[Federal Register Volume 77, Number 227 (Monday, November 26, 2012)]
[Notices]
[Pages 70500-70511]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-28525]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68257; File No. SR-BATS-2012-044]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing of Proposed Rule Change To Amend BATS Rule 14.11, Entitled 
``Other Securities,'' and To List and Trade Shares of Certain ProShares 
Products

November 19, 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 November 5, 2012, BATS Exchange, Inc. 
(``Exchange'' or ``BATS'') filed with the Securities and Exchange 
Commission (``Commission'') the proposed rule change as described in 
Items I, II, and III below, which Items have been substantially 
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 amend Rule 14.11, entitled ``Other 
Securities,'' to adopt new criteria for certain securities to be listed 
on the Exchange as Trust Issued Receipts (``TIRs''), as well as to list 
and trade shares of the following: ProShares Managed Futures Strategy; 
ProShares Commodity Managed Futures Strategy; and ProShares Financial 
Managed Futures

[[Page 70501]]

Strategy. The Exchange has also proposed to correct a reference stating 
that TIRs will trade on the Exchange until 4:00 p.m. Eastern Time 
(``E.T.'') to allow TIRs to trade until the end of the Exchange's after 
market session, which ends at 5:00 p.m. E.T. The Exchange has also 
proposed to make certain changes to conform to the listing rules of 
certain other exchanges and to make certain non-substantive changes and 
corrections to existing rule text.
    The text of the proposed rule change is available at the Exchange's 
Web site at http://www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of, and basis for, the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The 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
    The changes proposed in this filing will modify the Exchange's 
rules in order to allow listing of certain exchange traded products 
(``ETPs'') by adopting criteria based on existing criteria applicable 
to ETPs listed on NYSE MKT LLC (formerly the American Stock Exchange or 
``AMEX'') and NYSE Arca Equities, Inc. (``NYSE Arca''). Specifically, 
the Exchange proposes to modify Rule 14.11(f), which governs the 
listing of TIRs that are issued by a trust on the Exchange, in order to 
adopt new criteria for the listing of TIRs that invest in ``Investment 
Shares'' or ``Financial Instruments,'' as proposed to be defined 
herein. The addition of sub-paragraph (4) to Rule 14.11(f) is based on 
Commentary .07 of AMEX Rule 1202 and Commentary .02 of NYSE Arca Rule 
8.200 and is intended to accommodate possible future listing and 
trading of TIRs that invest in Investment Shares or Financial 
Instruments. Any new listing or trading of an issue of such TIRs will 
be subject to the approval of a proposed rule change by the Commission 
pursuant to Section 19(b)(2) of the Act and Rule 19b-4 thereunder. 
Capitalized terms that are otherwise undefined have the same meaning as 
those set forth under the Rules of the Exchange. The Exchange has also 
proposed to correct a reference stating that TIRs will trade on the 
Exchange until 4:00 p.m. E.T. to allow TIRs to trade until the end of 
the Exchange's after market session, which ends at 5:00 p.m. E.T. The 
Exchange has also proposed to make certain changes to conform to the 
listing rules of certain other exchanges and to make certain non-
substantive changes and corrections to existing rule text.
    Pursuant to this proposed rule change, the Exchange also proposes 
to list and trade shares (``Shares'') of the following: ProShares 
Managed Futures Strategy; ProShares Commodity Managed Futures Strategy; 
and ProShares Financial Managed Futures Strategy (each a ``Fund,'' and 
together, ``Funds'').\3\ Each Fund 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. serves as the 
administrator (``Administrator''), custodian, and transfer agent of the 
Funds. SEI Investments Distribution Co. serves as distributor of the 
Shares (``Distributor'').
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    \3\ See the Trust's Registration Statement on Form S-1, dated 
November 29, 2011, as amended (File No. 333-178212 (``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 shares of the Funds on NYSE Arca.\4\ In 
addition, the Commission has approved other exchange-traded investment 
products linked to the performance of underlying commodities and 
currencies.\5\
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    \4\ See Securities Exchange Act Release No. 66334 (February 6, 
2012), 77 FR 7219 (February 10, 2012) (SR-NYSEArca-2011-94) (order 
approving NYSE Arca listing and trading of the Funds). Although the 
Funds were approved for listing and trading on NYSE Arca, the Funds' 
Shares have never been traded on any national securities exchange.
    \5\ 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); 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); 58365 (August 14, 2008), 73 FR 
49522 (August 21, 2008) (order granting accelerated approval for 
NYSE Arca listing of four CurrencyShares Trusts); 63598 (December 
22, 2010), 75 FR 82106 (December 29, 2010) (SR-NYSEArca-2010-98) 
(order approving listing and trading on the NYSE Arca of WisdomTree 
Managed Futures Strategy Fund).
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Proposed Listing Rules
    The Exchange proposes to adopt the following definitions for 
purposes of sub-paragraph (f)(4) of Rule 14.11:
     The term ``Investment Shares'' will mean a security (a) 
that is issued by a trust, partnership, commodity pool or other similar 
entity that invests in any combination of futures contracts, options on 
futures contracts, forward contracts, commodities, swaps or high credit 
quality short-term fixed income securities or other securities; and (b) 
issued and redeemed daily at net asset value in amounts correlating to 
the number of receipts created and redeemed in a specified aggregate 
minimum number.
     The term ``futures contract'' is commonly known as a 
``contract of sale of a commodity for future delivery'' set forth in 
Section 2(a) of the Commodity Exchange Act.
     A ``forward contract'' is a contract between two parties 
to purchase and sell a specific quantity of a commodity at a specified 
price with delivery and settlement at a future date. Forward contracts 
are traded over-the-counter (``OTC'') and not listed on a futures 
exchange.
     The term ``Financial Instruments'' will mean 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.
    The proposed listing requirements include a designation 
requirement. Specifically, the proposed Rules provide that the Exchange 
may list and trade TIRs investing in Investment Shares or Financial 
Instruments and that each issue of a TIR based on a particular 
Investment Share or Financial Instrument shall be designated as a 
separate series and identified by a unique symbol.
    When the Exchange is the primary listing exchange for a trust that 
issues TIRs that invest in Investment Shares or Financial Instruments, 
the trust will be subject to the initial and continued listing criteria 
under proposed Rule 14.11(f)(4), as well as Rules 14.11(f)(1) and (2), 
as proposed to be amended. In particular, the proposed initial listing 
criteria provide that the Exchange will establish a minimum number of 
receipts required to be outstanding at the time of commencement of 
trading on the Exchange. The proposed continued listing criteria 
provide that the Exchange may consider delisting or removal from 
listing of such TIRs under any of the following circumstances:

[[Page 70502]]

     If following the initial twelve month period following the 
commencement of trading of the receipts, (1) the trust has more than 60 
days remaining until termination and there are fewer than 50 record 
and/or beneficial holders of TIRs for 30 or more consecutive trading 
days; (2) the trust has fewer than 50,000 receipts issued and 
outstanding; or (3) the market value of all receipts issued and 
outstanding is less than $1 million.
     If the level or value of an underlying index or portfolio 
is no longer calculated or available on at least a 15-second delayed 
basis or the Exchange stops providing a hyperlink on its Web site to 
any such asset or investment value.
     If the Intraday Indicative Value is no longer made 
available on at least a 15-second delayed basis.
     If such other event shall occur or condition exists which 
in the opinion of the Exchange makes further dealings on the Exchange 
inadvisable.
    In addition, the Exchange will remove TIRs from listing and trading 
upon termination of the trust. A trust may terminate in accordance with 
the provisions of the trust prospectus, which may provide for 
termination if the value of securities in the trust falls below a 
specified amount. The Exchange represents that it prohibits the initial 
and/or continued listing of any security that is not in compliance with 
Rule 10A-3 under the Exchange Act.\6\
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    \6\ 17 CFR 240.10A-3.
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    Further, the Exchange proposes to require that the term of a trust 
shall be as stated in the prospectus, however, such entity may be 
terminated earlier under such circumstances as may be specified in the 
prospectus.
    The Exchange also proposes to add the defined term ``Trustee'' to 
Rule 14.11(f)(1), along with applying the following requirements to the 
Trustee:
     The Trustee of a trust must be a trust company or banking 
institution having substantial capital and surplus and the experience 
and facilities for handling corporate trust business. In cases where, 
for any reason, an individual has been appointed as Trustee, a 
qualified trust company or banking institution must be appointed co-
trustee.
     No change is to be made in the Trustee of a listed issue 
without prior notice to and approval of the Exchange.
    The Exchange is also proposing to add new sub-paragraph 
(f)(4)(C)(v), which states that voting rights shall be as set forth in 
the applicable trust prospectus.
    In addition, the Exchange has proposed new sub-paragraph (D) to 
Rule 14.11(f)(4), which sets forth certain restrictions on Members 
acting as registered Market Makers in TIRs that invest in Investment 
Shares or Financial Instruments to facilitate surveillance. Rule 
14.11(f)(4)(D)(i) will require that any Member acting as a registered 
Market Maker in TIRs must file, with the Exchange, in a manner 
prescribed by the Exchange, and keep current a list identifying all 
accounts for trading the underlying physical asset or commodity, 
related futures or options on futures, or any other related 
derivatives, which the Member acting as registered Market Maker may 
have or over which it may exercise investment discretion. Rule 
14.11(f)(4)(D)(i) will prohibit any Member acting as registered Market 
Maker in the Trust Issued Receipts from trading in the underlying 
physical asset or commodity, related futures or options on futures, or 
any other related derivatives, in an account in which a Member acting 
as a registered Market Maker, directly or indirectly, controls trading 
activities, or has a direct interest in the profits or losses thereof, 
which has not been reported to the Exchange as required by the Rule.
    Adoption of Rule 14.11(f)(4)(D)(ii) will also ensure that Market 
Makers handling shares of TIRs provide the Exchange with such books, 
records, or other information pertaining to transactions by such entity 
or registered or non-registered employee affiliated with such entity 
for its or their own accounts in the underlying physical asset or 
commodity, related futures or options on futures, or any other related 
derivatives, as may be requested by the Exchange.
    As a general matter, the Exchange has regulatory jurisdiction over 
its Members and their associated persons, which includes any person or 
entity controlling a Member, as well as a subsidiary or affiliate of a 
Member that is in the securities business. A subsidiary or affiliate of 
a Member that does business only in commodities or futures contracts 
would not be subject to Exchange jurisdiction, but the Exchange could 
obtain information regarding the activities of such subsidiary or 
affiliate through surveillance sharing agreements with regulatory 
organizations of which such subsidiary or affiliate is a member.
    The Exchange has also proposed the adoption of Rule 14.11(f)(4)(E) 
related to limitation of liability. Specifically, neither the Exchange 
nor any agent of the Exchange shall have any liability for damages, 
claims, losses, or expenses caused by any errors, omissions, or delays 
in calculating or disseminating any applicable underlying asset or 
commodity value, the current value of the underlying asset or commodity 
if required to be deposited to the trust in connection with issuance of 
TIRs, net asset value, or other information relating to the purchase, 
redemption, or trading of TIRs, resulting from any negligent act or 
omission by the Exchange or any agent of the Exchange, or any act, 
condition, or cause beyond the reasonable control of the Exchange or 
its agent, including, but not limited to, an act of God; fire; flood; 
extraordinary weather conditions; war; insurrection; riot; strike; 
accident; action of government; communications or power failure; 
equipment or software malfunction; or any error, omission, or delay in 
the reports of transactions in an underlying asset or commodity.
    The Exchange has also proposed the adoption of Rule 14.11(f)(4)(F), 
which would require the Exchange to file separate proposals under 
Section 19(b) of the Act before listing and trading TIRs based on 
separate Investment Shares or Financial Instruments.
    In addition to the adoption of new sub-paragraph (f)(4) to Rule 
14.11, the Exchange proposes to make additional substantive 
modifications to Rule 14.11(f) in order to conform to AMEX and NYSE 
Arca rules related to TIRs, as described below.
    First, the Exchange proposes to delete current sub-paragraph 
(f)(2)(B) of Rule 14.11, which sets forth criteria that are not 
included in the equivalent TIRs rules of AMEX (AMEX Rule 1202) and NYSE 
Arca (NYSE Arca Rule 8.200). Sub-paragraph (f)(2)(B) of Exchange Rule 
14.11 governs eligibility of certain component securities that are 
issued by a company that has already been included as a component 
security in the applicable series of TIRs or has been received as part 
of a merger, consolidation, corporate combination, or other event. 
Rather than apply different criteria to such securities, the Exchange 
proposes to apply the criteria of sub-paragraph (f)(2)(G) of Rule 14.11 
(to be re-numbered as (f)(3)) to all component securities of a TIR 
listed on the Exchange. Further, as noted above, this change will help 
to align the Exchange's rules applicable to TIRs with the rules of AMEX 
and NYSE Arca, which should help to alleviate confusion amongst 
issuers.
    The Exchange also proposes to eliminate the requirement of current 
Rule 14.11(f)(2)(E)(iv) that the Exchange receive prior notice and 
provide approval before a change can be made to the trustee of a listed 
TIR. The Exchange is proposing this change in order to align the 
Exchange's rules with NYSE Arca Rule 8.200.

[[Page 70503]]

    Third, the Exchange proposes to eliminate the requirement in Rule 
14.11(f)(2)(F) that transactions in Trust Issued Receipts may only be 
made in round lots of 100 receipts or round lot multiples. As with the 
proposed changes above, this change will align the Exchange's rules 
with AMEX Rule 1202 and NYSE Arca Rule 8.200, which do not limit 
transactions in Trust Issued Receipts to round lots. Further, to the 
extent a specific Trust Issued Receipt should be limited to trading in 
round lots, the Exchange has general authority pursuant to Exchange 
Rule 11.2 to limit transactions accordingly.\7\
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    \7\ As set forth in Exchange Rule 11.2, ``[a]ll securities 
designated for trading are eligible for odd-lot, round-lot and 
mixed-lot executions, unless otherwise indicated by the Exchange or 
limited pursuant to [the Exchange's] Rules.''
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    The Exchange also proposes to:
     Capitalize ``Trust'' several times throughout Rule 
14.11(f) in order to make clear which references to Trust are a 
reference to the term defined in Rule 14.11(f)(1);
     Add a defined term ``Trustee'' to Rule 14.11(f)(1) and to 
capitalize the term Trustee throughout Rule 14.11(f) in order to make 
clear which references to Trustee are intended to refer to the defined 
term in Rule 14.11(f)(1);
     Add titles to Rules 14.11(f)(2)(C) and (D) in order to 
make the rules more clear;
     Remove the words ``a Trust upon which'' and ``is based'' 
from Rule 14.11(f)(2)(D)(ii) in order to clarify that the Exchange will 
consider the suspension of trading in or removal from listing of a 
series of TIRs rather than the Trust upon which a series of TIRs is 
based;
     Remove the words ``following requirements apply: (a) the'' 
from Rule 14.11(f)(2)(D)(iv) because they would be unnecessary as a 
result of the proposed deletion of subparagraph (b) from this section; 
and
     Add the word ``additional'' to Rule 14.11(f)(3) to clarify 
that the Exchange may approve a series of TIRs for listing and trading 
pursuant to Rule 19b-4(e) under the Act, provided that such TIRs 
satisfy the requirements in Rules 14.11(f)(1) and (2), as proposed to 
be amended, in addition to the requirements under subparagraph (f)(3) 
relating to component securities underlying such TIRs.
Trading Rules
    The Exchange deems the TIRs to be equity securities, thus rendering 
trading in the securities subject to the Exchange's existing rules 
governing the trading of equity securities. The TIRs will trade on the 
Exchange from 8:00 a.m. to 5:00 p.m. E.T. (Pre-Opening Session, Regular 
Trading Hours, and After Hours Trading Session). The Exchange has 
appropriate rules to facilitate transactions in the TIRs during all 
trading sessions. The minimum price increment for quoting and entry of 
orders in equity securities traded on the Exchange is $0.01, with the 
exception of securities that are priced less than $1.00, for which the 
minimum price increment for order entry is $0.0001.\8\
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    \8\ See Rule 11.11(a).
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Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the TIRs. The Exchange will halt trading in the TIRs under 
the conditions specified in BATS Rule 11.18. Trading may be halted 
because of market conditions or for reasons that, in the view of the 
Exchange, make trading in the TIRs inadvisable. These may include: (1) 
The extent to which trading is not occurring in the TIRs and/or the 
underlying asset or assets; or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. If any of the Intraday Indicative Value, the level 
of the underlying index, or the value of the underlying assets of the 
TIRs is not disseminated as required, the Exchange may halt trading 
during the day in which such interruption to the dissemination occurs. 
If an interruption to the dissemination of the Intraday Indicative 
Value, the level of the underlying index, or the value of the 
underlying assets of the TIRs 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 a series of the 
TIRs is not disseminated to all market participants at the same time, 
it will halt trading in such series until such time as the NAV is 
available to all market participants.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to address any concerns about the trading of the TIRs on the Exchange. 
Trading of the TIRs on the Exchange will be subject to the Exchange's 
surveillance procedures for derivative products. The Exchange may 
obtain information via the Intermarket Surveillance Group (``ISG'') 
from other exchanges who are members or affiliates of the ISG or with 
which the Exchange has entered into a comprehensive surveillance 
sharing agreement.\9\ The Exchange prohibits the distribution of 
material, non-public information by its employees.
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    \9\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com.
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Suitability
    Currently, BATS Rule 3.7 governs Recommendations to Customers, and 
Chapter III generally governs Rules of Fair Practice. Prior to the 
commencement of trading of any TIRs, the Exchange will remind its 
Members of the suitability requirements of BATS Rule 3.7 in an 
Information Circular. Specifically, Rule 3.7 provides that, in 
recommending transactions in these securities, a Member must have 
reasonable grounds for believing 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 securities. In connection with the 
suitability obligation, the Information Circular will also provide that 
Members must make reasonable efforts to obtain the following 
information: (1) The customer's other securities holdings; (2) the 
customer's financial situation and needs; (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 inverse, 
leveraged, and inverse leveraged securities and options on such 
securities, as described in FINRA Regulatory Notices 09-31 (June 2009), 
09-53 (August 2009) and 09-65 (November 2009) (together, ``FINRA 
Regulatory Notices''). Members that carry customer accounts will be 
required to follow the FINRA guidance set forth in the FINRA Regulatory 
Notices. The Information Circular will reference the FINRA Regulatory 
Notices regarding sales practice and customer margin requirements for 
FINRA members applicable to inverse, leveraged, and inverse leveraged 
securities and options on such securities.
    The Exchange notes that, for inverse, leveraged, and inverse 
leveraged securities, the corresponding funds seek leveraged, inverse, 
or leveraged inverse

[[Page 70504]]

returns on a daily basis, and do 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 (+200%), the inverse (-100%) 
or a leveraged inverse multiple (-200%) of the period return of the 
applicable benchmark and may differ significantly from these multiples. 
The Exchange's Information Circular, as well as the applicable 
registration statement, will provide information regarding the 
suitability of an investment in such securities.
Description of the Shares and the Funds
    According to the Registration Statement, the Funds will seek to 
provide investment results (before fees and expenses) that correspond 
to the performance of the S&P Dynamic Futures Index (``DFI'' or 
``Index'') or to a sub-index of the Index (``Sub-Index''). The 
ProShares Managed Futures Strategy will seek to provide investment 
results (before fees and expenses) that correspond to the performance 
of the DFI. The ProShares Commodity Managed Futures Strategy will seek 
to provide investment results (before fees and expenses) that 
correspond to the performance of the S&P Dynamic Commodities Futures 
Index (``DCFI''), a Sub-Index of the DFI. The ProShares Financial 
Managed Futures Strategy will seek to provide investment results 
(before fees and expenses) that correspond to the performance of the 
S&P Dynamic Financial Futures Index (``DFFI''), another Sub-Index of 
the DFI.
    As mentioned above, the Commission has previously approved the 
listing and trading of the Funds on the NYSE Arca.\10\ Since approving 
the listing and trading of the Funds on NYSE Arca, the structure of the 
Index and its Sub-Indexes have not changed and the underlying 
components remain the same, however, the following changes in 
administering the Index have occurred:
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    \10\ See Securities Exchange Act Release No. 66334 (February 6, 
2012), 77 FR 7219 (February 10, 2012) (SR-NYSEArca-2011-94) (order 
approving NYSE Arca listing and trading of the Funds).
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     Rebalancing and positioning now occur on a component by 
component basis, rather than by sector;
     energy components can now be held in long or short 
positions, rather than just long or flat (as further described herein); 
\11\ and
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    \11\ As previously approved, all sectors other than energy could 
go long and short.
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     components are set to their annual weights on a monthly 
basis, as opposed to the previous sector structure in which the 
component weights floated throughout the year within the sector 
weights, which were reset monthly.
Other than the foregoing changes, no other aspect of the Index or Sub-
Indexes is changing.
    The Index and each Sub-Index were developed by Standard & Poor's 
and are long/short rules-based investable indexes designed to attempt 
to capture the economic benefit derived from both rising and declining 
trends in futures prices.\12\ The Index is composed of unleveraged 
positions in U.S. exchange-traded futures contracts on sixteen 
different tangible commodities (``Commodity Futures Contracts''), as 
well as U.S. exchange-traded futures contracts on eight different 
financials, such as major currencies and U.S. Treasury securities 
(``Financial Futures Contracts'' and together with the Commodity 
Futures Contracts, ``Index Components'').\13\ Commodity Futures 
Contracts and Financial Futures Contracts each comprise a Sub-Index of 
the Index: the DCFI and the DFFI, respectively (together, ``Sub-
Indexes'').
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    \12\ Standard & Poor's is not a broker-dealer, is not affiliated 
with a broker-dealer, and has implemented procedures designed to 
prevent the use and dissemination of material, non-public 
information regarding the Index and Sub-Indexes.
    \13\ The Index Components are traded on the Chicago Mercantile 
Exchange, Inc. (``CME''), COMEX (a division of CME), Chicago Board 
of Trade (``CBOT,'' a division of CME), NYMEX (a division of CME), 
and ICE Futures US (``ICE'') (collectively, ``Futures Exchanges'').
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    Previously, the Index and the DCFI were designed such that the 
energy components would only be set long or flat (i.e., zero weight), 
rather than long or short. The rationale for this rule was the 
heightened potential for significant losses in the event of a supply 
disruption of certain energy markets. The Index and the DCFI have been 
redesigned to allow energy components to be set long or short. The 
primary considerations in this determination were:
     Potential losses are mitigated by the limited weight 
attributable to any single energy component.
     The magnitude of energy market price movements during 
previous major market supply disruptions (e.g., the Gulf Wars) does not 
support restricting short energy positions.
    In order to achieve the investment objective of the Funds, the 
Sponsor will invest in: (i) Exchange-traded futures contracts of the 
type comprising the Index or Sub-Indexes, as applicable (``Futures 
Contracts''); \14\ and/or (ii) under limited circumstances (as further 
described herein), swap agreements whose value is derived from the 
level of the Index, a Sub-Index, one or more Index Components, or, in 
the case of currency-based Financial Futures Contracts, the exchange 
rates underlying such Financial Futures Contracts, or invest in other 
futures contracts or swaps if such instruments tend to exhibit trading 
prices or returns that correlate with the Index or Sub-Indexes or any 
Index Component and will further the investment objective of the 
Fund.\15\ Each Fund may also invest in cash or cash equivalents such as 
U.S. Treasury securities or other high credit quality short-term fixed-
income or similar securities (including shares of money market funds, 
bank deposits, bank money market accounts, certain variable rate-demand 
notes, and repurchase agreements collateralized by government 
securities) for direct investment or as collateral for the Futures 
Contracts or swap agreements. The Sponsor does not expect that the 
Funds will be invested directly in any commodity or currency.
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    \14\ Futures Contracts will be the same type of contracts as the 
Index Components, but the expiration dates of such Futures Contracts 
may differ from the expiration dates of the Index Components at any 
given point in time.
    \15\ Terms relating to the Funds and the Shares that are 
referred to, but not defined herein, are defined in the Registration 
Statement.
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    According to the Registration Statement, each Fund will seek to 
achieve its investment objective by investing, under normal market 
circumstances,\16\ in exchange-traded Futures Contracts. In the event 
position accountability rules or position limits with respect to a 
Futures Contract are reached with respect to a Fund, the Sponsor may, 
in its commercially reasonable judgment, cause such Fund to obtain 
exposure through swaps whose value is derived from the level of the 
Index, a Sub-Index, one or more Index Components, or, in the case of 
currency-based Financial Futures Contracts, the exchange rates 
underlying such Financial Futures Contracts or invest in other futures 
contracts or swaps if such instruments tend to exhibit trading prices 
or returns that correlate with the Index, the Sub-Indexes, or any Index 
Component and will further the investment objective of

[[Page 70505]]

the Funds.\17\ The Funds may also invest in swaps if the market for a 
specific Futures Contract experiences emergencies (e.g., natural 
disaster, terrorist attack, or an act of God) or disruptions (e.g., a 
trading halt or a flash crash) that would prevent the Funds from 
obtaining the appropriate amount of investment exposure to the affected 
Futures Contracts or other futures contracts directly.\18\
---------------------------------------------------------------------------

    \16\ The term ``under normal market circumstances'' 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.
    \17\ To the extent practicable, the Funds will invest in swaps 
cleared through the facilities of a centralized clearing house.
    \18\ 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.
---------------------------------------------------------------------------

The Index and the Sub-Indexes
    The Index is composed of the Index Components, representing 
unleveraged long or short positions in U.S. exchange-traded futures 
contracts in the commodity and financial markets.\19\ Index Components 
are chosen based on fundamental characteristics and liquidity. The 
Commodity Futures Contracts comprise the DCFI as described below, and 
the Financial Futures Contracts comprise the DFFI, as described below.
---------------------------------------------------------------------------

    \19\ As set forth in the Index weighting scheme example below, 
the commodity portion of the Index consists of multiple commodities 
(e.g., Energy, Industrial Metals) and each commodity is assigned a 
percentage weight. Similarly, the financial markets portion of the 
Index consists of multiple foreign currency and U.S. Treasury 
sectors (e.g., Australian dollar, U.S. Treasury Notes), each with an 
assigned component weight.
---------------------------------------------------------------------------

    Weightings of the Commodity Futures Contracts are based on 
generally known world production levels, as adjusted to limit the 
impact of the energy-related Index Components. Weightings of the 
Financial Futures Contracts are based on, but not directly proportional 
to, gross domestic product (``GDP'').
    The positions the Index (and accordingly, each Sub-Index) takes in 
the Index Components are not long-only, but are set by component, long 
or short based on the relation of the current price input of each Index 
Component with a seven-month weighted moving average of the price 
inputs of the same Index Component.
    The following charts reflect the initial 2012 weighting schemes for 
the Index and each Sub-Index. For the Index, the initial Index weights, 
together with information about the exchange and trading hours for each 
Futures Contract, are as follows:

                                                                      Index Weights
--------------------------------------------------------------------------------------------------------------------------------------------------------
                           Weight                              Weight                              Weight
       Sub-Index         (percent)           Sector          (percent)         Component         (percent)          Exchange         Trading Hours \20\
--------------------------------------------------------------------------------------------------------------------------------------------------------
DCFI..................           50  Energy...............        15.06  Light Crude..........        10.93  NYMEX (CME)..........  6:00 p.m.-5:15 p.m.
                                                                                                                                     next day.
                                                                         Heating Oil..........         1.79  NYMEX (CME)..........  6:00 p.m.-5:15 p.m.
                                                                                                                                     next day.
                                                                         RBOB Gasoline........         1.74  NYMEX (CME)..........  6:00 p.m.-5:15 p.m.
                                                                                                                                     next day.
                                                                         Natural Gas..........         0.59  NYMEX (CME)..........  6:00 p.m.-5:15 p.m.
                                                                                                                                     next day.
                                     Industrial Metals....         4.67  Copper...............         4.67  COMEX (CME)..........  6:00 p.m.-5:15 p.m.
                                                                                                                                     next day.
                                     Precious Metals......         5.09  Gold.................         4.36  COMEX (CME)..........  6:00 p.m.-5:15 p.m.
                                                                                                                                     next day.
                                                                         Silver...............         0.72  COMEX (CME)..........  6:00 p.m.-5:15 p.m.
                                                                                                                                     next day.
                                     Livestock............         6.02  Lean Hogs............         2.12  CME..................  ** \21\
                                                                         Live Cattle..........         3.90  CME..................  ** \22\
                                     Grains...............        13.33  Corn.................         6.20  CBOT (CME)...........  6:00 p.m.-3:00 p.m.
                                                                                                                                     next day.
                                                                         Soybeans.............         3.16  CBOT (CME)...........  6:00 p.m.-3:00 p.m.
                                                                                                                                     next day.
                                                                         Wheat................         3.97  CBOT (CME)...........  6:00 p.m.-3:00 p.m.
                                                                                                                                     next day.
                                     Softs................         5.83  Coffee...............         1.23  ICE..................  3:30 am-2:00 p.m.
                                                                         Cocoa................         0.31  ICE..................  4:00 am-2:00 p.m.
                                                                         Sugar................         2.67  ICE..................  2:30 am-2:00 p.m.
                                                                         Cotton...............         1.63  ICE..................  9:00 p.m.-2:30 p.m.
                                                                                                                                     next day.
DFFI..................           50  Australian Dollar....         1.61  Australian Dollar....  ...........  CME..................  6:00 p.m.-5:15 p.m.
                                                                                                                                     next day.
                                     British Pound........         3.01  British Pound........  ...........  CME..................  6:00 p.m.-5:15 p.m.
                                                                                                                                     next day.
                                     Canadian Dollar......         2.05  Canadian Dollar......  ...........  CME..................  6:00 p.m.-5:15 p.m.
                                                                                                                                     Next day.
                                     Euro.................        16.49  Euro.................  ...........  CME..................  6:00 p.m.-5:15 p.m.
                                                                                                                                     Next day.
                                     Japanese Yen.........         7.09  Japanese Yen.........  ...........  CME..................  6:00 p.m.-5:15 p.m.
                                                                                                                                     Next day.
                                     Swiss Franc..........         0.66  Swiss Franc..........  ...........  CME..................  6:00 p.m.-5:15 p.m.
                                                                                                                                     Next day.
                                     U.S. Treasury Notes           9.54  U.S. Treasury Notes..  ...........  CBOT (CME)...........  6:00 p.m.-5:00 p.m.
                                      \23\.                                                                                          Next day.
                                     U.S. Treasury Bonds           9.54  U.S. Treasury Bonds..  ...........  CBOT (CME)...........  6:00 p.m.-5:00 p.m.
                                      \24\.                                                                                          Next day.
                       ---------------------------------------------------------------------------------------------------------------------------------
n,sn,sn;
[[Page 70506]]

 
    Totals............          100  .....................          100  .....................          100
--------------------------------------------------------------------------------------------------------------------------------------------------------
\20\ All times are E.T., inclusive of electronic and open outcry trading sessions, as applicable.
\21\ Lean Hogs trade from 10:05 a.m. Monday to 2:55 p.m. Friday, with daily trading halts from 5:00 p.m. to 6:00 p.m.
\22\ Live Cattle trade from 10:05 a.m. Monday to 2:55 p.m. Friday, with daily trading halts from 5:00 p.m. to 6:00 p.m.
\23\ ``U.S. Treasury Notes'' refer to 10 year U.S. Treasury Note futures.
\24\ ``U.S. Treasury Bonds'' refer to those futures with underlying bonds of a remaining term to call or maturity of 15-25 years.

    For the DCFI, the initial Sub-Index weightings would be as follows:

                                                  DCFI Weights
----------------------------------------------------------------------------------------------------------------
                   Sector                     Weight (percent)            Component             Weight (percent)
----------------------------------------------------------------------------------------------------------------
Energy.....................................              30.12  Light Crude..................              21.86
                                                                Heating Oil..................               3.58
                                                                RBOB Gasoline................               3.49
                                                                Natural Gas..................               1.19
Industrial Metals..........................               9.34  Copper.......................               9.34
Precious Metals............................              10.18  Gold.........................               8.73
                                                                Silver.......................               1.45
Livestock..................................              12.04  Lean Hogs....................              4.24%
                                                                Live Cattle..................               7.80
Grains.....................................              26.67  Corn.........................              12.41
                                                                Soybeans.....................               6.31
                                                                Wheat........................               7.95
Softs......................................              11.67  Coffee.......................               2.45
                                                                Cocoa........................               0.62
                                                                Sugar........................               5.34
                                                                Cotton.......................               3.26
                                            --------------------------------------------------------------------
    Total..................................                100  .............................                100
----------------------------------------------------------------------------------------------------------------

    Finally, for the DFFI, the initial Sub-Index weightings would be as 
follows:

                                                  DFFI Weights
----------------------------------------------------------------------------------------------------------------
                   Sector                     Weight (percent)            Component             Weight (percent)
----------------------------------------------------------------------------------------------------------------
Australian Dollar..........................               3.23  Australian Dollar............               3.23
British Pound..............................               6.02  British Pound................               6.02
Canadian Dollar............................               4.10  Canadian Dollar..............               4.10
Euro.......................................              32.99  Euro.........................              32.99
Japanese Yen...............................              14.17  Japanese Yen.................              14.17
Swiss Franc................................               1.33  Swiss Franc..................               1.33
U.S. Treasury Notes........................              19.08  U.S. Treasury Notes..........              19.08
U.S. Treasury Bonds........................              19.08  U.S. Treasury Bonds..........              19.08
                                            --------------------------------------------------------------------
    Total..................................                100  .............................                100
----------------------------------------------------------------------------------------------------------------

    Index Components are rebalanced each month to their annually 
determined weights.
Determining the Long/Short Positioning of the Index Components
    The rules for the Index and each Sub-Index regarding long or short 
positions are summarized as follows:
     Long positions are tracked when an Index Component's 
current one-month price change is greater than or equal to the 
exponential weighted average of the past seven monthly price inputs; 
and
     Short positions are tracked when an Index Component's 
current one-month price change is less than the exponential weighted 
average of the past seven monthly price inputs.
    Monthly long or short positions are determined on the second to 
last DFI business day of the month (defined as the position 
determination date, or PDD) when the monthly percentage change of an 
Index Component's price is compared to past monthly price changes, 
exponentially weighted to give greatest weight to the most recent 
return and least weight to the return seven months prior. The weighted 
sum of the percentage changes of all the Index Component prices equals 
the daily movement of the Index.
    To create an exponential average for comparison, price inputs 
(percentage change from current and previous PDDs)

[[Page 70507]]

are weighted per the schedule below. Due to this weighting methodology, 
current price movements are more important than those of the more 
distant past.

------------------------------------------------------------------------
                                                              Weight
                    Number of Months                         (percent)
------------------------------------------------------------------------
7.......................................................            2.32
6.......................................................            3.71
5.......................................................            5.94
4.......................................................            9.51
3.......................................................           15.22
2.......................................................           24.34
1.......................................................           38.95
                                                         ---------------
    Total...............................................          100.00
------------------------------------------------------------------------

    All the Index Components will be set long or short upon each 
monthly rebalancing.
Index Component Rebalancing
    Index Component weights are fixed each year and rebalanced back to 
their annual base weight monthly.
    During this monthly rebalancing, the Index will also ``roll'' 
certain of its positions from the current contract to a contract 
further from settlement.\25\
---------------------------------------------------------------------------

    \25\ The Index is composed of Index Components, which are 
futures contracts. In order to maintain consistent exposure to the 
Index Components, each Index Component contract must be sold prior 
to its expiration date and replaced by a contract maturing at a 
specified date in the future. This process is known as rolling. 
Index Component contracts are rolled periodically. The rolls are 
implemented pursuant to a roll schedule over a five-day period from 
the first through the fifth Index business days of the month. An 
Index business day is any day on which the majority of the Index 
Components are open for official trading and official settlement 
prices are provided, excluding holidays and weekends.
---------------------------------------------------------------------------

Net Asset Value
    The NAV in respect of each Fund means the total assets of such Fund 
including, but not limited to, all cash and cash equivalents or other 
debt securities less total liabilities of such Fund, each determined on 
the basis of generally accepted accounting principles in the United 
States, consistently applied under the accrual method of accounting. In 
particular, NAV will include any unrealized profit or loss on open 
Futures Contracts and other holdings, if any, and any other credit or 
debit accruing to a Fund but unpaid or not received by such 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 for the Funds will be calculated daily by the 
Administrator at 3:00 p.m. E.T. and will be disseminated daily to 
market participants.
    In calculating the NAV of each Fund, all open Futures Contracts 
will be calculated at their then current market value, as described in 
the Registration Statement. The current market value of all open 
Futures Contracts, to the extent applicable, will be based upon the 
settlement price for that particular Futures Contract on the date with 
respect to which NAV is being determined, as described in the 
Registration Statement.
    The settlement value of a Fund's swap agreements, as applicable, 
will be determined by applying the then-current disseminated value for 
the applicable Index Components to the terms of the Funds' swap 
agreements.
    In the event that an underlying Index Component is not trading due 
to the operation of daily limits or otherwise, the Sponsor may in its 
sole discretion choose to fair value the applicable Index or Sub-Index 
level in order to value a Fund's futures contracts and, if applicable, 
swap agreements for purposes of NAV calculation.
    The Exchange will obtain a representation (prior to listing of each 
Fund) from the Trust that the NAV per Share will be calculated daily 
and made available to all market participants at the same time.
Intraday Indicative Value
    An estimated value, defined in BATS Rule 14.11(i)(3)(C) as the 
``Intraday Indicative Value'' or ``IIV'' that reflects a current 
estimated intraday value of Futures Contracts and other applicable 
holdings, cash and receivables, less liabilities of each Fund, will be 
disseminated.
    For each Fund, the IIV will be widely disseminated on a per Share 
basis by one or more major market data vendors every 15 seconds during 
``Regular Trading Hours'' (9:30 a.m. to 4:00 p.m. E.T.).\26\ The value 
of a Share may be influenced by non-concurrent trading hours between 
the Exchange and the applicable Futures Exchanges trading Futures 
Contracts when the Shares are traded on the Exchange after normal 
trading hours of such Futures Exchanges. The IIV will be updated during 
Regular Trading Hours when applicable Futures Exchanges are trading any 
Futures Contracts held by the Funds. However, the IIV that will be 
disseminated between 11:50 a.m. E.T. and the end of Regular Trading 
Hours will be impacted by static values for certain Futures 
Contracts.\27\ For each Fund, the IIV will be calculated throughout 
Regular Trading Hours using the prior day's closing NAV of such Fund as 
a base and updating throughout the trading day changes in the value of 
each Fund's Futures Contracts, cash equivalents, swap agreements, if 
applicable, and other applicable holdings. The IIV should not be viewed 
as an actual real-time update of the NAV because NAV is calculated only 
once each trading day at 3:00 p.m. E.T. The IIV also should not be 
viewed as a precise value of the Shares.
---------------------------------------------------------------------------

    \26\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available IIVs 
published on CTA or other data feeds.
    \27\ The value of the IIV will be based on the underlying 
Futures Contracts. Once a particular Futures Contract settles, a 
static closing value for that Futures Contract will be used to 
calculate the IIV, which will continue to update based on any other 
futures contracts that have not reached their settlement time.
---------------------------------------------------------------------------

    According to the Registration Statement, dissemination of the IIV 
provides additional information that is not otherwise available to the 
public in such form and may be useful to investors and market 
professionals in connection with the trading of Shares.
Creation and Redemption of Shares
    According to the Registration Statement, each Fund 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. 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. The Sponsor will make 
available on a daily basis the total cash payment required to create 
each Creation Unit of a Fund on the purchase order date in connection 
with the issuance of the respective Shares. Authorized participants may 
pay a fixed and/or 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 prior to 10:45 a.m. E.T. with the 
Distributor to create one or more Creation Units. The total payment 
required to create each Creation Unit will be equal to 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

[[Page 70508]]

or more Creation Units will mirror the procedures for the creation of 
Creation Units. On any business day, an authorized participant may 
place an order prior to 10:45 a.m. E.T. with the Distributor to redeem 
one or more Creation Units. Individual shareholders may not redeem 
directly from a Fund.
    By placing a redemption order, an authorized participant agrees to 
deliver the Creation Units to be redeemed through the Depository Trust 
Company's book-entry system to a Fund not later than noon E.T., on the 
first business day immediately following the redemption order date 
(T+1). The Sponsor reserves the right to extend the deadline for the 
Fund to receive the Creation Units up to the third business day 
following the redemption order date (T+3). The redemption proceeds from 
a Fund will consist of the cash redemption amount. The cash redemption 
amount is an amount equal to the NAV of the number of Creation Unit(s) 
of a Fund requested in the authorized participant's redemption order as 
of the time of the calculation of the 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 between 
the NAV per Share and the price or mid-point of the Bid/Ask Price of 
the Funds as of the time the NAV is calculated or as of the official 
market close; (c) the prospectus; and (d) other applicable quantitative 
information.
    The Exchange also will disseminate on a daily basis via the 
Consolidated Tape Association (``CTA'') information with respect to the 
recent NAV and Shares outstanding. The Exchange will also make 
available on its Web site (www.batstrading.com) daily trading volume of 
the Shares. Daily trading volume information will also be available in 
the financial section of newspapers, their related Web sites or other 
financial Web sites, through subscription services such as Bloomberg, 
Thomson Reuters, and International Data Corporation, which can be 
accessed by authorized participants and other investors, as well as 
through other electronic services, including major public Web sites. 
The intra-day, closing, and settlement prices of the Futures Contracts 
are also readily available, as applicable, from the respective Futures 
Exchanges. Quotation and last-sale information for the Shares will be 
available via the CTA high-speed line.
Portfolio Disclosure
    Each Fund's total portfolio composition will be disclosed on such 
Fund's Web site or another relevant Web site as determined by the Trust 
and/or the Exchange. The Trust will provide Web site disclosure of 
portfolio holdings daily and will include, as applicable, the names, 
notional value (in U.S. dollars) and number of Futures Contracts or 
units of swaps held by a Fund, if any, cash equivalents, and the amount 
of cash held in the portfolio of each Fund. This public Web site 
disclosure of the portfolio composition of the Funds will occur at the 
same time as the disclosure by the Sponsor of the portfolio composition 
to authorized participants, so that all market participants are 
provided portfolio composition information at the same time. Therefore, 
the same portfolio information will be provided on the public Web site 
as well as in electronic files provided to authorized participants. 
Accordingly, each investor will have access to the current portfolio 
composition of the Funds through the Funds' Web site, and/or at the 
Exchange's Web site.
Availability of Information About the Index and Sub-Indexes
    The daily closing Index level and the percentage change in the 
daily closing Index level for the Index and each Sub-Index will be 
publicly available from one or more major market data vendors. Data 
regarding the Index and each Sub-Index, updated every 15 seconds during 
Regular Trading Hours, is also available from Standard & Poor's on a 
subscription basis. Several independent data vendors also package and 
disseminate Index and Sub-Index data in various value-added formats 
(including vendors displaying both Index constituents and Index levels 
and vendors displaying Index levels only). Data regarding the Index 
Components is also available from the Web sites of the Futures 
Exchanges. Data regarding the commodities, currencies, and Treasury 
securities underlying the Index Components is publicly available from 
various financial information service providers.
Criteria for Initial and Continued Listing
    The Funds will be subject to the criteria proposed above in BATS 
Rule 14.11(f)(4) for initial and continued listing of the Shares.
    The anticipated minimum number of Shares for each Fund to be 
outstanding at the start of trading will be 100,000 Shares. The 
Exchange believes that this anticipated 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 each 
Fund. The Exchange represents that, for the initial and continued 
listing of the Shares, the Funds must be in compliance with Rule 
14.11(f)(4) as well as Rule 10A-3 under the Act.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. The Exchange will halt trading in the Shares 
under the conditions specified in BATS Rule 11.18. 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 
futures contracts and/or the financial instruments comprising the 
Funds; or (2) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present. If any of the Intraday Indicative Value, the level of the 
underlying index, or the value of the underlying assets of the TIRs is 
not being disseminated as required, the Exchange may halt trading 
during the day in which such interruption to the dissemination occurs. 
If an interruption to the dissemination of the Intraday Indicative 
Value, the value of the underlying index, or the value of the 
underlying assets of the TIRs 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 is not disseminated to all market 
participants at the same time, it will halt trading until such time as 
the NAV is available to all market participants.
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. BATS will allow 
trading in the Shares during Regular Trading Hours, as well as during 
the Pre-Opening Session \28\ and the After

[[Page 70509]]

Hours Trading Session.\29\ The Exchange has appropriate rules to 
facilitate transactions in the Shares during all trading sessions. As 
provided in BATS Rule 11.11(a), the minimum price variation for quoting 
and entry of orders in TIRs traded on the Exchange is $0.01, with the 
exception of securities that are priced less than $1.00 for which the 
minimum price variation for order entry is $0.0001. Trading of the 
Shares will also be subject to proposed BATS Rule 14.11(f)(4)(D), which 
sets forth certain restrictions on Members acting as market makers.
---------------------------------------------------------------------------

    \28\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. E.T.
    \29\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. E.T.
---------------------------------------------------------------------------

Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of the Shares on the Exchange during 
all trading sessions and to deter and detect violations of Exchange 
rules and the applicable federal securities laws. Trading of the Shares 
through the Exchange will be subject to the Exchange's surveillance 
procedures for derivative products, including TIRs. The Exchange can 
obtain market surveillance information, including customer identity 
information, with respect to transactions occurring on the Futures 
Exchanges, all of which are currently members of ISG.\30\ In addition, 
for components traded on exchanges, not more than 10% of the weight of 
a Fund's portfolio 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. Finally, all Futures Contracts will be traded on a trading 
market that is a member of ISG or is a market with which the Exchange 
has a comprehensive surveillance sharing agreement. The Exchange also 
prohibits the distribution of material, non-public information by its 
employees.
---------------------------------------------------------------------------

    \30\ The Exchange notes that certain components of the portfolio 
for the Funds may not trade on markets that are members of ISG or 
with which the Exchange has in place a comprehensive surveillance 
sharing agreement.
---------------------------------------------------------------------------

Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) BATS Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value is disseminated; (4) the risks involved 
in trading the Shares during the Pre-Opening and After Hours Trading 
Sessions when an updated Intraday Indicative Value will not be 
calculated or publicly disseminated; (5) the requirement that members 
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 Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Funds. Members purchasing Shares from the Funds for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action, and 
interpretive relief granted by the Commission from any rules under the 
Act.
    In addition, the Information Circular will reference that the Funds 
are subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares and the applicable NAV calculation time for the 
Shares. The Information Circular will disclose that information about 
the Shares of the Funds will be publicly available on the Funds' Web 
site.
2. Statutory Basis
    The rule change proposed in this submission is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange, and, in particular, 
with the requirements of Section 6(b) of the Act.\31\ Specifically, the 
proposed change is consistent with Section 6(b)(5) of the Act,\32\ 
because it is designed to prevent fraudulent and manipulative acts and 
practices, to promote just and equitable principles of trade, to foster 
cooperation and coordination with persons engaged in facilitating 
transactions in securities, and to remove impediments to, and perfect 
the mechanism of, a free and open market and a national market system. 
The Exchange believes that the proposed rules will facilitate the 
listing and trading of additional types of exchange-traded products on 
the Exchange that will enhance competition among market participants, 
to the benefit of investors and the marketplace. In addition, the 
listing and trading criteria set forth in the proposed rules are 
intended to protect investors and the public interest.
---------------------------------------------------------------------------

    \31\ 15 U.S.C. 78f(b).
    \32\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange's listing requirements as proposed herein are at least 
as stringent as those of AMEX and NYSE Arca and, consequently, the 
proposed rule change is consistent with the protection of investors and 
the public interest. Additionally, the proposal is designed to prevent 
fraudulent and manipulative acts and practices, as all of the proposed 
new products are subject to existing Exchange trading rules, together 
with specific requirements for registered market makers, books and 
record production, surveillance procedures, suitability and prospectus 
requirements, and requisite Exchange approvals, all set forth above.
    The proposal is also designed to promote just and equitable 
principles of trade by way of initial and continued listing standards 
which, if not maintained, will result in the discontinuation of trading 
in the affected products. These requirements, together with the 
applicable Exchange equity trading rules (which will apply to products 
listed under the proposed criteria), ensure that no investor would have 
an unfair advantage over another respecting the trading of the subject 
products. On the contrary, all investors will have the same access to, 
and use of, information concerning the specific products and trading in 
the specific products, all to the benefit of public customers and the 
marketplace as a whole.
    Furthermore, the proposal is designed to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system by adopting listing standards that will lead ultimately to the 
trading of the proposed new products on the Exchange, just as they are 
currently traded on other exchanges. The Exchange believes that 
individuals and entities permitted to make markets on the Exchange in 
the proposed new products should enhance competition within the 
mechanism of a free and open market and a national market system, and 
customers and other investors in the national market system should 
benefit from more depth and liquidity in the market for the proposed 
new products.
    As it relates to the Funds, 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

[[Page 70510]]

listing criteria proposed in Rule 14.11(f)(4). 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 can obtain market surveillance information, including 
customer identity information, with respect to transactions occurring 
on the Futures Exchanges, all of which are currently members of ISG, as 
noted above. In addition, for components traded on exchanges, not more 
than 10% of the weight of a Fund's portfolio 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 Futures Contracts are 
traded on the Futures Exchanges, each of which is an ISG member, and 
information regarding trading in the Index Components is available from 
the Web sites of the respective Futures Exchanges and from major market 
data vendors. The daily closing Index level and the percentage change 
in the daily closing Index level for the Index and each Sub-Index will 
be publicly available from one or more major market data vendors. Data 
regarding the Index and each Sub-Index, updated every 15 seconds during 
Regular Trading Hours, is also available from Standard & Poor's on a 
subscription basis. Standard & Poor's has implemented procedures 
designed to prevent the use and dissemination of material, non-public 
information regarding the Index and Sub-Indexes. Data regarding the 
commodities, currencies, and Treasury securities underlying the Index 
Components is publicly available from various financial information 
service providers. The Exchange may halt trading during the day in 
which an interruption to the dissemination of the IIV, the level of the 
Index (or Sub-Index) or the value of the underlying Futures Contracts 
occurs. If an interruption to the dissemination of the IIV, the level 
of the Index (or Sub-Index), or the value of the underlying Futures 
Contracts persists past the trading day in which it occurred, the 
Exchange will halt trading no later than the beginning of the trading 
day following the interruption. As mentioned above, energy components 
are now set long or short because: (i) Potential losses are mitigated 
by the limited weight attributable to any single energy component; and 
(ii) the magnitude of energy market price movements during previous 
major market supply disruptions (e.g., the Gulf Wars) does not support 
restricting short energy positions.
    The proposed rule change is also designed to promote just and 
equitable principles of trade and to protect investors and the public 
interest in that the Exchange will obtain a representation from the 
issuer of the Shares that the NAV per Share will be calculated daily 
and that the NAV will be made available to all market participants at 
the same time. In addition, a large amount of information is publicly 
available regarding the Funds and the Shares, thereby promoting market 
transparency. On each business day, before commencement of trading in 
Shares on the Exchange, the Funds will disclose the identities and 
quantities of the futures contracts and other assets held by the Funds 
that will form the basis for the calculation of NAV at the end of the 
business day. Moreover, the Intraday Indicative Value will be 
disseminated by one or more major market data vendors at least every 15 
seconds during Regular Trading Hours. Pricing information will be 
available on the Trust's Web site including: (1) The current NAV per 
Share daily and the prior business day's NAV per Share; (2) calculation 
of the premium or discount between the NAV per Share and the price or 
mid-point of the Bid/Ask Price of the Funds as of the time the NAV is 
calculated or as of the official market close; (3) the prospectus; and 
(4) other applicable quantitative information. Additionally, 
information regarding market price and trading of the Shares is and 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services, and 
quotation and last-sale information for the Shares will be available on 
the relevant Exchange data feeds, which contain information for widely 
followed indexes and securities traded on the Exchange. The Web site 
for the Funds will include a form of the prospectus for the Funds and 
additional data relating to NAV and other applicable quantitative 
information. Trading in the Shares will be halted under the conditions 
specified in BATS Rule 11.18. Trading may also be halted because of 
market conditions or for reasons that, in the view of the Exchange, 
make trading in the Shares inadvisable. In addition, as noted above, 
investors will have ready access to information regarding the Funds' 
holdings, the Intraday Indicative Value, and quotation and last-sale 
information for the Shares.
    On the whole, 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 an additional type of exchange-traded product 
that will enhance competition among market participants, to the benefit 
of investors and the marketplace. 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.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Date of Effectiveness of the Proposed Rule Changes 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 Exchange consents, the Commission will:
    A. by order approve or disapprove such proposed rule change; or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BATS-2012-044 on the subject line.

[[Page 70511]]

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-BATS-2012-044. 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, on official business days between 10:00 a.m. 
and 3:00 p.m. Copies of the filing will also be available for 
inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BATS-2012-044 and should be 
submitted on or before December 17, 2012.

    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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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-28525 Filed 11-23-12; 8:45 am]
BILLING CODE 8011-01-P