Federal Register / Vol. 72, No. 44 / Wednesday, March 7, 2007 / Notices 10267 

13 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3See Securities Exchange Act Release No. 53582 

(March 31, 2006), 71 FR 17510 (April 6, 2006) (SR–

Amex 2005–127) (approving Amex Rules 1500 et 

seq. and the listing and trading of Units of the 

United States Oil Fund, LP). 4As set forth in the section ‘‘Listing and Trading 

Rules,’’ the Exchange will require a minimum of 

100,000 Units to be outstanding at the start of 

trading. 5USNG is commodity pool that will issue Units 

that may be purchased and sold on the Exchange. 

No. SR–Amex–2007–26 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File No. 

SR–Amex–2007–26. 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 inspection and copying in 

the Commission’s Public Reference 

Room. 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 No. 

SR–Amex–2007–26 and should be 

submitted on or before March 28, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.13

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–4039 Filed 3–6–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55372; File No. SR–Amex–

2006–112] 

Self-Regulatory Organizations; 

American Stock Exchange LLC; Notice 

of Filing of Proposed Rule Change as 

Modified by Amendment No. 1 Thereto 

Relating to the Listing and Trading of 

Units of the United States Natural Gas 

Fund, LP 

February 28, 2007. 

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 December 

1, 2006, the American Stock Exchange 

LLC (‘‘Amex’’ or ‘‘Exchange’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’ or ‘‘SEC’’) 

the proposed rule change as described 

in Items I, II, and III below, which Items 

have been substantially prepared by the 

Exchange. On February 14, 2007, the 

Exchange submitted Amendment No. 1 

to the proposed rule change. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change, as amended, from interested 

persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to list and 

trade units (a ‘‘Unit’’ or collectively, the 

‘‘Units’’) of the United States Natural 

Gas Fund, LP (‘‘USNG’’ or the 

‘‘Partnership’’) pursuant to Amex Rules 

1500 et seq. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Amex included statements concerning 

the purpose of and basis for the 

proposed rule change. The text of these 

statements may be examined at the 

places specified in Item IV below. The 

Amex has prepared summaries, set forth 

in Sections A, B, and C below, of the 

most significant aspects of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to list and 

trade the Units issued by USNG (under 

the symbol: ‘‘UNG’’) pursuant to 

Exchange Rules 1500 et seq. 3 Amex 

Rule 1500 provides for the listing of 

Partnership Units, which are defined as 

securities: (a) That are 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. Pursuant to 

Commentary .01 to Rule 1502, the 

Exchange will file separate proposals 

under Section 19(b) of the Act before 

listing and trading separate and distinct 

Partnership Units designated on 

different underlying investments, 

commodities and/or assets. The 

Exchange submits that the Units will 

conform to the initial and continued 

listing criteria under Rule 1502.4

The Units represent ownership of a 

fractional undivided beneficial interest 

in the net assets of USNG.5 The net 

assets of USNG will consist of 

investments in futures contracts based 

on natural gas, crude oil, heating oil, 

gasoline, and other petroleum-based 

fuels traded on the New York 

Mercantile Exchange (‘‘NYMEX’’), 

Intercontinental Exchange (‘‘ICE 

Futures’’) or other U.S. and foreign 

exchanges (collectively, ‘‘Futures 

Contracts’’). USNG may also invest in 

other natural gas-related investments 

such as cash-settled options on Futures 

Contracts, forward contracts for natural 

gas, and over-the-counter (‘‘OTC’’) 

transactions that are based on the price 

of natural gas, oil and other petroleumbased 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.’’

USNG will invest in Natural Gas 

Interests 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 USNG’s 

investment manager, Victoria Bay Asset 

Management, LLC (‘‘Victoria Bay’’ or 

‘‘General Partner’’), will be the 

investment in Futures Contracts and the 

management of its investments in shortterm obligations of the United States 


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6The Benchmark Futures Contracts will be 

changed or ‘‘rolled’’ from the near month contract 

to expire over to the next month to expire over a 

four (4) day period. 

7In practice, few natural gas Futures Contracts 

result in delivery of the underlying natural gas. 

8The NYMEX ClearPortsm is an electronic trading 

platform, through which a slate of energy futures 

contracts are available for competitive trading. 

(‘‘Treasuries’’), cash equivalents, and 

cash (collectively, ‘‘Cash’’) for 

margining purposes and as collateral. 

The investment objective of USNG is 

for changes in percentage terms of a 

unit’s net asset value (‘‘NAV’’) to reflect 

the changes in percentage terms of the 

price of natural gas delivered at the 

Henry Hub, Louisiana as measured by 

the natural gas futures contract traded 

on the NYMEX (the ‘‘Benchmark 

Futures Contract’’). The Benchmark 

Futures Contract employed is the near 

month expiration contract, except when 

the near month contract is within two 

(2) weeks of expiration, in which case 

it will invest in the next expiration 

month.6

The General Partner will attempt to 

place USNG’s trades in Natural Gas 

Interests and otherwise manage USNG’s 

investments so that ‘‘A’’ will be within 

plus/minus 10 percent of ‘‘B’’, where: 

• A is the average daily change in 

USNG’s NAV for any period of 30 

successive valuation days, i.e., any day 

as of which USNG calculates its NAV, 

and 

• B is the average daily change in the 

price of the Benchmark Futures Contract 

over the same period. 

An investment in the Units will allow 

both retail and institutional investors to 

easily gain exposure to the natural gas 

market in a cost-effective manner. In 

addition, the Units are also expected to 

provide additional means for 

diversifying an investor’s investments or 

hedging exposure to changes in natural 

gas prices. 

Description of the Natural Gas Market 

Natural Gas. The Exchange states that 

Natural gas accounts for almost a 

quarter of U.S. energy consumption. The 

price of natural gas is established by the 

supply and demand conditions in the 

North American market, and more 

particularly, in the main refining center 

of the U.S. Gulf Coast. The natural gas 

market essentially constitutes an 

auction, where the highest bidder wins 

the supply. When markets are ‘‘strong’’

(i.e., when demand is high and/or 

supply is low), the bidder must be 

willing to pay a higher premium to 

capture the supply. When markets are 

‘‘weak’’ (i.e., when demand is low and/ 

or supply is high), a bidder may choose 

not to outbid competitors, waiting 

instead for later, possibly lower priced, 

supplies. Demand for natural gas by 

consumers, as well as agricultural, 

manufacturing and transportation 

industries, determines the demand for 

natural gas. Since the precursors of 

product demand are linked to economic 

activity, natural gas demand will tend to 

reflect economic conditions. However, 

other factors such as weather 

significantly influence natural gas 

demand. 

The Exchange states that NYMEX is 

the world’s largest physical commodity 

futures exchange and the dominant 

market for the trading of energy and 

precious metals. The Benchmark 

Futures Contract trades in units of 

10,000 million British thermal units 

(‘‘mmBtu’’) and is based on delivery at 

the Henry Hub in Louisiana, the nexus 

of 16 intra and interstate natural gas 

pipeline systems that draw supplies 

from the region’s prolific gas deposits.7

The pipelines serve markets throughout 

the U.S. East Coast, the Gulf Coast, the 

Midwest, and up to the Canadian 

border. 

Because of the volatility of natural gas 

prices, a vigorous basis market has 

developed in the pricing relationships 

between the Henry Hub and other 

important natural gas market centers in 

the continental United States and 

Canada. The NYMEX makes available 

for trading a series of basis swap futures 

contracts that are quoted as price 

differentials between approximately 30 

natural gas pricing points and the Henry 

Hub. The basis contracts trade in units 

of 2,500 mmBtu on the NYMEX 

ClearPort trading platform. 

Transactions can also be consummated 

off NYMEX and submitted to the 

NYMEX for clearing via the NYMEX 

ClearPort 8 clearing website as an 

exchange of futures for physicals or an 

exchange of futures for swaps 

transactions. 

The price of natural gas during the 

period January 1995 through October 

2006, ranged from a high of $28.38 in 

January 2004 to a low of $1.01 in 

December 1998. As of November 9, 2006 

the spot price was $7.24. Annual daily 

contract volume on the NYMEX from 

2001 through October 2006 was: 47,457; 

97,431; 76,148; 70,048; 76,265; and 

102,097, respectively. 

WTI Light, Sweet Crude Oil. The 

Exchange states that Crude oil is the 

world’s most actively traded 

commodity. The oil futures contracts for 

light, sweet crude oil that are traded on 

the NYMEX are the world’s most liquid 

forum for crude oil trading, as well as 

the most liquid futures contracts on a 

physical commodity. Due to the 

liquidity and price transparency of oil 

Futures Contracts, they are used as a 

principal international pricing 

benchmark. The oil futures contracts for 

West Texas Intermediate (‘‘WTI’’) light, 

sweet crude oil is traded on the NYMEX 

in units of 1,000 U.S. barrels (42,000 

gallons) and, if not closed out before 

maturity, will result in delivery of oil to 

Cushing, Oklahoma, which is also 

accessible to the world market by two 

major interstate petroleum pipeline 

systems. 

The Exchange states that the price of 

crude oil is established by the supply 

and demand conditions in the global 

market overall, and more particularly, in 

the main refining centers of Singapore, 

Northwest Europe, and the U.S. Gulf 

Coast. Demand for petroleum products 

by consumers, as well as agricultural, 

manufacturing, and transportation 

industries, determines demand for 

crude oil by refiners. Since the 

precursors of product demand are 

linked to economic activity, crude oil 

demand will tend to reflect economic 

conditions. However, other factors such 

as weather also influence product and 

crude oil demand. 

The price of WTI light, sweet crude 

oil has historically exhibited periods of 

significant volatility. The price of WTI 

light, sweet crude oil during the period 

January 1995 through October 2006, 

ranged from a high of $77.03 in July 

2006 to a low of $10.76 in December 

1998. As of November 9, 2006, the spot 

price was $61.16. Annual daily contract 

volume on the NYMEX from 2001 

through October 2006 was: 49,028; 

182,718; 181,748; 212,382; 237,651; and 

298,734, respectively. 

Heating Oil. The Exchange states that 

heating oil, also known as No. 2 fuel oil, 

accounts for 25% of the yield of a barrel 

of crude oil, the second largest ‘‘cut’’

from oil after gasoline. The heating oil 

futures contract, listed and traded on 

NYMEX, trades in units of 42,000 

gallons (1,000 barrels) and is based on 

delivery in New York harbor, the 

principal cash market center. The price 

of heating oil is volatile. 

The price of heating oil during the 

period January 1995 through October 

2006, ranged from a high of $215.85 in 

September 2006 to a low of $28.50 in 

February 1999. As of November 9, 2006, 

the spot price was $169.31. Annual 

daily contract volume on the NYMEX 

from 2001 through October 2006 was: 

41,710; 42,781; 46,327; 51,745; 52,333; 

and 60,024, respectively. 

Gasoline. The Exchange states that 

gasoline is the largest single volume 

refined product sold in the U.S. and 

accounts for almost half of national oil 


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Federal Register / Vol. 72, No. 44 / Wednesday, March 7, 2007 / Notices 10269 

9 USNG is not an investment company as defined 

in Section 3(a) of the Investment Company Act of 

1940. 

10See Form S–1 filed with the Commission on 

October 6, 2006 (File No. 333–137871). 

consumption. The gasoline Futures 

Contract, listed and traded on the 

NYMEX, trades in units of 42,000 

gallons (1,000 barrels) and is based on 

delivery at petroleum products 

terminals in the New York harbor, the 

major East Coast trading center for 

imports and domestic shipments from 

refineries in the New York harbor area 

or from the Gulf Coast refining centers. 

The price of gasoline is volatile. 

The price of gasoline during the 

period January 1995 through October 

2006, ranged from a high of $2.70 in 

September 2006 to a low of $0.3258 in 

December 1998. As of November 9, 

2006, the spot price was $1.71. Annual 

daily contract volume on the NYMEX 

from 2001 through October 2006 was: 

38,033; 43,919; 44,688; 51,315; 52,456; 

and 44,996, respectively. 

Futures Regulation 

The Exchange states that the 

Commodity Exchange Act (‘‘CEA’’) 

governs the regulation of commodity 

interest transactions, markets, and 

intermediaries. The CEA, as amended 

by the Commodity Futures 

Modernization Act of 2000, requires 

commodity futures exchanges to have 

rules and procedures to prevent market 

manipulation, abusive trade practices, 

and fraud. The Commodity Futures 

Trading Commission (‘‘CFTC’’) 

administers the CEA and conducts 

regular reviews and inspections of the 

futures exchanges’ enforcement 

programs. 

The Exchange states that the CEA 

provides for varying degrees of 

regulation of commodity interest 

transactions, depending upon the 

variables of the transaction. In general, 

these variables include: (1) The type of 

instrument being traded (e.g., contracts 

for future delivery, options, swaps or 

spot contracts); (2) the type of 

commodity underlying the instrument 

(distinctions are made between 

instruments based on agricultural 

commodities, energy and metals 

commodities, and financial 

commodities); 

(3) the nature of the parties to the 

transaction (retail, eligible contract 

participant, or eligible commercial 

entity); (4) whether the transaction is 

entered into on a principal-to-principal 

or intermediated basis; (5) the type of 

market on which the transaction occurs; 

and (6) whether the transaction is 

subject to clearing through a clearing 

organization. 

Non-U.S. futures exchanges differ in 

certain respects from their U.S. 

counterparts. In contrast to U.S. 

designated contract markets, some nonU.S. exchanges are principals’ markets, 

where trades remain the liability of the 

traders involved, and the exchange or an 

affiliated clearing organization, if any, 

does not become substituted for any 

party. Due to the absence of a clearing 

system, such exchanges are significantly 

more susceptible to disruptions. 

Further, participants in such markets 

must often satisfy themselves as to the 

individual creditworthiness of each 

entity with which they enter into a 

trade. Trading on non-U.S. exchanges is 

often in the currency of the exchange’s 

home jurisdiction. 

The CFTC and U.S. designated 

contract markets have established 

accountability levels and position limits 

on the maximum net long or net short 

Futures Contracts position that any 

person or group of persons under 

common trading control (other than a 

hedger) may hold, own or control in 

commodity interests. Among the 

purposes of accountability levels and 

position limits is to prevent a corner or 

squeeze on a market or undue influence 

on prices by any single trader or group 

of traders. 

The Exchange states that most U.S. 

futures exchanges limit the amount of 

fluctuation in some futures contract or 

options on futures contract prices 

during a single trading period. These 

regulations specify what are referred to 

as daily price fluctuation limits (i.e., 

daily limits). The daily limits establish 

the maximum amount that the price of 

a futures contract or options on futures 

contract may vary either up or down 

from the previous day’s settlement 

price. Once the daily limit has been 

reached in a particular futures contract 

or option on a futures contract, no 

trades may be made at a price beyond 

the limit. 

The Exchange states that most 

Commodity prices are volatile and, 

although ultimately determined by the 

interaction of supply and demand, are 

subject to many other influences, 

including the psychology of the 

marketplace and speculative 

assessments of future world and 

economic events. Political climate, 

interest rates, treaties, balance of 

payments, exchange controls, and other 

governmental interventions as well as 

numerous other variables affect the 

commodity markets, and even with 

complete information it is impossible 

for any trader to reliably predict 

commodity prices. 

A portion of USNG’s assets may be 

employed to enter into OTC transactions 

based on natural gas, oil, and other 

petroleum-based fuels. OTC transactions 

are subject to little, if any, regulation. 

OTC contracts are typically traded on a 

principal-to-principal basis through 

dealer markets that are dominated by 

the major money center and investment 

banks and other institutions. In 

connection with the trading of OTC 

instruments, USNG will not receive the 

protection of the CEA. The markets for 

OTC contracts rely upon the integrity of 

market participants as well as 

contractual margin payments, collateral, 

and/or credit supports in lieu of 

additional regulation. 

Structure and Regulation of USNG 

USNG, a Delaware limited 

partnership formed in September 2006, 

is a commodity pool that will invest in 

Natural Gas Interests.9 It is operated by 

Victoria Bay, a single member Delaware 

limited liability company, which is 

wholly owned by Wainwright Holdings, 

Inc. The General Partner is registered as 

a commodity pool operator (‘‘CPO’’) 

with the CFTC and is a member of the 

National Futures Association (the 

‘‘NFA’’). 

Information regarding USNG and the 

General Partner, as well as detailed 

descriptions of the manner in which the 

Units will be offered and sold, and the 

investment strategy of USNG, are 

included in the registration statement 

regarding the offering of the Units filed 

with the Commission under the 

Securities Act of 1933.10

Clearing Broker. A CFTC-registered 

futures commission merchant (‘‘FCM’’) 

will execute and clear USNG’s futures 

contract transactions, hold the margin 

related to its Futures Contracts 

investments and perform certain 

administrative services for USNG (the 

‘‘Clearing Broker’’). USNG may use 

other FCMs as its investments increase 

or as may be required to trade particular 

Natural Gas Interests. 

Administrator and Custodian. Under 

separate agreements with USNG, Brown 

Brothers Harriman & Co. will serve as 

USNG’s administrator, registrar, transfer 

agent, and custodian (the 

‘‘Administrator’’ or ‘‘Custodian’’). The 

Administrator will perform or supervise 

the performance of services necessary 

for the operation and administration of 

USNG. These services include, but are 

not limited to, investment accounting, 

financial reporting, broker and trader 

reconciliation, calculation of the NAV, 

and valuation of Treasuries and cash 

equivalents used to purchase or redeem 

Units and other USNG assets or 

liabilities. As Custodian, it: (i) Will 

receive payments from purchasers of 

Creation Baskets; (ii) will make 


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10270 Federal Register / Vol. 72, No. 44 / Wednesday, March 7, 2007 / Notices 

payments to Sellers for Redemption 

Baskets, as described below; and (iii) 

will hold the cash, cash equivalents, 

and Treasuries of USNG, as well as 

collateral posted by USNG’s derivatives 

counterparties, and will make transfers 

of margin and collateral with respect to 

USNG’s investments to and from its 

FCMs or counterparties. 

Marketing Agent. A registered brokerdealer will be the marketing agent for 

USNG (‘‘Marketing Agent’’). The 

Marketing Agent, on behalf of USNG, 

will continuously offer Creation and 

Redemption Baskets and will receive 

and process orders from Authorized 

Purchasers (as defined below) and 

coordinate the processing of orders for 

the creation or redemption of Units with 

the General Partner and the Depository 

Trust Company (‘‘DTC’’). 

Investment Strategy 

USNG will pursue its investment 

objective by investing its assets in 

Futures Contracts and Other Natural Gas 

Related Investments to the fullest extent 

possible without being leveraged or 

unable to satisfy its current or potential 

margin or collateral obligations with 

respect to those investments. USNG will 

attempt to manage its investments so 

that changes in percentage terms of a 

Unit’s net asset value reflect the changes 

in percentage terms of the price of 

natural gas delivered at the Henry Hub, 

Louisiana as measured by the 

Benchmark Futures Contract, that is the 

near month expiration contract, except 

when the near month contract is within 

two weeks of expiration, in which case 

it will invest in the next expiration 

month. In connection with tracking the 

price of the Benchmark Futures 

Contract, the General Partner will 

endeavor to place USNG’s trades in 

Futures Contracts and Other Natural Gas 

Related Investments and otherwise 

manage USNG’s investments so that 

‘‘A’’ will be within ±10 percent of ‘‘B’’, 

where: 

• ‘‘A’’ is the average daily change in 

USNG’s NAV for any period of 30 

successive valuation days, i.e., any day 

as of which USNG calculates its NAV; 

and 

• ‘‘B’’ is the average daily change in 

the price of the Benchmark Futures 

Contract over the same period. 

The Benchmark Futures Contract will 

be changed or ‘‘rolled’’ from the near 

expiration month contract to the next 

month expiration ratably over a four (4) 

day period. The changes in the 

Benchmark Futures Contract will occur 

two (2) weeks prior to the expiration of 

the nearest contract month. Thereafter, 

the calculation of the movement in the 

Benchmark Futures Contract will be 

based solely on the next month 

expiration contract. 

The Exchange believes that market 

arbitrage opportunities should cause 

USNG’s Unit price to closely track 

USNG’s per Unit NAV which is targeted 

at the current Benchmark Futures 

Contract. 

Investments. USNG believes that it 

will be able to use a combination of 

Futures Contracts and Other Natural Gas 

Related Investments to manage the 

portfolio to achieve its investment 

objective. USNG further anticipates that 

the exact mix of Futures Contracts and 

Other Natural Gas Related Investments 

held by the portfolio will vary over time 

depending on, among over things, the 

amount of invested assets in the 

portfolio, price movements of natural 

gas, the rules and regulations of the 

various futures and commodities 

exchanges and trading platforms that 

deal in Natural Gas Interests, and 

innovations in the Natural Gas Interests’

marketplace including both the creation 

of new Natural Gas Interest investment 

vehicles, and the creation of new 

trading venues that trade in Natural Gas 

Interests. 

Futures Contracts. The principal 

Natural Gas Interests to be invested in 

by USNG are Futures Contracts. USNG 

initially expects to purchase the 

Benchmark Futures Contract. USNG 

may also invest in Futures Contracts in 

crude oil, heating oil, gasoline, and 

other petroleum-based fuels that are 

traded on the NYMEX, ICE Futures or 

other U.S. and foreign exchanges. 

The Benchmark Futures Contract has 

historically closely tracked the 

investment objective of USNG over both 

the short-term, medium-term, and the 

long-term. For that reason, USNG 

anticipates making significant 

investments in the Benchmark Futures 

Contract. The Exchange notes that the 

General Partner states that other Futures 

Contracts have also tended to track the 

investment objective of USNG, though 

not as closely as the Benchmark Futures 

Contract. 

Other Natural Gas Related 

Investments. USNG may also purchase 

Other Natural Gas-Related Investments 

such as cash-settled options on Futures 

Contracts, forward contracts for natural 

gas, and over-the-counter transactions 

that are based on the price of natural 

gas, oil and other petroleum-based fuels, 

Futures Contracts, and indices based on 

the foregoing. Option contracts offer 

investors and hedgers another vehicle 

for managing exposure to the natural gas 

market. USNG may purchase options on 

natural gas Futures Contracts on the 

principal commodities and futures 

exchanges in pursuing its investment 

objective. 

The Exchange states that in addition 

to these listed options, there also exists 

an active OTC market in derivatives 

linked to natural gas. These OTC 

derivative transactions are privatelynegotiated agreements between two (2) 

parties. Unlike Futures Contracts or 

related options, each party to an OTC 

contract bears the credit risk that the 

counterparty may not be able to perform 

its obligations. 

Some OTC contracts contain fairly 

generic terms and conditions and are 

available from a wide range of 

participants, while other OTC contracts 

have highly customized terms and 

conditions and are not as widely 

available. Many OTC contracts are cashsettled forwards for the future delivery 

of natural gas or petroleum-based fuels 

that have terms similar to the Futures 

Contracts. Others take the form of 

‘‘swaps’’ in which the two parties 

exchange cash flows based on predetermined formulas tied to the price of 

natural gas as determined by the spot, 

forward or futures markets. USNG may 

enter into OTC derivative contracts 

whose value will be tied to changes in 

the difference between the natural gas 

spot price, the price of Futures 

Contracts traded on NYMEX and the 

prices of non-NYMEX Futures Contracts 

that may be invested in by USNG. 

Counterparty Procedures. To protect 

itself from the credit risk that arises in 

connection with such contracts, USNG 

will enter into agreements with each 

counterparty that provide for the netting 

of its overall exposure to its 

counterparty and/or provide collateral 

or other credit support to address 

USNG’s exposure. The counterparties to 

an OTC contract will generally be major 

broker-dealers and banks or their 

affiliates, though certain institutions, 

such as large energy companies or other 

institutions active in the natural gas 

commodities markets, may also be 

counterparties. The General Partner will 

assess or review, as appropriate, the 

creditworthiness of each potential or 

existing counterparty to an OTC 

contract pursuant to guidelines 

approved by the General Partner’s board 

of directors. Furthermore, the General 

Partner on behalf of USNG will only 

enter into OTC contracts with: (a) 

Members of the Federal Reserve System 

or foreign banks with branches 

regulated by the Federal Reserve Board; 

(b) primary dealers in U.S. government 

securities; (c) broker-dealers; (d) 

commodities futures merchants; or (e) 

affiliates of the foregoing. 

USNG anticipates that the use of 

Other Natural Gas Related Investments 


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Federal Register / Vol. 72, No. 44 / Wednesday, March 7, 2007 / Notices 10271 

11An ‘‘Authorized Purchaser’’ is a person, who at 

the time of submitting to the Marketing Agent an 

order to create or redeem one or more Baskets: (i) 

Is a registered broker-dealer or other market 

participants, such as banks and other financial 

institutions, that are exempt from broker-dealer 

registration; (ii) is a DTC Participant; and (iii) has 

in effect a valid Authorized Participant Agreement. 

12The Exchange expects that the number of 

outstanding Units will increase and decrease as a 

result of creations and redemptions of Baskets. 

together with its investments in Futures 

Contracts will produce price and total 

return results that closely track the 

investment objective of USNG. 

Cash, Cash Equivalents, and 

Treasuries. USNG will invest virtually 

all of its assets not invested in Natural 

Gas Interests, in cash, cash equivalents, 

and Treasuries with a remaining 

maturity of two years or less. The cash, 

cash equivalents, and Treasuries will be 

available to be used to meet USNG’s 

current or potential margin and 

collateral requirements with respect to 

its investments in Natural Gas Interests. 

USNG will not use cash, cash 

equivalents, and Treasuries as margin 

for new investments unless it has a 

sufficient amount of cash, cash 

equivalents, and Treasuries to meet the 

margin or collateral requirements that 

may arise due to changes in the value 

of its currently held Natural Gas 

Interests. Other than in connection with 

a redemption of Units, USNG does not 

intend to distribute cash or property to 

its Unit holders. Interest earned on cash, 

cash equivalents, and Treasuries held by 

USNG will be retained by it to pay its 

expenses, to make investments to satisfy 

its investment objectives, or to satisfy its 

margin or collateral requirements. 

Impact of Accountability Levels and 

Position Limits. The CFTC and U.S. 

designated contract markets such as the 

NYMEX have established accountability 

levels and position limits on the 

maximum net long or net short Futures 

Contracts that any person or group of 

persons under common trading control 

(other than hedgers) may hold, own or 

control in commodity interests. The 

Exchange states that accountability 

levels and position limits are intended 

among other things, to prevent a corner 

or squeeze on a market or undue 

influence on prices by any single trader 

or group of traders. The net position is 

the difference between an individual or 

firm’s open long contracts and open 

short contracts in any one commodity. 

The Exchange states that most U.S. 

futures exchanges also limit the amount 

of fluctuation in the prices of some 

futures contracts or options on futures 

contracts during a single trading day. 

These regulations specify what are 

referred to as daily price fluctuation 

limits (i.e., daily limits). The daily limits 

establish the maximum amount that the 

price of a futures contract or an option 

on a futures contract may vary either up 

or down from the previous day’s 

settlement price. Once the daily limit 

has been reached in a particular futures 

contract or option on a futures contract, 

no trades may be made at a price 

beyond the limit. 

The accountability levels for the 

Benchmark Futures Contract and other 

Futures Contracts traded on NYMEX are 

not a fixed ceiling, but rather a 

threshold above which the NYMEX may 

exercise greater scrutiny and control 

over an investor’s positions. The current 

accountability level for the Benchmark 

Futures Contract is 12,000 contracts. If 

USNG exceeds this accountability level 

for the Benchmark Futures Contract, 

NYMEX will monitor USNG’s exposure 

and ask for further information on 

USNG’s activities including the total 

size of all positions, investment and 

trading strategy, and the extent of 

USNG’s liquidity resources. If deemed 

necessary by NYMEX, it could also 

order USNG to reduce its position back 

to the accountability level. 

If NYMEX orders USNG to reduce its 

position back to the accountability level, 

or to an accountability level that 

NYMEX deems appropriate for USNG, 

such an accountability level may impact 

the mix of investments in Natural Gas 

Interests made by USNG. To illustrate, 

assume that the Benchmark Futures 

Contract and the unit price of USNG are 

each $10, and that NYMEX has 

determined that USNG may not own 

more than 12,000 contracts. In such 

case, USNG could invest up to $1.2 

billion of its daily net assets in the 

Benchmark Futures Contract (i.e., $10 

per contract multiplied by 10,000 (a 

Benchmark Futures Contract is a 

contract for 10,000 million British 

Thermal Units) multiplied by 12,000 

contracts) before reaching the 

accountability level imposed by the 

NYMEX. Once the daily net assets of the 

portfolio exceed $1.2 billion in the 

Benchmark Futures Contract, the 

portfolio may not be able to make any 

further investments in the Benchmark 

Futures Contract, depending on whether 

the NYMEX imposes limits. If NYMEX 

does impose limits at the $1.2 billion 

level (or another level), USNG 

anticipates that it will invest the 

majority of its assets above that level in 

a mix of other Futures Contracts or 

Other Natural Gas-Related Investments. 

The Exchange states that in addition 

to accountability levels, NYMEX 

imposes position limits on contracts 

held in the last few days of trading in 

the near month contract. It is unlikely 

that USNG will run up against such 

position limits because USNG’s 

investment strategy is to exit from the 

near month contract over a four day 

period beginning two weeks from 

expiration of the contract. 

The Markets for USNG’s Units 

There will be two markets for 

investors to purchase and sell Units. 

New issuances of the Units will be made 

only in baskets of 100,000 Units or 

multiples thereof (a ‘‘Basket’’). SNG will 

issue and redeem Baskets of the Units 

on a continuous basis, by or through 

participants who have each entered into 

an authorized purchaser agreement 

(‘‘Authorized Purchaser Agreement’’

and each such participant, an 

‘‘Authorized Purchaser’’) 11 with the 

General Partner, at the NAV per Unit 

next determined after an order to 

purchase the Units in a Basket is 

received in proper form. Baskets may be 

issued and redeemed on any ‘‘business 

day’’ (defined as any day other than a 

day on which the Amex, the NYMEX or 

the New York Stock Exchange is closed 

for regular trading) through the 

Marketing Agent in exchange for cash 

and/or Treasuries, which the Custodian 

receives from Authorized Purchasers or 

transfers to Authorized Purchasers, in 

each case on behalf of USNG. Baskets 

are then separable upon issuance into 

identical Units that will be listed and 

traded on the Exchange.12

The Units will thereafter be traded on 

the Exchange similar to other equity 

securities. Units will be registered in 

book-entry form through DTC. Trading 

in the Units on the Exchange will be 

effected until 4:15 p.m. Eastern time 

(‘‘ET’’) each business day. The 

minimum trading increment for such 

units will be $.01. 

Each Authorized Purchaser, and each 

distributor offering and selling newly 

issued Units as part of the distribution 

of such Units, is required to comply 

with the prospectus delivery and 

disclosure requirements of the 

Securities Act of 1933, as well as the 

requirements of the CEA including, the 

requirement that prospective investors 

provide an acknowledgement of receipt 

of such disclosure materials prior to the 

payment for any newly issued Units. 

Calculation of the Basket Amount. 

Baskets will be issued in exchange for 

Treasuries and/or cash in an amount 

equal to the NAV per Unit times 

100,000 Units (the ‘‘Basket Amount’’). 

Baskets will be delivered by the 

Marketing Agent to each Authorized 

Purchaser only after execution of the 

Authorized Purchaser Agreement. Units 

in a Basket are issued and redeemed in 

accordance with the Authorized 


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13The Exchange will obtain a representation from 

USNG that its NAV per Unit will be calculated 

daily and made available to all market participants 

at the same time. 

14See Rule 6.52A of the NYMEX Rulebook. 

15Authorized Purchasers are required to pay a 

transaction fee of $1,000 for each order to create one 

or more Baskets. 

Purchaser Agreement. Authorized 

Purchasers that wish to purchase a 

Basket must transfer the Basket Amount, 

for each Basket purchased, to the 

Custodian (the ‘‘Deposit Amount’’). 

Authorized Purchasers that wish to 

redeem a Basket will receive an amount 

of Treasuries and/or cash in exchange 

for each Basket surrendered in an 

amount equal to the NAV per Basket 

(the ‘‘Redemption Amount’’). 

On each business day, the 

Administrator will make available 

immediately prior to the opening of 

trading on the Exchange, the Basket 

Amount for the creation of a Basket 

based on the prior day’s NAV. The 

Exchange will disseminate at least every 

15 seconds throughout the trading day, 

via the facilities of the Consolidated 

Tape Association (‘‘CTA’’), an amount 

representing, on a per Unit basis, the 

current indicative value of the Basket 

Amount (see ‘‘Indicative Partnership 

Value’’ below). Shortly after 4 p.m. ET, 

the Administrator will determine the 

NAV for USNG as described below. At 

or about 4 p.m. ET on each business 

day, the Administrator will determine 

the Basket Amount for orders placed by 

Authorized Purchasers received before 

12 p.m. ET that day. Because orders to 

purchase and/or redeem Baskets must 

be placed by 12 p.m. ET, but the Basket 

Amount will not be determined until 

shortly after 4 p.m. ET, on the date the 

purchase order or redemption order, as 

applicable, is received, Authorized 

Participants will not know the total 

payment required to create or redeem a 

Basket, as applicable, at the time they 

submit such irrevocable purchase and/ 

or redemption order. This is similar to 

exchange-traded funds and mutual 

funds. USNG’s registration statement 

discloses that NAV and the Basket 

Amount could rise and fall substantially 

between the time an irrevocable 

purchase order and/or redemption order 

is submitted and the time the Basket 

Amount is determined. 

Shortly after 4 p.m. ET on each 

business day, the Administrator, Amex 

and the General Partner will 

disseminate the NAV for the Units and 

the Basket Amount (for orders placed 

during the day). The Basket Amount 

and the NAV are communicated by the 

Administrator to all Authorized 

Purchasers via facsimile or electronic 

mail message. The Amex will also 

disclose the NAV and Basket Amount 

on its Web site at http://www.amex.com. 

The Basket Amount necessary for the 

creation of a Basket will change from 

day to day. On each day that the Amex 

is open for regular trading, the 

Administrator will adjust the Deposit 

Amount as appropriate to reflect the 

prior day’s Partnership NAV and 

accrued expenses. The Administrator 

will then determine the Deposit Amount 

for a given business day.13

Calculation of USNG’s NAV. The 

Administrator will calculate NAV as 

follows: (1) Determine the current value 

of USNG assets and (2) subtract the 

liabilities of USNG. The NAV will be 

calculated shortly after the close of 

trading on the Exchange using the 

settlement value 14 of Futures Contracts 

traded on the NYMEX as of the close of 

open-outcry trading on the NYMEX at 

2:30 p.m. ET, and for the value of other 

Natural Gas Interests, Treasuries and 

cash equivalents, the value of such 

investments as of the earlier of 4 p.m. 

New York time or the close of trading 

on the New York Stock Exchange. The 

NAV is calculated by including any 

unrealized profit or loss on Futures 

Contracts and Other Natural Gas Related 

Investments and any other credit or 

debit accruing to USNG but unpaid or 

not received by USNG. The NAV is then 

used to compute all fees (including the 

management and administrative fees) 

that are calculated from the value of 

Partnership assets. The Administrator 

will calculate the NAV per Unit by 

dividing the NAV by the number of 

Units outstanding. 

When calculating NAV for USNG, the 

Administrator will value Futures 

Contracts based on the closing 

settlement prices quoted on the relevant 

commodities and futures exchange and 

obtained from various market data 

vendors such as Bloomberg or Reuters. 

The value of the Other Natural Gas 

Related Investments for purposes of 

determining the NAV will be based 

upon the determination of the 

Administrator as to the fair market 

value. Certain types of Other Natural 

Gas Related Investments, such as listed 

options on Futures Contracts, have 

closing prices that are available from the 

exchange upon which they are traded or 

from various market data vendors. Other 

Natural Gas Related Investments will be 

valued based on the last sale price on 

the exchange or market where traded. If 

a contract fails to trade, the value shall 

be the most recent bid quotation from 

the third party source. Some types of 

Other Natural Gas Related Investments, 

such as natural gas forward contracts do 

not trade on established exchanges, but 

typically have prices that are widely 

available from third-party sources. The 

Administrator may make use of such 

third-party sources in calculating a fair 

market value of these Other Natural Gas 

Related Investments. 

Certain types of Other Natural Gas 

Related Investments, such as OTC 

derivative contracts such as ‘‘swaps’’

also do not have established exchanges 

upon which they trade and may not 

have readily available price quotes from 

third parties. Swaps and other similar 

derivative or contractual-type 

instruments will be first valued at a 

price provided by a single broker or 

dealer, typically the counterparty. If no 

such price is available, the contract will 

be valued at a price at which the 

counterparty to such contract could 

repurchase the instrument or terminate 

the contract. In determining the fair 

market value of such derivative 

contracts, the Administrator may make 

use of quotes from other providers of 

similar derivatives. If these are not 

available, the Administrator may 

calculate a fair market value of the 

derivative contract based on the terms of 

the contract and the movement of the 

underlying price factors of the contract. 

Calculation and Payment of the 

Deposit Amount. The Deposit Amount 

of Treasuries and/or cash will be in the 

same proportion to the total net assets 

of USNG as the number of Units to be 

created is in proportion to the total 

number of Units outstanding as of the 

date the purchase order is accepted. The 

General Partner will determine the 

requirements for the Treasuries that may 

be included in the Deposit Amount and 

will disseminate these requirements at 

the start of each business day. The 

amount of cash that is required is the 

difference between the aggregate market 

value of the Treasuries required to be 

included in the Deposit Amount as of 4 

p.m. ET on the date of purchase and the 

total required deposit. 

All purchase orders must be received 

by the Marketing Agent by 12 p.m. ET 

for consideration on that business day. 

Delivery of the Deposit Amount, i.e., 

Treasuries and/or cash, to the 

Administrator must occur by the third 

business day following the purchase 

order date (T+3).15 Thus, the General 

Partner will disseminate shortly after 4 

p.m. ET on the date the purchase order 

was properly submitted, the amount of 

Treasuries and/or cash to be deposited 

with the Custodian for each Basket. 

Calculation and Payment of the 

Redemption Amount. The Units will not 

be individually redeemable but will 

only be redeemable in Baskets. To 

redeem, an Authorized Purchaser will 


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16 Id. 

17The Bid-Ask Price of Units is determined using 

the highest bid and lowest offer as of the time of 

calculation of the NAV. 

18The Exchange will obtain a representation from 

USNG that its NAV per Unit will be calculated 

daily and made available to all market participants 

at the same time. 

19NYMEX ACCESS, an electronic trading 

system, is open for price discovery on the 

Benchmark Futures Contract each Monday through 

Thursday at 3:15 p.m. ET through the following 

morning at 9:30 a.m. E.T., and from 7 p.m. Sunday 

night until Monday morning 9:30 a.m. E.T. 

be required to accumulate enough Units 

to constitute a Basket (i.e., 100,000 

Units). An Authorized Purchaser 

redeeming a Basket will receive the 

Redemption Amount. Upon the 

surrender of the Units and payment of 

applicable redemption transaction fee,16

taxes or charges, the Custodian will 

deliver to the redeeming Authorized 

Purchaser the Redemption Amount. The 

Redemption Amount of Treasuries and/ 

or cash will be in the same proportion 

to the total net assets of USNG as the 

number of Units to be redeemed is in 

proportion to the total number of Units 

outstanding as of the date the 

redemption order is accepted. The 

General Partner will determine the 

Treasuries to be included in the 

Redemption Amount. The amount of 

cash that is required is the difference 

between the aggregate market value of 

the Treasuries required to be included 

in the Redemption Amount as of 4 p.m. 

ET on the date of redemption and the 

total Redemption Amount. All 

redemption orders must be received by 

the Marketing Agent by 12 p.m. ET on 

the business day redemption is 

requested and are irrevocable. Delivery 

of the Basket to be redeemed to the 

Custodian and payment of Redemption 

Amount will occur by the third business 

day following the redemption order date 

(T+3). 

Arbitrage 

The Exchange believes that the Units 

will not trade at a material discount or 

premium to a Unit’s NAV based on 

potential arbitrage opportunities. Due to 

the fact that the Units can be created 

and redeemed only in Baskets at NAV, 

the Exchange submits that arbitrage 

opportunities should provide a 

mechanism to mitigate the effect of any 

premiums or discounts that may exist 

from time to time. 

Dissemination and Availability of 

Information 

Futures Contracts. The daily 

settlement prices for the NYMEX traded 

Futures Contracts held by USNG are 

publicly available on the NYMEX 

website at http://www.nymex.com. The 

Exchange on its website at http:// 

www.amex.com will also include a 

hyperlink to the NYMEX website for the 

purpose of disclosing futures contract 

pricing. In addition, various market data 

vendors and news publications publish 

futures prices and related data. The 

Exchange represents that quote and last 

sale information for the Futures 

Contracts are widely disseminated 

through a variety of market data vendors 

worldwide, including Bloomberg and 

Reuters. In addition, the Exchange 

further represents that real-time futures 

data is available by subscription from 

Reuters and Bloomberg. The NYMEX 

also provides delayed futures 

information on current and past trading 

sessions and market news free of charge 

on its Web site. The specific contract 

specifications for the Futures Contracts 

are also available on the NYMEX 

website and the ICE Futures Web site at 

http://www.icefutures.com. 

USNG Units. The Web site for the 

Exchange at http://www.amex.com, 

which is publicly accessible at no 

charge, will contain the following 

information: (1) The prior business 

day’s NAV and the reported closing 

price; (2) the mid-point of the bid-ask 

price 17 in relation to the NAV as of the 

time the NAV is calculated (the ‘‘BidAsk Price’’); (3) calculation of the 

premium or discount of such price 

against such NAV; (4) data in chart form 

displaying the frequency distribution of 

discounts and premiums of the Bid-Ask 

Price against the NAV, within 

appropriate ranges for each of the four 

(4) previous calendar quarters; (5) the 

prospectus and the most recent periodic 

reports filed with the SEC or required by 

the CFTC; and (6) other applicable 

quantitative information. 

Portfolio Disclosure. USNG’s total 

portfolio composition will be disclosed, 

each business day that the Amex is open 

for trading, on USNG’s website at 

http:// 

www.unitedstatesnaturalgasfund.com. 

USNG expects that website disclosure of 

portfolio holdings will be made daily 

and will include, as applicable, the 

name and value of each Natural Gas 

Interest, the specific types of Natural 

Gas Interests and characteristics of such 

Natural Gas Interests, Treasuries, and 

amount of cash and cash equivalents 

held in the portfolio of USNG. The 

public Web site disclosure of the 

portfolio composition of USNG will 

coincide with the disclosure by the 

Administrator on each business day of 

the NAV for the Units and the Basket 

Amount (for orders placed during the 

day). Therefore, the same portfolio 

information will be provided on the 

public Web site as well as in the 

facsimile or electronic mail message to 

Authorized Purchasers containing the 

NAV and Basket Amount (‘‘Daily 

Dissemination’’). The format of the 

public Web site disclosure and the Daily 

Dissemination will differ because the 

public Web site will list all portfolio 

holdings while the Daily Dissemination 

will provide the portfolio holdings in a 

format appropriate for Authorized 

Purchasers, i.e., the exact components of 

a Creation Unit. 

As described above, the NAV for 

USNG will be calculated and 

disseminated daily.18 The Amex also 

intends to disseminate for USNG on a 

daily basis by means of CTA/CQ High 

Speed Lines information with respect to 

the Indicative Partnership Value (as 

discussed below), recent NAV, Units 

outstanding, the Basket Amount, and 

the Deposit Amount. The Exchange will 

also make available on its Web site daily 

trading volume, closing prices, and the 

NAV. The closing price and settlement 

prices of the Futures Contracts held by 

USNG are also readily available from 

the NYMEX, automated quotation 

systems, published or other public 

sources, or on-line information services 

such as Bloomberg or Reuters. In 

addition, the Exchange will provide a 

hyperlink on its Web site at http:// 

www.amex.com to USNG’s Web site. 

Indicative Partnership Value. In order 

to provide updated information relating 

to USNG for use by investors, 

professionals, and persons wishing to 

create or redeem the Units, the 

Exchange will disseminate through the 

facilities of the CTA an updated 

Indicative Partnership Value (the 

‘‘Indicative Partnership Value’’). The 

Indicative Partnership Value will be 

disseminated on a per Unit basis at least 

every fifteen seconds during the regular 

Amex trading hours of 9:30 a.m. to 4:15 

p.m. ET. The Indicative Partnership 

Value will be calculated based on the 

Treasuries and cash required for 

creations and redemptions (i.e., NAV 

per limit x 100,000) adjusted to reflect 

the price changes of the Benchmark 

Futures Contract. 

The Indicative Partnership Value will 

not reflect price changes to the price of 

the Benchmark Futures Contract 

between the close of open-outcry 

trading of such contract on the NYMEX 

at 2:30 p.m. ET and the open of trading 

on the NYMEX ACCESS market at 3:15 

p.m. ET. The Indicative Partnership 

Value after 3:15 p.m. ET19 will reflect 

changes to the Benchmark Futures 

Contract as provided for through 

NYMEX ACCESS. The value of a Unit 


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10274 Federal Register / Vol. 72, No. 44 / Wednesday, March 7, 2007 / Notices 

20USNG expects that the initial Authorized 

Purchaser will purchase the initial Basket of 

100,000 Units at the initial offering price per Unit 

of $50.00. On the date of the public offering and 

thereafter, USNG will continuously issue Units in 

Baskets of 100,000 Units to Authorized Purchasers 

at NAV. 

21See 17 CFR 240.10A–3. 

22See Securities Exchange Act Release No. 29063 

(April 10, 1991), 56 FR 15652 (April 17, 1991) (SR–

Amex 90–31) at note 9, regarding the Exchange’s 

designation of equity derivative securities as 

eligible for such treatment under Amex Rule 154, 

Commentary .04(c). 

23See Commentary .05 to Amex Rule 190. 

24See letter to George T. Simon, Esq. Foley & 

Lardner, LLP, from Racquel L. Russell, Branch 

Chief, Office of Trading Practices and Processing, 

Commission, dated June 21, 2006. 

may accordingly be influenced by nonconcurrent trading hours between the 

Amex and NYMEX. While the Units 

will trade on the Amex from 9:30 a.m. 

to 4:15 p.m. ET, the Benchmark Futures 

Contract will trade, in open-outcry, on 

the NYMEX from 10 a.m. ET to 2:30 pm 

ET and NYMEX ACCESS from 3:15 p.m. 

ET through the following morning 9:30 

a.m. ET. 

While the NYMEX is open for trading, 

the Indicative Partnership Value can be 

expected to closely approximate the 

value per unit of the Basket Amount. 

However, during Amex trading hours 

when the Futures Contracts have ceased 

trading, spreads and resulting premiums 

or discounts may widen, and therefore, 

increase the difference between the 

price of the Units and the NAV of the 

Units. The Exchange submits that the 

Indicative Partnership Value on a per 

Unit basis disseminated during Amex 

trading hours should not be viewed as 

a real-time update of the NAV, which is 

calculated only once a day. The 

Exchange believes that dissemination of 

the Indicative Partnership Value based 

on the cash amount required for a 

Basket provides additional information 

that is not otherwise available to the 

public and is useful to professionals and 

investors in connection with the Units 

trading on the Exchange or the creation 

or redemption of the Units. 

Partnership Termination Events 

USNG will continue in effect from the 

date of its formation in perpetuity, 

unless sooner terminated upon the 

occurrence of any one or more of the 

following circumstances: (1) The death, 

adjudication of incompetence, 

bankruptcy, dissolution, withdrawal, or 

removal of a general partner who is the 

sole remaining general partner, unless a 

majority in interest of limited partners 

within 90 days after such event elects to 

continue USNG and appoints a 

successor general partner; or (2) the 

affirmative vote to terminate USNG by 

a majority in interest of the limited 

partners subject to certain conditions. 

Upon termination of USNG, holders 

of the Units will surrender their Units 

and the assets of USNG shall be 

distributed to the Unit holders pro rata 

in accordance with the value of the 

Units, in cash or in kind, as determined 

by the General Partner. 

Disclosure 

The Exchange, in an Information 

Circular (described below) to Exchange 

members and member organizations, 

will inform members and member 

organizations, prior to the 

commencement of trading, of the 

prospectus delivery requirements 

applicable to USNG. The Exchange 

notes that investors purchasing Units 

directly from USNG (by delivery of the 

Deposit Amount) will receive a 

prospectus. Amex members purchasing 

Units from USNG for resale to investors 

will deliver a prospectus to such 

investors. 

Purchase and Redemptions in Baskets 

In the Information Circular, members 

and member organizations will be 

informed that procedures for purchases 

and redemptions of Units in Baskets are 

described in the Prospectus and that 

Units are not individually redeemable 

but are redeemable only in Baskets or 

multiples thereof. 

Listing and Trading Rules 

USNG will be subject to the criteria in 

Rule 1502 for initial and continued 

listing of the Units. The Exchange will 

require a minimum of 100,000 Units to 

be outstanding at the start of trading. 

The Exchange expects that the initial 

price of a Unit will be $50.00.20 The 

Exchange believes that the anticipated 

minimum number of Units outstanding 

at the start of trading is sufficient to 

provide adequate market liquidity and 

to further USNG’s objective to seek to 

provide a simple and cost effective 

means of accessing the commodity 

futures markets. The Exchange 

represents that it prohibits the initial 

and/or continued listing of any security 

that is not in compliance with Rule 

10A–3 under the Act.21 The Exchange 

will file a proposed rule change with the 

Commission pursuant to Rule 19b–4 

under the 1934 Act seeking approval to 

continue trading the Units and, unless 

approved, the Exchange will commence 

delisting the Units if more than a 

temporary disruption exists in 

connection with the pricing of the 

Benchmark Futures Contract or the 

calculation or dissemination of the NAV 

is more than temporarily disrupted, or 

the NAV is not disseminated to all 

market participants at the same time. 

The Amex original listing fee 

applicable to the listing of USNG is 

$5,000. In addition, the annual listing 

fee applicable under Section 141 of the 

Amex Company Guide will be based 

upon the year-end aggregate number of 

Units in all series of USNG outstanding 

at the end of each calendar year. 

Amex Rule 154, Commentary .04(c) 

provides that stop and stop limit orders 

to buy or sell a security (other than an 

option, which is covered by Rule 950(f) 

and Commentary thereto) the price of 

which is derivatively priced based upon 

another security or index of securities, 

may with the prior approval of a Floor 

Official, be elected by a quotation, as set 

forth in Commentary .04(c) (i–v). The 

Exchange has designated the Units as 

eligible for this treatment.22

The Units will be deemed ‘‘Eligible 

Securities’’, as defined in Amex Rule 

230, for purposes of the Intermarket 

Trading System Plan and therefore will 

be subject to the trade through 

provisions of Amex Rule 236, which 

requires that Amex members avoid 

initiating trade-throughs for ITS 

securities. 

Specialist transactions of the Units 

made in connection with the creation 

and redemption of Units will not be 

subject to the prohibitions of Amex Rule 

190.23 The Units will not be subject to 

the short sale rule, Rule 10a–1 under the 

Act, pursuant to no-action relief 

granted.24 If exemptive or no-action 

relief is provided, the Exchange will 

issue a notice detailing the terms of the 

exemption or relief. The Units will 

generally be subject to the Exchange’s 

stabilization rule, Amex Rule 170, 

except that specialists may buy on ‘‘plus 

ticks’’ and sell on ‘‘minus ticks,’’ in 

order to bring the Units into parity with 

the underlying commodity or 

commodities and/or futures contract 

price. Proposed Commentary .01 to 

Amex Rule 1503 sets forth this limited 

exception to Rule 170. 

The Exchange submits that its 

surveillance procedures are adequate to 

deter and detect violations of Exchange 

rules relating to the trading of the Units. 

The surveillance procedures for the 

Units will be similar to those used for 

units of the United States Oil Fund, LP 

as well as other commodity-based trusts, 

trust issued receipts (‘‘TIR’’s) and 

exchange-traded funds. In addition, the 

surveillance procedures will incorporate 

and rely upon existing Amex 

surveillance procedures governing 

options and equities. 

Amex Rule 1503 relating to certain 

specialist prohibitions will address 

potential conflicts of interest in 


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Federal Register / Vol. 72, No. 44 / Wednesday, March 7, 2007 / Notices 10275 

25 15 U.S.C. 78f(b). 

26 15 U.S.C. 78f(b)(5). 

connection with acting as a specialist in 

the Units. Specifically, Rule 1503 

provides that the prohibitions in Rule 

175(c) apply to a specialist in the Units 

so that the specialist or affiliated person 

may not act or function as a marketmaker in an underlying asset, related 

futures contract or option or any other 

related derivative. An affiliated person 

of the specialist consistent with Rule 

193 may be afforded an exemption to act 

in a market making capacity, other than 

as a specialist in the Units on another 

market center, in the underlying asset, 

related futures or options or any other 

related derivative. In particular, Amex 

Rule 1503 provides that an approved 

person of an equity specialist that has 

established and obtained Exchange 

approval for procedures restricting the 

flow of material, non-public market 

information between itself and the 

specialist member organization, and any 

member, officer, or employee associated 

therewith, may act in a market making 

capacity, other than as a specialist in the 

Units on another market center, in the 

underlying asset or commodity, related 

futures or options on futures, or any 

other related derivatives. 

Amex Rule 1504 will also ensure that 

specialists handling the Units provide 

the Exchange with all the necessary 

information relating to their trading in 

physical assets or commodities, related 

futures contracts and options thereon or 

any other derivative. As a general 

matter, the Exchange has regulatory 

jurisdiction over its members, member 

organizations and approved persons of a 

member organization. The Exchange 

also has regulatory jurisdiction over any 

person or entity controlling a member 

organization as well as a subsidiary or 

affiliate of a member organization that is 

in the securities business. A subsidiary 

or affiliate of a member organization 

that does business only in commodities 

or futures contracts would not be 

subject to Exchange jurisdiction, but the 

Exchange could obtain information 

regarding the activities of such 

subsidiary or affiliate through 

surveillance sharing agreements with 

regulatory organizations of which such 

subsidiary or affiliate is a member. 

Trading Halts 

If the Indicative Partnership Value is 

not being disseminated by one or more 

major market data vendors, the 

Exchange may halt trading during the 

day in which the interruption to the 

dissemination of such Indicative 

Partnership Value occurs. If the 

interruption to the dissemination of an 

Indicative Partnership Value 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. 

Prior to the commencement of 

trading, the Exchange will issue an 

Information Circular to members 

informing them of, among other things, 

Exchange policies regarding trading 

halts in the Units. First, the Information 

Circular will advise that trading will be 

halted in the event the market volatility 

trading halt parameters set forth in 

Amex Rule 117 have been reached. 

Second, the Information Circular will 

advise that, in addition to the 

parameters set forth in Rule 117, the 

Exchange will halt trading in the Units 

if trading in the underlying Futures 

Contract(s) is halted or suspended. 

Third, with respect to a halt in trading 

that is not specified above, the Exchange 

may also consider other relevant factors 

and the existence of unusual conditions 

or circumstances that may be 

detrimental to the maintenance of a fair 

and orderly market. 

Suitability 

The Information Circular will inform 

members and member organizations of 

the characteristics of USNG Units and of 

applicable Exchange rules, as well as of 

the requirements of Amex Rule 411 

(Duty to Know and Approve 

Customers). 

The Exchange notes that pursuant to 

Rule 411, members and member 

organizations are required in connection 

with recommending transactions in the 

Units to have a reasonable basis to 

believe that a customer is suitable for 

the particular investment given 

reasonable inquiry concerning the 

customer’s investment objectives, 

financial situation, needs, and any other 

information known by such member. 

Information Circular 

The Amex will distribute an 

Information Circular to its members in 

connection with the trading of the 

Units. The Information Circular will 

discuss the special characteristics of and 

risks of trading in the Units. 

Specifically, the Information Circular, 

among other things, will discuss what 

the Units are, how a basket 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 information 

regarding the per unit Indicative 

Partnership Value, trading information 

and applicable suitability rules. The 

Information Circular will also explain 

that USNG is subject to various fees and 

expenses described in the Registration 

Statement. The Information Circular 

will also reference the fact that there is 

no regulated source of last sale 

information regarding physical 

commodities, that the SEC has no 

jurisdiction over the trading of natural 

gas, crude oil, heating oil, gasoline or 

other petroleum-based fuels, and that 

the CFTC has regulatory jurisdiction 

over the trading of natural gas-based 

futures contracts and related options. 

The Information Circular will also 

notify members and member 

organizations about the procedures for 

purchases and redemptions of Units in 

Baskets, and that Units are not 

individually redeemable but are 

redeemable only in Baskets or multiples 

thereof. The Information Circular will 

advise members of their suitability 

obligations with respect to 

recommended transactions to customers 

in the Units. The Information Circular 

will also discuss any relief, if granted, 

by the Commission or the staff from any 

rules under the Act. 

The Information Circular will disclose 

that the NAV for Units will be 

calculated shortly after 4 p.m. ET each 

trading day. 

Surveillance 

Exchange surveillance procedures 

applicable to trading in the proposed 

Units will be similar to those applicable 

to TIRs, Portfolio Depository Receipts, 

Index Fund Shares, and Partnership 

Units currently trading on the Exchange. 

The Exchange currently has in place an 

Information Sharing Agreement with the 

NYMEX and ICE Futures for the 

purpose of providing information in 

connection with trading in or related to 

futures contracts traded on the NYMEX 

and ICE Futures, respectively. To the 

extent that USNG invests in Natural Gas 

Interests traded on other exchanges, the 

Amex will seek to enter into 

Information Sharing arrangements with 

those particular exchanges. 

2. Statutory Basis 

The Amex believes that the proposed 

rule change is consistent with the 

requirements of Section 6(b) of the 

Act 25 in general, and furthers the 

objectives of Section 6(b)(5),26 of the Act 

in particular, in that it is 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 


sroberts on PROD1PC70 with NOTICES
10276 Federal Register / Vol. 72, No. 44 / Wednesday, March 7, 2007 / Notices 

27 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

mechanism of a free and open market 

and a national market system. 

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 

The Exchange has neither solicited 

nor received written comments on the 

proposed rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 35 days of the date of 

publication of this notice in the Federal 

Register or within such longer period (i) 

as the Commission may designate up to 

90 days of such date 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 such proposed 

rule change or 

(B) Institute proceedings to determine 

whether the proposed rule change 

should be disapproved. 

The Amex has requested accelerated 

approval of this proposed rule change 

prior to the 30th day after the date of 

publication of the notice of the filing 

thereof. The Commission has 

determined that a 15-day comment 

period is appropriate in this case. 

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 Exchange 

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–Amex–2006–112 on the 

subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Nancy M. Morris, Secretary, 

Securities and Exchange Commission, 

100 F Street, NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–Amex–2006–112. 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 inspection and copying in 

the Commission’s Public Reference 

Room. Copies of the filing also will be 

available for inspection and copying at 

the principal office of the Amex. 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–Amex–2006–112 and 

should be submitted on or before March 

21, 2007. 

For the Commission, by the Division of 

Market Regulation, pursuant to delegated 

authority.27

Florence E. Harmon, 

Deputy Secretary. 

[FR Doc. E7–4040 Filed 3–6–07; 8:45 am] 

BILLING CODE 8010–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–55373; File No. SR–BSE–

2006–11] 

Self-Regulatory Organizations; Boston 

Stock Exchange, Inc.; Notice of Filing 

of Proposed Rule Change and 

Amendments No. 1 and 2 Relating to 

the Boston Options Exchange’s Minor 

Rule Violation Plan 

February 28, 2007. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 

(‘‘Act’’) 1 and Rule 19b–4 thereunder,2

notice is hereby given that on March 6, 

2006, the Boston Stock Exchange 

(‘‘BSE’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III below, which Items have been 

substantially prepared by the Exchange. 

The Exchange filed Amendments Nos. 1 

and 2 to the proposed rule change on 

June 28, 2006, and July 14, 2006, 

respectively. The Commission is 

publishing this notice to solicit 

comments on the proposed rule change, 

as amended, from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to amend and 

make additions to sections of the Boston 

Options Exchange (‘‘BOX’’) Rules 

related to its Minor Rule Violation Plan 

(‘‘MRVP’’). The text of the proposed rule 

change is available on BSE’s Web site at 

http://www.bostonstock.com/legal, at 

BSE’s principal office, and at the 

Commission’s Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

BSE included statements concerning the 

purpose of, and basis for, the proposed 

rule change and discussed any 

comments it received on the proposed 

rule change. The text of these statements 

may be examined at the places specified 

in Item IV below. The Exchange has 

prepared summaries, set forth in 

Sections A, B, and C below, of the most 

significant aspects of such statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Exchange proposes to amend 

Chapter X of its rules relating to the 

BOX MRVP to include five additional 

violations of BOX’s rules governing 

Market Makers doing business on BOX 

and the Intermarket Linkage Rules. The 

rule proposal imposes sanctions for 

each violation, which become more 

significant with each additional 

violation occurring within a 24-month 

period. 

These provisions impose sanctions in 

BOX Rule Chapter X, Section 2(e) for 

contrary exercise advice infractions of 

Chapter VII, Section 1(c), (d), (f), and (g); 

in Section 2(f) for locked and crossed 

market infringements of Chapter XII, 

Section 4; in Section 2(g) for Market 

Maker assigned activity violations of 

Chapter VI, Section 4(e); in Section 2(h) 

for a Market Maker’s failure to respond 

to a request for a quote within the 


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