[Federal Register Volume 75, Number 110 (Wednesday, June 9, 2010)]
[Notices]
[Pages 32828-32831]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-13826]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-62213; File No. SR-NYSEArca-2010-22]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change Relating to Listing of the Teucrium
Corn Fund
June 3, 2010.
I. Introduction
On March 31, 2010, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
list and trade shares of the Teucrium Corn Fund under NYSE Arca
Equities Rule 8.200. The proposed rule change was published for comment
in the Federal Register on April 29, 2010.\3\ The Commission received
no comments on the proposal. This order grants approval of the proposed
rule change.
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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. 61954 (April 21,
2010), 75 FR 22663 (``Notice'').
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II. Description of the Proposal
The Exchange proposes to list and trade shares (``Shares'') of the
Teucrium Corn Fund (``Fund'') pursuant to NYSE Arca Equities Rule
8.200. NYSE Arca Equities Rule 8.200, Commentary .02, permits the
trading of Trust Issued Receipts either by listing or pursuant to
unlisted trading privileges.\4\
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\4\ Commentary .02 to NYSE Arca Equities Rule 8.200 applies to
Trust Issued Receipts that invest in ``Financial Instruments.'' The
term ``Financial Instruments,'' as defined in Commentary .02(b)(4)
to NYSE Arca Equities Rule 8.200, means any combination of
investments, including cash; securities; options on securities and
indices; futures contracts; options on futures contracts; forward
contracts; equity caps, collars and floors; and swap agreements.
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The Shares represent beneficial ownership interests in the Fund,
which is a commodity pool that is a series of the Teucrium Commodity
Trust (``Trust''), a Delaware statutory trust.\5\ The Fund is managed
and controlled by Teucrium Trading, LLC (``Sponsor''). The Sponsor is a
Delaware limited liability company that is registered as a commodity
pool operator with the Commodity Futures Trading Commission (``CFTC'')
and is a member of the National Futures Association.
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\5\ See Amendment No. 3 to the Registration Statement on Form S-
1 for the Trust, dated March 29, 2010 (File No. 333-162033)
(``Registration Statement'').
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The investment objective of the Fund is to have the daily changes
in percentage terms of the Fund's net asset value (``NAV'') per Share
reflect the daily changes in percentage terms of a weighted average of
the closing settlement prices for three futures contracts for corn
(``Corn Futures Contracts'') that are traded on the Chicago Board of
Trade (``CBOT''): (1) The second-to-expire CBOT Corn Futures Contract,
weighted 35%; (2) the third-to-expire CBOT Corn Futures Contract,
weighted 30%; and (3) the CBOT Corn Futures Contract expiring in the
December following the expiration month of the third-to-expire
contract, weighted 35%, less the Fund's expenses. This weighted average
of the three referenced Corn Futures Contracts is referred to herein as
the ``Benchmark,'' and the three Corn Futures Contracts that at any
given time make up the Benchmark are referred to herein as the
``Benchmark Component Futures Contracts.'' \6\
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\6\ Corn Futures Contracts traded on CBOT expire on a specified
day in five different months: March, May, July, September, and
December. In terms of the Benchmark, in June of a given year, the
next-to-expire or ``spot month'' Corn Futures Contract will expire
in July of that year, and the Benchmark Component Futures Contracts
will be the contracts expiring in September of that year (the
second-to-expire contract), December of that year (the third-to-
expire contract), and December of the following year. In November of
a given year, the Benchmark Component Futures Contracts will be the
contracts expiring in March, May, and December of the following
year.
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The Fund seeks to achieve its investment objective by investing
under normal market conditions in Benchmark Component Futures Contracts
or, in certain circumstances, in other Corn Futures Contracts traded on
CBOT or on foreign exchanges.\7\ In addition, and to
[[Page 32829]]
a limited extent, the Fund also may invest in corn-based swap
agreements that are cleared through CBOT or its affiliated provider of
clearing services (``Cleared Corn Swaps'') in furtherance of the Fund's
investment objective. Once position limits in Corn Futures Contracts
are applicable,\8\ the Fund's intention is to invest first in Cleared
Corn Swaps to the extent permitted by the position limits applicable to
Cleared Corn Swaps and appropriate in light of the liquidity in the
Cleared Corn Swap market, and then in contracts and instruments such as
cash-settled options on Corn Futures Contracts and forward contracts,
swaps other than Cleared Corn Swaps, and other over-the-counter
transactions that are based on the price of corn and Corn Futures
Contracts (collectively, ``Other Corn Interests,'' and together with
Corn Futures Contracts and Cleared Corn Swaps, ``Corn Interests''). By
utilizing certain or all of these investments, the Sponsor will
endeavor to cause the Fund's performance, before taking Fund expenses
and any interest income from the cash, cash equivalents, and Treasury
Securities (as defined herein) held by the Fund into account, to
closely track that of the Benchmark.
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\7\ Corn futures volume on CBOT for 2008 and 2009 (through
November 30, 2009) was 59,934,739 contracts and 47,754,866
contracts, respectively. As of March 16, 2010, CBOT open interest
for corn futures was 1,118,103 contracts, and open interest for
near-month futures was 447,554 contracts. The contract price was
$18,337.50 ($3.6675 per bushel and 5,000 bushels per contract). The
approximate value of all outstanding contracts was $20.5 billion.
The position limits for all months is 22,000 contracts, and the
total value of contracts if position limits were reached would be
approximately $403.5 million (based on the $18,337.50 contract
price). As of March 16, 2010, open interest in corn swaps cleared on
CBOT was approximately 2,100 contracts, with an approximate value of
$38.5 million. Corn futures and options are also traded on NYSE
Liffe, and corn futures are traded on the Tokyo Grain Exchange.
\8\ See infra note 21.
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The Fund's positions in Corn Interests will be changed, or
``rolled,'' on a regular basis in order to track the changing nature of
the Benchmark. For example, five times a year (on the date on which a
Corn Futures Contract expires), the second-to-expire Corn Futures
Contract will become the next-to-expire Corn Futures Contract and will
no longer be a Benchmark Component Futures Contract, and the Fund's
investments will have to be changed accordingly. In order that the
Fund's trading does not cause unwanted market movements and to make it
more difficult for third parties to profit by trading based on such
expected market movements, the Fund's investments typically will not be
rolled entirely on that day, but rather will typically be rolled over a
period of several days.
The Fund will invest in Corn Interests to the fullest extent
possible without being leveraged or unable to satisfy its expected
current or potential margin or collateral obligations with respect to
its investments in Corn Interests.\9\ After fulfilling such margin and
collateral requirements, the Fund will invest the remainder of its
proceeds from the sale of baskets in short-term obligations of the
United States government (``Treasury Securities'') or cash equivalents,
and/or merely hold such assets in cash (generally in interest-bearing
accounts). Therefore, the focus of the Sponsor in managing the Fund is
investing in Corn Interests and in Treasury Securities, cash, and/or
cash equivalents. The Fund will earn interest income from the Treasury
Securities and/or cash equivalents that it purchases and on the cash it
holds through the Fund's custodian, the Bank of New York Mellon.
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\9\ The Sponsor represents that the Fund will invest in Corn
Interests in a manner consistent with the Fund's investment
objective and not to achieve additional leverage.
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The Sponsor will employ a ``neutral'' investment strategy intended
to track the changes in the Benchmark regardless of whether the
Benchmark goes up or goes down and will endeavor to place the Fund's
trades in Corn Interests and otherwise manage the Fund's investments so
that the Fund's average daily tracking error against the Benchmark will
be less than 10 percent over any period of 30 trading days. More
specifically, the Sponsor will endeavor to manage the Fund so that A
will be within plus/minus 10 percent of B, where A is the average daily
change in the Fund's NAV for any period of 30 successive valuation
days, i.e., any trading day as of which the Fund calculates its NAV,
and B is the average daily change in the Benchmark over the same
period.
The Sponsor believes that market arbitrage opportunities will cause
the Fund's Share price on the NYSE Arca to closely track the Fund's NAV
per share and that the net effect of this expected relationship and the
expected relationship between the Fund's NAV and the Benchmark will be
that the changes in the price of the Fund's Shares on NYSE Arca will
closely track, in percentage terms, changes in the Benchmark, less the
Fund's expenses.
The CFTC and U.S. designated contract markets such as CBOT may
establish 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 (other than as a hedge) may hold, own, or
control. For example, the current position limits for investments at
any one time in the Corn Futures Contracts traded on CBOT are 600 spot
month contracts, 13,500 contracts expiring in any other single month,
and 22,000 total for all months. These position limits are fixed
ceilings that the Fund would not be able to exceed without specific
CFTC authorization.
In addition to position limits, the futures exchanges set daily
price fluctuation limits on futures contracts. The daily price
fluctuation limit establishes the maximum amount that the price of
futures contracts may vary either up or down from the previous day's
settlement price. Once the daily price fluctuation limit has been
reached in a particular futures contract, no trades may be made at a
price beyond that limit.
The Fund does not intend to limit the size of the offering and will
attempt to utilize substantially all of its proceeds to purchase Corn
Interests. If the Fund encounters position limits, accountability
levels, or price fluctuation limits for Corn Futures Contracts on CBOT,
it may then, if permitted under applicable regulatory requirements,
purchase Other Corn Interests and/or Corn Futures Contracts listed on
foreign exchanges. The Corn Futures Contracts available on such foreign
exchanges may have different underlying sizes, deliveries, and prices.
In addition, the Corn Futures Contracts available on these exchanges
may be subject to their own position limits and accountability levels.
In certain circumstances, however, position limits could force the Fund
to limit the number of creation baskets that it sells.
The Exchange represents that the Fund will meet the initial and
continued listing requirements applicable to Trust Issued Receipts in
NYSE Arca Equities Rule 8.200 and Commentary .02 thereto. With respect
to application of Rule 10A-3 under the Act,\10\ the Trust will rely on
the exception contained in Rule 10A-3(c)(7).\11\ A minimum of 100,000
Shares will be outstanding as of the start of trading on the Exchange.
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\10\ 17 CFR 240.10A-3.
\11\ 17 CFR 240.10A-3(c)(7).
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Additional details regarding the trading policies of the Fund,
creations and redemptions of the Shares, Corn Interests and other
aspects of the corn and Corn Interest markets, investment risks,
Benchmark performance, NAV calculation, the dissemination and
availability of information about the underlying assets, trading halts,
applicable trading rules, surveillance, and the Information Bulletin,
among other things, can be found in the Notice
[[Page 32830]]
and/or the Registration Statement, as applicable.\12\
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\12\ See supra notes 3 and 5.
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III. Discussion and Commission's Findings
After careful consideration, the Commission finds that the proposed
rule change to list and trade the Shares of the Fund is consistent with
the requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\13\ In particular, the
Commission finds that the proposed rule change is consistent with the
requirements of Section 6(b)(5) of the Act,\14\ which requires, among
other things, that the Exchange's rules be 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.
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\13\ 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).
\14\ 15 U.S.C. 78f(b)(5).
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The Commission finds that the proposal to list and trade the Shares
on the Exchange is also consistent with Section 11A(a)(1)(C)(iii) of
the Act,\15\ 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. Quotation and last-
sale information regarding the Shares will be disseminated through the
facilities of the Consolidated Tape Association (``CTA''), and 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 p.m. Eastern Time (``E.T.''). In addition, the Indicative Trust
Value (``ITV'') will be disseminated on a per-Share basis by one or
more major market data vendors every 15 seconds during the NYSE Arca
Core Trading Session.\16\ The Fund will provide Web site disclosure of
portfolio holdings daily and will include, as applicable, the names,
quantity, price, and market value of Financial Instruments \17\ and the
characteristics of such instruments and cash equivalents, and amount of
cash held in the portfolio of the Fund. The closing price and
settlement prices of the Corn Futures Contracts are readily available
from CBOT, automated quotation systems, published or other public
sources, or on-line information services such as Bloomberg or Reuters,
and the spot price of corn also is available on a 24-hour basis from
major market data vendors. The NAV for the Fund will be calculated by
the Administrator once a day and will be disseminated daily to all
market participants at the same time, and the Web site for the Fund
(http://www.teucriumcornfund.com) and/or the Exchange will contain the
prospectus and additional data relating to NAV and other applicable
quantitative information.
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\15\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\16\ The normal trading hours for Corn Futures Contracts on CBOT
are 10:30 a.m. to 2:15 p.m. E.T. The ITV will not be updated, and,
therefore, a static ITV will be disseminated, between the close of
trading on CBOT of Corn Futures Contracts and the close of the NYSE
Arca Core Trading Session. The value of a Share may be influenced by
non-concurrent trading hours between NYSE Arca and CBOT when the
Shares are traded on NYSE Arca after normal trading hours of Corn
Futures Contracts on CBOT.
\17\ See supra note 4.
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The Commission further believes that the proposal to list and trade
the Shares is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading when a reasonable degree of transparency cannot be
assured. 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. Further, the Exchange represents
that it may halt trading during the day in which an interruption to the
dissemination of the ITV or the value of the underlying futures
contracts occurs. If the interruption to the dissemination of the ITV
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.
In addition, the Web site disclosure of the portfolio composition of
the Fund will occur at the same time as the disclosure by the Sponsor
of the portfolio composition to Authorized Purchasers (as defined in
the Registration Statement) 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 Purchasers.
Accordingly, each investor will have access to the current portfolio
composition of the Fund through the Fund's Web site. Lastly, the
trading of the Shares will be subject to NYSE Arca Equities Rule 8.200,
Commentary .02(e), which sets forth certain restrictions on ETP
Holders\18\ acting as registered Market Makers\19\ in Trust Issued
Receipts to facilitate surveillance.
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\18\ See NYSE Arca Equities Rule 1.1(n) (defining ETP Holder).
\19\ See NYSE Arca Equities Rule 1.1(u) (defining Market Maker).
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The Exchange has represented that the Shares are deemed equity
securities subject to the Exchange's rules governing the trading of
equity securities. In support of this proposal, the Exchange has made
representations, including the following:
(1) The Fund will meet the initial and continued listing
requirements applicable to Trust Issued Receipts in NYSE Arca Equities
Rule 8.200 and Commentary .02 thereto.
(2) The Exchange has appropriate rules to facilitate transactions
in the Shares during all trading sessions.
(3) The Exchange's surveillance procedures are adequate to properly
monitor Exchange trading of the Shares in all trading sessions and to
deter and detect violations of Exchange rules and applicable Federal
securities laws.
(4) With respect to Fund assets traded on exchanges, not more than
10% of the weight of such assets in the aggregate shall consist of
components whose principal trading market is not a member of the
Intermarket Surveillance Group or is a market with which the Exchange
does not have a comprehensive surveillance sharing agreement.
(5) 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: (a)
The risks involved in trading the Shares during the Opening and Late
Trading Sessions when an updated ITV will not be calculated or publicly
disseminated; (b) the procedures for purchases and redemptions of
Shares (and that Shares are not individually redeemable); (c) NYSE Arca
Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP
Holders to learn the essential facts relating to every customer prior
to trading the Shares; (d) how information regarding the ITV is
disseminated; (e) the requirement that ETP Holders deliver a prospectus
to investors purchasing newly issued Shares prior to or concurrently
with the confirmation of
[[Page 32831]]
a transaction; and (f) trading information.
(6) A minimum of 100,000 Shares will be outstanding as of the start
of trading on the Exchange.
(7) With respect to the application of Rule 10A-3 under the Act,
the Trust will rely on the exception contained in Rule 10A-3(c)(7).\20\
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\20\ See supra notes 10 and 11 and accompanying text.
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This approval order is based on the Exchange's representations.\21\
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\21\ The Commission notes that it does not regulate the market
for the futures in which the Fund plans to take positions, which is
the responsibility of the CFTC. The CFTC has the authority to set
limits on the positions that any person may take in futures on
commodities. These limits may be directly set by the CFTC, or by the
markets on which the futures are traded. The Commission has no role
in establishing position limits on futures in commodities, even
though such limits could impact a commodity-based exchange-traded
product that is under the jurisdiction of the Commission.
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For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with the Act and the rules and regulations
thereunder applicable to a national securities exchange.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\22\ that the proposed rule change (SR-NYSEArca-2010-22) be, and it
hereby is, approved.
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\22\ 15 U.S.C. 78f(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
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\23\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-13826 Filed 6-8-10; 8:45 am]
BILLING CODE 8010-01-P