[Federal Register: November 29, 2007 (Volume 72, Number 229)]
[Notices]
[Page 67612-67615]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29no07-41]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-56831; File No. SR-Amex-2007-98]
Self-Regulatory Organizations; American Stock Exchange LLC; Order
Granting Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment Nos. 1 and 2, Relating to the Listing and Trading of Units of
the United States 12 Month Oil Fund, LP and the United States 12 Month
Natural Gas Fund, LP
November 21, 2007.
I. Introduction
Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given
that on August 23, 2007, the American Stock Exchange LLC (``Amex'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been substantially prepared by the Exchange.
On September 14, 2007, the Exchange submitted Amendment No. 1 to the
proposed rule change. On October 25, 2007, the Exchange submitted
Amendment No. 2 to the proposed rule change. The proposed rule change,
as
[[Page 67613]]
amended, was published for comment in the Federal Register on November
2, 2007 for a 15-day comment period.\3\ This order approves the
proposed rule change, as modified by Amendment Nos. 1 and 2 on an
accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 56719 (October 29,
2007), 72 FR 62277 (``Notice'').
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II. Description of Proposal
The Exchange proposes to list and trade units (each a ``Unit'' and,
collectively, the ``Units'') of each of the United States 12 Month Oil
Fund, LP (``12 Month Oil Fund'') and the United States 12 Month Natural
Gas Fund, LP (``12 Month Natural Gas Fund'') (each a ``Partnership''
and, collectively, the ``Partnerships'') pursuant to Amex Rules 1500-
AEMI and 1501 through 1505.\4\ The Exchange has represented that the
Units will conform to the initial and continued listing criteria under
Rule 1502,\5\ specialist prohibitions under Rule 1503 and the
obligations of specialists under Rule 1504.
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\4\ Amex Rule 1500-AEMI provides for the listing of Partnership
Units, which are defined as securities, that are: (a) issued by a
partnership that invests in any combination of futures contracts,
options on futures contracts, forward contracts, commodities, and/or
securities; and (b) that are issued and redeemed daily in specified
aggregate amounts at net asset value. See Exchange Act Release No.
53582 (March 31, 2006), 71 FR 17510 (April 6, 2006) (SR-Amex-2005-
127) (approving Amex Rules 1500-AEMI and 1501 through 1505 in
conjunction with the listing and trading of Units of the United
States Oil Fund, LP).
\5\ The Amex stated that it will require a minimum of 100,000
Units to be outstanding at the start of trading and expects that the
initial price of a Unit will be $50.00.
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Ownership of a Partnership Unit represents a fractional undivided
unit of a beneficial interest in the net assets of that Partnership.\6\
Each of the net assets of the 12 Month Oil Fund and the 12 Month
Natural Gas Fund will consist primarily of investments in futures
contracts for crude oil, heating oil, gasoline, natural gas, and other
petroleum-based fuels that are traded on the New York Mercantile
Exchange (``NYMEX''), Intercontinental Exchange (``ICE Futures'') or
other U.S. and foreign exchanges (collectively, ``Futures Contracts'').
In the case of the 12 Month Oil Fund, the predominant investments are
expected to be based on, or related to, crude oil. Similarly, for the
12 Month Natural Gas Fund, the predominant investments are expected to
be based on, or related to, natural gas.
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\6\ Each Partnership is a commodity pool that will issue Units
that may be purchased and sold on the Exchange.
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The 12 Month Oil Fund may also invest in other crude oil-related
investments such as cash-settled options on Futures Contracts, forward
contracts for crude oil, and over-the-counter (``OTC'') transactions
based on the price of crude oil, heating oil, gasoline, natural gas,
other petroleum-based fuels, Futures Contracts, and indices based on
the foregoing (collectively, ``Other Crude Oil-Related Investments'').
Futures Contracts and Other Crude Oil-Related Investments collectively
are referred to as ``Crude Oil Interests.'' Similarly, the 12 Month
Natural Gas Fund may also invest in other natural gas-related
investments such as cash-settled options on Futures Contracts, forward
contracts for natural gas, and OTC transactions based on the price of
natural gas, crude oil and other petroleum-based fuels, Futures
Contracts and indices based on the foregoing (collectively, ``Other
Natural Gas-Related Investments''). Futures Contracts and Other Natural
Gas-Related Investments collectively are referred to as ``Natural Gas
Interests.''
Each of the 12 Month Oil Fund and the 12 Month Natural Gas Fund
will invest in Crude Oil Interests and Natural Gas Interests,
respectively, to the fullest extent possible without being leveraged or
unable to satisfy its current or potential margin or collateral
obligations. In pursuing this objective, the primary focus of each
Partnership's investment manager, Victoria Bay Asset Management, LLC
(``General Partner''), will be the investment in Futures Contracts and
the management of its investments in short-term obligations of the
United States of two years or less (``Treasuries'') and cash and cash
equivalents (collectively, ``Cash'') for margining purposes and as
collateral.
Each Fund seeks to track price changes in percentage terms of an
underlying commodity as measured by a benchmark defined to be the
average price of specified futures contracts.\7\ The investment
objective of the 12 Month Oil Fund is for the changes in percentage
terms of the Units' net asset value (``NAV'') to reflect the changes in
percentage terms of the price of light, sweet crude oil delivered to
Cushing, Oklahoma, as measured by the changes in the average of the
prices of twelve crude oil futures contracts traded on NYMEX (the ``Oil
Benchmark Futures Contracts''), less the 12 Month Oil Fund's
expenses.\8\ Similarly, the investment objective of the 12 Month
Natural Gas Fund is for the changes in percentage terms of the Units'
NAV to reflect the changes in percentage terms of the price of natural
gas delivered at the Henry Hub, Louisiana, as measured by the changes
in the average of the prices of 12 futures contracts on natural gas
traded on NYMEX (the ``Natural Gas Benchmark Futures Contracts''), less
the 12 Month Natural Gas Fund's expenses.\9\ With respect to both
funds, when calculating the daily movement of the average price of the
relevant twelve futures contracts, each contract month will be equally
weighted.
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\7\ A detailed discussion of the underlying benchmark for each
Fund, dissemination of the values thereof, investment objective of
the Funds, portfolio investment methodology, investment techniques,
availability of information and key values, creation and redemption
of Units, dividends and distributions, Amex's initial and continued
listing standards, Amex trading rules and trading halts, information
circular to Exchange members, and other related information
regarding the Funds can be found in the Notice. See supra note 3.
\8\ The Oil Benchmark Futures Contracts consist of the near
month contract to expire and the contracts for the following eleven
months, for a total of twelve consecutive months' contracts, except
when the near month contract is within two weeks of expiration, in
which case it will be measured by the futures contracts that are the
next month contract to expire and the contracts for the eleven
consecutive months following that contract. The average price is
determined by summing up the 12 individual monthly prices and
dividing them by 12, and then comparing that result to the prior
day's average price determined in the same fashion. The composition
of the Oil Benchmark Futures Contracts will be changed or ``rolled''
over a one day period by selling the near month contract and buying
the contract, which at that time is the thirteen month contract.
\9\ The Natural Gas Benchmark Futures Contracts consist of the
near month contract to expire and the contracts for the following
eleven months, for a total of twelve consecutive months' contracts,
except when the near month contract is within two weeks of
expiration, in which case it will be measured by the futures
contracts that are the next month contract to expire and the
contracts for the eleven consecutive months following that contract.
The average price is determined by summing up the 12 individual
monthly prices and dividing them by 12, and then comparing that
result to the prior day's average price determined in the same
fashion. The composition of the Natural Gas Benchmark Futures
Contract will be changed or ``rolled'' over a one day period by
selling the near month contract and buying the contract which at
that time is the thirteen month contract on the same day.
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The General Partner for the Funds will employ a ``neutral''
investment strategy intended to track the changes in the price of crude
oil and natural gas, respectively, regardless of whether the price of
those commodities goes up or goes down. The ``neutral'' investment
strategy is designed to permit investors to purchase and sell the
Funds' Units for the purpose of investing indirectly in crude oil and
natural gas in a cost-effective manner and/or to permit market
participants to hedge the risk of losses in crude oil or natural gas
investments.
III. Commission Findings and Accelerated Approval
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations
[[Page 67614]]
thereunder applicable to a national securities exchange.\10\ In
particular, the Commission finds that the proposed rule change is
consistent with section 6(b)(5) of the Act,\11\ which requires that an
exchange have rules designed, among other things, 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, and, in general to protect
investors and the public interest; and is not designed to permit unfair
discrimination between customers, issuers, brokers, or dealers, or to
regulate by virtue of any authority conferred by the Act matters not
related to the purpose of the Act or the administration of the
Exchange. The Commission notes that it previously approved the original
listing and trading of certain partnership units similar to the
Units.\12\
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\10\ In approving this proposed rule change, the Commission
notes that it has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\11\ 15 U.S.C. 78f(b)(5).
\12\ See Securities Exchange Act Release Nos. 53582 (March 31,
2006), 71 FR 17510 (April 6, 2006) (SR-Amex-2005-127) (approving
Amex Rules 1500-AEMI and 1501 through 1505 in conjunction with the
listing and trading of Units of the United States Oil Fund, LP); and
55632 (April 13, 2007), 72 FR 19987 (April 20, 2007) (SR-Amex-2006-
112) (approving the listing and trading of shares of the United
States Natural Gas Fund, LP).
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The Commission further believes that the proposal is consistent
with section 11A(a)(1)(C)(iii) of the Act,\13\ which sets forth
Congress' finding that it is in the public interest and appropriate for
the protection of investors and the maintenance of fair and orderly
markets to assure the availability to brokers, dealers, and investors
of information with respect to quotations for and transactions in
securities. The Amex will disseminate for each Partnership every 15
seconds throughout Amex's trading day by means of the Consolidated Tape
Association/Consolidated Quote High Speed Lines information with
respect to the indicative partnership value (``IPV''). The Exchange
will also make available on its Web site daily trading volume, the
closing prices, and the NAV. Web site disclosure of portfolio holdings
for both Funds will be made daily and will include, as applicable, the
specific types, the name and value of each Crude Oil or Natural Gas
Interest, the specific types of Crude Oil or Natural Gas Interests and
characteristics of such Crude Oil or Natural Gas Interests, Treasuries,
and amount of Cash held in the portfolio of the Funds. In addition,
Amex represented that quotations and last-sale information regarding
the Futures Contracts are widely disseminated through a variety of
market data vendors worldwide, including Bloomberg and Reuters. In
addition, the Exchange further represented that real-time futures data
is available by subscription from Reuters and Bloomberg.
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\13\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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Furthermore, the Commission believes that the proposal to list and
trade the Units is reasonably designed to promote fair disclosure of
information that may be necessary to price the Units appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. The Commission also believes that the Exchange's trading halt
rules are reasonably designed to prevent trading in the Units when
transparency is impaired. Trading in the Units will be halted in the
event the market volatility trading halt parameters set forth in Amex
Rule 117 have been reached. In addition, Amex Rule 1502(b)(ii)-(iii)
provides that, if the IPV or the underlying benchmark futures contract
of a Fund is not being disseminated as required, the Exchange may halt
trading during the day in which the interruption to the dissemination
occurs. If the interruption to the dissemination of the IIV or the
underlying benchmark futures contract 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.
The Commission further believes that the trading rules and
procedures to which the Units will be subject pursuant to this proposal
are consistent with the Act. The Exchange has represented that the
Units will be traded on the Exchange similar to other equity
securities.
In support of this proposal, the Exchange has made the following
representations:
(1) The Exchange will obtain a representation from each
Partnership, prior to listing, that the NAV per Unit for each Fund will
be calculated daily and made available to all market participants at
the same time. In addition, the Exchange represents that disclosure of
the portfolio composition for each Fund will be made to all market
participants at the same time.
(2) The Exchange's surveillance procedures are adequate to deter
and detect violations of Exchange rules relating to trading of the
Units. Specifically, the surveillance procedures will be similar to
those used for units of the United States Oil Fund, LP and the United
States Natural Gas Fund, LP as well as other commodity-based trusts,
trust issued receipts, and exchange-traded funds. In addition, the
surveillance procedures will incorporate and rely upon existing Amex
surveillance procedures governing options and equities. The Exchange
currently has in place a comprehensive surveillance sharing agreement
with each of NYMEX and ICE Futures for the purpose of providing
information in connection with trading in, or related to, futures
contracts traded on NYMEX and ICE Futures, respectively. To the extent
that a Partnership invests in Crude Oil Interests or Natural Gas
Interests traded on other exchanges, the Amex will enter into
comprehensive surveillance sharing agreements with those particular
exchanges. The Exchange has represented that each of the Partnerships
will only invest in futures contracts on markets where the Exchange has
entered into the appropriate comprehensive surveillance sharing
agreements.
(3) Prior to the commencement of trading, the Exchange will inform
its members and member organizations in an Information Circular. The
Information Circular will discuss the special characteristics, and
risks, of trading in the Units. Specifically, the Information Circular,
among other things, will discuss what the Units are, how a basket of
Units is created and redeemed, the requirement that members and member
firms deliver a prospectus to investors purchasing the Units prior to,
or concurrently with, the confirmation of a transaction, applicable
Amex rules, dissemination of information regarding the per-Unit IPV,
trading information, and applicable suitability rules. The Information
Circular will also reference the fact that there is no regulated source
of last sale information regarding physical commodities, and describe
the regulatory framework relating to the trading of crude oil, natural
gas, heating oil, gasoline, or other petroleum-based fuels and crude
oil- and natural gas-based futures contracts and related options. The
Information Circular will also discuss any relief, if granted, by the
Commission or the staff from any rules under the Act.
(4) The Trust is required to comply with Rule 10A-3 under the Act
\14\ for the initial and continued listing of the Units.
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\14\ 17 CFR 240.10A-3.
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[[Page 67615]]
This approval order is based on the Exchange's representations.
Acceleration
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\15\ for approving the proposed rule change, as amended, prior
to the thirtieth day after the date of publication of notice in the
Federal Register. The Commission notes that the present proposal is
similar to prior proposals that the Commission has approved,\16\ is
consistent with current Amex listing requirements, and received no
comments following publication in the Federal Register. The Commission
does not believe that the proposed rule change, as amended, raises
novel regulatory issues. Consequently, the Commission believes that it
is appropriate to permit investors to benefit from these additional
investment choices without delay.
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\15\ 15 U.S.C. 78s(b)(2).
\16\ See supra, note 12.
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Accordingly, the Commission finds that there is good cause,
consistent with section 6(b)(5) of the Act,\17\ to approve the
proposal, as amended, on an accelerated basis.
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\17\ 15 U.S.C. 78s(b)(5).
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V. Conclusion
It is therefore ordered, pursuant to section 19(b)(2) of the
Act,\18\ that the proposed rule change (SR-Amex-2007-98), as amended,
be, and is hereby approved on an accelerated basis.
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\18\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\19\
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\19\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-23169 Filed 11-28-07; 8:45 am]
BILLING CODE 8011-01-P