[Federal Register Volume 84, Number 32 (Friday, February 15, 2019)]
[Notices]
[Pages 4573-4579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-02377]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-85088; File No. SR-NYSEArca-2019-02]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Proposed Rule Change Relating to the Listing and Trading of the
Shares of the ProShares UltraPro 3x Natural Gas ETF and ProShares
UltraPro 3x Short Natural Gas ETF Under NYSE Arca Rule 8.200-E
February 11, 2019.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the
[[Page 4574]]
``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given that,
on January 28, 2019, NYSE Arca, Inc. (the ``Exchange'' or ``NYSE
Arca'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I, II,
and III below, which Items have been prepared by the self-regulatory
organization. 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\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to list and trade the shares of the following
under NYSE Arca Rule 8.200-E, Commentary .02 (``Trust Issued
Receipts''): ProShares UltraPro 3x Natural Gas ETF and ProShares
UltraPro 3x Short Natural Gas ETF. The proposed change is available on
the Exchange's website at www.nyse.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 self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade shares (``Shares'') of the
following under NYSE Arca Rule 8.200-E, Commentary .02, which governs
the listing and trading of Trust Issued Receipts: ProShares UltraPro 3x
Natural Gas ETF and ProShares UltraPro 3x Short Natural Gas ETF (each a
``Fund'' and, collectively, the ``Funds'').\4\
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\4\ Commentary .02 to NYSE Arca Rule 8.200-E applies to Trust
Issued Receipts that invest in ``Financial Instruments.'' The term
``Financial Instruments,'' as defined in Commentary .02(b)(4) to
NYSE Arca Rule 8.200-E, means any combination of investments,
including cash; securities; options on securities and indices;
futures contracts; options on futures contracts; forward contracts;
equity caps, collars, and floors; and swap agreements.
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Each Fund is a series of the ProShares Trust II (the ``Trust''), a
Delaware statutory trust.\5\ The Trust and the Funds are managed and
controlled by ProShare Capital Management LLC (``ProShare Capital'' or
the ``Sponsor''). ProShare Capital is registered as a commodity pool
operator (``CPO'') with the Commodity Futures Trading Commission
(``CFTC'') and is a member of the National Futures Association
(``NFA'').\6\
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\5\ The Trust is registered under the Securities Act of 1933. On
May 19, 2017, the Trust filed with the Commission a registration
statement on Form S-1 under the Securities Act of 1933 (15 U.S.C.
77a) (``Securities Act'') relating to the Funds (File No. 333-
218136) (the ``Registration Statement''). The description of the
operation of the Trust and the Funds herein is based, in part, on
the Registration Statement.
\6\ The Commission has previously approved listing of Trust
Issued Receipts based on natural gas on the American Stock Exchange
LLC (now known as NYSE American LLC) and NYSE Arca. See, e.g.,
Securities Exchange Act Release Nos. 55632 (April 13, 2007), 72 FR
19987 (April 20, 2007) (SR-Amex-2006-112) (order approving listing
and trading of shares of United States Natural Gas Fund, LP); 56831
(November 21, 2007), 72 FR 67612 (November 29, 2007) (SR-Amex-2007-
98) (order approving listing and trading of shares of United States
12 Month Oil Fund, LP and United States 12 Month Natural Gas Fund,
LP); 63753 (January 21, 2011), 76 FR 4963 (January 27, 2011) (SR-
NYSEArca-2010-110) (order approving listing and trading of shares of
Teucrium Natural Gas Fund); and 65136 (August 15, 2011), 76 FR 52037
(August 19, 2011) (SR-NYSEAra-2011-24) (order approving listing and
trading of shares of ProShares Short DJ-UBS Natural Gas, ProShares
Ultra DJ-UBS Natural Gas and ProShares UltraShort DJ-UBS Natural
Gas).
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In its capacity as the Custodian for the Funds, the Bank of New
York Mellon (``BNYM'') may hold the Funds' securities and cash and/or
cash equivalents pursuant to a custodial agreement (the ``Custodian'').
The Custodian is also the transfer agent for the Shares. In addition,
in its capacity as Administrator for the Funds, BNYM (the
``Administrator'') performs certain administrative and accounting
services for the Funds and prepares certain Commission, NFA and CFTC
reports on behalf of the Funds. In its capacity as Distributor for the
Funds, SEI Investments Distribution Co. performs functions and duties
relating to distribution and marketing.
ProShares UltraPro 3x Natural Gas ETF
According to the Registration Statement, the investment objective
of the Fund is to seek daily investment results, before fees and
expenses, that correspond to three times (3x) the performance of the
Bloomberg Natural Gas Subindex\SM\ (the ``Benchmark'').\7\ The Fund
seeks to achieve its investment objective for a single day, not for any
other period.\8\
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\7\ According to the Registration Statement, the Benchmark is a
``rolling index,'' which means that the Index performance includes
the impact of closing out futures contracts that are nearing
expiration and replacing them with futures contracts with later
expirations. This process is commonly referred to as ``rolling.''
\8\ According to the Registration Statement, the return of a
Fund for a period longer than a single trading day is the result of
its return for each day compounded over the period and thus will
usually differ from a Fund's multiple times the return of the
Benchmark for the same period.
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The Benchmark is intended to reflect the performance of a rolling
position in natural gas futures contracts listed on the New York
Mercantile Exchange (the ``NYMEX'', which is part of the CME Group,
Inc. (``CME'')), including the impact of rolling, without regard to
income earned on cash positions.
ProShares UltraPro 3x Short Natural Gas ETF
According to the Registration Statement, the investment objective
of the Fund is to seek daily investment results, before fees and
expenses, that correspond to three times the inverse (-3x) of the
performance of the Benchmark. The Fund seeks to achieve its investment
objective for a single day, not for any other period.
Investment Strategies of the Funds
In seeking to achieve the Funds' investment objectives, the Sponsor
will utilize a mathematical approach to determine the type, quantity
and mix of investment positions that ProShare Capital believes, in
combination, should produce daily returns consistent with the Funds'
respective objectives.
Each Fund will seek to meet its respective investment objective by
investing, under normal market conditions,\9\ in futures contracts
traded in the United States and listed options on such contracts
(together, the ``Futures Contracts'').\10\ The Funds will not invest
directly in natural gas. The Funds' investments in Futures Contracts
will be used to produce economically
[[Page 4575]]
``leveraged'' or ``inverse leveraged'' investment results for the
Funds.
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\9\ The term ``normal market conditions'' includes, but is not
limited to, the absence of trading halts in the applicable financial
markets generally; operational issues (e.g., systems failure)
causing dissemination of inaccurate market information; or force
majeure type events such as natural or manmade disaster, act of God,
armed conflict, act of terrorism, riot or labor disruption or any
similar intervening circumstance. See NYSE Arca Rule 8.600-E(c)(5).
\10\ According to the Registration Statement, a Futures Contract
is a standardized contract traded on, or subject to the rules of, an
exchange that calls for the future delivery of a specified quantity
and type of a particular underlying asset at a specified time and
place or alternatively may call for cash settlement. The notional
size and calendar term Futures Contracts on a particular underlying
asset are identical and are not subject to any negotiation, other
than with respect to price and the number of contracts traded
between the buyer and seller.
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Each Fund also may obtain exposure to the Benchmark through
investment in over-the-counter (``OTC'') swap transactions and forward
contracts referencing such Benchmark (``Financial Instruments''). For
example, a Fund may invest in Financial Instruments in the event
position, price or accountability limits are reached with respect to
Futures Contracts \11\ or exposure limits are reached with a particular
futures commission merchant (``FCM'') or 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 in situations where the Sponsor deems it impractical or
inadvisable to buy or sell Futures Contracts (such as during periods of
market volatility or illiquidity).
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\11\ According to the Registration Statement, many designated
contract markets, such as the NYMEX, have established accountability
levels and position limits on the maximum net long or net short
futures contracts in commodity interests that any person or group of
persons under common trading control may hold, own or control. In
addition, NYMEX also sets price fluctuation limits on futures
contracts. Options do not have individual price limits but rather
are linked to the price limit of Futures Contracts.
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Each Fund will also hold cash or cash equivalents, such as U.S.
Treasury securities or other high credit quality, short-term fixed-
income or similar securities (such as shares of money market funds and
collateralized repurchase agreements), pending investment in Futures
Contracts or Financial Instruments or as collateral for the Funds'
investments.
In addition, to the extent a Fund enters into swap agreements and
other over-the-counter transactions, it will do so only with large,
established and well capitalized financial institutions that meet the
Sponsor's credit quality standards and monitoring policies. Each Fund
will use various techniques to minimize credit risk including early
termination or reset and payment, using different counterparties and
limiting the net amount due from any individual counterparty.
The Funds do not intend to hold Futures Contracts through
expiration, but instead intend to ``roll'' or close their respective
positions before expiration. When the market for these contracts is
such that the prices are higher in the more distant delivery months
than in the nearer delivery months, the sale during the course of the
``rolling process'' of the more nearby contract would take place at a
price that is lower than the price of the more distant contract. This
pattern of higher futures prices for longer expiration Futures
Contracts is referred to as ``contango.'' Alternatively, when the
market for these contracts is such that the prices are higher in the
nearer months than in the more distant months, the sale during the
course of the ``rolling process'' of the more nearby contract would
take place at a price that is higher than the price of the more distant
contract. This pattern of higher futures prices for shorter expiration
Futures Contracts is referred to as ``backwardation.'' The presence of
contango in certain Futures Contracts at the time of rolling could
adversely affect a Fund with long positions, and positively affect a
Fund with short positions. Similarly, the presence of backwardation in
certain Futures Contracts \12\ at the time of rolling such contracts
could adversely affect a Fund with short positions and positively
affect a Fund with long positions.
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\12\ The Funds may invest in options on Futures Contracts.
Unlike Futures Contracts, which the Funds intend to roll before
expiration, the Funds intend to hold ``in-the-money'' options on
Futures Contracts to expiration. The Funds would exercise in-the-
money options on Futures Contracts at expiration of the options
contract and they would settle through receipt or delivery of the
underlying Futures Contracts. Out-of-the money options will be held
to expiration and will be expired worthless. Options on Futures
Contracts are subject to the effects of contango and backwardation
to the same general extent as their underlying Futures Contracts.
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Net Asset Value (``NAV'')
According to the Registration Statement, a Fund's per Share NAV
will be calculated by taking the current market value of its total
assets, subtracting any liabilities, and dividing that total by the
total number of outstanding Shares.
Each Fund's NAV will be calculated on each day other than a day
when the Exchange is closed for regular trading. The Funds typically
compute their NAVs as of 2:30 p.m. Eastern Time (``E.T.''), which is
the designated closing time of the natural gas futures listed on
NYMEX,\13\ or an earlier time as set forth on www.ProShares.com, if
necessitated by NYSE, the Exchange or other exchange material to the
valuation or operation of such Fund closing early. Each Fund's NAV is
calculated only once each trading day.
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\13\ The daily value of the Benchmark is calculated as of 2:30
p.m. E.T. to coincide with the designated closing time. Futures
Contracts, however, continue to trade past 2:30 p.m. E.T. and
through the end of the NYSE Arca Core Trading Session at 4 p.m. E.T.
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In calculating the NAV of a Fund, Futures Contracts generally are
valued at their then current market value, which typically is based
upon the settlement price or the last traded price before the NAV time,
for that Futures Contract. The settlement value of a Fund's non-
exchange traded Financial Instruments generally is determined by
applying the then-current disseminated levels for the Benchmark
underlying such Financial Instrument to the terms of such Fund's non-
exchange traded Financial Instruments.
In certain circumstances (e.g., if the Sponsor believes market
quotations do not accurately reflect fair value of an investment, or a
trading halt closes an exchange or market early), the Sponsor may, in
its sole discretion, choose to determine a fair value price as the
basis for determining the market value of an investment for such day.
Such fair value price would generally be determined based on available
inputs about the current value of the investment and would be based on
principles that the Sponsor deems fair and equitable.
Money market instruments held by a Fund generally will be valued
using market prices or at amortized cost.
Indicative Fund Value
In order to provide updated information relating to a Fund for use
by investors and market professionals, the Exchange will calculate an
updated ``Indicative Fund Value'' (``IFV''). The IFV will be calculated
by using the prior day's closing NAV per Share of a Fund as a base and
will be updating throughout the Core Trading Session of 9:30 a.m. E.T.
to 4:00 p.m. E.T. to reflect changes in the approximate aggregate per
Share value of the investments held by a Fund based on the most
recently available prices for the Fund's investments.
The IFV will be disseminated on a per Share basis every 15 seconds
during the Exchange's Core Trading Session and be widely disseminated
by one or more major market data vendors during the NYSE Arca Core
Trading Session.\14\
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\14\ Several major market data vendors display and/or make
widely available IFVs taken from the CTA or other data feeds. In
addition, circumstances may arise in which the NYSE Arca Core
Trading Session is in progress, but trading in Futures Contracts is
not occurring. Such circumstances may result from reasons including,
but not limited to, a futures exchange having a separate holiday
schedule than the NYSE Arca, a futures exchange closing prior to the
close of the NYSE Arca, price fluctuation limits being reached in
Futures Contracts, or a futures exchange imposing any other
suspension or limitation on trading in Futures Contracts. In such
instances, the IFV would be static or priced at the applicable early
cut-off time of the exchange trading the applicable Futures
Contracts.
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Creation and Redemption of Shares
According to the Registration Statement, each Fund intends to
create and redeem Shares in one or more ``Creation Units'' of 25,000
Shares each.
[[Page 4576]]
The size of the Creation Units is subject to change. Creation Units in
a Fund are expected to be created when there is sufficient demand for
Shares in such Fund that the market price per Share is at a premium to
the NAV per Share. A creation transaction generally takes place when an
Authorized Participant deposits a specified amount of cash in exchange
for a specified number of Creation Units. Similarly, Shares can be
redeemed only in Creation Units, and generally only for cash. The
prices at which creations and redemptions occur are based on the next
calculation of the NAV after an order is received.
``Authorized Participants'' will be the only persons that may place
orders to create and redeem Creation Units. An Authorized Participant
is an entity that has entered into an Authorized Participant Agreement
with the Trust and ProShare Capital.
Creation Procedures
On any ``Business Day'', an Authorized Participant may place an
order with the Distributor to create one or more Creation Units. For
purposes of processing both purchase and redemption orders, a
``Business Day'' for each Fund means any day on which the NAV of such
Fund is determined. Purchase and redemption orders for Creation Units
must be placed by 2:00 p.m. E.T. or earlier if NYSE Arca or other
exchange material to the valuation or operation of such Fund closes
before the cut-off time.\15\ The day on which the Distributor receives
a valid purchase order is referred to as the purchase order date. If
the purchase order is received after the applicable cut-off time, the
purchase order date will be the next Business Day. Purchase orders are
irrevocable.
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\15\ The 2:00 p.m. E.T. creation and redemption cut-off time is
designed to provide the Funds with sufficient time prior to the NAV
calculation time to assess the potential impact of creation and
redemption activity on a Fund's portfolio and to buy (or sell)
Futures Contracts or other Financial Instruments in an orderly
fashion and in a manner designed to position the Fund's portfolio so
that its exposure to the Benchmark is consistent with its daily
investment objective.
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By placing a purchase order, an Authorized Participant generally
agrees to deposit cash with the Custodian.
Redemption Procedures
According to the Registration Statement, the procedures by which an
Authorized Participant can redeem one or more Creation Units will
mirror the procedures for the creation of Creation Units. On any
Business Day, an Authorized Participant may place an order with the
Distributor to redeem one or more Creation Units.
The redemption procedures allow Authorized Participants to redeem
Creation Units. Individual shareholders may not redeem directly from a
Fund. By placing a redemption order, an Authorized Participant agrees
to deliver the Creation Units to be redeemed through DTC's book entry
system to the applicable Fund not later than noon E.T. on the first
Business Day immediately following the redemption order date (T+1).
ProShare Capital can extend the deadline for a Fund to receive the
Creation Units required for settlement up to the third Business Day
following the redemption order date (T+3).
Upon request of an Authorized Participant made at the time of a
redemption order, ProShare Capital may determine, in addition to
delivering redemption proceeds, to transfer futures contracts to the
Authorized Participant pursuant to a futures contract for related
position (``EFCRP'') or to a block trade sale of futures contracts to
the Authorized Participant.
Determination of Redemption Distribution
The redemption proceeds from a Fund will consist of the cash
redemption amount and, if permitted by ProShare Capital with respect to
a Fund, an EFCRP or block trade with the relevant Fund as described
above. The cash redemption amount is equal to the NAV of the number of
Creation Unit(s) of such Fund requested in the Authorized Participant's
redemption order as of the time of the calculation of such Fund's NAV
on the redemption order date. The Benchmark will be disseminated by one
or more major market data vendors every 15 seconds during the NYSE Arca
Core Trading Session of 9:30 a.m. to 4:00 p.m. E.T.
Availability of Information
The NAV for the Funds' Shares will be disseminated daily to all
market participants at the same time. The intraday, closing prices, and
settlement prices of the Futures Contracts will be readily available
from the applicable futures exchange websites, automated quotation
systems, published or other public sources, or major market data
vendors.
Complete real-time data for the Futures Contracts is available by
subscription through on-line information services. ICE Futures U.S. and
NYMEX also provide delayed futures and options on futures information
on current and past trading sessions and market news free of charge on
their respective websites. The specific contract specifications for
Futures Contracts are also available on such websites, as well as other
financial informational sources. Quotation and last-sale information
regarding the Shares will be disseminated through the facilities of the
Consolidated Tape Association (``CTA''). Quotation information for cash
equivalents and OTC swaps may be obtained from brokers and dealers who
make markets in such instruments. Quotation information for exchange-
traded swaps will be available from the applicable exchange and major
market vendors. Intra-day price and closing price level information for
the Benchmark will be available from major market data vendors. The IFV
will be available through on-line information services.
In addition, the Funds' website, www.ProShares.com, will display
the applicable end of day closing NAV. The daily holdings of each Fund
will be available on the Funds' website. The Funds' website will also
include a form of the prospectus for the Funds that may be downloaded.
The website will include the Shares' ticker and CUSIP information along
with additional quantitative information updated on a daily basis,
including, for each Fund: (1) Daily trading volume, the prior Business
Day's reported NAV and closing price, and a calculation of the premium
and discount of the closing price or mid-point of the bid/ask spread at
the time of NAV calculation (the ``Bid/Ask Price'') against the NAV;
and (2) data in chart format displaying the frequency distribution of
discounts and premiums of the daily closing price or Bid/Ask Price
against the NAV, within appropriate ranges, for at least each of the
four previous calendar quarters. The website disclosure of portfolio
holdings will be made daily and will include, as applicable, (i) the
name, quantity, value, expiration and strike price of Futures Contracts
and Options, (ii) the counterparty to and value of swap agreements and
forward contracts, and (ii) the aggregate net value of other assets
(i.e., Treasury securities, cash equivalents and cash) held in each
Fund's portfolio, if applicable.
The Funds' website will be publicly available at the time of the
public offering of Shares and accessible at no charge. The spot price
of natural gas also is available on a 24-hour basis from major market
data vendors.
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 of a Fund.\16\ Trading in Shares of a Fund
[[Page 4577]]
will be halted if the circuit breaker parameters in NYSE Arca Rule
7.12-E have been reached. Trading also may be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable.
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\16\ See NYSE Arca Rule 7.12-E.
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The Exchange may halt trading during the day in which an
interruption to the dissemination of the IFV or the value of the
Benchmark occurs. If the interruption to the dissemination of the IFV,
or the value of the or the value of the Benchmark persists past the
trading day in which it occurred, the Exchange will halt trading no
later than the beginning of the trading day following the interruption.
In addition, if the Exchange becomes aware that the NAV with respect to
the Shares is not disseminated to all market participants at the same
time, it will halt trading in the Shares until such time as the NAV is
available to all market participants.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. Shares will trade on
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. in accordance with
NYSE Arca Rule 7.34-E (Early, Core, and Late Trading Sessions). The
Exchange has appropriate rules to facilitate transactions in the Shares
during all trading sessions. As provided in NYSE Arca Rule 7.6-E, the
minimum price variation (``MPV'') for quoting and entry of orders in
equity securities traded on the NYSE Arca Marketplace is $0.01, with
the exception of securities that are priced less than $1.00 for which
the MPV for order entry is $0.0001.
The Shares will conform to the initial and continued listing
criteria under NYSE Arca Rule 8.200-E. The trading of the Shares will
be subject to NYSE Arca Rule 8.200-E, Commentary .02(e), which sets
forth certain restrictions on Equity Trading Permit (``ETP'') Holders
acting as registered Market Makers in Trust Issued Receipts to
facilitate surveillance. The Exchange represents that, for initial and/
or continued listing, each Fund will be in compliance with Rule 10A-3
\17\ under the Act, as provided by NYSE Arca Rule 5.3-E. A minimum of
100,000 Shares of each Fund will be outstanding at the commencement of
trading on the Exchange.
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\17\ 17 CFR 240.10A-3.
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Surveillance
The Exchange represents that trading in the Shares of each Fund
will be subject to the existing trading surveillances administered by
the Exchange, as well as cross-market surveillances administered by the
Financial Industry Regulatory Authority (``FINRA'') on behalf of the
Exchange, which are designed to detect violations of Exchange rules and
applicable federal securities laws.\18\ The Exchange represents that
these procedures are adequate to properly monitor Exchange trading of
the Shares in all trading sessions and to deter and detect violations
of Exchange rules and federal securities laws applicable to trading on
the Exchange.
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\18\ FINRA conducts cross-market surveillances on behalf of the
Exchange pursuant to a regulatory services agreement. The Exchange
is responsible for FINRA's performance under this regulatory
services agreement.
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The surveillances referred to above generally focus on detecting
securities trading outside their normal patterns, which could be
indicative of manipulative or other violative activity. When such
situations are detected, surveillance analysis follows and
investigations are opened, where appropriate, to review the behavior of
all relevant parties for all relevant trading violations.
The Exchange or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares and certain
Futures Contracts with other markets and other entities that are
members of the ISG, and the Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading information regarding trading in
the Shares and certain Futures Contracts from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares and certain Futures Contracts from markets and
other entities that are members of ISG or with which the Exchange has
in place a comprehensive surveillance sharing agreement (``CSSA'').\19\
The Exchange is also able to obtain information regarding trading in
the Shares, the physical commodities underlying Futures Contracts
through ETP Holders, in connection with such ETP Holders' proprietary
or customer trades which they effect through ETP Holders on any
relevant market. The Exchange can obtain market surveillance
information, including customer identity information, with respect to
transactions (including transactions in Futures Contracts) occurring on
U.S. futures exchanges, which are members of the ISG.
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\19\ For a list of the current members of ISG, see
www.isgportal.org. The Exchange notes that not all components of a
Fund may trade on markets that are members of ISG or with which the
Exchange has in place a CSSA.
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Not more than 10% of the net assets of a Fund in the aggregate
invested in Futures Contracts shall consist of Futures Contracts whose
principal market is not a member of the ISG or is a market with which
the Exchange does not have a CSSA.
In addition, the Exchange also has a general policy prohibiting the
distribution of material, non-public information by its employees.
All statements and representations made in this filing regarding
(a) the description of the portfolios of the Funds or Benchmark, (b)
limitations on portfolio holdings or the Benchmark, or (c) the
applicability of Exchange listing rules specified in this rule filing
shall constitute continued listing requirements for listing the Shares
on the Exchange.
The issuer has represented to the Exchange that it will advise the
Exchange of any failure by the Funds to comply with the continued
listing requirements, and, pursuant to its obligations under Section
19(g)(1) of the Act, the Exchange will monitor for compliance with the
continued listing requirements. If a Fund is not in compliance with the
applicable listing requirements, the Exchange will commence delisting
procedures under NYSE Arca Rule 5.5-E(m).
Information Bulletin
Prior to the commencement of trading, the Exchange will inform its
ETP Holders in an Information Bulletin of the special characteristics
and risks associated with trading the Shares. Specifically, the
Information Bulletin will discuss the following: (1) The risks involved
in trading the Shares during the Early and Late Trading Sessions when
an updated IFV will not be calculated or publicly disseminated; (2) the
procedures for purchases and redemptions of Shares in Creation Units
(and that Shares are not individually redeemable); (3) NYSE Arca Rule
9.2-E(a), which imposes a duty of due diligence on its ETP Holders to
learn the essential facts relating to every customer prior to trading
the Shares; (4) how information regarding the IFV is disseminated; (5)
how information regarding portfolio holdings is disseminated; (6) the
requirement that ETP Holders deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; (7) trading information, and (8) NYSE
Arca suitability rules.
Further, the Exchange states that FINRA has implemented increased
sales
[[Page 4578]]
practice and customer margin requirements for FINRA members applicable
to inverse, leveraged and inverse leveraged securities (which include
the Shares) and options on such securities, as described in FINRA
Regulatory Notices 09-31 (June 2009), 09-53 (August 2009), and 09-65
(November 2009) (collectively, ``FINRA Regulatory Notices''). ETP
Holders that carry customer accounts will be required to follow the
FINRA guidance set forth in these notices. As noted above, each Fund
will seek daily investment results, before fees and expenses, that
correspond to either three times (3x) or three times the inverse (-3x)
of the performance of the Benchmark. The return of a Fund for a period
longer than a single day is the result of its return for each day
compounded over the period and usually will differ in amount and
possibly even direction from the Fund's stated multiple times the
return of the Fund's Benchmark for the same period. These differences
can be significant.
The Information Bulletin will also discuss any exemptive, no-
action, and interpretive relief granted by the Commission from any
rules under the Act. In addition, the Information Bulletin will
reference that a Fund is subject to various fees and expenses described
in the Registration Statement.
The Information Bulletin will also disclose the trading hours of
the Shares and that the NAV for the Shares will be calculated after
2:30 p.m. E.T. each trading day. The Information Bulletin will disclose
that information about the Shares will be publicly available on the
Funds' website.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \20\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\20\ 15 U.S.C. 78f(b)(5).
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The Exchange believes that the proposed rule change is designed to
prevent fraudulent and manipulative acts and practices and to protect
investors and the public interest in that the Shares will be listed and
traded on the Exchange pursuant to the initial and continued listing
criteria in NYSE Arca Rule 8.200-E. 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 or FINRA, on behalf of the Exchange, or both, will
communicate as needed regarding trading in the Shares and certain
Futures Contracts with other markets and other entities that are
members of the ISG, and the Exchange or FINRA, on behalf of the
Exchange, or both, may obtain trading information regarding trading in
the Shares and certain Futures Contracts from such markets and other
entities. In addition, the Exchange may obtain information regarding
trading in the Shares and certain Futures Contracts from markets and
other entities that are members of ISG or with which the Exchange has
in place a CSSA. The Exchange is also able to obtain information
regarding trading in the Shares, the physical commodities underlying
Futures Contracts through ETP Holders, in connection with such ETP
Holders' proprietary or customer trades which they effect through ETP
Holders on any relevant market. The Exchange can obtain market
surveillance information, including customer identity information, with
respect to transactions (including transactions in Futures Contracts)
occurring on U.S. futures exchanges, which are members of the ISG. Not
more than 10% of the net assets of a Fund in the aggregate invested in
Futures Contracts shall consist of Futures Contracts whose principal
market is not a member of the ISG or is a market with which the
Exchange does not have a CSSA. The intraday, closing prices, and
settlement prices of the Futures Contracts will be readily available
from the applicable futures exchange websites, automated quotation
systems, published or other public sources, or major market data
vendors website or on-line information services.
Complete real-time data for the Futures Contracts is available by
subscription from on-line information services. ICE Futures U.S. and
NYMEX also provide delayed futures information on current and past
trading sessions and market news free of charge on the Funds' website.
The specific contract specifications for Futures Contracts are also
available on such websites, as well as other financial informational
sources. Information regarding options will be available from the
applicable exchanges or major market data vendors. Quotation and last-
sale information regarding the Shares will be disseminated through the
facilities of the CTA. The IFV will be disseminated on a per Share
basis every 15 seconds during the Exchange's Core Trading Session and
be widely disseminated by one or more major market data vendors during
the NYSE Arca Core Trading Session. The Funds' website will also
include a form of the prospectus for the Funds that may be downloaded.
The website will include the Shares' ticker and CUSIP information along
with additional quantitative information updated on a daily basis,
including, for each Fund: (1) Daily trading volume, the prior business
day's reported NAV and closing price, and a calculation of the premium
and discount of the closing price or mid-point of the Bid/Ask Price
against the NAV; and (2) data in chart format displaying the frequency
distribution of discounts and premiums of the daily closing price or
Bid/Ask Price against the NAV, within appropriate ranges, for at least
each of the four previous calendar quarters. The website disclosure of
portfolio holdings will be made daily and will include, as applicable,
(i) the name, quantity, value, expiration and strike price of Futures
Contracts and Options, (ii) the counterparty to and value of swap
agreements and forward contracts, and (ii) the aggregate net value of
other assets (i.e. Treasury securities, cash equivalents and cash) held
in each Fund's portfolio, if applicable.
Moreover, prior to the commencement of trading, the Exchange will
inform its Equity Trading Permit Holders in an Information Bulletin of
the special characteristics and risks associated with trading the
Shares and of the suitability requirements of NYSE Arca Rule 9.2-E(a).
The Information Bulletin will advise ETP Holders, prior to the
commencement of trading, of the prospectus delivery requirements
applicable to a Fund. The Information Bulletin will also discuss any
exemptive, no-action, and interpretive relief granted by the Commission
from any rules under the Act. In addition, the Information Bulletin
will reference that a Fund is subject to various fees and expenses
described in the Registration Statement. The Information Bulletin will
also reference that the CFTC has regulatory jurisdiction over the
trading of Futures Contracts traded on U.S. markets. The Information
Bulletin will also disclose the trading hours of the Shares and that
the NAV for the Shares will be calculated after 2:30 p.m. E.T. each
trading day. The Information Bulletin will disclose that information
about the Shares will be publicly available on the Funds' website.
Trading in Shares of a Fund will be halted if the circuit breaker
parameters in NYSE Arca Rule 7.12-E have been
[[Page 4579]]
reached or because of market conditions or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable
The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest in that it will facilitate the listing and trading of
additional types of Trust Issued Receipts based on natural gas prices
that will enhance competition among market participants, to the benefit
of investors and the marketplace. As noted above, the Exchange has in
place surveillance procedures 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.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange notes that the
proposed rule change will facilitate the listing and trading of
additional types of Trust Issued Receipts based on natural gas prices
and that will enhance competition among market participants, to the
benefit of investors and the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or up to 90 days (i) as the Commission may designate
if it finds such longer period to be appropriate and publishes its
reasons for so finding or (ii) as to which the self-regulatory
organization consents, the Commission will:
(A) By order approve or disapprove the proposed rule change, or
(B) institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-NYSEArca-2019-02 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-NYSEArca-2019-02. 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 website (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 website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549, on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2019-02, and should be
submitted on or before March 8, 2019.
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\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
Eduardo A. Aleman,
Deputy Secretary.
[FR Doc. 2019-02377 Filed 2-14-19; 8:45 am]
BILLING CODE 8011-01-P