investor will have access
to the current portfolio composition of each Fund through the Funds'
Web site.
Dissemination of Net Asset Value and Indicative Optimized Portfolio
Value
The Administrator will calculate and disseminate, once each trading
day, the NAV per Share to market participants. The NAV calculation time
for each Fund will be 4 p.m. E.T. The Exchange will obtain a
representation (prior to listing of the Funds) from the Trust that the
NAV per Share will be calculated daily and made available to all market
participants at the same time. In addition, the Sponsor will cause to
be made available on a daily basis the total payment required to create
each Creation Unit of the applicable Fund on the purchase order date in
connection with the issuance of the respective Shares.
The IOPV relating to Shares of each Fund will be widely
disseminated by one or more major market data vendors at least every 15
seconds during the Core Trading Session.\16\ The IOPV will be an
indicator of the value of the investments and cash and receivables less
liabilities of a Fund at the time the IOPV is disseminated. The IOPV
will be calculated by NYSE Arca using the prior day's closing net
assets of each Fund as a base and updating throughout the Core Trading
Session changes in the value of Benchmark Futures Contracts and forward
contracts, if any, held by the Fund. The IOPV 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 IOPV also should not be viewed
as a precise value of the Shares.
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\16\ Currently, it is the Exchange's understanding that several
major market data vendors display and/or make widely available IOPV
published on CTA or other data feeds.
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[[Page 3537]]
Criteria for Initial and Continued Listing
The Funds will be subject to the criteria in NYSE Arca Equities
Rule 8.200 and Commentary .02 thereto for initial and continued listing
of the Shares.
The minimum number of Shares for each Fund to be outstanding at the
start of trading will be 100,000 Shares. The Exchange believes that
this minimum number of Shares for each Fund to be outstanding at the
start of trading is sufficient to provide adequate market liquidity and
to further the objectives of the Funds. The Exchange represents that,
for the initial and continued listing of the Shares, the Funds must be
in compliance with NYSE Arca Equities Rule 5.3 and Rule 10A-3 under the
Act.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T.\17\ 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.
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\17\ See NYSE Arca Equities Rule 7.34 regarding hours for the
NYSE Arca Opening, Core and Late Trading Sessions.
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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 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 Benchmark 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 \18\ or by the halt or suspension
of trading of the underlying Benchmark Futures Contracts.
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\18\ See NYSE Arca Equities Rule 7.12.
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The Exchange represents that the Exchange may halt trading during
the day in which an interruption to the dissemination of the IOPV, the
Benchmark value, or the value of the underlying Benchmark Futures
Contracts occurs. If the interruption to the dissemination of the IOPV,
the Benchmark value, or the value of the underlying Benchmark Futures
Contracts persists past the trading day in which it occurred, the
Exchange will halt trading no later than the beginning of the trading
day following the interruption. In addition, if the Exchange becomes
aware that the NAV with respect to the Shares is not disseminated to
all market participants at the same time, it will halt trading in the
Shares until such time as the NAV is available to all market
participants.
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 surveillance focuses on detecting
securities trading outside their normal patterns. When such situations
are detected, surveillance analysis follows and investigations are
opened, where appropriate, to review the behavior of all relevant
parties for all relevant trading violations.
The Exchange can obtain market surveillance information, including
customer identity information, with respect to transactions occurring
on the ICE and the CME in that these markets are members of the
Intermarket Surveillance Group (``ISG''). A list of ISG members is
available at www.isgportal.org.\19\
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\19\ The Exchange may obtain information regarding Benchmark
Futures Contracts from exchanges with which the Exchange has entered
into a surveillance sharing agreement or that are ISG members. The
Exchange notes that not all components of the portfolio for the
Funds may trade on markets that are members of ISG or with which the
Exchange has in place a comprehensive surveillance sharing
agreement.
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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 these securities, they must have a reasonable basis to believe that
(1) the recommendation is suitable for a customer given reasonable
inquiry concerning the customer's investment objectives, financial
situation, needs, and any other information known by such member, and
(2) the customer can evaluate the special characteristics, and is able
to bear the financial risks, of an investment in the Shares. In
connection with the suitability obligation, the Information Bulletin
will also provide that members must make reasonable efforts to obtain
the following information: (1) The customer's financial status; (2) the
customer's tax status; (3) the customer's investment objectives; and
(4) such other information used or considered to be reasonable by such
member or registered representative in making recommendations to the
customer.
In addition, FINRA has implemented increased sales practice and
customer margin requirements for FINRA members applicable to leveraged
exchange-traded funds (``ETFs'') (which include the Shares) and options
on leveraged ETFs, as described in FINRA Regulatory Notices 09-31 (June
2009), 09-53 (August 2009) and 09-65 (November 2009) (``FINRA
Regulatory Notices''). ETP Holders that carry customer accounts will be
required to follow the FINRA guidance set forth in the FINRA Regulatory
Notices.
As disclosed in the Registration Statement, the Funds will seek
[[Page 3538]]
leveraged, inverse, or leveraged inverse returns on a daily basis, and
the Funds will not seek to achieve their stated investment objective
over a period of time greater than one day because compounding prevents
the Funds from perfectly achieving such results. Accordingly, results
over periods of time greater than one day typically will not be a
leveraged multiple (+300% or +200%), the inverse (-100%) or a leveraged
inverse multiple (-200% or -300%) of the period return of the
applicable Benchmark and may differ significantly from these multiples.
The Exchange's Information Bulletin regarding the Funds, described
below, will provide information regarding the suitability of an
investment in the Shares, as stated in the Registration Statement.
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an Information Bulletin of the special characteristics
and risks associated with trading the Shares. Specifically, the
Information Bulletin will discuss the following: (1) The risks involved
in trading the Shares during the Opening and Late Trading Sessions when
an updated IOPV will not be calculated or publicly disseminated; (2)
the procedures for purchases and redemptions of Shares in Creation Unit
size (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 IOPV is
disseminated; (5) 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 (6) trading information.
In addition, the Information Bulletin will advise ETP Holders,
prior to the commencement of trading, of the prospectus delivery
requirements applicable to the Funds. The Exchange notes that investors
purchasing Shares directly from the Funds will receive a prospectus.
ETP Holders purchasing Shares from the Funds for resale to investors
will deliver a prospectus to such investors. The Information Bulletin
will reference the FINRA Regulatory Notices regarding sales practice
and customer margin requirements for FINRA members applicable to
leveraged ETFs and options on leveraged ETFs. The Information Bulletin
will also discuss any exemptive, no-action and interpretive relief
granted by the Commission from any rules under the Act.
In addition, the Information Bulletin will reference that the Funds
are subject to various fees and expenses described in the Registration
Statement. The Information Bulletin will also reference that the
Commodity Futures Trading Commission has regulatory jurisdiction over
the trading of Benchmark Futures contracts traded on U.S. markets.
The Information Bulletin will also disclose the trading hours of
the Shares of the Funds. The Bulletin will disclose that information
about the Shares of the Funds is publicly available on the Funds' Web
site.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \20\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\20\ 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 Benchmark Futures Contracts held by the Funds
are traded on CME and ICE, which are ISG members. Each Fund will seek
to achieve its investment objective by investing under normal market
conditions, in Benchmark Futures Contracts. In the event position
accountability rules or position limits are reached with respect to a
particular Benchmark Futures Contract, the Sponsor, may, in its
commercially reasonable judgment, cause the relevant Fund to obtain
exposure through over-the-counter forward contracts referencing the
particular exchange rate, index or index components, or invest in other
forward contracts not based on the particular exchange rate, if such
instruments tend to exhibit trading prices or returns that correlate
with the Benchmarks or any Benchmark Futures Contract and will further
the investment objective of a Fund. The intra-day futures prices,
closing price and settlement prices of the Benchmark Futures Contracts
held by the Funds are also available from the CME and ICE, as
applicable, automated quotation systems, published or other public
sources, or on-line information services. Quotation and last sale
information for the Shares will be available via CTA. Each Fund's total
portfolio composition will be disclosed on the Funds' Web site or
another relevant Web site.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that a large amount of information will be publicly available regarding
the Funds and the Shares, thereby promoting market transparency. Real-
time dissemination of spot pricing for the Australian dollar, Canadian
dollar, Swiss franc, Euro and Japanese yen and data for the U.S. Dollar
Index is available from various major market data vendors. 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 IOPV, recent NAV per Share and Shares outstanding. The
IOPV will be widely disseminated by one or more major market data
vendors at least every 15 seconds during the Core Trading Session.
Trading in Shares of the Funds will be halted if the circuit breaker
parameters in NYSE Arca Equities Rule 7.12 have been reached or because
of market conditions or for reasons that, in the view of the Exchange,
make trading in the Shares inadvisable. The Exchange may halt trading
during the day in which an interruption to the dissemination of the
IOPV, the Benchmark value or the value of the underlying Benchmark
Futures Contracts occurs. If the interruption to the dissemination of
the IOPV, the Benchmark value or the value of the underlying Benchmark
Futures Contracts persists past the trading day in which it occurred,
the Exchange will halt trading no later than the beginning of the
trading day following the interruption. In addition, if the Exchange
becomes aware that the NAV with respect to the Shares is not
disseminated to all market participants at the same time, it will halt
trading in the Shares until such time as the NAV is available to all
market participants.
[[Page 3539]]
Moreover, prior to the commencement of trading, the Exchange will
inform its ETP Holders in an Information Bulletin of the special
characteristics and risks associated with trading the Shares. The
Information Bulletin will also reference the FINRA Regulatory Notices
regarding sales practice and customer margin requirements for FINRA
members applicable to leveraged ETFs and options on leveraged ETFs.
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
additional types of exchange-traded products that will enhance
competition among market participants, to the benefit of investors and
the marketplace. As noted above, the Exchange has in place surveillance
procedures relating to trading in the Shares and may obtain information
via ISG from other exchanges that are members of ISG or with which the
Exchange has entered into a comprehensive surveillance sharing
agreement. In addition, as noted above, investors will have ready
access to information regarding the Funds' holdings, IOPV, and
quotation and last sale information for the Shares.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purposes of the Act.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period (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 email to [email protected]. Please include
File Number SR-NYSEArca-2012-04 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-2012-04. 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 (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 Section, 100 F Street,
NE., Washington, DC 20549-1090, on official business days between 10
a.m. and 3 p.m. Copies of the filing will also be available for
inspection and copying at the NYSE's principal office and on its
Internet Web site at www.nyse.com. 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-2012-04 and should be submitted on or before
February 14, 2012.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-1290 Filed 1-23-12; 8:45 am]
BILLING CODE 8011-01-P