[Federal Register Volume 76, Number 18 (Thursday, January 27, 2011)]
[Notices]
[Pages 4963-4965]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-1728]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-63753; File No. SR-NYSEArca-2010-110]
Self-Regulatory Organizations; NYSE Arca, Inc.; Order Approving a
Proposed Rule Change To List and Trade Shares of the Teucrium Natural
Gas Fund
January 21, 2011.
I. Introduction
On December 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 shares of the Teucrium Natural
Gas Fund under NYSE Arca Equities Rule 8.200. The proposed rule change
was published for comment in the Federal Register on December 15,
2010.\3\ The Commission received no comments on the proposal. This
order approves 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. 63493 (December 9,
2010), 75 FR 78290 (``Notice'').
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II. Description of the Proposal
The Exchange proposes to list and trade shares (``Shares'') of the
Teucrium Natural Gas 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. 1 to registration statement on Form S-1
for Teucrium Commodity Trust, dated September 7, 2010 (File No. 333-
167593) relating to the Teucrium Natural Gas Fund (``Registration
Statement'').
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The investment objective of the Fund is to have the daily changes
in percentage terms of the Shares' net asset value (``NAV'') reflect
the daily changes in percentage terms of a weighted average of the
following: the nearest to spot month March, April, October and November
Henry Hub Natural Gas Futures Contracts (``Natural Gas Futures
Contracts'') traded on the NYMEX, weighted 25% equally in each contract
month, less the Fund's expenses.\6\ The Sponsor employs a ``neutral''
investment strategy intended to track the changes in the Gas Benchmark
regardless of whether the Gas Benchmark goes up or down.
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\6\ This weighted average of the four referenced Natural Gas
Futures Contracts is referred to herein as the ``Gas Benchmark,''
and the four Natural Gas Futures Contracts that at any given time
make up the Gas Benchmark are referred to herein as the ``Gas
Benchmark Component Futures Contracts.''
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The Fund seeks to achieve its investment objective by investing
under normal market conditions in Gas Benchmark Component Futures
Contracts or, in certain circumstances, in other Natural Gas Futures
Contracts traded on the New York Mercantile Exchange (``NYMEX''),
Intercontinental Exchange (``ICE''), and other foreign exchanges. In
addition, and to a limited extent, the Fund will invest in natural gas-
based swap agreements that are cleared through the ICE or its
affiliated provider of clearing services (``Cleared Natural Gas
Swaps'') to the extent permitted and appropriate in light of the
liquidity in the Cleared Natural Gas Swap market. Once position limits
in Natural Gas Futures Contracts are applicable, the Fund may also
invest first in Cleared Natural Gas Swaps to the extent permitted by
the position limits applicable to Cleared Natural Gas Swaps and
appropriate in light of the liquidity in the Cleared Natural Gas Swaps
market, and then in contracts and instruments such as cash-settled
options on Natural Gas Futures Contracts and forward contracts, swaps
other than Cleared Natural Gas Swaps, and other over-the-counter
transactions that are based on the price of natural gas and Natural Gas
Futures Contracts (collectively, ``Other Natural Gas Interests'' and
together with Natural Gas Futures Contracts and Cleared Natural Gas
Swaps, ``Natural Gas Interests'').\7\
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\7\ The Fund will invest in Natural Gas Interests in a manner
consistent with the Fund's investment objective and not to achieve
additional leverage.
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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,\8\ the Trust will rely on
the exception contained in Rule 10A-3(c)(7).\9\ A minimum of 100,000
Shares will be outstanding as of the start of trading on the Exchange.
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\8\ 17 CFR 240.10A-3.
\9\ 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, Natural Gas Interests and
other aspects of the natural gas and Natural Gas 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
and/or the Registration Statement, as applicable.\10\
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\10\ 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.\11\ In particular, the
Commission finds that the proposed rule change is consistent with the
requirements of Section 6(b)(5) of the Act,\12\ which requires, among
[[Page 4964]]
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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\11\ 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).
\12\ 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,\13\ which sets forth Congress's 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 4:00 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.\14\ 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 \15\ 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 Natural Gas Futures Contracts are readily
available from NYMEX, automated quotation systems, published or other
public sources, or on-line information services such as Bloomberg or
Reuters, and the spot price of natural gas 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.teucriumnaturalgasfund.com) and/or the Exchange
will contain the prospectus and additional data relating to NAV and
other applicable quantitative information.
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\13\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
\14\ The normal trading hours for Natural Gas Futures Contracts
on NYMEX are 9 a.m. to 2:30 p.m. E.T. The ITV will not be updated,
and, therefore, a static ITV will be disseminated, between the close
of trading on NYMEX of Natural Gas 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 the
NYMEX and ICE when the Shares are traded on NYSE Arca after normal
trading hours of Natural Gas Futures Contracts on NYMEX.
\15\ 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
\16\ acting as registered Market Makers \17\ in Trust Issued Receipts
to facilitate surveillance.
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\16\ See NYSE Arca Equities Rule 1.1(n) (defining ETP Holder).
\17\ 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 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).\18\
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\18\ See supra notes 8 and 9 and accompanying text.
This approval order is based on the Exchange's representations.\19\
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\19\ 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,\20\ that the proposed rule change (SR-NYSEArca-2010-110) be, and
it hereby is, approved.
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\20\ 15 U.S.C. 78f(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
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\21\ 17 CFR 200.30-3(a)(12).
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Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-1728 Filed 1-26-11; 8:45 am]
BILLING CODE 8011-01-P