[Federal Register Volume 75, Number 73 (Friday, April 16, 2010)]
[Notices]
[Pages 20028-20030]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-8688]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-61881; File No. SR-NYSEArca-2010-14]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Accelerated Approval of Proposed Rule Change Relating to the Listing of
the United States Brent Oil Fund, LP
April 9, 2010.
I. Introduction
On March 3, 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 units of the United States Brent Oil Fund, LP. The
proposed rule change was published for comment in the Federal Register
on March 24, 2010.\3\ The Commission received no comments on the
proposed rule change. This order approves the proposed rule change 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. 61721 (March 16,
2010), 75 FR 14237 (``Notice'').
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II. Description of Proposed Rule Change
The Exchange proposes to list and trade units (``Units'') of the
United States Brent Oil Fund, LP (``USBO'') pursuant to NYSE Arca
Equities Rule 8.300, which governs the listing and trading of
partnership units on the Exchange.\4\ USBO, a Delaware limited
partnership, is a commodity pool that is managed and controlled by its
general partner, United States Commodity Funds LLC (``General
Partner''). The General Partner is a single member limited liability
company that was formed in Delaware on May 10, 2005 and is registered
as a commodity pool operator with the Commodity Futures Trading
Commission (``CFTC''), and is a member of the National Futures
Association. The General Partner is not affiliated with a broker-
dealer. The Exchange represents that USBO will comply with the
requirements NYSE Arca Equities Rule 8.300 \5\ and with the
requirements of Rule 10A-3 under the Act \6\ as it applies to limited
partnerships.
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\4\ USBO has filed with the Commission Amendment No. 2 to Form
S-1, dated January 22, 2010 (File No. 333-162015) (``Registration
Statement'').
\5\ The Exchange represents that a minimum of 100,000 Units will
be outstanding at the commencement of trading on the Exchange, the
net asset value (``NAV'') per Unit will be calculated daily, and the
NAV and the portfolio composition will be made available to all
market participants at the same time.
\6\ 17 CFR 240.10A-3.
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The net assets of USBO 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 ICE Futures
Exchange, New York Mercantile Exchange (``NYMEX''), or other U.S. and
foreign exchanges (collectively, ``Futures Contracts''). USBO may also
invest in other crude oil-related investments, such as cash-settled
options on Futures Contracts, forward contracts for crude oil, cleared
swap contracts and over-the-counter transactions that are based on the
price of crude oil, and other petroleum-based fuels, Futures Contracts,
and indices based on the foregoing (``Other Crude Oil-Related
Investments'' and, together with Futures Contracts, ``Crude Oil
Interests'').
USBO will invest in Crude Oil Interests to the fullest extent
possible without being leveraged or unable to satisfy its current or
potential margin or collateral obligations with respect to its
investments in Futures Contracts and Other Crude Oil-Related
Investments. The primary focus of the General Partner will be investing
in Futures Contracts and the management of investments in short-term
obligations of the United States of two years or less (``Treasuries''),
cash and/or cash equivalents for margining purposes and as collateral.
The investment objective of USBO is intended to have the daily
changes in percentage terms of its Units' NAV reflect the daily changes
in percentage terms of the spot price of Brent crude oil as measured by
the changes in the price of the futures contract on Brent crude oil, as
traded on ICE Futures Exchange that is the near-month contract to
expire, except when the near-month contract is within two weeks of
expiration, in which case the futures contract will be the next-month
contract to expire (``Benchmark Futures Contract''), less USBO's
expenses. The General Partner will employ a ``neutral'' investment
strategy intended to track the changes in the price of the Benchmark
Futures Contract regardless of whether the price goes up or goes down.
USBO may invest in Crude Oil Interests other than the Benchmark Futures
Contract to comply with accountability levels and position limits. On
each day during a four-day period, the General Partner anticipates it
will ``roll'' USBO's positions in oil investments by closing, or
selling, a percentage of USBO's positions in Crude Oil Interests and
reinvesting the proceeds from closing those positions in new Crude Oil
Interests that reflect the change in the Benchmark Futures Contract.
The Exchange represents that USBO will create and redeem Units only
in blocks of 100,000 Units called Creation Baskets and Redemption
Baskets, respectively. Only Authorized Purchasers may purchase or
redeem Creation Baskets or Redemption Baskets.
Additional information regarding the Units, USBO, the investment
objective, policies, investment strategies, accountability levels,
position limits, calculation of NAV, availability of information,
trading rules and halts, and surveillance procedures, among other
things, can be found in the Registration Statement and in the Notice,
as applicable.\7\
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\7\ See supra notes 3 and 4.
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III. Discussion and Commission's Findings
After careful review, the Commission finds that NYSE Arca's
proposal to list and trade the Units is consistent with
[[Page 20029]]
the requirements of the Act and the rules and regulations thereunder
applicable to a national securities exchange.\8\ In particular, the
Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\9\ which requires that an exchange have
rules designed, among other things, to promote just and equitable
principles of trade, 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. The Commission notes that
it has previously approved the listing and trading of other petroleum-
based funds that are substantially similar to USBO.\10\
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\8\ In approving this 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).
\9\ 15 U.S.C. 78f(b)(5).
\10\ See, e.g., Securities Exchange Act Release Nos. 53582
(March 31, 2006), 71 FR 17510 (April 6, 2006) (SR-Amex-2005-127)
(order approving listing and trading on the American Stock Exchange
LLC (``Amex'') of United States Oil Fund, LP); 56831 (November 21,
2007), 72 FR 67612 (November 29, 2007) (SR-Amex-2007-98) (order
approving listing and trading on the Amex of United States 12 Month
Oil Fund, LP and United States 12 Month Natural Gas Fund, LP); 55632
(April 13, 2007), 72 FR 19987 (April 20, 2007) (SR-Amex-2006-112)
(order approving listing and trading on the Amex of United States
Natural Gas Fund, LP); 57188 (January 23, 2008), 73 FR 5607 (January
30, 2008) (SR-Amex-2007-70) (order approving listing and trading on
the Amex of United States Heating Oil Fund, LP and United States
Gasoline Fund, LP); 58965 (November 17, 2008), 73 FR 71078 (November
24, 2008) (SR-NYSEArca-2008-127) (order approving listing and
trading on the Exchange of United States Oil Fund, LP, United States
12 Month Oil Fund, LP, United States Heating Oil Fund, LP, United
States Gasoline Fund, LP, United States 12 Month Natural Gas Fund,
LP and United States Natural Gas Fund, LP); and 59173 (December 29,
2008), 74 FR 490 (January 6, 2009) (SR-NYSEArca-2008-125) (order
approving listing and trading on the Exchange of United States Short
Oil Fund, LP).
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The Commission finds that the proposal to list and trade the Units
on the Exchange is also consistent with Section 11A(a)(1)(C)(iii) of
the Act,\11\ which sets forth Congress' finding that it is in the
public interest and appropriate for the protection of investors and
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 for the Units will be disseminated through the
facilities of the Consolidated Tape Association, and the Indicative
Partnership Value (``IPV'') will be calculated, updated and
disseminated on a per-Unit basis every 15 seconds during the Exchange's
Core Trading Session by one or more major market data vendors. In
addition, USBO will make available on its Web site on each business day
its total portfolio composition that will include, as applicable, the
name and value of each Crude Oil Interest, the specific types of Other
Crude Oil-Related Investments, Treasuries, and the amount of cash and
cash equivalents held in USBO's portfolio. With respect to information
regarding the underlying Futures Contracts, ICE Futures Exchange
disseminates price information on the Futures Contracts traded on the
ICE Futures Exchange on a real-time basis during normal trading hours
on the ICE Futures Exchange from 8 p.m. to 6 p.m. Eastern Time. With
respect to any Futures Contracts that are traded on NYMEX, NYMEX
disseminates price information on a real-time basis during normal
trading hours on NYMEX from 10 a.m. to 2:30 p.m. E.T.
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\11\ 15 U.S.C. 78k-l(a)(1)(C)(iii).
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The Commission further believes that the proposal 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
notes that if the Exchange becomes aware that the NAV or the portfolio
composition applicable to the Units is not disseminated to all market
participants at the same time, the Exchange will halt trading in the
Units. Further, if the indicative partnership value or the underlying
benchmark investment, commodity or asset applicable to the Units is not
being disseminated as required, the Exchange may halt trading during
the day in which the interruption first occurs; if the interruption
persists past the trading day on which it occurred, the Exchange will
halt trading no later than the beginning of the trading day following
the interruption.\12\
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\12\ Trading in the Units may also be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Units inadvisable. These may include: The extent to
which trading is not occurring in the underlying Futures Contracts;
or (2) whether other unusual conditions or circumstances detrimental
to the maintenance of a fair and orderly market are present; or (3)
pursuant to the Exchange's ``circuit breaker'' rule (see NYSE Arca
Equities Rule 7.12).
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The Exchange has represented that the Units are 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:
1. USBO will comply with the requirements of NYSE Arca Equities
Rule 8.300, which includes initial and continued listing criteria.
2. The Exchange has appropriate rules to facilitate transactions in
this type of security in all trading sessions.
3. The Exchange's surveillance procedures are adequate to properly
monitor the trading of the Units in all trading sessions and to deter
and detect violations of Exchange rules and applicable Federal
securities laws.
4. 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 Units.
Specifically, the Information Bulletin will discuss the following: (a)
The risks involved in trading the Units during the Opening and Late
Trading Sessions (for Futures Contracts traded on ICE Futures), or, in
addition, part of the Core Trading Session (for Futures Contracts
traded on NYMEX) when an updated IPV will not be calculated or publicly
disseminated; (b) the procedures for purchases and redemptions of Units
(and that Units 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 Units; (d) how information regarding the IPV is
disseminated; (e) the requirement that ETP Holders deliver a prospectus
to investors purchasing newly issued Units prior to or concurrently
with the confirmation of a transaction; and (f) trading information.
5. USBO will be in compliance with Rule 10A-3 under the Act.\13\
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\13\ 17 CFR 240.10A-3.
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6. To the extent that USBO invests in Futures Contracts traded on
exchanges other than ICE Futures Exchange and NYMEX, not more than 10%
of USBO's assets in the aggregate shall consist of Crude Oil Interests
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.
This approval order is based on the Exchange's representations.\14\
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\14\ The Commission notes that it does not regulate the market
for the futures in which USBO 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
[[Page 20030]]
thereunder applicable to a national securities exchange.
IV. Accelerated Approval
The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\15\ for approving the proposal prior to the thirtieth day
after the publication of the Notice in the Federal Register. The
Commission notes that it has approved the listing and trading of other
limited partnerships, the characteristics of which are substantially
similar to USBO.\16\ The Commission also notes that it has not received
any comments regarding this proposal. The Commission believes that the
proposal to list and trade the Units does not raise any novel
regulatory issues and accelerating approval of this proposal should
benefit investors by creating, without undue delay, additional
competition in the market for limited partnership units.
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\15\ 15 U.S.C. 78s(b)(2).
\16\ See supra note 10 and accompanying text.
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V. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\17\ that the proposed rule change (SR-NYSEArca-2010-14) be, and it
hereby is, approved on an accelerated basis.
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\17\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\18\
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\18\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. 2010-8688 Filed 4-15-10; 8:45 am]
BILLING CODE 8011-01-P