[Federal Register Volume 80, Number 38 (Thursday, February 26, 2015)]
[Notices]
[Pages 10524-10526]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-03967]



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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-74348; File No. TP 14-02]


Order Granting Limited Exemptions From Exchange Act Rule 10b-17 
and Rules 101 and 102 of Regulation M to AccuShares S&P GSCI Spot Fund, 
AccuShares S&P GSCI Agriculture and Livestock Spot Fund, AccuShares S&P 
GSCI Industrial Metals Spot Fund, AccuShares S&P GSCI Crude Oil Spot 
Fund, AccuShares S&P GSCI Brent Oil Spot Fund, AccuShares S&P GSCI 
Natural Gas Spot Fund, and AccuShares Spot CBOE VIX Fund, Pursuant to 
Exchange Act Rule 10b-17(b)(2) and Rules 101(d) and 102(e) of 
Regulation M

February 20, 2015.
    On February 18, 2015, the Commission approved a proposed rule 
change by NASDAQ Stock Market LLC to adopt new listing standards for 
``Paired Class Shares'' as new NASDAQ Rule 5713, as well as to permit 
the listing and trading of ``Paired Class Shares'' issued by AccuShares 
Commodity Trust I (the ``Trust'').\1\ By letter dated February 20, 2015 
(the ``Letter''), as supplemented by conversations with the staff of 
the Division of Trading and Markets, counsel for AccuShares Investment 
Management LLC (the ``Sponsor''), the Trust, AccuShares S&P GSCI Spot 
Fund, AccuShares S&P GSCI Agriculture and Livestock Spot Fund, 
AccuShares S&P GSCI Industrial Metals Spot Fund, AccuShares S&P GSCI 
Crude Oil Spot Fund, AccuShares S&P GSCI Brent Oil Spot Fund, 
AccuShares S&P GSCI Natural Gas Spot Fund, and AccuShares Spot CBOE VIX 
Fund (the ``Funds''), the listing exchange, any national securities 
exchange on or through which shares issued by the Funds (``Shares'') 
may subsequently trade, and persons or entities engaging in 
transactions in Shares (collectively, the ``Requestors'') requested 
exemptions, or interpretive or no-action relief, from Rule 10b-17 under 
the Securities Exchange Act of 1934, as amended (``Exchange Act''), and 
Rules 101 and 102 of Regulation M, in connection with secondary market 
transactions in Shares and the creation or redemption of aggregations 
of Shares of at least 50,000 shares (``Creation Units'').\2\
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    \1\ Exchange Act Release No. 74299 (Feb. 18, 2015) (SR-NASDAQ-
2014-065).
    \2\ Creation Units of shares are composed of 25,000 ``Up'' 
Shares and 25,000 ``Down'' Shares, as explained infra.
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    As the Requestors explain in the Letter, the Trust is a Delaware 
statutory trust that is organized into separate Funds. Each Fund will 
have a distinctive objective to track the movements in a specified spot 
commodity, commodity futures contract, or measures of price volatility 
of a broad-based equity index as measured by such Fund's underlying 
index (``Underlying Index'') during each Fund's ``Measuring Period.'' 
\3\ Each Fund will engage in issuing, offering, and redeeming 
``paired'' ``Up'' and ``Down'' Shares, two types of Shares that reflect 
different views on the future direction of the Underlying Index. 
Entitlements of a Fund's Up Shares to distributions are related to any 
increases of such Fund's Underlying Index, and entitlements of a Fund's 
Down Shares to distributions from such Fund are related to any 
decreases of the same Underlying Index, during each Measuring Period. 
The Funds will not hold commodities, futures, or other assets that are 
referenced by the Underlying Index but will instead hold cash, certain 
U.S. Treasury securities, and certain overnight repurchase agreements. 
Creations and redemptions are permitted only in Creation Units.
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    \3\ The Underlying Indexes for the Funds are (1) S&P GSCI Spot 
Index, (2) S&P GSCI Agricultural and Livestock Spot Index, (3) S&P 
GSCI Industrial Metals Spot Index, (4) S&P GSCI Crude Oil Spot 
Index, (5) S&P GSCI Brent Crude Oil Spot Index, (6) S&P GSCI Natural 
Gas Spot Index, and (7) CBOE Volatility Index (also known as the 
``VIX'').
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    The Requestors also represent, among other things, the following:
     Shares of the Funds will be listed and traded on a 
national securities exchange that has obtained approval of a rule 
change from the Commission pursuant to Rule 19b-4;
     Neither the Trust nor any of its Funds will be an 
investment company registered under the Investment Company Act of 1940, 
as amended (``1940 Act''), and will not be required to register under 
the 1940 Act;
     Each Fund will continuously issue and redeem Shares in 
aggregations of at least 50,000 Shares (25,000 Up Shares and 25,000 
Down Shares) in exchange for specified amounts of cash, with the 
objective of tracking the performance of a specified commodity or 
volatility index;
     Throughout the trading day, the listing exchange will 
publicly disseminate intra-day prices of Fund Shares and their 
respective Underlying Indexes;
     The market value of Shares should be in close alignment 
with the increases and decreases in the value of each Fund's Underlying 
Index which tracks one or more physical commodities, a basket of 
particular commodities, commodity futures contracts, other commodity 
derivatives, or measures of price volatility of a broad-based equity 
index;
     Like other exchange-traded products, the secondary market 
price of Shares should not vary substantially from their respective 
Class Values (as defined in the Letter) per Share because the 
redeemability and the continuous offering features of the Funds provide 
opportunities for arbitrage activity that should eliminate any 
significant disparity between the market price of Shares and their 
respective Class Values per Share.
     Significant disparities between the market price of each 
Fund's Shares and the liquidation value of the Shares and between the 
market price of each Fund's Shares and the value of the Underlying 
Index should be eliminated by the arbitrage mechanism afforded by the 
open-ended character of the Funds and the redeemability of their 
Shares;
     The ``Corrective Distribution'' mechanism (as described in 
the Letter) is designed to supplement the aforementioned arbitrage 
mechanism in those rare situations where the arbitrage mechanism fails;
     The presence of each Fund's pre-established Corrective 
Distribution Thresholds (as defined in the Letter) is also intended to 
aid in driving the alignment of market prices with Class Value per 
Share;
     Special Distributions (as defined in the Letter) will be 
triggered only if a Fund's Underlying Index experiences an unexpected 
level of volatility and exceeds a fixed rate of change (for example, 
75% for the AccuShares S&P GSCI Spot and AccuShares S&P GSCI Natural 
Gas Spot Funds) since the beginning of the Measuring Period (as defined 
in the Letter);
     Special Distributions are not expected to occur regularly 
and will occur, if at all, only under the limited circumstances and 
according to the fixed formula stated in each Fund's prospectus;
     Each Fund will alert shareholders in a prominent manner on 
its Web site at the close of the business day during any Measuring 
Period when such Fund's Underlying Index first experiences a 50% 
increase or decrease in its level since the beginning of that Measuring 
Period and, if and when a Fund's Underlying Index exceeds its threshold 
for issuing a Special Distribution during such Measuring Period, at the 
close of business on such day the relevant Fund will immediately notify 
the listing exchange, and will thereafter issue a press release and 
post a notice of such event and its details on

[[Page 10525]]

its Web site, including notice of any other distributions to be made 
therewith; \4\
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    \4\ Other distributions, specifically previously announced 
distributions of a Fund's net income or a Corrective Distribution, 
may occasionally simultaneously accompany a Special Distribution 
(``Accompanying Distributions''). In some cases, these Accompanying 
Distributions may be triggered without sufficient time to make the 
notice required by Rule 10b-17 in the time frame mandated in the 
rule. The exemption contained herein only extends to those 
Accompanying Distributions that cannot be disclosed ten days prior 
to the record date because the Accompanying Distribution was 
triggered within that ten-day time frame (``Exempted Accompanying 
Distributions'').
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     The Funds will provide at least three business days' 
notice to the listing exchange in advance of the related record date 
for Special Distributions and any Exempted Accompanying Distribution;
     The listing exchange has confirmed that publication of a 
Special Distribution Notice (as defined in the Letter) three business 
days in advance of a Special Distribution Record Date (as defined in 
the Letter) can be made in the normal course, and will not require any 
system changes, technology alterations or other type of 
reconfigurations by the exchange and that it will be able to adequately 
disseminate the distribution information contained in the Special 
Distribution Notice to its members and the investing public within the 
three-day time period and, as a result, the Sponsor believes that the 
parties transacting in Fund Shares, as well as their broker-dealers, 
will be able to timely reflect Special Distributions and Exempted 
Accompanying Distributions in the price ultimately paid; and
     The Sponsor has agreed to compile the following data and 
provide it to the Commission staff on a quarterly basis for each Fund 
during the first year of operation:
    [cir] Daily Class Values and daily Class Values per Share;
    [cir] Daily end of day secondary market price per Class (as defined 
in the Letter) per Share;
    [cir] Per Share, the date, form (i.e., shares, dollars, etc.), and 
size of any distributions including any stock split; and
    [cir] Per Share, with respect to any stock split, whether it was a 
reverse or forward split.

Regulation M

    While redeemable securities issued by an open-end management 
investment company are excepted from the provisions of Rule 101 and 102 
of Regulation M, the Requestors may not rely upon that exception for 
the Shares as they are not issued by an open-end management investment 
company. However, we find that it is appropriate in the public interest 
and is consistent with the protection of investors to grant limited 
exemptions from Rules 101 and 102 to persons who may be deemed to be 
participating in a distribution of Shares of the Funds as well as the 
Funds, as described in more detail below.

Rules 101 and 102 of Regulation M

    Generally, Rule 101 of Regulation M is an anti-manipulation rule 
that, subject to certain exceptions, prohibits any ``distribution 
participant'' and its ``affiliated purchasers'' from bidding for, 
purchasing, or attempting to induce any person to bid for or purchase 
any security which is the subject of a distribution until after the 
applicable restricted period, except as specifically permitted in the 
rule. Rule 100 of Regulation M defines ``distribution'' to mean any 
offering of securities that is distinguished from ordinary trading 
transactions by the magnitude of the offering and the presence of 
special selling efforts and selling methods. The provisions of Rule 101 
of Regulation M apply to underwriters, prospective underwriters, 
brokers, dealers, or other persons who have agreed to participate or 
are participating in a distribution of securities. The Shares are in a 
continuous distribution and, as such, the restricted period in which 
distribution participants and their affiliated purchasers are 
prohibited from bidding for, purchasing, or attempting to induce others 
to bid for or purchase extends indefinitely.
    Similarly, Rule 102 of Regulation M prohibits issuers, selling 
security holders, and any affiliated purchaser of such person from 
bidding for, purchasing, or attempting to induce any person to bid for 
or purchase a covered security during the applicable restricted period 
in connection with a distribution of securities effected by or on 
behalf of an issuer or selling security holder.
    Based on the representations and facts presented in the Letter, 
particularly that the market value of Shares should be in close 
alignment with the increases and decreases in the value of each Fund's 
Underlying Index, that significant disparities between the market price 
of each Fund's Shares and the liquidation value of the Shares and 
between the market price of each Fund's Shares and the value of the 
Underlying Index should be eliminated by the arbitrage mechanism, and 
that the Corrective Distribution mechanism is designed to supplement 
the arbitrage mechanism in those rare situations where the arbitrage 
mechanism fails (which will be infrequent and, for most Funds, a 
Corrective Distribution may never occur), the concerns that the 
Commission raised in adopting Rules 101 and 102 of Regulation M should 
not be implicated because these mechanisms should reduce the potential 
that the purchases effected during the restricted period by these 
distribution participants and the Funds may artificially affect the 
secondary market price of the Shares.\5\ As a result, the Commission 
finds that it is appropriate in the public interest and consistent with 
the protection of investors to grant the Trust an exemption (1) under 
paragraph (d) of Rule 101 of Regulation M with respect to the Funds, 
thus permitting persons participating in a distribution of Shares of 
the Funds to bid for or purchase such Shares during the applicable 
restricted period and (2) under paragraph (e) of Rule 102 of Regulation 
M with respect to the Funds, thus permitting the Funds to redeem Shares 
of the Funds during the applicable restricted period.
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    \5\ See Securities Exchange Act Release No. 33924 (Apr. 19, 
1994); 59 FR 21681 (Apr. 26, 1994) (stating that the purpose of the 
prohibitions of Rules 101 and 102 are to ``prevent those persons 
participating in a distribution of securities . . . from 
artificially conditioning the market for the securities in order to 
facilitate the distribution'' as well as ``to protect the integrity 
of the securities trading market as an independent pricing 
mechanism.'').
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Rule 10b-17

    Rule 10b-17, with certain exceptions, requires an issuer of a class 
of publicly traded securities to give notice of certain specified 
actions (for example, a dividend distribution) relating to such class 
of securities in accordance with Rule 10b-17(b). Based on the 
representations from the Fund, Sponsor, and listing exchange that 
timely notification of the existence and timing of such Special 
Distributions and Exempted Accompanying Distributions will be provided 
to market participants and that Special Distributions and Exempted 
Accompanying Distributions are not expected to occur frequently and 
only under the limited circumstances, if at all, according to a pre-
determined formula published in each Fund's prospectus, the concerns 
that the Commission raised in adopting Rule 10b-17 should not be 
implicated. As a result, the Commission finds that it is appropriate in 
the public interest and consistent with the protection of investors to 
grant the Trust a conditional exemption from Rule 10b-17 with respect 
to the Special Distributions and Exempted Accompanying Distributions.

[[Page 10526]]

Conclusion

    It is hereby ordered, pursuant to Rule 101(d) of Regulation M, that 
the Trust, based on the representations and facts presented in the 
Letter, is exempt from the requirements of Rule 101 with respect to the 
Funds, thus permitting persons who may be deemed to be participating in 
a distribution of Shares of the Funds to bid for or purchase such 
Shares during their participation in such distribution.
    It is further ordered, pursuant to Rule 102(e) of Regulation M, 
that the Trust, based on the representations and the facts presented in 
the Letter, is exempt from the requirements of Rule 102 with respect to 
the Funds, thus permitting the Funds to redeem Shares of the Funds 
during the continuous offering of such Shares.
    It is further ordered, pursuant to Rule 10b-17(b)(2), that the 
Trust, based on the representations and the facts presented in the 
Letter, subject to the conditions that the Funds will provide at least 
three business days' notice in advance of the related record date for 
Special Distributions and any Exempted Accompanying Distribution and 
that the Funds will otherwise comply with Rule 10b-17 with regard to 
any distributions except Special Distributions and Exempted 
Accompanying Distributions as described above and in the Letter, is 
exempt from the requirements of Rule 10b-17 with respect to Special 
Distributions and any Exempted Accompanying Distribution.
    This exemptive relief is subject to modification or revocation at 
any time the Commission determines that such action is necessary or 
appropriate in furtherance of the purposes of the Exchange Act. This 
exemption is based on the facts presented and the representations made 
in the Letter. Any different facts or representations may require a 
different response. In the event that any material change occurs in the 
facts or representations in the Letter, transactions in Shares of the 
Funds must be discontinued, pending presentation of the facts for our 
consideration. In addition, persons relying on this exemption are 
directed to the anti-fraud and anti-manipulation provisions of the 
Exchange Act, particularly Sections 9(a) and 10(b), and Rule 10b-5 
thereunder. Responsibility for compliance with these and any other 
applicable provisions of the federal securities laws must rest with the 
persons relying on this exemption. This order should not be considered 
a view with respect to any other question that the proposed 
transactions may raise, including, but not limited to the adequacy of 
the disclosure concerning, and the applicability of other federal or 
state laws to, the proposed transactions.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\6\
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    \6\ 17 CFR 200.30-3(a)(6) and (9).
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Jill M. Peterson,
Assistant Secretary.
[FR Doc. 2015-03967 Filed 2-25-15; 8:45 am]
BILLING CODE 8011-01-P