Document ID: SEC-2013-1199-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2013-07-02T04:00Z

[Federal Register Volume 78, Number 127 (Tuesday, July 2, 2013)]
[Notices]
[Pages 39810-39820]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-15779]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69862; File No. SR-NYSEArca-2013-60]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Proposing To List and Trade Shares of Market 
Vectors Low Volatility Commodity ETF and Market Vectors Long/Short 
Commodity ETF Under NYSE Arca Equities Rule 8.200

June 26, 2013.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on June 12, 2013, NYSE Arca, Inc. (the ``Exchange'' or 
``NYSE Arca'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of Market Vectors 
Low Volatility Commodity ETF and Market Vectors Long/Short Commodity 
ETF under NYSE Arca Equities Rule 8.200. The text of the proposed rule 
change is available on the Exchange's Web site at www.nyse.com, at the 
principal office of the Exchange, 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 self-regulatory organization 
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 those 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 parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NYSE Arca Equities Rule 8.200, Commentary .02 permits the trading 
of Trust Issued Receipts (``TIRs'') either by listing or pursuant to 
unlisted trading privileges (``UTP'').\4\ The Exchange proposes to list 
and trade the shares (the ``Shares'') of the Market Vectors Low 
Volatility Commodity ETF (``Low Volatility ETF'') and Market Vectors 
Long/Short Commodity ETF (``Long/Short ETF'', and, together with Low 
Volatility ETF, the ``Funds'') under NYSE Arca Equities Rule 8.200. 
Each Fund is a series of the Market Vectors Commodity Trust (the 
``Trust''), a Delaware statutory trust.\5\
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    \4\ Commentary .02 to NYSE Arca Equities Rule 8.200 applies to 
TIRs 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.
    \5\ The Trust filed a pre-effective amendment to its 
registration statements with respect to the Funds on Form S-1 under 
the Securities Act of 1933 (``1933 Act'') on December 7, 2012 (File 
No. 333-179435 for the Low Volatility ETF (``Low Volatility 
Registration Statement'')) and File No. 333-179432 for the Long/
Short ETF (``Long/Short Registration Statement'' and, together with 
the Low Volatility Registration Statement, the ``Registration 
Statements''). The descriptions of the Funds and the Shares 
contained herein are based, in part, on the Registration Statements.

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[[Page 39811]]

    The Exchange notes that the Commission has previously approved the 
listing and trading of other issues of TIRs on the American Stock 
Exchange LLC (``Amex''),\6\ trading on NYSE Arca pursuant to UTP,\7\ 
and listing on NYSE Arca.\8\ In addition, the Commission has approved 
other exchange-traded fund-like products linked to the performance of 
underlying commodities.\9\
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    \6\ See, e.g., Securities Exchange Act Release No. 58161 (July 
15, 2008), 73 FR 42380 (July 21, 2008) (SR-Amex-2008-39) (order 
approving amendments to Amex Rule 1202, Commentary .07 and listing 
on Amex of 14 funds of the Commodities and Currency Trust).
    \7\ See, e.g., Securities Exchange Act Release No. 58163 (July 
15, 2008), 73 FR 42391 (July 21, 2008) (SR-NYSEArca-2008-73) (order 
approving UTP trading on NYSE Arca of 14 funds of the Commodities 
and Currency Trust).
    \8\ See, e.g., Securities Exchange Act Release No. 58457 
(September 3, 2008), 73 FR 52711 (September 10, 2008) (SR-NYSEArca-
2008-91) (order approving listing on NYSE Arca of 14 funds of the 
Commodities and Currency Trust).
    \9\ See, e.g., Securities Exchange Act Release Nos. 56932 
(December 7, 2007), 72 FR 71178 (December 14, 2007) (SR-NYSEArca-
2007-112) (order granting accelerated approval to list iShares S&P 
GSCI Commodity-Indexed Trust); 59895 (May 8, 2009), 74 FR 22993 (May 
15, 2009) (SR-NYSEArca-2009-40) (order granting accelerated approval 
for NYSE Arca listing the ETFS Gold Trust).
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    Van Eck Absolute Return Advisers Corp. is the managing owner of the 
Funds (``Managing Owner'').\10\ The Managing Owner also serves as the 
commodity pool operator and commodity trading advisor of the Funds. The 
Managing Owner is registered as a commodity pool operator and commodity 
trading advisor with the Commodity Futures Trading Commission 
(``CFTC''), and is a member of National Futures Association. Wilmington 
Trust, National Association (``Trustee''), a national bank with its 
principal place of business in Delaware, is the sole trustee of the 
Trust. The Bank of New York Mellon will be the custodian, administrator 
and transfer agent for the Funds.
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    \10\ The Managing Owner is affiliated with a broker-dealer and 
has implemented a ``fire wall'' with respect to such broker-dealer 
and has policies and procedures in place regarding access to 
information concerning the composition and/or changes to the Funds' 
portfolio composition.
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Overview of the Funds \11\
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    \11\ Terms relating to the Funds, the Shares and the Indexes (as 
defined below) referred to, but not defined, herein are defined in 
the Registration Statements.
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    According to the Low Volatility Registration Statement, the Low 
Volatility ETF will seek to track changes, whether positive or 
negative, in the performance of the Morningstar[supreg] Long/Flat 
Commodity Index\SM\ (the ``Long/Flat Index'') over time. According to 
the Long/Short Registration Statement, the Long/Short ETF will seek to 
track changes, whether positive or negative, in the performance of the 
Morningstar[supreg] Long/Short Commodity Index\SM\ (the ``Long/Short 
Index'' and, together with the Long/Flat Index, the ``Indexes'') over 
time.
    Each Fund will seek to achieve its respective investment objective 
by investing principally in exchange-traded futures contracts on 
commodities (``Index Commodity Contracts'') comprising the Long/Flat 
Index and the Long/Short Index, respectively, and U.S. Treasury bills 
maturing in eight weeks or less to reflect ``flat'' positions, and, in 
certain circumstances (as described below), futures contracts other 
than Index Commodity Contracts traded on U.S. or foreign exchanges 
(``Other Commodity Contracts'').\12\ In addition, to a limited extent, 
the Funds may also invest in swap agreements on Index Commodity 
Contracts or Other Commodity Contracts cleared through a central 
clearing house or the clearing house's affiliate (``Cleared Swaps''), 
forward contracts, exchange-traded cash-settled options (including 
options on one or more Index Commodity Contracts, Other Commodity 
Contracts or indexes that include any Index Commodity Contracts or 
Other Commodity Contracts), swaps other than Cleared Swaps and other 
over-the-counter (``OTC'') transactions that provide economic exposure 
to the investment returns of the commodities markets, as represented by 
the Indexes and their constituents (collectively, ``Other Commodity 
Instruments,'' and, together with Other Commodity Contracts and Cleared 
Swaps, ``Other Instruments''), as described below. The Funds also may 
invest in U.S. Treasury bonds, other U.S. Treasury bills, and other 
U.S. government securities and related securities, money market funds, 
certificates of deposit, time deposits and other high credit quality 
short-term fixed income securities, as described in the Registration 
Statements (collectively, ``Cash Instruments''). The Cash Instruments 
used to track flat positions in the Indexes will be U.S. Treasury 
bills.
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    \12\ The Managing Owner expects that Other Commodity Contracts 
in which a Fund may invest in the circumstances described below 
would include futures contracts of different expirations, on 
different commodities or traded on different exchanges than Index 
Commodity Contracts.
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    Each Fund intends to invest first in Index Commodity Contracts. 
Thereafter, if a Fund reaches the position limits applicable to one or 
more Index Commodity Contracts or a ``Futures Exchange'' \13\ imposes 
limitations on the Fund's ability to maintain or increase its positions 
in an Index Commodity Contract after reaching accountability levels or 
a price limit is in effect on an Index Commodity Contract during the 
last 30 minutes of its regular trading session, the Fund's intention is 
to invest first in Cleared Swaps to the extent permitted under the 
position limits applicable to Cleared Swaps and appropriate in light of 
the liquidity in the Cleared Swaps market, and then, using its 
commercially reasonable judgment, in Other Commodity Contracts or in 
Other Commodity Instruments. By using certain or all of these 
investments, the Managing Owner will endeavor to cause a Fund's 
performance to closely track that of the Long/Flat Index or Long/Short 
Index, respectively, over time. The specific circumstances under which 
investments in Other Commodity Contracts and Other Commodity 
Instruments may be used are discussed below.
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    \13\ The Futures Exchanges are the exchanges on which the Index 
Commodity Contracts are traded, and include the following: the 
Chicago Mercantile Exchange, Inc. (``CME''), Chicago Board of Trade 
(``CBOT'', a division of CME), NYMEX (a division of CME), ICE 
Futures US (``ICE-US''), and ICE Futures Europe (``ICE-UK''). Some 
of a Fund's futures trading may be conducted on commodity futures 
exchanges outside the United States. Trading on such exchanges is 
not regulated by any U.S. governmental agency and may involve 
certain risks not applicable to trading on U.S. exchanges, including 
different or diminished investor protections.
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    Consistent with seeking to achieve each Fund's investment 
objective, if a Fund reaches position limits applicable to one or more 
Index Commodity Contracts or when a Futures Exchange has imposed 
limitations on a Fund's ability to maintain or increase its positions 
in an Index Commodity Contract after reaching accountability levels or 
a price limit is in effect on an Index Commodity Contract during the 
last 30 minutes of its regular trading session, the Managing Owner may 
cause a Fund to first enter into or hold Cleared Swaps and then, if 
applicable, enter into and hold Other Commodity Contracts or Other 
Commodity Instruments. For example, certain Cleared Swaps have 
standardized terms similar to, and are priced by reference to, a 
corresponding Index Commodity Contract or Other Commodity Contract. 
Additionally, certain Other Commodity Instruments can generally be 
structured as the parties to the contract desire. Therefore, a Fund 
might enter into multiple Cleared Swaps and/or certain Other Commodity 
Instruments intended to

[[Page 39812]]

exactly replicate the performance of one or more Index Commodity 
Contracts or Other Commodity Contracts, or a single Other Commodity 
Instrument designed to replicate the performance of the applicable 
Index as a whole.\14\ After reaching position limits applicable to one 
or more Index Commodity Contracts or when a Futures Exchange has 
imposed limitations on the Fund's ability to maintain or increase its 
positions in an Index Commodity Contract after reaching accountability 
levels or a price limit is in effect on an Index Commodity Contract 
during the last 30 minutes of its regular trading session, and after 
entering into or holding Cleared Swaps, a Fund might also enter into or 
hold Other Commodity Contracts or Other Commodity Instruments to 
facilitate effective trading, consistent with a Fund's long/flat or 
long/short strategy, as applicable. In addition, after reaching 
position limits applicable to one or more Index Commodity Contracts or 
when a Futures Exchange has imposed limitations on the Fund's ability 
to maintain or increase its positions in an Index Commodity Contract 
after reaching accountability levels or a price limit is in effect on 
an Index Commodity Contract during the last 30 minutes of its regular 
trading session, and after entering into or holding Cleared Swaps, a 
Fund might enter into or hold Other Commodity Contracts or Other 
Commodity Instruments that would be expected to alleviate overall 
deviation between a Fund's performance and that of the Long/Flat Index 
or Long/Short Index, as applicable, that may result from certain market 
and trading inefficiencies or other reasons.
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    \14\ According to the Registration Statements, assuming that 
there is no default by a counterparty to an Other Commodity 
Instrument, the performance of the Other Commodity Instrument should 
positively correlate with the performance of the Long/Flat Index or 
Long/Short Index, as applicable, or the applicable Index Commodity 
Contract.
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    According to the Registration Statements, by using certain or all 
of these investments, the Managing Owner will endeavor to cause a 
Fund's performance to closely track that of the Long/Flat Index or 
Long/Short Index, as applicable, over time. Each Fund will invest to 
the fullest extent possible in Index Commodity Contracts and Other 
Instruments without being leveraged (i.e., without seeking performance 
that is a multiple (e.g., 2X or 3X) or inverse multiple of the Fund's 
respective Index) or unable to satisfy its expected current or 
potential margin or collateral obligations with respect to its 
investments in Index Commodity Contracts and Other Commodity Contracts 
or Other Instruments.\15\
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    \15\ According to the Registration Statements, the Managing 
Owner will attempt to minimize these market and credit risks by 
requiring the Funds to abide by various trading limitations and 
policies, which will include limiting margin accounts and trading 
only in liquid markets. The Managing Owner will implement procedures 
which will include, but will not be limited to: Executing and 
clearing trades with creditworthy counterparties; limiting the 
amount of margin or premium required for any Index Commodity 
Contract or Other Commodity Contract or all Index Commodity 
Contracts or Other Commodity Contracts combined; and generally 
limiting transactions to Index Commodity Contracts or Other 
Commodity Contracts which will be traded in sufficient volume to 
permit the taking and liquidating of positions.
    The Fund will enter into Other Commodity Instruments traded OTC 
(if any) with counterparties selected by the Managing Owner. The 
Managing Owner will select such Other Commodity Instrument (if any) 
counterparties giving due consideration to such factors as it deems 
appropriate, including, without limitation, creditworthiness, 
familiarity with the applicable Index, and price. Under no 
circumstances will the Funds enter into an Other Commodity 
Instrument traded OTC (if any) with any counterparty whose credit 
rating is lower than investment-grade at the time a contract is 
entered into. The Funds expect that investments in OTC Other 
Commodity Instruments (if any) will be made on terms that are 
standard in the market for such OTC Other Commodity Instruments. In 
connection with such OTC Other Commodity Instruments, the Funds may 
post or receive collateral in the form of Cash Instruments, which 
will be marked to market daily.
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    Each of the Indexes is currently composed of long, flat or short 
(as applicable) positions in Index Commodity Contracts, each of which 
is subject to speculative position limits and other position 
limitations, as applicable, which are imposed by either the CFTC or the 
rules of the Futures Exchanges on which the Index Commodity Contracts 
are traded. These position limits prohibit any person from holding a 
position of more than a specific number of such Index Commodity 
Contracts. The purposes of these limits are to diminish, eliminate or 
prevent sudden or unreasonable fluctuations or unwarranted changes in 
the prices of futures contracts.\16\
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    \16\ According to the Registration Statements, pursuant to the 
statutory mandate of the Dodd-Frank Wall Street Reform and Consumer 
Protection Act (the ``Dodd-Frank Act''), which was signed into law 
on July 21, 2010, on October 18, 2011, the CFTC adopted regulations 
that impose new federal position limits on futures and options on a 
subset of energy, metal, and agricultural commodities (the 
``Referenced Contracts'') and economically equivalent swap 
transactions. In a lawsuit filed against the CFTC by the 
International Swaps and Derivatives Association (``ISDA'') and the 
Securities Industry and Financial Markets Association (``SIFMA''), 
the U.S. District Court for the District of Columbia vacated the new 
position limit regulations and remanded the matter to the CFTC for 
further consideration consistent with the court's opinion. The CFTC 
may appeal the court's decision and seek a stay of the decision 
pending appeal, and the new position limit regulations, or other 
regulations with similar effect, could still become effective in the 
future. The regulations that were the subject of this decision are 
referred to herein as the ``proposed regulations.'' The proposed 
regulations would apply to each of the Funds' combined positions 
across these products. The Referenced Contracts subject to the 
proposed regulations represent approximately 68% of the Index 
Commodity Contracts as of February 28, 2013. The proposed 
regulations are extremely complex and, if ultimately implemented, 
whether in their current form or an alternative form, may require 
further guidance and interpretation by the CFTC to determine in all 
respects how they apply to the Funds. The Funds' investment strategy 
could be negatively affected by these regulations.
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    According to the Registration Statement, under current regulations, 
subject to any relevant exemptions, traders, such as each Fund, may not 
exceed speculative position limits, either individually, or in the 
aggregate with other persons with whom they are under common control or 
ownership. Under the proposed regulations challenged by SIFMA, the CFTC 
requires certain persons to aggregate exchange listed futures and 
economically equivalent swap positions owned or controlled by such 
persons.
    In addition, exchanges may establish daily price fluctuation limits 
on futures contracts. The daily price fluctuation limit establishes the 
maximum amount that the price of futures contracts may vary either up 
or down from the previous day's settlement price. Once the daily price 
fluctuation limit has been reached in a particular futures contract, no 
trades may be made at a price beyond that limit. Futures Exchanges may 
also establish accountability levels applicable to futures contracts. A 
Futures Exchange may order a person who holds or controls aggregate 
positions in excess of specified position accountability levels not to 
further increase the positions, to comply with any prospective limit 
which exceeds the size of the position owned or controlled, or to 
reduce any open position which exceeds position accountability levels 
if the Futures Exchange determines that such action is necessary to 
maintain an orderly market. Position limits, accountability levels, and 
daily price fluctuation limits set by the Futures Exchanges have the 
potential to cause tracking error, which could cause changes in the net 
asset value (``NAV'') per Share to substantially vary from changes in 
the level of the Index and prevent an investor from being able to 
effectively use the Fund as a way to indirectly invest in the global 
commodity markets.
    Although the Managing Owner does not expect the Funds to have a 
significant exposure to Other Commodity Instruments that trade OTC, the 
Trust's Declaration of Trust does not limit the amount of funds that 
the

[[Page 39813]]

Funds may invest in such Other Commodity Instruments. Therefore, as the 
amount of funds invested in Other Commodity Instruments that trade OTC 
increases, the applicable risks described in the Registration 
Statements increase correspondingly.\17\
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    \17\ According to the Registration Statements, markets in which 
a Fund may effect a transaction in certain Other Commodity 
Instruments may be in the OTC markets. The participants and dealers 
in such markets are typically not subject to the same level of 
credit evaluation and regulatory oversight as are members of the 
exchange-based markets. This exposes a Fund to the risk that a 
counterparty will not settle a transaction in accordance with its 
terms and conditions because of a credit or liquidity problem or a 
dispute over the terms of the contract (whether or not bona fide), 
thus causing the Fund to suffer a loss. See note 15, supra.
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The Long/Flat Index
    According to the Low Volatility Registration Statement, the Long/
Flat Index is a rules-based, fully collateralized commodity futures 
index that employs a momentum rule to determine if exposure to a 
particular commodity should be maintained with its prescribed weighting 
(a ``long position'') or moved to cash (a ``flat position'').\18\ For 
each Index Commodity Contract represented by the Long/Flat Index, 
Morningstar[supreg], Inc. (``Morningstar'') \19\ calculates a ``linked 
price'' \20\ that incorporates both price changes and roll yield.\21\ 
Whether a position will be long or flat is determined, at the time of a 
monthly repositioning, by comparing the linked price of each Index 
Commodity Contract to its 12-month moving average. For example, if, at 
a monthly repositioning, the linked price for an Index Commodity 
Contract exceeds its 12-month moving average, the Long/Flat Index takes 
the long position in the subsequent month. Conversely, if the linked 
price for an Index Commodity Contract is below its 12-month moving 
average, the Long/Flat Index moves the position to cash, i.e., flat.
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    \18\ A long position is a position that will increase in market 
price if the price of the commodities comprising the Long/Flat 
Index, in the aggregate, are rising during the period when the 
position is open. A flat position is a position that will not 
increase in market price whether the price of the commodities 
comprising the Long/Flat Index, in the aggregate, is rising or 
falling.
    \19\ Morningstar, Inc. is the index provider (``Index Provider'' 
or ``Morningstar'') with respect to the Indexes. Morningstar is not 
registered as a broker-dealer. Morningstar Investment Services 
(``MIS''), a wholly-owned subsidiary of the Index Provider, is a 
broker-dealer and a registered investment adviser under the 
Investment Advisers Act of 1940. Morningstar has implemented 
procedures designed to prevent the illicit use and dissemination of 
material, non-public information regarding the Indexes and has 
implemented a ``fire wall'' with respect to its affiliated broker-
dealer regarding the Indexes.
    \20\ A ``linking'' factor is defined for each commodity that 
converts the price of the contract in effect at each point in time 
to a value that accounts for contract rolls, i.e., the ``linked 
price.'' Each time a contract is rolled, the ``linking'' factor is 
adjusted by the ratio of the closing price of the current contract 
to the closing price of the new contract.
    \21\ According to the Registration Statements, roll yield is the 
amount of return generated (either positive or negative) by rolling 
a short-term contract into a longer-term contract and profiting or 
losing money from the convergence toward a higher or lower spot 
price. The linked price is determined on the basis of price changes 
and roll yields. Rolling a futures contract means closing out a 
position on near-dated (i.e., commodity futures contracts that are 
nearing expiration) commodity futures contracts before they expire 
and establishing an equivalent position in a longer-dated futures 
contract (i.e., commodity futures contracts that have an expiration 
date further in the future) on the same commodity. Futures contacts 
can be in ``backwardation,'' which means that futures contracts with 
longer-term expirations are priced lower than those with shorter-
term expirations, or can exhibit ``contango,'' which means that 
futures contacts with longer-term expirations are priced higher than 
those with shorter-term expirations. In backwardation, market roll 
yields are positive. In contango, market roll yields are negative.
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    To be considered for inclusion in the Long/Flat Index, a commodity 
future must be listed on a U.S. futures exchange, be denominated in 
U.S. dollars and rank in the top 95% by total U.S. dollar value of the 
total open interest pool of all eligible commodities. The weight of 
each Index Commodity Contract is the product of two factors: magnitude 
and the direction of the momentum signal (i.e., 1 for long, 0 for flat, 
or -1 for short). On the annual reconstitution date, the magnitude is 
the open interest weight of the Index Commodity Contract, calculated on 
the second Friday of December, using data through the last trading day 
of November. Individual contract weights are capped at 10%. Between 
reconstitution dates, the weights vary based on the performance of the 
individual commodity positions. The Long/Flat Index is reconstituted 
annually and directions (i.e., whether long or flat) of each Index 
Commodity Contract are determined monthly on the second Friday of each 
month, which is one week prior to the monthly repositioning. As of 
February 28, 2013, the sector weightings of the Long/Flat Index were 
Agriculture (29.44%), Energy (50.37%), Livestock (4.48%) and Metals 
(15.71%).
The Long/Short Index
    According to the Long/Short Registration Statement, the Long/Short 
Index is a rules-based, fully collateralized commodity futures index 
that employs a momentum rule to determine if exposure to a particular 
Index Commodity Contract should be maintained with its prescribed 
weighting (a ``long position'') or moved to a short weighting (a 
``short position'').\22\ For each Index Commodity Contract represented 
by the Long/Short Index, Morningstar calculates a ``linked price'' \23\ 
that incorporates both price changes and roll yield.\24\ Whether a 
position will be long or short (or cash, i.e., flat in the case of 
energy futures contracts, as described below) is determined, at the 
time of a monthly repositioning, by comparing the linked price of each 
Index Commodity Contract to its 12-month moving average. For example, 
if, at a monthly repositioning, the linked price for an Index Commodity 
Contract exceeds its 12-month moving average, the Long/Short Index 
takes a long position in the subsequent month. Conversely, if the 
linked price for an Index Commodity Contract is below its 12-month 
moving average, the Long/Short Index takes a short position. An 
exception is made for commodities in the energy sector. If the signal 
for an Index Commodity Contract in the energy sector is short, the 
weight of that Index Commodity Contract is moved to cash (i.e., flat). 
According to the Long/Short Registration Statement, energy is unique in 
that its price is extremely sensitive to geopolitical events and not 
necessarily driven purely by demand-supply imbalances.
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    \22\ A short position is a position that will increase in market 
price if the price of the Index Commodity Contracts comprising the 
Long/Short Index, in the aggregate, are falling during the period 
when the position is open. The Long/Short Index includes short 
positions in Index Commodity Contracts. The Long/Short ETF may also 
obtain a short position relative to certain Index Commodity 
Contracts by establishing a short position with a counterparty by 
investing in Other Instruments. According to the Long/Short 
Registration Statement, the Long/Short ETF will profit if the price 
of a short position in an Index Commodity Contract or Other 
Instrument that provides exposure to a short position in such Index 
Commodity Contract falls while the position is open and the Long/
Short ETF will suffer loss if the price of a short position in an 
Index Commodity Contract or Other Instrument that provides exposure 
to a short position in such Index Commodity Contract rises while the 
position is open. Because the value of the Index Commodity Contract 
or Other Instrument could rise an unlimited amount, a short position 
in an Index Commodity Contract or Other Instrument that provides 
exposure to a short position in such Index Commodity Contract 
theoretically will expose the Long/Short ETF to unlimited losses. In 
circumstances where a market has reached its maximum price limits 
imposed by the applicable exchange, the Long/Short ETF may be unable 
to offset its short position until the next trading day, when prices 
could expand again in rapid trading.
    \23\ See note 20, supra.
    \24\ See note 21, supra.
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    To be considered for inclusion in the Long/Short Index, a commodity 
future must be listed on a U.S. futures exchange, be denominated in 
U.S. dollars and rank in the top 95% by total U.S. dollar value of the 
total open interest pool of all eligible commodities.

[[Page 39814]]

The weight of each individual Index Commodity Contract is the product 
of two factors: Magnitude and the direction of the momentum signal 
(i.e., 1 for long, 0 for flat, or -1 for short). On the annual 
reconstitution date, the magnitude is the open interest weight of the 
Index Commodity Contract, calculated on the second Friday of December, 
using data through the last trading day of November. Individual 
contract weights are capped at 10%. Between reconstitution dates, the 
weights vary based on the performance of the individual Index Commodity 
Contract positions. The Long/Short Index is reconstituted annually and 
directions (i.e., whether long, flat or short) of each Index Commodity 
Contract are determined monthly on the second Friday of each month, 
which is one week prior to the monthly repositioning. As of February 
28, 2013, the sector weightings of the Long/Short Index were 
Agriculture (29.40%), Energy (49.57%), Livestock (4.69%) and Metals 
(16.34%). The inception date of the Index was December 21, 1979.
Composition of the Indexes
    The following chart provides the composition of the Indexes as of 
February 28, 2013:

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                                                           Long/flat index                Long/short index
                                                  --------------------------------------------------------------
           Commodity            Futures  exchange                        Index                          Index
                                       \25\              Signal          weight         Signal          weight
                                                                       (percent)                      (percent)
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Agricultural:
    Coffee `C'/Colombian......  ICE-US...........  Flat.............         1.71  Short...........         1.72
    Corn/No. 2 Yellow.........  CBOT.............  Long.............         7.42  Long............         7.30
    Cotton/1-1/16''...........  ICE-US...........  Long.............         1.34  Long............         1.21
    Soybean Meal/48% Protein..  CBOT.............  Long.............         1.79  Long............         1.76
    Soybean Oil/Crude.........  CBOT.............  Flat.............         1.93  Short...........         1.90
    Soybeans/No. 2 Yellow.....  CBOT.............  Long.............         9.00  Long............         8.87
    Sugar 11/World     ICE-US...........  Flat.............         3.11  Short...........         3.21
     Raw.
    Wheat/No. 2 Soft Red......  CBOT.............  Flat.............        3.137  Short...........         3.43
                                                   Total Long.......        19.55  Total Long......            0
                                                   Total Short......          N/A  Total Short.....        10.27
                                                   Total Flat.......         9.88  Total Flat......        19.14
                                                   Total                    29.44  Total                   29.40
                                                    Agricultural.                   Agricultural.
Energy:
    Crude Oil WTI/Global Spot.  NYMEX............  Flat.............         9.88  Flat............         9.72
    Crude Oil Brent/Global      ICE-UK...........  Long.............        10.20  Long............        10.03
     Spot.
    Gas-Oil-Petroleum.........  ICE-UK...........  Long.............        9.634  Long............         9.48
    Natural Gas Henry Hub.....  NYMEX............  Flat.............         6.81  Flat............         6.70
    Heating Oil 2/     NYMEX............  Long.............         6.91  Long............         6.79
     Fuel Oil.
    Gasoline Blendstock.......  NYMEX............  Long.............         6.95  Long............         6.84
                                                   Total Long.......        33.69  Total...........
                                                                                   Long............        33.15
                                                   Total Flat.......        16.68  Total Flat......        16.42
                                                   Total Energy.....        50.37  Total Energy....        49.57
Livestock:
    Cattle Live/Choice Average  CME..............  Flat.............         2.98  Short...........         3.11
    Hogs Lean/Average Iowa/S                                                 1.50                           1.58
     Minn.
                                                   Total Long.......         0.00  Total Long......            0
                                                   Total Short......          N/A  Total Short.....         4.69
                                                   Total Flat.......         4.48  Total Flat......            0
                                4.48.............  Total Livestock..         4.48  Total Livestock.         4.69
Metals:
    Copper High Grade/Scrap     NYMEX............  Long.............         2.40  Long............         2.36
     No. 2 Wire.
    Gold......................  NYMEX............  Flat.............         9.82  Short...........        10.32
    Silver....................  NYMEX............  Long.............         3.49  Long............         3.66
                                                   Total Long.......         5.89  Total Long......         6.02
                                                   Total Short......          N/A  Total Short.....        10.32
                                                   Total Flat.......         9.82  Total Flat......            0
                                                   Total Metals.....        15.71  Total Metals....        16.34
----------------------------------------------------------------------------------------------------------------

    The following chart provides the Futures Exchanges, trading symbol 
and trading hours (Eastern time (``E.T.'')) for the Index components:
---------------------------------------------------------------------------

    \25\ See note 13, supra.

----------------------------------------------------------------------------------------------------------------
                                          Exchange                Symbol                Trading hours E.T.
----------------------------------------------------------------------------------------------------------------
Agricultural:
    Coffee `C'/Colombian.........  ICE-US...............  KC...................  3:30 a.m.-2:00 p.m.
    Corn/No. 2 Yellow............  CBOT.................  C....................  10:30 a.m.-3:00 p.m.
    Cotton/1-1/16''..............  ICE-US...............  CT...................  9:00 p.m.-2:30 p.m.
    Soybean Meal/48 Protein......  CBOT.................  SM...................  10:30 a.m.-3:00 p.m.
    Soybean Oil/Crude............  CBOT.................  BO...................  10:30 a.m.-3:00 p.m.
    Soybeans/No. 2 Yellow........  CBOT.................  S....................  10:30 a.m.-3:00 p.m.
    Sugar 11/World Raw..  ICE-US...............  SB...................  2:30 a.m.-2:00 p.m.

[[Page 39815]]

 
    Wheat/No. 2 Soft Red.........  CBOT.................  W....................  10:30 a.m.-3:00 p.m.
Energy:
    Crude Oil WTI/Global Spot....  NYMEX................  CL...................  9:00 a.m.-2:30 p.m.
    Crude Oil Brent/Global Spot..  ICE-UK...............  B....................  8:00 p.m.-6:00 p.m.--next day.
    Gas-Oil-Petroleum............  ICE-UK...............  G....................  8:00 p.m.-6:00 p.m.--next day.
    Natural Gas Henry Hub........  NYMEX................  NG...................  9:00 a.m.-2:30 p.m.
    Heating Oil 2/Fuel    NYMEX................  HO...................  9:00 a.m.-2:30 p.m.
     Oil.
    Gasoline Blendstock..........  NYMEX................  RB...................  9:00 a.m.-2:30 p.m.
Livestock:
    Cattle Live/Choice Average...  CME..................  LC...................  10:05 a.m.-2:00 p.m.
    Hogs Lean/Average Iowa/S Minn  CME..................  LH...................  10:05 a.m.-2:00 p.m.
Metals:
    Copper High Grade/Scrap No. 2  NYMEX................  HG...................  8:10 a.m.-1:00 p.m.
     Wire.
    Gold.........................  NYMEX................  GC...................  8:20 a.m.-1:30 p.m.
    Silver.......................  NYMEX................  SI...................  8:25 a.m.-1:25 p.m.
----------------------------------------------------------------------------------------------------------------

    With respect to each of the Indexes, the following are excluded:
    (1) Financial futures contracts (e.g., securities, currencies, 
interest rates, etc.).
    (2) Commodity futures contracts not denominated in U.S. dollars.
    (3) Commodity futures contracts with less than twelve months of 
pricing.
    Morningstar sorts all commodity futures contracts that meet the 
above eligibility requirements in descending order by the total U.S. 
dollar value of open interest. All commodity futures contracts that 
make up the top 95% of the total open interest pool of all eligible 
commodity futures contracts, starting with the one with the largest 
open interest value, will be included in each of the Indexes.
    The weight of each Index Commodity Contract in the Indexes is the 
product of two factors: magnitude and the direction of the momentum 
signal. Morningstar initially sets the magnitude based on the 12-month 
average of the dollar value of open interest of each Index Commodity 
Contract. Morningstar then caps the top magnitude at 10%, 
redistributing any overage to the magnitudes of the remaining Index 
Commodity Contracts. Morningstar chooses this capped open-interest 
weighting system in order to reflect the importance of each Index 
Commodity Contract in a global economy and to keep the Indexes 
diversified across commodities.
    Each of the Indexes is reconstituted and rebalanced--i.e., the 
Indexes' membership and constituent weights are reset--annually, on the 
third Friday of December after the day's closing values of the Indexes 
have been determined. The reconstitution is effective at the open of 
trading on first trading day after the third Friday of December.
    Morningstar implements all futures contract rolls on the third 
Friday of each month to coincide with portfolio repositioning and the 
rolling of the U.S. Treasury bills used for collateral. If the third 
Friday of the month is a trading holiday, Morningstar rolls and 
rebalances or reconstitutes on the trading day prior to the third 
Friday. To ensure that contracts are rolled before becoming committed 
to receive physical delivery, contracts are selected so that the 
delivery month is at least two months away from the upcoming month. On 
each potential roll date, the delivery month of the current contract is 
compared to the delivery month of the nearest contract whose delivery 
month is at least two months away from the upcoming month. If the 
latter is further into the future than the former, the contract is 
rolled.
Net Asset Value
    According to the Registration Statements, NAV means the total 
assets of each Fund including, but not limited to, all cash and cash 
equivalents or other debt securities less total liabilities of a Fund, 
each determined on the basis of generally accepted accounting 
principles. In particular, NAV includes any unrealized profit or loss 
on open Index Commodity Contracts, Other Instruments and any Cash 
Instruments or other credit or debit accruing to a Fund but unpaid or 
not received by a Fund. The amount of any distribution will be a 
liability of a Fund from the day when the distribution is declared 
until it is paid. All open commodity futures contracts traded on a U.S. 
or non-U.S. exchange will be calculated at their then current market 
value, which will be based upon the settlement price for that 
particular commodity futures contract traded on the applicable U.S. or 
non-U.S. exchange on the date with respect to which NAV is being 
determined; provided, that if a commodity futures contract traded on a 
U.S. or on a non-U.S. exchange could not be liquidated on such day, due 
to the operation of daily limits (if applicable) or other rules of the 
exchange upon which that position is traded or otherwise, the 
settlement price on the most recent day on which the position could 
have been liquidated will be the basis for determining the market value 
of such position for such day. The Managing Owner may in its discretion 
(and under extraordinary circumstances, including, but not limited to, 
periods during which a settlement price of a futures contract is not 
available due to exchange limit orders or force majeure type events 
such as systems failure, natural or man-made disaster, act of God, 
armed conflict, act of terrorism, riot or labor disruption or any 
similar intervening circumstance) value any asset of a Fund pursuant to 
such other principles as the Managing Owner deems fair and equitable so 
long as such principles are consistent with normal industry standards.
    The value of Cleared Swaps will be determined based on the value of 
the Index Commodity Contract in connection with each specific Cleared 
Swap. In calculating the NAV of a Fund, the settlement value of a 
Cleared Swap (if any) and an OTC Other Commodity Instrument (if any) 
will be determined by either applying the then-current disseminated 
value for the related Index Commodity Contracts or the terms as 
provided under the applicable Cleared Swap or OTC Other Commodity 
Instrument, as applicable. However, in the event that one or more of 
the related Index Commodity Contracts are not trading due to the 
operation of daily limits or otherwise, the Managing Owner may in its 
sole discretion choose to value the applicable Fund's Cleared Swaps or 
OTC Other Commodity Instruments (if any) on a fair value basis in order 
to calculate such Fund's NAV. These fair value prices would be 
generally determined based on available

[[Page 39816]]

inputs about the current value of the Index Commodity Contract to which 
the Cleared Swap or OTC Other Commodity Instrument relates and would be 
based on principles that the Managing Owner deems fair and equitable so 
long as such principles are consistent with normal industry standards. 
Exchange-traded Other Commodity Instruments will be valued at their 
market prices on the exchanges on which such instruments trade.
    NAV per Share will be the NAV of each Fund divided by the number of 
its outstanding Shares.
Creation and Redemption Procedures
    With respect to each of the Funds, on any business day, an 
authorized participant may place an order with the Managing Owner to 
create one or more blocks of 50,000 Shares (``Baskets''). Purchase 
orders must be placed by 1:00 p.m., E.T. The day on which the Managing 
Owner receives a valid purchase order is the purchase order date. 
Purchase orders are irrevocable.
    The total cash payment required to create each Basket is the NAV of 
50,000 Shares of a Fund as of the closing time of NYSE Arca or the last 
to close of the Futures Exchanges on which Index Commodity Contracts 
are traded, whichever is latest, on the purchase order date. Baskets 
are issued on the business day immediately following the purchase order 
date at the applicable NAV as of the closing time of NYSE Arca or the 
last to close of the Futures Exchanges on which the corresponding Index 
Commodity Contracts are traded, whichever is latest, on the purchase 
order date, but only if the required payment has been timely received.
    The procedures by which an authorized participant can redeem one or 
more Baskets mirror the procedures for the creation of Baskets. On any 
business day, an authorized participant may place an order with the 
Managing Owner to redeem one or more Baskets. Redemption orders must be 
placed by 1:00 p.m., E.T. The day on which the Managing Owner receives 
a valid redemption order is the redemption order date. Redemption 
orders are irrevocable.
    The redemption proceeds from a Fund will consist of the cash 
redemption amount. The cash redemption amount is equal to the NAV of 
the number of Baskets of the Fund requested in the authorized 
participant's redemption order as of the closing time of NYSE Arca or 
the last to close of the Futures Exchanges on which the Index Commodity 
Contracts are traded, whichever is latest, on the redemption order 
date. The Managing Owner will distribute the cash redemption amount on 
the business day immediately following the redemption order date 
through Depository Trust Company (``DTC'') to the account of the 
authorized participant as recorded on DTC's book-entry system.
    Because the Funds are subject to speculative position limits, 
accountability levels and other position limitations, as applicable, 
the Funds' ability to issue new Baskets or to reinvest income in 
additional Index Commodity Contracts may be limited to the extent these 
activities would cause a Fund to exceed its applicable limits unless a 
Fund trades Other Instruments (if any) in addition to and as a proxy 
for Index Commodity Contracts.
    The Exchange will obtain a representation (prior to listing of each 
Fund) from the Trust that the NAV per Share will be calculated daily 
and made available to all market participants at the same time.
    Each Fund will meet the initial and continued listing requirements 
applicable to TIRs in NYSE Arca Equities Rule 8.200 and Commentary .02 
thereto. With respect to application of Rule 10A-3 \26\ under the Act, 
the Funds rely on the exception contained in Rule 10A-3(c)(7).\27\ A 
minimum of 100,000 Shares of each Fund will be outstanding as of the 
start of trading on the Exchange.
---------------------------------------------------------------------------

    \26\ 17 CFR 240.10A-3.
    \27\ 17 CFR 240.10A-3(c)(7).
---------------------------------------------------------------------------

    Each Fund's investments will be consistent with such Fund's 
investment objective and will not be used to enhance leverage. That is, 
a Fund's investments will not be used to seek performance that is a 
multiple (e.g., 2X or 3X) or inverse multiple of the Fund's respective 
Index.
    A more detailed description of the Shares, the Funds, the Indexes 
and the Index Commodity Contracts, as well as investment risks, 
creation and redemption procedures and fees is set forth in the 
Registration Statements.
Availability of Information Regarding the Shares
    The Web site for the Funds and/or the Exchange's Web site, which 
will be publicly accessible at no charge, will contain the following 
information: (a) The prior business day's NAV per Share and the 
reported closing price; (b) the prospectus; and (c) other applicable 
quantitative information. Each Fund will also disseminate its 
respective holdings on a daily basis on the Funds' Web site, which will 
include, as applicable, the names, quantity, price and market value of 
Index Commodity Contracts, Other Instruments (including forward 
contracts, OTC swaps and other OTC transactions) and Cash Instruments.
    This Web site disclosure of the portfolio composition of the Funds 
will occur at the same time as the disclosure by the Managing Owner of 
the portfolio composition to authorized participants so that all market 
participants are provided portfolio composition information at the same 
time. Therefore, the same portfolio information will be provided on the 
public Web site as well as in electronic files provided to authorized 
participants. Accordingly, each investor will have access to the 
current portfolio composition of the Funds through the Funds' Web site. 
The prices of the Index Commodity Contracts, Other Instruments (except 
as described below) and Cash Instruments will be available from the 
applicable exchanges and market data vendors. The Managing Owner will 
publish the NAV of each Fund and the NAV per Share daily. Disclosure 
regarding the components of each Index, the percentage weightings of 
the components of each Index, and the long, short or flat positions 
therein is available at http://corporate.morningstar.com/US/asp/subject.aspx?page=2649&filter=Commodity&xmlfile=2738.xml.
    The intra-day level and the most recent end-of-day closing level of 
each Index will be published by NYSE Arca once every 15 seconds 
throughout the Exchange's Core Trading Session and as of the close of 
business for NYSE Arca, respectively.
    Any adjustments made to an Index will be published on Morningstar's 
(which serves as the Index Provider) Web site noted above.
    The intra-day indicative value (``IIV'') per Share of each Fund 
will be based on the prior day's final NAV per Share, adjusted every 15 
seconds during the Core Trading Session to reflect the continuous price 
changes of a Fund's Index Commodity Contracts and other holdings. The 
IIV per Share will be widely disseminated by one or more major market 
data vendors at least every 15 seconds during the Core Trading 
Session.\28\
---------------------------------------------------------------------------

    \28\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available IIVs 
taken from Consolidated Tape Association (``CTA'') or other data 
feeds.
---------------------------------------------------------------------------

    The normal trading hours for Index Commodity Contracts may begin 
after 9:30 a.m. and end before 4:00 p.m. E.T., and there will be a gap 
in time at the beginning and the end of each day during which the 
Funds' Shares will be

[[Page 39817]]

traded on the NYSE Arca, but real-time trading prices for at least some 
of the Index Commodity Contracts held by the Funds are not available. 
As a result, during those gaps the IIVs will be updated but will 
reflect the closing prices for such Index Commodity Contracts that have 
stopped trading before the NAV is calculated.
    The final NAV of each Fund and the final NAV per Share will be 
calculated as of the closing time of NYSE Arca Core Trading Session or 
the last to close of the Futures Exchanges on which the Index Commodity 
Contracts or Other Commodity Contracts (which are listed on futures 
exchanges other than Futures Exchanges) are traded, whichever is later, 
and posted in the same manner. Although a time gap may exist between 
the close of the NYSE Arca Core Trading Session and the close of the 
Futures Exchanges on which the Index Commodity Contracts or Other 
Commodity Contracts are traded, there will be no effect on the NAV 
calculations as a result.
    The value of the Shares may be influenced by non-concurrent trading 
hours between NYSE Arca and the various Futures Exchanges on which the 
Index Commodity Contracts are traded. The trading hours for the Futures 
Exchanges may not necessarily coincide during the times that the Shares 
trade on NYSE Arca.\29\
---------------------------------------------------------------------------

    \29\ For example, while the Shares generally will trade on NYSE 
Arca until 8:00 p.m. E.T., NYMEX closes at 1:30 p.m. E.T. As a 
result, during periods when NYSE Arca is open and the futures 
exchanges on which the gold Index Commodity Contracts or Other 
Commodity Contracts are traded (such as NYMEX) are closed, liquidity 
in the applicable Index Commodity Contracts or Other Commodity 
Contracts will be reduced or extremely limited. As a result, trading 
spreads and the resulting premium or discount on the Shares may 
widen, increasing the difference between the price of the Shares and 
the NAV of such Shares.
---------------------------------------------------------------------------

    The NAV for each Fund will be disseminated to all market 
participants at the same time. The Exchange will also make available on 
its Web site daily trading volume of the Shares, closing prices of such 
Shares, and the corresponding NAV. The closing prices and settlement 
prices of Index Commodity Contracts or Other Commodity Contracts are 
also readily available from the Web sites of the applicable Futures 
Exchanges, other futures exchanges, automated quotation systems, 
published or other public sources, or on-line information services such 
as Bloomberg or Reuters. The relevant futures exchanges on which the 
Index Commodity Contracts or Other Commodity Contracts are listed also 
provide delayed futures information on current and past trading 
sessions and market news free of charge on their respective Web sites. 
The specific contract specifications for the Index Commodity Contracts 
or Other Commodity Contracts are also available on such Web sites, as 
well as other financial informational sources. The prices of forward 
agreements, swaps and other OTC transactions are not available from the 
exchanges, but will be available from major market data vendors and 
financial information service providers such as Reuters and Bloomberg 
and will be included in: (i) The calculation of the NAV for the Shares, 
which is disseminated daily; and (ii) the IIV for the Shares, which is 
widely disseminated at least every 15 seconds during the Core Trading 
Session by one or more market data vendors. Quotation and last-sale 
information regarding the Shares will be disseminated through the 
facilities of the CTA.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4:00 a.m. to 8:00 p.m. E.T. The Exchange 
has appropriate rules to facilitate transactions in the Shares during 
all trading sessions.
    The trading of the Shares will be subject to NYSE Arca Equities 
Rule 8.200, Commentary .02(e), which sets forth certain restrictions on 
Equity Trading Permit (``ETP'') Holders acting as registered Market 
Makers in TIRs to facilitate surveillance. See ``Surveillance'' below 
for more information.
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. Trading may 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 Index Commodity Contracts or 
Other Instruments, or (2) whether other unusual conditions or 
circumstances detrimental to the maintenance of a fair and orderly 
market are present. In addition, trading in Shares will be subject to 
trading halts caused by extraordinary market volatility pursuant to the 
Exchange's ``circuit breaker'' rule \30\ or by the halt or suspension 
of trading of the underlying futures contracts.
---------------------------------------------------------------------------

    \30\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

    The Exchange represents that the Exchange may halt trading during 
the day in which an interruption to the dissemination of the IIV, an 
Index value or the value of the Index Commodity Contracts or Other 
Instruments occurs. If the interruption to the dissemination of the 
IIV, an Index value or the value of the Index Commodity Contracts or 
Other Instruments persists past the trading day in which it occurred, 
the Exchange will halt trading no later than the beginning of the 
trading day following the interruption. In addition, if the Exchange 
becomes aware that the NAV with respect to the Shares is not 
disseminated to all market participants at the same time, it will halt 
trading in the Shares until such time as the NAV is available to all 
market participants.
Surveillance
    The Exchange represents that trading in the Shares will be subject 
to the existing trading surveillances, administered by the Financial 
Industry Regulatory Authority (``FINRA'') on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws.\31\ The Exchange represents that 
these 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.
---------------------------------------------------------------------------

    \31\ FINRA surveils trading on the Exchange pursuant to a 
regulatory services agreement. The Exchange is responsible for 
FINRA's performance under this regulatory services agreement.
---------------------------------------------------------------------------

    The surveillances referred to above generally focus on detecting 
securities trading outside their normal patterns, which could be 
indicative of manipulative or other violative activity. When such 
situations are detected, surveillance analysis follows and 
investigations are opened, where appropriate, to review the behavior of 
all relevant parties for all relevant trading violations.
    FINRA, on behalf of the Exchange, will communicate as needed 
regarding trading in the Shares, futures contracts and exchange-traded 
options with other markets and other entities that are members of the 
Intermarket Surveillance Group (``ISG'') and FINRA may obtain trading 
information regarding trading in the Shares, futures contracts and 
exchange-traded options from such markets and other entities. In 
addition, the Exchange may obtain information regarding trading in the 
Shares, futures contracts and exchange-

[[Page 39818]]

traded options from markets and other entities that are members of ISG 
or with which the Exchange has in place a comprehensive surveillance 
sharing agreement.\32\ CME Group, Inc., (which includes CME, CBOT, and 
NYMEX), and ICE-US are members of ISG. In addition, the Exchange has 
entered into a comprehensive surveillance sharing agreement with ICE-UK 
that applies with respect to trading in Index Commodity Contracts. A 
list of ISG members is available at www.isgportal.org.
---------------------------------------------------------------------------

    \32\ The Exchange notes that not all instruments held by the 
Funds may trade on markets that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement.
---------------------------------------------------------------------------

    In addition, with respect to assets of the Funds traded on 
exchanges, not more than 10% of the weight of such assets in the 
aggregate shall consist of components whose principal trading market is 
not a member of ISG or is a market with which the Exchange does not 
have a comprehensive surveillance sharing agreement.
    The Exchange also has a general policy prohibiting the distribution 
of material, non-public information by its employees.
Information Bulletin
    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: (1) The risks involved 
in trading the Shares during the Opening and Late Trading Sessions when 
an updated IIV will not be calculated or publicly disseminated, as well 
as during the Core Trading Session where the IIV may be based in part 
on static underlying values; (2) the procedures for purchases and 
redemptions of Shares in Baskets (and that Shares are not individually 
redeemable); (3) 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; (4) how 
information regarding the IIV 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 Information Bulletin will advise ETP Holders, 
prior to the commencement of trading, of the prospectus delivery 
requirements applicable to the Funds. The Exchange notes that investors 
purchasing Shares directly from the Funds will receive a prospectus. 
ETP Holders purchasing Shares from the Funds for resale to investors 
will deliver a prospectus to such investors. The Information Bulletin 
will also discuss any exemptive, no-action and interpretive relief 
granted by the Commission from any rules under the Act.
    In addition, the Information Bulletin will reference that the Funds 
are subject to various fees and expenses described in the Registration 
Statements. The Information Bulletin will also reference that the CFTC 
has regulatory jurisdiction over the futures contracts traded on U.S. 
markets.
    The Information Bulletin will also disclose the trading hours of 
the Shares of the Funds and that the NAV for the Shares will be 
calculated as of 4:00 p.m. E.T. each trading day. The Bulletin will 
disclose that information about the Shares of the Funds is publicly 
available on the Funds' Web site.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \33\ 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.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in NYSE Arca Equities Rule 8.200 
and Commentary .02 thereto. The Managing Owner is affiliated with a 
broker-dealer and has implemented a ``fire wall'' with respect to such 
broker-dealer and has policies and procedures in place regarding access 
to information concerning the composition and/or changes to the Funds' 
portfolio composition. The Index Provider is not registered as a 
broker-dealer and has implemented procedures designed to prevent the 
illicit use and dissemination of material, non-public information 
regarding the Indexes and has implemented a ``fire wall'' with respect 
to its affiliated broker-dealer regarding the Indexes. The Exchange has 
in place surveillance procedures that are adequate to properly monitor 
trading in the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and applicable federal securities laws. 
FINRA, on behalf of the Exchange, will communicate as needed regarding 
trading in the Shares, futures contracts and exchange-traded options 
with other markets and other entities that are members of the ISG and 
FINRA may obtain trading information regarding trading in the Shares, 
futures contracts and exchange-traded options from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares, futures contracts and exchange-traded 
options from markets and other entities that are members of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement. With respect to assets of the Funds traded on exchanges, not 
more than 10% of the weight of such assets in the aggregate shall 
consist of components whose principal trading market is not a member of 
ISG or is a market with which the Exchange does not have a 
comprehensive surveillance sharing agreement. Each Fund will also 
disseminate each Fund's holdings on a daily basis on the Funds' Web 
site, which will include, as applicable, the names, quantity, price and 
market value of Index Commodity Contracts, Other Instruments and Cash 
Instruments. This Web site disclosure of the portfolio composition of 
the Funds will occur at the same time as the disclosure by the Managing 
Owner of the portfolio composition to authorized participants so that 
all market participants are provided portfolio composition information 
at the same time. The prices of the Index Commodity Contracts, Other 
Instruments and Cash Instruments will be available from the applicable 
exchanges and market data vendors. The Managing Owner will publish the 
NAV of each Fund and the NAV per Share daily. There will be publicly 
available Web site disclosure regarding the components of each Index 
and the long, short or flat positions therein. Trading may 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. Trading in Shares will be subject to trading halts 
caused by extraordinary market volatility pursuant to the Exchange's 
``circuit breaker'' rule or by the halt or suspension of trading of the 
Index Commodity Contracts. The Exchange may halt trading during the day 
in which an interruption to the

[[Page 39819]]

dissemination of the IIV, an Index value or the value of the Index 
Commodity Contracts or Other Instruments occurs. If the interruption to 
the dissemination of the IIV, an Index value or the value of the Index 
Commodity Contracts or Other Instruments persists past the trading day 
in which it occurred, the Exchange will halt trading no later than the 
beginning of the trading day following the interruption. In addition, 
if the Exchange becomes aware that the NAV with respect to the Shares 
is not disseminated to all market participants at the same time, it 
will halt trading in the Shares until such time as the NAV is available 
to all market participants. Disclosure regarding the components of each 
Index, the percentage weightings of the components of each Index, and 
the long, short or flat positions therein is publicly available [sic]. 
The NAV for each Fund will be disseminated to all market participants 
at the same time. If the Exchange becomes aware that the NAV with 
respect to the Shares is not disseminated to all market participants at 
the same time, it will halt trading in the Shares until such time as 
the NAV is available to all market participants. Each Fund intends to 
invest first in Index Commodity Contracts. Thereafter, if a Fund 
reaches the position limits applicable to one or more Index Commodity 
Contracts or a Futures Exchange imposes limitations on the Fund's 
ability to maintain or increase its positions in an Index Commodity 
Contract after reaching accountability levels or a price limit is in 
effect on an Index Commodity Contract during the last 30 minutes of its 
regular trading session, each Fund's intention is to invest first in 
Cleared Swaps to the extent permitted under the position limits 
applicable to Cleared Swaps and appropriate in light of the liquidity 
in the Cleared Swaps market, and then, using its commercially 
reasonable judgment, in Other Commodity Contracts or in Other Commodity 
Instruments.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that a large amount of information is publicly available regarding the 
Funds and the Shares, thereby promoting market transparency. The NAV 
for each Fund will be disseminated to all market participants at the 
same time. The IIV per Share will be widely disseminated by one or more 
major market data vendors at least every 15 seconds during the Core 
Trading Session and on the Managing Owner's Web site. Trading in Shares 
of the Funds will be halted if the circuit breaker parameters in NYSE 
Arca Equities Rule 7.12 have been reached or because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. Moreover, 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.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
additional types of exchange-traded products that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace. As noted above, the Exchange has in place surveillance 
procedures relating to trading in the Shares and may obtain information 
via ISG from other exchanges that are members of ISG or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement. In addition, as noted above, investors will have ready 
access to information regarding the Funds' holdings, IIV, and quotation 
and last sale information for the Shares.

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. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of 
additional types of exchange-traded products that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.

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 (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 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 email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2013-60 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-2013-60. This 
file number should be included on the subject line if email 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 10:00 a.m. and 
3:00 p.m. Copies of the filing will also 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-NYSEArca-2013-60 and should be 
submitted on or before July 23, 2013.

[[Page 39820]]

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
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    \34\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-15779 Filed 7-1-13; 8:45 am]
BILLING CODE 8011-01-P