Federal Register / Vol. 76, No. 1 / Monday, January 3, 2011 / Notices 199 

23 15 U.S.C. 78f(b)(5). 

24 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

Information Bulletin 

Prior to the commencement of 

trading, the Exchange will inform its 

ETP Holders in an Information Bulletin 

(‘‘Bulletin’’) of the special characteristics 

and risks associated with trading the 

Shares. Specifically, the Bulletin will 

discuss the following: (1) The 

procedures for purchases and 

redemptions of Shares in Creation Unit 

aggregations (and that Shares are not 

individually redeemable); (2) 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; (3) the risks involved 

in trading the Shares during the 

Opening and Late Trading Sessions 

when an updated Portfolio Indicative 

Value will not be calculated or publicly 

disseminated; (4) how information 

regarding the Portfolio Indicative Value 

is disseminated; (5) 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 (6) 

trading information. 

In addition, the Bulletin will 

reference that the Fund is subject to 

various fees and expenses described in 

the Registration Statement. The Bulletin 

will discuss any exemptive, no-action, 

and interpretive relief granted by the 

Commission from any rules under the 

Exchange Act. The Bulletin will also 

disclose that the NAV for the Shares 

will be calculated after 4:00 p.m. 

Eastern time each trading day. 

2. Statutory Basis 

The basis under the Exchange Act for 

this proposed rule change is the 

requirement under Section 6(b)(5) 23

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. The 

Exchange believes that the proposed 

rule change will facilitate the listing and 

trading of additional types of exchangetraded products that will enhance 

competition among market participants, 

to the benefit of investors and the 

marketplace. In addition, the listing and 

trading criteria set forth in Rule 8.600 

are intended to protect investors and the 

public interest. 

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 purposes of the Act. 

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 within such longer period 

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 e-mail to rulecomments@sec.gov. Please include File 

Number SR–NYSEArca–2010–116 on 

the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NYSEArca–2010–116. This 

file number should be included on the 

subject line if e-mail 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 Web site (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 Web site 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 

a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the principal office of the 

Exchange. All comments received will 

be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR– 

NYSEArca-2010–116 and should be 

submitted on or before January 18, 2011. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.24

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–32943 Filed 12–30–10; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–63610; File No. SR– 

NYSEArca–2010–10] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Order Granting Approval of 

Proposed Rule Change Relating to the 

Listing and Trading of the ProShares 

VIX Short-Term Futures ETF and the 

ProShares VIX Mid-Term Futures ETF 

December 27, 2010. 

I. Introduction 

On November 5, 2010, NYSE Arca, 

Inc. (‘‘Exchange’’) 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 (‘‘Shares’’) of the 

ProShares VIX Short-Term Futures ETF 

and the ProShares VIX Mid-Term 

Futures ETF (‘‘Funds’’) of the ProShares 

Trust II (‘‘Trust’’) under NYSE Arca 

Equities Rule 8.200, Commentary .02. 


jlentini on DSKJ8SOYB1PROD with NOTICES
200 Federal Register / Vol. 76, No. 1 / Monday, January 3, 2011 / Notices 

3See Securities Exchange Act Release No. 63317 

(November 16, 2010), 75 FR 71158 (‘‘Notice’’). 

4Commentary .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. 

5Standard & Poor’s Financial Services LLC is the 

index sponsor with respect to the Indexes. 

6The Funds have filed a Registration Statement 

on Form S–3 under the Securities Act of 1933, 

dated November 5, 2010 (File No. 333–163511) 

(‘‘Registration Statement’’). 

7See Notice and Registration Statement, supra 

notes 3 and 6. 

8 15 U.S.C. 78f. 

9 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). 

10 17 U.S.C. 78f(b)(5). 

11 15 U.S.C. 78k–1(a)(1)(C)(iii). 

The proposed rule change was 

published for comment in the Federal 

Register on November 22, 2010.3 The 

Commission received no comments on 

the proposal. This order grants approval 

of the proposed rule change. 

II. Description of the Proposal 

The Exchange proposes to list and 

trade the Shares of the Funds under 

NYSE Arca Equities Rule 8.200, 

Commentary .02.4 The Funds will seek 

to provide investment results (before 

fees and expenses) that match the 

performance of a benchmark that seeks 

to offer exposure to market volatility 

through publicly traded futures markets. 

The benchmark for ProShares VIX 

Short-Term Futures ETF is the S&P 500 

VIX Short-Term Futures Index and the 

benchmark for ProShares VIX Mid-Term 

Futures ETF is the S&P 500 VIX MidTerm Futures Index (each, an ‘‘Index,’’ 

and, collectively, ‘‘Indexes’’).5 The 

Funds will invest in futures contracts 

based on the Chicago Board Options 

Exchange (‘‘CBOE’’) Volatility Index 

(‘‘VIX’’) to pursue their respective 

investment objectives. Each Fund also 

may invest in cash or cash equivalents 

such as U.S. Treasury securities or other 

high credit quality short-term fixedincome or similar securities (including 

shares of money market funds, bank 

deposits, bank money market accounts, 

certain variable-rate demand notes, and 

repurchase agreements collateralized by 

government securities) that may serve as 

collateral for the futures contracts. 

ProShare Capital Management LLC, a 

Maryland limited liability company, 

serves as the Sponsor of the Trust and 

is a commodity pool operator and 

commodity trading advisor.6 Brown 

Brothers Harriman & Co. serves as the 

administrator (‘‘Administrator’’), 

custodian and transfer agent of the 

Funds and their respective Shares. SEI 

Investments Distribution Co. serves as 

distributor of the Shares. Wilmington 

Trust Company, a Delaware banking 

corporation, is the sole trustee of the 

Trust. 

If a Fund is successful in meeting its 

objective, its value (before fees and 

expenses) should gain approximately as 

much on a percentage basis as the level 

of its corresponding Index when it rises. 

Conversely, its value (before fees and 

expenses) should lose approximately as 

much on a percentage basis as the level 

of its corresponding Index when it 

declines. Each Fund will acquire 

exposure through VIX futures contracts 

traded on the CBOE Futures Exchange 

(‘‘CFE’’) (‘‘VIX Futures Contracts’’), such 

that each Fund has exposure intended 

to approximate the benchmark at the 

time of the net asset value (‘‘NAV’’) 

calculation. 

Each Fund will not be actively 

managed by traditional methods, which 

typically involve effecting changes in 

the composition of a portfolio on the 

basis of judgments relating to economic, 

financial, and market considerations 

with a view toward obtaining positive 

results under all market conditions. 

Rather, the Sponsor will seek to cause 

the NAV to track the performance of an 

Index, even during periods in which 

that benchmark is flat or moving in a 

manner which causes the NAV of a 

Fund to decline. 

The Indexes act as a measure of 

volatility as reflected by the price of 

certain VIX Futures Contracts (‘‘Index 

Components’’), with the price of each 

VIX Futures Contract reflecting the 

market’s expectation of future volatility. 

Each Index seeks to reflect the returns 

that are potentially available from 

holding an unleveraged long position in 

certain VIX Futures Contracts. Unlike 

the Indexes, the VIX, which is not a 

benchmark for either Fund, is calculated 

based on the prices of put and call 

options on the S&P 500, which are 

traded on the CBOE. 

The S&P 500 VIX Short-Term Futures 

Index employs rules for selecting the 

Index Components and a formula to 

calculate a level for the Index from the 

prices of these components. 

Specifically, the Index Components 

represent the prices of the two near-term 

VIX futures months, replicating a 

position that rolls the nearest month 

VIX Futures Contract to the next month 

VIX Futures Contract on a daily basis in 

equal fractional amounts. This results in 

a constant weighted average maturity of 

one month. The roll period begins on 

the Tuesday prior to the monthly CFE 

VIX Futures Contracts settlement date 

and runs through the Tuesday prior to 

the subsequent month’s CFE VIX 

Futures Contract settlement date. 

The S&P 500 VIX Mid-Term Futures 

Index also employs rules for selecting 

the Index Components and a formula to 

calculate the level of the Index from the 

prices of these components. 

Specifically, the Index Components 

represent the prices for four contract 

months of VIX Futures Contracts, 

representing a market-based estimation 

of constant maturity, five-month 

forward implied VIX values. The S&P 

500 VIX Mid-Term Futures Index 

measures the return from a rolling long 

position in the fourth, fifth, sixth, and 

seventh month VIX Futures Contracts, 

and rolls continuously throughout each 

month while maintaining positions in 

the fifth and sixth month contracts. This 

results in a constant weighted average 

maturity of five months. 

Additional information regarding the 

Funds and the Shares, the Indexes and 

calculation of Index values, investment 

strategies, risks, creation and 

redemption procedures, fees, portfolio 

holdings and disclosure policies, 

distributions and taxes, 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

III. Discussion and Commission’s 

Findings 

The Commission has carefully 

reviewed the proposed rule change and 

finds that it is consistent with the 

requirements of Section 6 of the Act 8

and the rules and regulations 

thereunder applicable to a national 

securities exchange.9 In particular, the 

Commission finds that the proposal is 

consistent with Section 6(b)(5) of the 

Act,10 which requires, among other 

things, that the Exchange’s rules be 

designed 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 the Shares must comply with the 

requirements of NYSE Arca Equities 

Rule 8.200, Commentary .02 to be listed 

and traded on the Exchange. 

The Commission finds that the 

proposal to list and trade the Shares on 

the Exchange is consistent with Section 

11A(a)(1)(C)(iii) of the Act,11 which sets 

forth Congress’ finding that it is in the 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 76, No. 1 / Monday, January 3, 2011 / Notices 201 

12A ‘‘Business Day’’ means any day other than a 

day when any of the NYSE, the NYSE Arca, the 

CBOE, or the CFE or other exchange material to the 

valuation or operation of the Funds, or the 

calculation of the VIX, options contracts underlying 

the VIX, VIX Futures Contracts or the Indexes is 

closed for regular trading. 

13Complete real-time data for component futures 

underlying the Indexes is available by subscription 

from Reuters and Bloomberg. In addition, the 

Funds’ Web site at http://www.proshares.com will 

display the end of day closing Index levels and 

NAV. 

14The IOPV is published on NYSE Arca’s Web 

site and is available through on-line information 

services such as Bloomberg and Reuters. 

15Each Fund’s NAV will be calculated at 4:15 

p.m. Eastern Time. 

16Trading may also be halted because of market 

conditions or for reasons that, in the view of the 

Exchange, make trading in the Shares inadvisable. 

These may include: (1) 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. 

17 17 CFR 240.10A–3. 

18 15 U.S.C. 78f(b)(5). 

19 15 U.S.C. 78s(b)(2). 

20 17 CFR 200.30–3(a)(12). 

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. The level of each Index 

will be published at least every 15 

seconds both in real-time from 9:30 a.m. 

to 4:15 p.m. Eastern Time and at the 

close of trading on each Business Day 12

by Bloomberg L.P. and Reuters.13 The 

closing prices and settlement prices of 

the Index Components are available 

from the Web sites of the CFE, 

automated quotation systems, published 

or other public sources, and on-line 

information services such as Bloomberg 

or Reuters. The specific contract 

specifications for the component futures 

underlying the Indexes are also 

available on those Web sites, as well as 

on other financial informational 

sources. The CFE also provides delayed 

futures information on current and past 

trading sessions and market news free of 

charge on its Web site. In addition, the 

Funds will provide Web site disclosure 

of portfolio holdings daily and will 

include, as applicable, the notional 

value (in U.S. dollars) of VIX Futures 

Contracts and characteristics of such 

instruments and cash equivalents, and 

amount of cash held in the portfolio of 

the Funds. Further, NYSE Arca will 

calculate and disseminate every 15 

seconds throughout the trading day an 

updated Indicative Optimized Portfolio 

Value (‘‘IOPV’’), which is an indicator of 

the value of the VIX Futures Contracts 

and cash and/or cash equivalents less 

liabilities of a Fund.14 The NAV for the 

Funds’ Shares will be calculated by the 

Administrator once a day,15 and the 

Exchange will make available on its 

Web site daily trading volume of the 

Shares, closing prices of the Shares, and 

number of Shares outstanding. 

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. The 

Commission notes that the Web site 

disclosure of the portfolio composition 

of the Funds will occur at the same time 

as the disclosure by the Funds of the 

portfolio composition to Authorized 

Participants so that all market 

participants are provided portfolio 

composition information at the same 

time. 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, the Exchange will halt 

trading in the Shares until such time as 

the NAV is available to all market 

participants. Further, the Exchange may 

halt trading during the day in which an 

interruption to the dissemination to the 

IOPV, the value of the Index, the VIX, 

or the value of the underlying VIX 

Futures Contracts occurs. If such 

interruption 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.16 Trading in the Shares 

will be subject to NYSE Arca Equities 

Rule 8.200, Commentary .02(e), which 

sets forth certain restrictions on ETP 

Holders acting as registered Market 

Makers in Trust Issued Receipts to 

facilitate surveillance. The Exchange 

represents that Standard & Poor’s 

Financial Services LLC, the index 

sponsor with respect to the Indexes, has 

implemented procedures designed to 

prevent the use and dissemination of 

material, non-public information 

regarding the Indexes. 

The Exchange has represented that 

the Shares are deemed to be equity 

securities subject to the Exchange’s 

existing rules governing the trading of 

equity securities. In support of this 

proposal, the Exchange has made 

representations, including: 

(1) The Funds 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) 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 IOPV will not be 

calculated or publicly disseminated; (b) 

the procedures for purchases and 

redemptions of Shares in Creation 

Baskets and Redemption Baskets (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) 

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 (e) trading 

information. 

(5) The Shares must be in compliance 

with NYSE Arca Equities Rule 5.3 and 

Rule 10A–3 under the Act.17

(6) A minimum of 100,000 Shares of 

each of the Funds will be outstanding as 

of the start of trading on the Exchange. 

This approval order is based on the 

Exchange’s representations. 

For the foregoing reasons, the 

Commission finds that the proposed 

rule change is consistent with Section 

6(b)(5) of the Act 18 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,19 that the 

proposed rule change (SR–NYSEArca– 

2010–101), be, and it hereby is, 

approved. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.20

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. 2010–32984 Filed 12–30–10; 8:45 am] 

BILLING CODE 8011–01–P 


jlentini on DSKJ8SOYB1PROD with NOTICES