Document ID: SEC-2014-1032-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: The NASDAQ Stock Market LLC
Posted Date: 2014-06-23T04:00Z

[Federal Register Volume 79, Number 120 (Monday, June 23, 2014)]
[Notices]
[Pages 35610-35623]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-14540]

[[Page 35610]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-72412; File No. SR-NASDAQ-2014-065]

Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change To Adopt New Rule 5713 and 
List Paired Class Shares Issued by AccuShares[supreg] Commodities Trust 
I

June 17, 2014.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'' or ``Exchange Act''),\1\ and Rule 19b-4 thereunder,\2\ notice 
is hereby given that on June 11, 2014, The NASDAQ Stock Market LLC 
(``NASDAQ'' or ``Exchange'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I and II below, which Items have been prepared by 
NASDAQ. 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\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the 
Substance of the Proposed Rule Change

    NASDAQ proposes to add new Rule 5713 (Paired Class Shares), and to 
list Paired Class Shares issued by AccuShares[supreg] Commodities Trust 
I (the ``AccuShares Trust'') on behalf of each of the following seven 
segregated series thereof: AccuShares S&P GSCI[supreg] Spot Fund, 
AccuShares S&P GSCI Agriculture and Livestock Spot Fund, AccuShares S&P 
GSCI Industrial Metals Spot Fund, AccuShares S&P GSCI Crude Oil Spot 
Fund, AccuShares S&P GSCI Brent Oil Spot Fund, AccuShares S&P GSCI 
Natural Gas Spot Fund, and AccuShares Spot CBOE[supreg] VIX[supreg] 
Fund (each an ``AccuShares Fund'', and collectively the ``AccuShares 
Funds'').\3\
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    \3\ AccuShares[supreg] is a registered trademark of AccuShares 
Holdings LLC. S&P[supreg], S&P GSCI[supreg], S&P 500[supreg] and 
Standard & Poor's[supreg] are registered trademarks of Standard & 
Poor's[supreg] Financial Services LLC. CBOE[supreg], Chicago Board 
Options Exchange[supreg], CBOE Volatility Index[supreg] and 
VIX[supreg] are registered trademarks of Chicago Board Options 
Exchange[supreg], Incorporated (``CBOE''). Dow Jones[supreg] is a 
registered trademark of Dow Jones[supreg] Trademark Holdings LLC.
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    The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at NASDAQ'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 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
    The purpose of this proposed rule change is to add new Rule 5713 
regarding Paired Class Shares. The purpose is to also enable the 
Exchange to list Paired Class Shares issued by the AccuShares Trust on 
behalf of the AccuShares Funds pursuant to new Rule 5713 (also known as 
``Shares'') as follows:

------------------------------------------------------------------------
                  Fund                         Paired class shares
------------------------------------------------------------------------
AccuShares S&P GSCI Spot Fund..........  AccuShares S&P GSCI Spot Up
                                          Shares.
                                         AccuShares S&P GSCI Spot Down
                                          Shares.
AccuShares S&P GSCI Agriculture and      AccuShares S&P GSCI Agriculture
 Livestock Spot Fund.                     and Livestock Spot Up Shares.
                                         AccuShares S&P GSCI Agriculture
                                          and Livestock Spot Down
                                          Shares.
AccuShares S&P GSCI Industrial Metals    AccuShares S&P GSCI Industrial
 Spot Fund.                               Metals Spot Up Shares.
                                         AccuShares S&P GSCI Industrial
                                          Metals Spot Down Shares.
AccuShares S&P GSCI Crude Oil Spot Fund  AccuShares S&P GSCI Crude Oil
                                          Spot Up Shares.
                                         AccuShares S&P GSCI Crude Oil
                                          Spot Down Shares.
AccuShares S&P GSCI Brent Oil Spot Fund  AccuShares S&P GSCI Brent Oil
                                          Spot Up Shares.
                                         AccuShares S&P GSCI Brent Oil
                                          Spot Down Shares.
AccuShares S&P GSCI Natural Gas Spot     AccuShares S&P GSCI Natural Gas
 Fund.                                    Spot Up Shares.
                                         AccuShares S&P GSCI Natural Gas
                                          Spot Down Shares.
AccuShares Spot CBOE VIX Fund..........  AccuShares Spot CBOE VIX Up
                                          Shares.
                                         AccuShares Spot CBOE VIX Down
                                          Shares.
------------------------------------------------------------------------

A discussion of Paired Class Shares that will be listed pursuant to 
proposed new Rule 5713 will follow the description of new Rule 5713.
    Proposed Rule 5713 is based, in part, on NYSE Arca (``Arca'') 
Equities Rule 8.400 (the ``Arca rule'').\4\ While the Arca rule deals 
with an unmanaged investment product called Paired Trust Shares 
(``PTS''),\5\ proposed Rule 5713 deals with products called Paired 
Class Shares, also an unmanaged investment product.\6\ Subsequent to 
the initial listing of PTS on Arca in 2007,\7\ variants of the original 
PTS were listed until 2009.\8\ It became evident, however, that PTS had 
inherent design issues that led to severely diminished use of the 
product. PTS are not currently listed and have not been listed and 
traded for more than two years.
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    \4\ See Securities Exchange Act Release No. 55033 (December 29, 
2006), 72 FR 1253 (January 10, 2007) (SR-NYSEArca-2006-75) (order 
approving Arca Equities Rule 8.400). See also Securities Exchange 
Act Release No. 54839 (November 29, 2006), 71 FR 70804 (December 6, 
2006) (SR-Amex-2006-82) (order approving NYSE MKT (formerly AMEX) 
Options Rules 1401-1403). The Exchange believes the proposed rule 
change raises no significant issues not previously addressed in 
those prior Commission orders.
    \5\ For the definition of PTS, see Arca Equities Rule 
8.400(b)(1)(A)(i).
    \6\ For the definition of Paired Class Shares, see proposed Rule 
5713(c).
    \7\ See supra note 4.
    \8\ See Securities Exchange Act Release Nos. 58873 (October 28, 
2008), 73 FR 65709 (November 4, 2008) (SR-NYSEArca-2008-110) 
(Claymore MacroShares $100 Oil Up/Down Trust (UOY and DOY)); and 
58704 (October 1, 2008), 73 FR 59026 (October 8, 2008) (SR-NYSEArca-
2008-92) (Claymore MacroShares Major Metro Housing Up/Down Shares 
(UMM and DMM)).

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[[Page 35611]]

    PTS were designed to be a passive unmanaged investment vehicle with 
an objective to provide investors with exposure to changes in an 
underlying benchmark or index. PTS were to provide retail investors 
with a simple, liquid and cost effective means of simulating an 
investment in an underlying benchmark asset or index. One PTS trust 
issuer seeking to deliver to investors the gains from any positive 
movements (or losses from negative movements) in the underlying 
benchmark or index (``Up PTS''), would be paired with another PTS trust 
issuer seeking to deliver to investors the gains from any negative 
movements (or losses from positive movements) in the same underlying 
benchmark or index (``Down PTS''). Principally, the PTS trust issuers 
sought to track underlying benchmark or index performance through re-
balancing assets between the trusts by means of a swap agreement 
between the trusts based on the underlying benchmark or index. The 
referenced value or notional amount of this swap agreement was equal to 
the aggregate amount of investment in the PTS trusts held by investors. 
Thus, any change in value attributable to a change in the underlying 
benchmark or index would be allocated between the PTS trust issuers by 
transferring assets pursuant to the swap agreement between them, and 
such change would directly affect the liquidation value of each PTS.
    Despite the purported benefits of PTS, the PTS products in 
operation suffered from several fundamental design flaws that led to 
their ultimate demise and disappearance from the market within the span 
of a few years. First, the trading prices of PTS did not track the 
changes in the levels of the underlying benchmark or index. PTS 
products had no mechanism to prevent one of the PTS from trading at a 
premium to its underlying or net asset value (``NAV'') while the other 
PTS was trading at a discount to NAV. Once opposing PTS traded in 
offsetting premium and discount conditions, this condition became 
``locked.'' There was no incentive for market participants to seek PTS 
creation or redemption arbitrage opportunities since PTS always had to 
be created and redeemed in equal quantities (pairs) of Up PTS and Down 
PTS. This premium and discount condition occurred and persisted over 
the life of the previously traded PTS products.
    Second, PTS products had no mechanism to prevent one PTS trust from 
exhausting its capital--where the value of its swap exposure became 
zero--and thereby forcing a liquidation of both of the PTS issuer 
trusts. Instead, the PTS issuer trusts, by operation of their charter 
documents, would be forced to liquidate if their underlying benchmark 
or index increased by a fixed amount after their inception date. Such a 
liquidation occurred in the first PTS product issued within two years 
of its commencement of operations and PTS trading.
    Third, PTS never reset their exposure to, or participation in, the 
reference value of their underlying benchmark or index. Consequently, 
the percentage changes in the price of a Down PTS did not correlate to 
the percentage changes in the underlying benchmark or index once the 
underlying benchmark or index increased or decreased over time. This 
problem is referred to as ``leverage drift.'' For instance, if a PTS 
product initially set its exposure to its benchmark asset at $60 and 
the benchmark subsequently rose to $90, an investor seeking a short 
exposure to the benchmark asset would buy the Down PTS at $30 per 
share. Thereafter, any percentage change in Down PTS price experienced 
by the investor would be three times the percentage change in the 
underlying benchmark (e.g., a $10 change in the benchmark results in 
about an 11% change in the benchmark and a 33% change in Down PTS 
price).\9\ The combination of these deficiencies frustrated market 
maker arbitrage opportunities and the overall utility of PTS to 
investors. The Exchange believes that the structural differences 
between Paired Class Shares and PTS make the proposed Paired Class 
Shares a superior product that should eliminate the fundamental 
problems inherent with PTS.
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    \9\ In this scenario, the percentage of Up PTS price changes 
tracks the percentage changes of the benchmark. However, this was 
not the case for PTS products that tracked a multiple of changes in 
the underlying benchmark or index. For such ``leveraged return'' PTS 
products, both UP PTS and Down PTS experienced leverage drift.
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Paired Class Shares--A Short Background \10\
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    \10\ Paired Class Shares that will be listed by the AccuShares 
Trust are described in detail below, after the description of 
proposed new Rule 5713, under the heading ``Paired Class Shares That 
Will Be Listed on Behalf of the AccuShares Trust--the Details.'' 
This short description is intended to provide context for discussion 
of the proposed new rule.
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    As noted in proposed Rule 5713, Paired Class Shares will be issued 
by a trust (``Trust'') on behalf of a segregated series of the Trust 
(``Fund''). Paired Class Shares will have values that are based on an 
index or other numerical variable (``Underlying Benchmark'') whose 
value reflects the value of assets, prices, price volatility or other 
economic interests (``Reference Asset'').\11\ The Trust will always 
issue Paired Class Shares in pairs of shares of opposing classes of 
each Fund. The values of the opposing classes will move in opposite 
directions as the value of the Fund's Underlying Benchmark varies from 
its starting level, where one constituent of the pair is positively 
linked to the Fund's Underlying Benchmark (``Up Shares'') and the other 
constituent is negatively linked to the Fund's Underlying Benchmark 
(``Down Shares''). The rate of linkage or leverage of a Fund's Up 
Shares and Down Shares performance to the performance of the Fund's 
referenced Underlying Benchmark will be one-to-one. The calculation of 
the liquidation value of a Fund attributable to each of its classes of 
Paired Class Shares (``Class Value''), and each Share of such class' 
pro rata portion of Class Value (``Class Value per Share''), will be 
determined according to a mathematical formula.\12\
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    \11\ Other economic interests would include, for example, 
currencies, interest rates, non-investable economic indices and 
other measures of financial instrument value.
    \12\ The mathematical formula is based on the following factors: 
(1) The value of Fund assets, (2) the allocation of such value based 
on changes in the level of the Fund's Underlying Benchmark which may 
be limited, reduced, capped or otherwise modified according to 
formula or pre-set parameters, and (3) the daily accrual of gain and 
income or loss on the assets of the Fund, less the liabilities of 
the Fund, as such gains, income losses and liabilities are allocated 
to each class of the Fund.
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    Each Fund will engage in (1) scheduled ``regular distributions,'' 
(2) ``special distributions'' that are automatically triggered upon the 
Underlying Benchmark exceeding a fixed rate of change since the Fund's 
prior regular or special distribution date or inception date in the 
case of the first such distribution (each a ``prior distribution 
date''), and (3) ``corrective distributions'' that are automatically 
triggered when the trading price of a Paired Class Share deviates by a 
specified amount from its Class Value per Share for a specified period 
of time. Immediately after each regular, special and corrective 
distribution, the Fund's Underlying Benchmark participation or exposure 
will be reset and the Fund's Class Value per Share for each of its 
classes will be set to equal the lowest Class Value per Share of the 
two classes of Paired Class Shares. To the extent any class of Paired 
Class Shares of a Fund has a positive net income from income or gain on 
class assets, after deduction of class liabilities, on a regular or 
special distribution date as measured from the prior distribution date, 
such class of Paired Class Shares will receive a distribution in cash 
equal to such

[[Page 35612]]

positive net income regardless as to whether such class is entitled to 
a regular or special distribution on such date.
    The structure of Paired Class Shares is designed to be a passive 
unmanaged investment vehicle with the objective to provide investors 
with exposure to changes in an Underlying Benchmark. Paired Class 
Shares are expected to provide retail investors with a simple, liquid 
and cost effective means of simulating an investment in an Underlying 
Benchmark. Paired Class Shares provide distinct benefits that seek to 
remedy the perceived failings of PTS and make Paired Class Shares a 
unique product that would be beneficial to market participants.
    First, a Trust issuing Paired Class Shares on behalf of a Fund 
actively monitors deviations of trading price to Class Value per Share. 
To the extent there is a material and persistent deviation of a Paired 
Class Share trading price from such Paired Class Share's Class Value 
per Share according to pre-set thresholds, a Trust issuing the Paired 
Class Shares will distribute, to holders of each class of shares, 
shares of the opposing class, which would leave each holder with an 
equal number of Up Shares and Down Shares. As each holder would own 
both Up Shares and Down Shares, each holder could redeem their shares 
through an authorized participant (``Authorized Participant'') \13\ for 
cash at their respective Class Values per Share, which would eliminate 
the premium or discount. Even if a corrective distribution is not 
triggered, the existence of a Fund's corrective distribution feature is 
expected to modify investor and Authorized Participant behavior to 
prevent persistent and material premium and discount conditions for 
Paired Class Shares from becoming locked. PTS had no similar mechanism 
and did in fact trade at significant discounts from and premiums to NAV 
in a locked fashion. Furthermore, regular and special distributions 
have the effect of delivering changes in Class Value per Share to each 
class of the Paired Class Shares either directly through the 
distribution or indirectly through the dilution caused by the 
distribution. Thus, market expectation of regular and special 
distributions will cause the trading prices of a Fund's Paired Class 
Shares to experience less pronounced conditions of premium or discount 
to Class Value per Share than PTS experienced with respect to NAV per 
share. PTS lacked these mechanisms and experienced significant premium 
or discount conditions as well as locked premium and discount 
conditions.
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    \13\ An Authorized Participant may place orders to create or 
redeem one or more Creation Units, and must be (1) a registered 
broker-dealer or other securities market participant such as a bank 
or other financial institution which is not required to register as 
a broker-dealer to engage in securities transactions, (2) a direct 
participant in The Depository Trust Company, and (3) a party to an 
Authorized Participant Agreement with the Sponsor setting forth the 
procedures for the creation and redemption of Creation Units in an 
AccuShares Fund.
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    Second, a Trust issuing Paired Class Shares on behalf of a Fund 
makes regular and special distributions and resets the Fund's exposure 
or participation in its Underlying Benchmark to avoid depleting all of 
the capital of one class of shares. PTS had no similar mechanism and 
did in fact liquidate when its underlying benchmarks or index moved 
more than 80%, which occurred on numerous occasions.
    Third, for regular distributions Paired Class Shares reset their 
Underlying Benchmark participation on regularly scheduled dates, and 
for special distributions reset whenever their Underlying Benchmark 
changes by a set percentage since the prior distribution date. Thus, on 
each such date, a percentage change in the Underlying Benchmark 
generally corresponds to a percentage change in the Class Value per 
Share of the shares and leverage drift is minimized. PTS never reset 
its index or benchmark participation and did in fact experience 
significant misalignment of percentage returns due to leverage drift.
Creation and Redemption
    The Paired Class Shares creation and redemption process is similar 
in nature to that of other exchange traded products. Paired Class 
Shares of a Fund are created and redeemed in specified aggregations of 
equal quantities of Up Shares and Down Shares (``Creation Units'') \14\ 
at their respective Class Values per Share. Paired Class Shares can 
also only be created or redeemed by Authorized Participants. In 
contrast to other exchange traded products that often allow or require 
non-cash creation and redemption consideration in the form of specified 
securities or other assets and do not involve multiple share classes, 
Paired Class Shares creation and redemption transactions will only 
occur (a) for cash consideration and (b) in equal pre-determined 
quantities of Up Shares and Down Shares.
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    \14\ Each Creation Unit for each AccuShares Fund will be 
comprised of 25,000 Up Shares and 25,000 Down Shares.
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New Rule 5713
    The provisions of proposed new Rule 5713 are set forth below.
    New Rule 5713(a) indicates that NASDAQ will consider for trading, 
whether by listing or pursuant to unlisted trading privileges 
(``UTP''), Paired Class Shares, which are defined in subsection (c), if 
the Paired Class Shares meet the criteria of Rule 5713. Proposed Rule 
5713(b) clarifies that the rule is applicable only to Paired Class 
Shares. Subsection (b) states that except to the extent inconsistent 
with this Rule, or unless the context otherwise requires, the By-laws 
and all other rules and procedures of the Board of Directors shall be 
applicable to the trading on NASDAQ of such securities. Paired Class 
Shares, which are defined in proposed new subsection (c), are included 
within the definition of ``security'' or ``securities'' as such terms 
are used in the By-laws and Rules of NASDAQ.
Paired Class Shares Defined
    Proposed subsection (c) specifically states that the term ``Paired 
Class Share'' means a security (1) that is issued by a Trust on behalf 
of a Fund as part of a pair of shares of opposing classes whose 
respective underlying values move in opposite directions as the value 
of the Fund's Underlying Benchmark (which is defined in Rule 5713(e)) 
varies from its starting level, where one constituent of the pair is 
positively linked to the Fund's Underlying Benchmark--Up Shares--and 
the other constituent is inversely linked to the Fund's Underlying 
Benchmark--Down Shares, (2) that is issued in exchange for cash, (3) 
the issuance proceeds of which are invested and reinvested in highly 
rated short-term financial instruments that mature within 90 calendar 
days and that serve certain functions,\15\ (4) that represents a 
beneficial interest in the Fund, (5) the value of which is determined 
by the underlying value of the Fund that is attributable to the class 
of which such security is a part,\16\ (6)

[[Page 35613]]

that, when timely aggregated in a specified minimum number or amount of 
securities, along with an equal number or amount of the securities of 
the opposite class that constitute the other part of the pair, may be 
redeemed for a distribution of cash, and (7) that may be subject to 
mandatory redemption of all Paired Class Shares under specified 
circumstances. The Exchange notes that while the definition of Paired 
Class Shares is, to a large extent, based on the Arca rule there are 
structural differences between the two types of products that allow a 
more compact definition of, and listing procedure regarding, Paired 
Class Shares.\17\
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    \15\ These functions are (i) covering the Fund's expenses, (ii) 
providing income distributions to investors, based on income (after 
expenses) from the financial instruments held by the Fund, (iii) 
providing cash proceeds for regular and special distributions to be 
made in cash in lieu of Paired Class Shares, and (iv) providing cash 
proceeds to be paid upon the redemption of Paired Class Shares. 
Thus, for example, upon redeeming 100 Paired Class Shares an 
investor would receive cash equal to the NAV per share for each 
share redeemed. Moreover, a Trust issuing Paired Class Shares on 
behalf of a Fund would engage in regular distributions, special 
distributions and corrective distributions. Proposed Rule 5713(c), 
subpart (3).
    \16\ The Paired Class Shares value will either (i) increase as a 
result of an increase in the Underlying Benchmark and decrease as a 
result of a decrease in the Underlying Benchmark (in the case of an 
Up Share) or (ii) increase as a result of a decrease in the 
Underlying Benchmark and decrease as the result of an increase in 
the Underlying Benchmark (in the case of a Down Share). Proposed 
Rule 5713(c), subpart (5).
    \17\ The basic definition of Paired Class Shares, is largely 
similar in concept to that of Tradeable Shares in PTS, albeit Paired 
Class Shares as discussed reflect an improved product. Thus, where 
Tradeable Shares use the terms ``Up Tradeable Trust'' and ``Down 
Tradeable Trust'', Paired Class Shares use the product-appropriate 
terms ``Up Shares'' and ``Down Shares.'' The Paired Class Shares 
definition in proposed Rule 5713(c) is straightforward in comparison 
to PTS, which requires an unnecessarily complex three-part 
definition (``Tradeable Shares,'' ``Holding Shares,'' and ``Trading 
Shares'' in Arca Equity Rule 8.400(b)(1)(a)(i)).
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Distributions
    Proposed subsection (d) provides that a Fund may engage in 
scheduled regular distributions, special distributions that are 
automatically triggered upon the Underlying Benchmark exceeding a fixed 
rate of change since the prior distribution, and corrective 
distributions that are automatically triggered when the trading price 
of a Paired Class Share deviates by a specified amount from its 
underlying value for a specified period of time.
Designation
    Following on subsection (a) of the proposed rule, proposed 
subsection (e) states that NASDAQ may trade, either by listing or 
pursuant to unlisted trading privileges (``UTP''),\18\ Paired Class 
Shares whose values are based on an Underlying Benchmark whose value 
reflects the value of a Reference Asset. Each issue of Up Shares or 
Down Shares of a Fund shall be designated as a separate series and 
shall be identified by a unique symbol.
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    \18\ For a discussion of the UTP process, see the NASDAQ UTP 
Plan. See also Rules 3381 and 3385 (off-board trading by national 
securities exchange members), 4630 (commodity-related securities), 
5711 (trading of certain derivative securities), 5735 (managed fund 
shares), and 5740 (derivative securities traded under UTP).
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Listing Standards
Initial Listing
    Proposed subsection (f) deals with initial and continued listing. 
Initial listing is specifically discussed in subsection (f)(i). There 
are three initial listing requirements. (A) NASDAQ will establish a 
minimum number of Paired Class Shares for each Fund required to be 
outstanding at the time of commencement of trading on NASDAQ. (B) 
NASDAQ will obtain a representation from the Trust on behalf of each 
Fund that the underlying value per share of each Up Share and Down 
Share will be calculated daily and that these underlying values and 
information about the assets of the Fund will be made available to all 
market participants at the same time.\19\ In addition, (C) if the 
Underlying Benchmark is maintained by a broker-dealer or investment 
advisor, the broker-dealer or investment advisor shall erect a 
``firewall'' around the personnel who have access to information 
concerning changes and adjustments to the Underlying Benchmark.\20\
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    \19\ This is similar in nature to Arca Equity Rule 8.400(d)(1). 
As noted, however, the Holding, Tradeable, and Trading nomenclature 
of PTS is not needed or used for Paired Class Shares.
    \20\ The firewall provision is unique to proposed Rule 5713; 
there is no firewall provision in Arca Equity Rule 8.400.
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Continued Listing
    Continued listing is discussed in proposed subsection (f)(ii), 
which gives the circumstances under which NASDAQ will consider the 
suspension of trading in or removal from listing of a Fund's Paired 
Class Shares. These circumstances include the following alternatives: 
(A) If, following the initial twelve-month period beginning upon the 
commencement of trading of the Paired Class Shares: (i) There are fewer 
than 50 record and/or beneficial holders of the Fund's Up Shares or 
Down Shares for 30 or more consecutive trading days; (ii) the Fund has 
fewer than 50,000 Up Shares or 50,000 Down Shares issued and 
outstanding; or (iii) the combined market value of all shares of a Fund 
issued and outstanding is less than $1,000,000; (B) if the intraday 
level of the Underlying Benchmark, or a substitute or replacement 
Underlying Benchmark based on the same Reference Asset, is no longer 
calculated or available \21\ on at least a 15-second delayed basis 
during the Regular Market Session \22\ when the Fund's Paired Class 
Shares trade on NASDAQ from a source unaffiliated with the sponsor, the 
custodian, the trustee of the Trust, the Fund or NASDAQ that is a major 
market data vendor (e.g., Reuters or Bloomberg); (C) if the underlying 
value per share of each Up Share and Down Share of a Fund is no longer 
made available on a daily basis to all market participants at the same 
time; (D) if the estimate of the value of a share of the series of 
Paired Class Shares (the ``Intraday Indicative Value'') of the 
underlying value of each listed Up Share and Down Share of the Fund is 
no longer made available on at least a 15-second delayed basis by a 
major market vendor during the time the Paired Class Shares trade on 
NASDAQ during the Regular Market Session; (E) if the ``firewall'' 
erected around the personnel who have access to information concerning 
changes and adjustments to the Underlying Benchmark is no longer in 
place; or (F) if such other event shall occur or condition exists which 
in the opinion of NASDAQ makes further dealings on NASDAQ 
inadvisable.\23\
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    \21\ The Underlying Benchmark may no longer be available due to 
a number of circumstances, including where the publication of the 
Underlying Benchmark is no longer economically viable, the data used 
to compute the Underlying Benchmark is no longer available, or the 
Underlying Benchmark methodology no longer tracks the same Reference 
Asset. See Commentary .04 to proposed Rule 5713.
    \22\ NASDAQ market makers are open for business during normal 
market hours of 9:30 a.m. to 4:00 p.m. Eastern Time. Rule 4617. The 
Exchange has trading hours from 4:00 a.m. until 8:00 p.m. Eastern 
Time, with trading sessions before and after normal market hours 
(``Pre-Market'' and ``Post-Market''), and appropriate rules to 
facilitate transactions during all trading sessions. Normal market 
hours are also known as the Regular Market Session. See, e.g., Rules 
5705 (ETFs: portfolio depository receipts and index fund shares), 
and 5710 (securities linked to the performance of indexes and 
commodities (including currencies)).
    \23\ The proposed continuing listing standards are, in all 
material respects, similar in nature to Arca Equity Rule 
8.400(d)(2); the structure of Paired Class Shares is, as noted, 
accommodated in the proposed language. The Exchange also adds the 
subsection (f)(ii)(C) continuing listing requirement that the 
underlying value per share of each Up Share and Down Share of a Fund 
is no longer made available on a daily basis to all market 
participants at the same time.
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    Proposed subsection (f)(ii) provides also that upon termination of 
a Fund, Paired Class Shares issued in connection with such Fund must be 
removed from listing. A Fund may terminate in accordance with the 
provisions of the Fund prospectus, which may provide for termination if 
the underlying value of the Paired Class Shares falls below a specified 
amount.
Firewall Procedures
    Firewall procedures are proposed in respect of the listing of 
Shares. Paragraph (f)(i)(C) of proposed Rule 5713 provides that if the 
Underlying

[[Page 35614]]

Benchmark is maintained by a broker-dealer or investment advisor, the 
broker-dealer or investment advisor shall erect a ``firewall'' around 
the personnel who have access to information concerning changes and 
adjustments to the Underlying Benchmark. In addition, paragraph 
(f)(ii)(E) provides, as one of the continued listing provisions that 
would cause NASDAQ to consider the suspension of trading in or removal 
from listing of a Fund's Paired Class Shares, that the ``firewall'' 
erected around the personnel who have access to information concerning 
changes and adjustments to the Underlying Benchmark is no longer in 
place. Paragraph (f)(i)(C) of proposed Rule 5713 is similar, in 
relevant part, to Rule 5735(g) regarding actively managed ETFs 
regarding the necessity of having a firewall provision.\24\ However, 
whereas (f)(i)(C) of new Rule 5713 discusses establishment of a 
``firewall'' around personnel who have access to information concerning 
changes and adjustments to the Underlying Benchmark, paragraph (g) of 
Rule 5735 discusses establishment of a ``fire wall'' between the 
investment adviser and the broker-dealer with respect to an open-end 
fund's portfolio, not an Underlying Benchmark.
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    \24\ There are similar ``firewall'' provisions regarding other 
listed products. See, e.g., Rule 5711(e)(Currency Trust Shares) and 
Rule 5710(g)(Index-Linked Securities).
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Additional Rule Provisions
    Term, trustee, and voting rights are discussed in subsection (f). 
Regarding term, proposed subsection (f)(iii) states that the stated 
term of a Fund shall be as stated in the Fund prospectus. However, a 
Fund may be terminated under such earlier circumstances as may be 
specified in the Fund prospectus. Regarding trustees, proposed 
subsection (f)(iv) states that the trustee of a Trust must be a trust 
company or banking institution having substantial capital and surplus 
and the experience and facilities for handling corporate trust 
business. In cases where, for any reason, an individual has been 
appointed as trustee, a qualified trust company or banking institution 
must be appointed co-trustee.\25\ No change is to be made in the 
trustee of a listed issue without prior notice to and approval of 
NASDAQ. Regarding voting rights, subsection (f)(v) states that such 
rights, if any, shall be as set forth in the applicable Fund 
prospectus.
---------------------------------------------------------------------------

    \25\ The proposed term, trustee and voting rights provisions 
are, in all material respects, similar to Arca Equity Rule 
8.400(d)(3), (4), and (5).
---------------------------------------------------------------------------

    Proposed subsection (g) sets forth a limitation of liability that 
states that neither NASDAQ nor any agent of NASDAQ shall have any 
liability for damages, claims, losses or expenses caused by any errors, 
omissions, or delays in calculating or disseminating any applicable 
Underlying Benchmark value; the underlying value of the Fund and its 
Paired Class Shares; distribution values or any other information 
relating to the purchase, redemption, or trading of the Paired Class 
Shares, resulting from any negligent act or omission by NASDAQ, or any 
agent of NASDAQ, or any act, condition or cause beyond the reasonable 
control of NASDAQ or its agent, including, but not limited to, an act 
of God; fire; flood; extraordinary weather conditions; war; 
insurrection; riot; strike; accident; action of government; 
communications or power failure; equipment or software malfunction; or 
any error, omission or delay in the reports of transactions in the 
applicable positions or interests.\26\
---------------------------------------------------------------------------

    \26\ Subsection (g) is similar in nature to Arca Equity Rule 
8.400(f). For other current Exchange limitation of liability 
provisions, see Rules 5735(e) and 5711(d)(vi).
---------------------------------------------------------------------------

    Regarding an Exchange member acting as a Market Maker \27\ in 
Paired Class Shares, proposed subsection (h) states that such member 
must file with NASDAQ, in a manner prescribed by the Exchange, and keep 
current a list identifying all accounts for trading in the applicable 
securities or physical commodities included in, or options, futures or 
options on futures on, the Reference Asset of the Underlying Benchmark 
of any Paired Class Shares or any other derivatives based on such 
Reference Asset or based on any security or Reference Asset included in 
the Underlying Benchmark, which the registered Market Maker may have or 
over which it may exercise investment discretion. No registered Market 
Maker shall trade in the applicable securities or physical commodities 
included in, or options, futures or options on futures on, the 
Reference Asset of the Underlying Benchmark of any Paired Class Shares 
or any other derivatives based on such Reference Asset or based on any 
security or Reference Asset included in the Underlying Benchmark, in an 
account in which a registered Market Maker, directly or indirectly, 
controls trading activities, or has a direct interest in the profits or 
losses thereof, which has not been reported to NASDAQ as required by 
this Rule. The subsection also provides that in addition to the 
existing obligations under NASDAQ rules regarding the production of 
books and records (see, e.g., Rule 4625), a registered Market Maker in 
Paired Class Shares shall make available to NASDAQ such books, records 
or other information pertaining to transactions by such entity or 
registered or non-registered employee affiliated with such entity for 
its or their own accounts for trading the applicable securities or 
physical commodities included in, or options, futures or options on 
futures on, the Reference Asset of the Underlying Benchmark of any 
Paired Class Shares or any other derivatives based on such Reference 
Asset or based on any security or Reference Asset included in the 
Underlying Benchmark, as may be requested by NASDAQ.
---------------------------------------------------------------------------

    \27\ For requirements applicable to Market Maker accounts, see 
proposed Rule 5713(h).
---------------------------------------------------------------------------

    The Exchange also proposes six Commentaries. Commentary .01 states 
that members provide all purchasers of newly issued Paired Class Shares 
a prospectus for the Fund.\28\ Commentary .02 states that transactions 
in Paired Class Shares will occur during the trading hours specified in 
Rule 4120. Commentary .03 states that NASDAQ will file separate 
proposals under Section 19(b) of the Act before trading Paired Class 
Shares. Commentary .04 states that prior to a substitute or replacement 
Underlying Benchmark being selected for the Fund, NASDAQ must file a 
related proposed rule change pursuant to Rule 19b-4 under the Exchange 
Act to continue trading the Paired Class Shares. Commentary .05 states 
that subsection (f)(ii)(D), discussed previously, is not applicable as 
a continuing listing standard if a Fund's Paired Class Shares have been 
approved for listing and trading by the Commission under Section 
19(b)(2) of the Act without the requirement that an estimate of the 
Intraday Indicative Value be made available on at least a 15-second 
delayed basis by a major market vendor during the time the Paired Class 
Shares trade on NASDAQ during the Regular Market Session. Commentary 
.06 states that NASDAQ will implement written surveillance procedures 
for trading the Paired Class Shares.
---------------------------------------------------------------------------

    \28\ The proposed commentaries are, in all material respects, 
similar to those in Arca Equity Rule 8.400.
---------------------------------------------------------------------------

Paired Class Shares That Will Be Listed on Behalf of the AccuShares 
Trust--the Details Description of the AccuShares Trust
    The Shares will be offered by the AccuShares Trust, which is a 
Delaware statutory trust that was established into separate AccuShares 
Funds pursuant to the Second Amended and Restated Trust Agreement of 
the AccuShares Trust, by AccuShares Investment Management, LLC, a 
Delaware limited liability company, as sponsor (the

[[Page 35615]]

``Sponsor''), and Wilmington Trust, N.A., a national banking 
association, as trustee (the ``Trustee''), as it may be amended and 
restated from time to time (the ``Trust Agreement'').
The Sponsor
    Under the Trust Agreement, the Sponsor has exclusive management and 
control of all aspects of the business of each AccuShares Fund. 
Specifically, the Sponsor selects the AccuShares Funds' service 
providers, negotiates various fees and agreements and performs such 
other services as the Sponsor believes that the AccuShares Trust may 
require from time to time.
    Each class of an AccuShares Fund pays the Sponsor a management fee 
(the ``Management Fee''), monthly in arrears, in an amount equal to a 
percentage of its average daily Class Value at the rate set forth in 
the applicable AccuShares Fund prospectus. No other fee is paid by the 
AccuShares Funds. The Management Fee is paid in consideration of the 
Sponsor's management and administrative services and the other services 
provided to the AccuShares Funds for which the Sponsor pays 
directly.\29\
---------------------------------------------------------------------------

    \29\ The Sponsor selects all service providers for the 
AccuShares Trust and each AccuShares Fund, including each AccuShares 
Fund's investment advisor.
---------------------------------------------------------------------------

Service Providers to the AccuShares Trust and AccuShares Funds

    The Trustee acts as the sole trustee of the AccuShares Trust under 
the Trust Agreement for the purpose of creating the AccuShares Trust as 
a Delaware statutory trust in accordance with the Delaware Statutory 
Trust Act. The Trustee has only nominal duties and liabilities under 
the Trust Agreement to the AccuShares Trust and the AccuShares Funds. 
The Trustee will have no duty or liability to supervise or monitor the 
performance of the Sponsor, nor will the Trustee have any liability for 
the acts or omissions of the Sponsor.
    Wilmington Trust, N.A. also serves as the investment advisor (the 
``Investment Advisor'') for each AccuShares Fund pursuant to the Non-
Custody Investment Advisory Agreement by and among the AccuShares 
Trust, the Sponsor and the Investment Advisor (the ``Investment 
Advisory Agreement''). The Investment Advisor, which is chosen by the 
Sponsor, is responsible for investing each AccuShares Fund's available 
cash in bills, bonds and notes issued and guaranteed by the United 
States Treasury (``United States Treasury Securities'') with remaining 
maturities of 90 days or less (``Eligible Treasuries'') and over-night 
repurchase agreements collateralized by United States Treasury 
Securities (``Eligible Repos,'' together with cash and Eligible 
Treasuries, ``Eligible Assets''). As discussed, if the Underlying 
Benchmark is maintained by the Investment Advisor, it will erect a 
``firewall'' around the personnel who have access to information 
concerning changes and adjustments to the Underlying Benchmark.
    State Street Bank and Trust Company, a Massachusetts trust company 
(``State Street''), serves as the custodian (the ``Custodian'') for 
each AccuShares Fund pursuant to appointment by the AccuShares Trust 
and the terms of a domestic custodian agreement. The Custodian will 
hold each AccuShares Fund's securities and cash, and will perform each 
AccuShares Fund's Class Value and Class Value per Share calculations.
    State Street serves as the administrator (the ``Administrator'') 
for each AccuShares Fund pursuant to appointment by the Sponsor and the 
terms of an administration agreement. The Administrator, among other 
things, performs or supervises the performance of services necessary 
for the operation and administration of the AccuShares Funds (other 
than making investment decisions or providing services provided by 
other service providers), including accounting and other fund 
administrative services.
    State Street serves as the transfer agent (the ``Transfer Agent'') 
for each AccuShares Fund pursuant to appointment by the Sponsor and the 
terms of a transfer agency and services agreement to provide certain 
services to the AccuShares Funds. The Transfer Agent, among other 
things, provides transfer agent services with respect to the creation 
and redemption of Creation Units. The Transfer Agent will receive from 
Authorized Participants creation and redemption orders and deliver 
acceptances and rejections of such orders to Authorized Participants as 
well as coordinate the transmission of such orders and instructions 
among the Sponsor and the Authorized Participants.
    The Underlying Benchmark of each AccuShares Fund, other than the 
AccuShares Spot CBOE VIX Fund (the ``VIX Fund''), is constructed, 
calculated and published by S&P[supreg] Dow Jones Indices LLC (the 
``Index Provider'').\30\ The CBOE Volatility Index[supreg] (the 
``VIX''), which is the Underlying Benchmark of the VIX Fund, is 
constructed by the CBOE and calculated and published by the Index 
Provider. Both the Index Provider and the CBOE are unaffiliated with 
the AccuShares Trust and the Sponsor.\31\ As discussed, to the extent 
that an Underlying Benchmark is maintained by a broker-dealer or 
investment advisor, such broker-dealer or investment advisor will erect 
a ``firewall'' around personnel who have access to information 
concerning changes and adjustments to the Underlying Benchmark.
---------------------------------------------------------------------------

    \30\ The Underlying Benchmarks for all AccuShares Funds other 
than the VIX Fund are: (1) The S&P GSCI Spot index; (2) the S&P GSCI 
Agricultural and Livestock Spot index; (3) the S&P GSCI Industrial 
Metals Spot index; (4) the S&P GSCI Crude Oil Spot index; (5) the 
S&P GSCI Brent Crude Oil Spot index; and (6) the S&P GSCI Natural 
Gas Spot index, and are collectively referred to herein as the ``S&P 
GSCI Commodity Indices.''
    \31\ Should, however, the Index Provider become affiliated with 
the AccuShares Trust and the Sponsor, an appropriate firewall will 
be warranted.
---------------------------------------------------------------------------

    The Sponsor receives the Management Fee and otherwise bears all the 
routine ordinary expenses of each AccuShares Fund, including the fees 
and reimbursable expenses of the Trustee, the Investment Advisor, the 
Custodian, the Administrator, the Transfer Agent and the Index 
Provider. The AccuShares Funds bear all their tax liabilities, which 
are accrued daily, and their extraordinary, non-recurring expenses that 
are not assumed by the Sponsor under the Trust Agreement.
Authorized Participants
    Each Authorized Participant must be a registered broker-dealer or 
other securities market participant such as a bank or other financial 
institution which is not required to register as a broker-dealer to 
engage in securities transactions, and a direct participant in The 
Depository Trust Company. In addition, each Authorized Participant must 
be a party to an Authorized Participant Agreement with the Sponsor 
setting forth the procedures for the creation and redemption of 
Creation Units in an AccuShares Fund. Only Authorized Participants may 
place orders to create or redeem one or more Creation Units.
Registration Statement
    The offer and sale of Paired Class Shares of each AccuShares Fund 
will be registered with the SEC by means of the AccuShares Trust's 
registration statement on Form S-1 (the ``Registration Statement'') 
under the Securities Act of 1933 (the ``Securities Act''). The 
Registration Statement was filed on March 18, 2014 and will be 
effective as of the date of such offer and sale.

[[Page 35616]]

Description of the Underlying Benchmarks
The S&P GSCI Commodity Indices
    Each S&P GSCI Commodity Index is constructed, calculated and 
published by the Index Provider. The S&P GSCI Spot index (the ``S&P 
GSCI''), which serves as the Underlying Benchmark for the AccuShares 
S&P GSCI Spot Fund, is an index on a production-weighted basket of 
currently 24 principal physical commodities that satisfy criteria 
established by the Index Provider. The commodities included in the S&P 
GSCI are weighted, on a production basis, to reflect the relative 
significance (in the view of the Index Provider) of those commodities 
to the world economy. The referenced commodities within the S&P GSCI 
Agricultural and Livestock Spot index (the ``S&P GSCI-AL'') and the S&P 
GSCI Industrial Metals Spot index (the ``S&P GSCI-IN'') each receive 
weightings that differ from the weightings they receive in the broader 
S&P GSCI.\32\ The value of the S&P GSCI has been normalized (the 
``Normalizing Constant'') such that its hypothetical level on January 
2, 1970 was 100.
---------------------------------------------------------------------------

    \32\ The S&P GSCI-AL is comprised of contracts referencing the 
following Reference Assets: Corn, Chicago Wheat, Soybeans, Live 
Cattle, Lean Hogs, Sugar, Cotton, Kansas Wheat, Coffee, Feeder 
Cattle and Cocoa. The S&P GSCI-IN is comprised of contracts 
referencing the following Reference Assets: LME Copper, Aluminum, 
Nickel, Zinc and Lead. The S&P GSCI is comprised of contracts 
referencing the Reference Assets of the S&P GSCI-AL and the S&P 
GSCI-IN, as well as West Texas Intermediate Crude Oil, Brent Crude 
Oil, Gas Oil, Heating Oil, RBOB Gasoline, Gold, Natural Gas and 
Silver.
---------------------------------------------------------------------------

    The S&P GSCI Crude Oil Spot index (the ``S&P GSCI-CL''), the S&P 
GSCI Brent Crude Oil Spot index (the ``S&P GSCI-BR'') and the S&P GSCI 
Natural Gas Spot index (the ``S&P GSCI-NG'') are single commodity sub-
indices of the S&P GSCI.\33\ The S&P GSCI-AL and the S&P GSCI-IN are 
sub-indices of the S&P GSCI that comprise related groups of commodities 
otherwise contained in the broader S&P GSCI. All of the S&P GSCI 
Commodity Indices are the spot versions of such indices as further 
discussed below.
---------------------------------------------------------------------------

    \33\ The S&P GSCI-CL, the S&P GSCI-BR and the S&P GSCI-NG are 
comprised of contracts referencing West Texas Intermediate Crude 
Oil, Brent Crude Oil and Natural Gas, respectively.
---------------------------------------------------------------------------

    Each S&P GSCI Commodity Index reflects only the daily settlement 
prices (``Daily Contract Reference Prices'') of commodities futures 
contracts that are the components of such index (``Designated 
Contracts'') on each business day. Each S&P GSCI Commodity Index is 
based on the daily settlement prices of first nearby contract, except 
during the five day ``Roll Period'' where the ``Roll Contract 
Expirations'' shift to the next nearby contract and where the weighting 
of the first nearby contract is decreased in favor of the next expiry 
contract 20 percent per day during the Roll Period. Immediately 
following the Roll Period, the next expiry contract is used for the 
index until the next following Roll Period. When shifting to a next 
nearby contract, contract quantities remain consistent and relative 
values between the nearby and next nearby contracts may vary.
    The daily value of the S&P GSCI Commodity Indices, therefore, is 
calculated solely based on the commodity production weightings assigned 
by the Index Provider of each Designated Contract, and of the Daily 
Contract Reference Prices of the nearby contract expiration of each 
Designated Contract, and do not reflect any roll yield.
    The quantity of each of the contracts included in the S&P GSCI 
Commodity Indices is determined on the basis of a five year average, 
referred to as the ``world production average,'' of the production 
quantity of the underlying commodity as published by the United Nations 
Statistical Yearbook, the Industrial Commodity Statistics Yearbook and 
other official sources. However, if a commodity is primarily a regional 
commodity, based on its production, use, pricing, transportation or 
other factors, the Index Provider may calculate the weight of that 
commodity based on regional, rather than world, production data. At 
present, natural gas is the only commodity the weights of which are 
calculated on the basis of regional production data, with the relevant 
region defined as North America.
    For a complete and current description the eligibility criteria, 
weighting and calculation methodologies the Index Provider utilizes in 
selecting commodities and Designated Contracts and their weights for an 
S&P GSCI Commodity Index, see the S&P GSCI Handbook, which is available 
at: www.spindices.com/documents/methodologies/methodology-sp-gsci.pdf.
The VIX
    The Underlying Benchmark of the VIX Fund is the VIX. The VIX is 
constructed by the CBOE and calculated and published by the Index 
Provider. The VIX seeks to serve as a measure of the expected 
volatility of the S&P 500[supreg] total return stock index (the ``S&P 
500 Index''). It is an up-to-the-minute market estimate of expected 
volatility that is calculated by using real-time S&P 500 Index option 
(ticker SPX) bid/ask quotes. The SPX is the Reference Asset of the VIX. 
Each business day, the VIX uses SPX options with at least eight days 
left to expiration, and then weights them to yield a constant, 30-day 
measure of the expected volatility of the S&P 500 Index.
    The VIX is based on real-time option prices, which reflect 
investors' consensus view of future expected stock market volatility. 
During periods of financial stress, which are often accompanied by 
steep market declines, SPX options prices--and the VIX--tend to rise. 
As expectations of large market moves subside, SPX option prices tend 
to decline, which in turn causes the VIX to decline.
    The VIX is quoted in percentage points and translates, roughly, to 
the expected movement in the S&P 500 Index over the next 30-day period, 
which is then annualized. The VIX is based on the spot variation of its 
Reference Asset and as such does not incorporate the effects of closing 
out an expiring contract and establishing a position in the next 
available contact. Consequently, the VIX does not reflect any roll 
yield in option contract turnover and is properly viewed as a spot 
measure of 30-day expiry expected S&P 500 Index volatility measured 
through SPX price movements. For additional information regarding the 
VIX, see the CBOE's Web site at www.cboe.com/VIX.
Description of the AccuShares Funds
Shares Issued in Pairs as ``Up Shares'' and ``Down Shares''
    The AccuShares Trust will issue Shares on behalf of an AccuShares 
Fund in offsetting pairs, where one constituent of the pair, the Up 
Shares, is positively linked to the AccuShares Fund's Underlying 
Benchmark and the other constituent, the Down Shares, is negatively 
linked to the AccuShares Fund's Underlying Benchmark. Therefore, the 
AccuShares Trust will only issue, distribute, maintain and redeem equal 
quantities of Up Shares and Down Shares on behalf of an AccuShares Fund 
at all times. The AccuShares Trust will create and redeem Paired Class 
Shares on behalf of an AccuShares Fund in Creation Units for cash 
only.\34\
---------------------------------------------------------------------------

    \34\ Once created, an AccuShares Fund's Paired Class Shares will 
trade independently of each other on the Exchange.
---------------------------------------------------------------------------

Use of Proceeds
    Cash proceeds from the creation of Paired Class Shares by an 
AccuShares Fund may only be held by an

[[Page 35617]]

AccuShares Fund in Eligible Assets that serve the functions of (1) 
covering the AccuShares Fund's fees, expenses and taxes not assumed by 
the Sponsor, (2) providing cash distributions to investors based on 
income (after expenses) from the financial instruments held by the 
AccuShares Fund (each a ``net income distribution''), (3) providing 
cash proceeds for regular and special distributions to be made in cash 
in lieu of Paired Class Shares, (4) providing cash proceeds to be paid 
upon the redemption of Paired Class Shares and (5) providing cash 
proceeds for any AccuShares Fund liquidation distribution. Each 
AccuShares Fund will invest its assets so as to preserve its capital 
while, at the same time, earning an investment return that is 
consistent with such preservation of capital.
AccuShares Fund Assets
    Each AccuShares Fund will maintain its Eligible Assets in a 
separate custody account maintained by the AccuShares Fund's Custodian 
that will be segregated from the assets of any other series of the 
AccuShares Trust, the Custodian or any other customer of the Custodian. 
Any date on which there is cash on deposit in an AccuShares Fund's 
custody account that is not required to make payments or to make 
distributions to shareholders all such cash will be either held as cash 
or invested by the Investment Advisor, acting in accordance with the 
Investment Advisory Agreement and on behalf of the AccuShares Fund, in 
cash bank deposits, Eligible Treasuries or Eligible Repos.\35\
---------------------------------------------------------------------------

    \35\ Eligible Repos will (i) be entered into with a seller that 
is a bank with at least one billion U.S. dollars in assets or a 
registered securities dealer that is deemed creditworthy by the 
AccuShares Fund's investment advisor, (ii) terminate the business 
day following their execution, (iii) be denominated in U.S. dollars, 
and (iv) be ``collateralized fully,'' meaning that (A) the value of 
the assets collateralizing the Eligible Repo (less transaction 
costs, including loss of interest, that the AccuShares Fund 
reasonably could expect to incur if the seller were to default) is, 
and during the entire term of the Eligible Repo remains, at least 
equal to the resale price payable by the seller under the Eligible 
Repo, (B) such assets are held by a custodian bank for the benefit 
of the AccuShares Fund during the term of the Eligible Repo, and (C) 
such assets consist entirely of United States Treasury Securities.
---------------------------------------------------------------------------

    Each AccuShares Fund will invest its cash in Eligible Treasuries or 
Eligible Repos in order to generate income to pay its fees, expenses 
and taxes and to generate income to shareholders from cash on deposit 
in the AccuShares Fund that is not immediately needed for other 
purposes pending a later net income distribution. Each AccuShares Fund 
will hold a portion of its assets in Eligible Repos, because these 
agreements mature and convert to cash within one business day, which 
will make it possible for the AccuShares Fund to have sufficient cash 
available on each business day to be able to effect any redemptions of 
its Creation Units.
    The Trust Agreement will limit, and the Investment Advisory 
Agreement will direct the Investment Advisor to limit, each AccuShares 
Fund's holdings of Eligible Repos.
    Daily, except on a distribution date where such proceeds are needed 
to effect redemptions or net income distributions or to distribute cash 
for regular and special distributions, the Investment Advisor, on 
behalf of the AccuShares Fund, will reinvest the proceeds received upon 
the maturity of the AccuShares Fund's Eligible Treasuries and Eligible 
Repos in Eligible Assets. The Investment Advisor will also invest in 
Eligible Assets all of an AccuShares Fund's cash funds delivered to it 
in connection with each creation of the AccuShares Fund's Creation 
Units. On the liquidation of an AccuShares Fund, all of the proceeds of 
the Eligible Treasuries and Eligible Repos held by the AccuShares Fund 
will be used to make final cash liquidating payments, less the fees, 
expenses and taxes of the AccuShares Fund not assumed by the Sponsor, 
to the AccuShares Fund's shareholders. Upon any redemption of an 
AccuShares Fund's Creation Units by an Authorized Participant, the cash 
of the AccuShares Fund will be used to pay the proceeds of such 
redemption to the redeeming Authorized Participant.
    The Investment Advisor will select Eligible Treasuries and Eligible 
Repos for acquisition by an AccuShares Fund in accordance with the 
acquisition guidelines that are contained in the Investment Advisory 
Agreement and the applicable AccuShares Fund prospectus.
Determination of Class Value and Class Value per Share
    The Custodian will daily determine the Class Value of each class of 
an AccuShares Fund, which is based on the value of the AccuShares 
Fund's Eligible Assets attributable to such class, (a) plus any accrued 
income or gains or losses on such assets attributable to such class 
(``Investment Income''), (b) less all fees, expenses and taxes 
attributable to such class not otherwise assumed by the Sponsor, where 
such income and gains after deduction of such fees, expenses and taxes 
is referred to as the class ``Net Investment Income.'' Such accrued 
income, gains, losses, fees, expenses and taxes will be allocated to 
each Share class on a daily basis, where such allocation is equal to 
the amount of such accrued income, gains, losses, fees, expenses and 
taxes multiplied by a fraction the numerator of which is the closing 
Class Value per Share of the referenced class and the denominator of 
which is the sum of the closing Class Values per Share of both classes 
of the AccuShares Fund.
    The Class Value per Share of each AccuShares Fund's Up Shares will 
have a fixed one-to-one positive linear relationship with such 
AccuShares Fund's Underlying Benchmark (the ``Up Share Index Factor'') 
and the Class Value per Share of each AccuShares Fund's Down Shares 
will have a fixed one-to-one inverse linear relationship with such 
AccuShares Fund's Underlying Benchmark (the ``Down Share Index Factor'' 
and together with the Up Share Index Factor, the ``Share Index 
Factors''). The Down Share Index Factor will equal negative one times 
the Up Share Index Factor. At the inception of operations of each 
AccuShares Fund, the Sponsor will establish such AccuShares Fund's 
Share Index Factors. After any regular or special distribution by an 
AccuShares Fund, the AccuShares Fund will reset its Share Index 
Factors. This resetting of the Share Index Factors causes Class Values 
per Share to be equal following each such distribution, where the Class 
Values per Share will be equal to the lowest Class Value per Share of 
either class calculated in determining the distribution.
    During any single distribution measurement period that starts with 
the prior distribution date (the ``Measuring Period'') and in order to 
create a balanced market for the Up Shares and Down Shares of the VIX 
Fund, the Class Value per Share of each Up Share of the VIX Fund will 
be reduced and the Class Value per Share of each Down Share of the VIX 
Fund will be increased by an additional daily amount (the ``Daily 
Amount''). In each Measuring Period where the VIX has a level that is 
below a threshold specified in the VIX Fund's prospectus on the prior 
distribution date, the Daily Amount will be a fixed percentage per day 
\36\ of the Class Value per Share on the prior distribution date. If 
the level of the VIX is above the threshold specified in the VIX Fund's 
prospectus, the Daily Amount will be zero. The Daily Amount is intended 
to reflect an attribute of the market for long

[[Page 35618]]

financial instruments seeking exposure to the expected volatility of 
the S&P 500 Index implicit to options contracts on the performance of 
the S&P 500 Index. As reflected in the historical performance of the 
VIX, the market for such long instruments deteriorates over both long 
and short term time frames as both S&P 500 Index volatility and the VIX 
tend to return to a mean level. Under these circumstances, a long 
position on the VIX will tend to decrease in value over time while a 
short position will tend to increase in value. Thus, the VIX Fund will 
devalue its Up Shares and increase the value of its Down Shares over a 
Measuring Period by the fixed amount of the Daily Amount where the VIX 
is within a range consistent with its long run mean level.
---------------------------------------------------------------------------

    \36\ The fixed percentage will vary according to the level of 
the VIX on the prior distribution date. If the level of the VIX on 
such prior distribution date was 30 or lower, the Daily Amount will 
be 0.15% of the Class Value per Share on such prior distribution 
date. If the level of the VIX was greater than 30, the Daily Amount 
will be zero.
---------------------------------------------------------------------------

    The AccuShares Funds' assets are not managed to track the 
performance of their respective Underlying Benchmarks, and the Shares 
of the AccuShares Funds will not rely on the investment acumen of a 
manager or the precision of the investment tools used by a manager for 
performance or for tracking the targeted Underlying Benchmark. Rather, 
the return on an AccuShares Fund's Shares with respect to its 
Underlying Benchmark will be algorithmic and delivered to AccuShares 
Fund investors experiencing an increase in their Shares' Class Value 
per Share by regular and special distributions and to AccuShares Fund 
investors experiencing a decrease in their Shares' Class Value per 
Share by the dilution of their Shares' Class Value per Share due to 
regular and special distributions received by the class of Shares 
opposing their Shares. The Class Values and Class Values per Share for 
each AccuShares Fund will be calculated as set forth to the applicable 
AccuShares Fund prospectus.
Class Value and Class Value Per Share
    The Class Value of each class of an AccuShares Fund is the portion 
of that fund's net asset value, or liquidation value, that is 
attributable to that class. Class Values and Class Values per Share of 
each AccuShares Fund will be calculated by the fund's custodian at the 
end of each Regular Market Session.\37\ The Class Value of each class 
of an AccuShares Fund will be calculated by determining the liquidation 
value attributable to such class, as described below.
---------------------------------------------------------------------------

    \37\ The Class Values and Class Values per Share of each 
AccuShares Fund will be made available to all market participants at 
the same time.
---------------------------------------------------------------------------

    In determining liquidation value, each AccuShares Fund will value 
all assets consistent with generally accepted industry practice for 
valuation of cash and cash equivalent securities. Cash balances and 
cash equivalent securities will be valued at purchase price plus 
accrued interest and longer dated U.S. Treasury securities will be 
valued at market prices.
    The Class Value of a specific class of an AccuShares Fund is the 
fund's liquidation value, adjusted for the total Net Investment Income, 
multiplied by a fraction, the numerator of which is the closing Class 
Value per Share of the referenced class and the denominator of which is 
the sum of the closing Class Values per Share of both classes of the 
AccuShares Fund. The Class Value per Share of all outstanding Shares of 
a class of an AccuShares Fund is its Class Value divided by the number 
of outstanding Shares of such class.
    The Class Value per Share of each AccuShares Fund's Up Shares will 
be increased or decreased, as applicable, by an amount equal to the 
change in the fund's Underlying Benchmark since the prior distribution 
date multiplied by the fund's Up Share Index Factor. The Class Value 
per Share of each AccuShares Fund's Down Shares will be increased or 
decreased, as applicable, by an amount equal to the change in the 
fund's Underlying Benchmark since the prior distribution date 
multiplied by the fund's Down Share Index Factor.
Arbitrage
    Similar to other exchange traded products, the AccuShares Funds 
will rely on the Share creation and redemption process to reduce any 
premium or discount that may occur in an AccuShares Fund's Share 
trading prices on the Exchange relative to that Share's Class Value per 
Share. Shares in each AccuShares Fund may be created or redeemed only 
by certain Authorized Participants who have entered into Authorized 
Participant Agreements with the AccuShares Trust and the Sponsor. The 
creation/redemption process is important for each AccuShares Fund in 
providing Authorized Participants with an arbitrage mechanism through 
which they may keep Share trading prices in line with each Share's 
Class Value per Share.
    As an AccuShares Fund's Shares trade intraday on the Exchange, 
their market prices will fluctuate due to supply and demand. The 
following scenarios generally describe the conditions surrounding a 
creation/redemption:
     If the aggregate market prices of the two classes of 
Shares of an AccuShares Fund exceed their aggregate Class Values per 
Share,\38\ an Authorized Participant can purchase both classes of 
Shares through a cash payment as part of a Creation Unit from the 
AccuShares Fund, and then sell the new Shares on the market at a 
profit, taking into account the value and market price of both classes 
of Shares. This process of increasing the supply of Shares is expected 
to bring the market prices of the Shares back to their aggregate Class 
Values per Share.
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    \38\ This would include a scenario where both classes of an 
AccuShares Fund are trading at a premium to their respective Class 
Values per Share, as well as where one class of an AccuShares Fund 
is trading at a premium to its Class Value per Share while the other 
class trades at Class Value per Share or at a discount that is 
smaller than the other class' [sic] premium.
---------------------------------------------------------------------------

     If the aggregate Class Values per Share of the two classes 
of Shares of an AccuShares Fund exceed their aggregate market 
prices,\39\ an Authorized Participant can purchase Shares on the market 
in an amount equal to a Creation Unit and redeem them for cash at their 
Class Values per Share at a profit, taking into account the value and 
market price of both classes of Shares. This process of increasing the 
demand for Shares on the Exchange through decreasing supply is expected 
to raise the trading price of a Share to meet its Class Value per 
Share.
---------------------------------------------------------------------------

    \39\ This would include a scenario where both classes of an 
AccuShares Fund are trading at a discount to their respective Class 
Values per Share, as well as where one class of an AccuShares Fund 
is trading at a discount to its Class Value per Share while the 
other class trades at Class Value per Share or at a premium that is 
smaller than the other class' [sic] discount.
---------------------------------------------------------------------------

     If the aggregate Class Values per Share of the two classes 
of Shares of an AccuShares Fund are equal to their aggregate market 
prices, but the market price of one of the classes of Shares exceeds 
its Class Value per Share and the Class Value per Share of the opposing 
class of Shares exceeds its market price, the redemption and creation 
mechanism may not create an arbitrage opportunity to eliminate this 
disparity. An AccuShares Fund's corrective distribution mechanism is 
designed to resolve this discrepancy. As discussed above, a corrective 
distribution will leave each shareholder of an AccuShares Fund with an 
equal number of Up Shares and Down Shares. As each shareholder would 
own both Up Shares and Down Shares, each holder could redeem their 
Shares through an Authorized Participant for cash at their respective 
Class Values per Share, which would eliminate the premium or discount. 
Even if a corrective distribution is not triggered, the existence of an 
AccuShares Fund's corrective distribution feature is

[[Page 35619]]

expected to modify investor and Authorized Participant behavior to 
prevent persistent and material premium and discount conditions for 
Paired Class Shares from becoming locked.
    The processes examined in the first two scenarios above are 
referred to as the ``arbitrage mechanism.'' The arbitrage mechanism 
helps to minimize the difference between the trading price of a Share 
of an AccuShares Fund and its Class Value per Share. Over time, these 
buying and selling pressures should balance out, and a Share's market 
trading price is expected to remain at a level that is at or close to 
its Class Value per Share. The arbitrage mechanism provided by the 
creation and redemption process is designed, and required, in order to 
maintain the relationship between the market trading price of Shares 
and their Class Values per Share between distribution dates.
Distributions
    Each AccuShares Fund is expected to engage in four types of 
distributions as of certain distribution dates. The first type of 
distribution, regular distributions, will occur at regular intervals 
for each AccuShares Fund. Regular distributions will generally occur as 
long as there has been a change in the level of the Underlying 
Benchmark (and, in the case of the VIX Fund, the Daily Amount) as of 
the distribution date since the prior distribution date. Secondly, each 
AccuShares Fund expects to make net income distributions on each 
regular or special distribution date to the shareholders of any class 
of such AccuShares Fund whose class Net Investment Income is positive 
as of such distribution date.
    The other two types of distributions are not expected to occur 
regularly and are mechanisms intended to protect the interests of 
investors by providing them with the expected value of their Shares 
upon specified events. Thus, the third type, special distributions, 
occurs where the change in the Underlying Benchmark exceeds a specified 
percentage value since the prior distribution date but before the next 
regular distribution. The fourth type, corrective distributions, occur 
only if the trading price of a class' Shares on the Exchange deviates 
for a specified length of time over a specified threshold amount from 
the Class Value per Share of such class.
Regular Distributions
    Each AccuShares Fund will engage in regular distributions on either 
a monthly or quarterly basis as set forth in the applicable AccuShares 
Fund prospectus.\40\ After each regular distribution, the applicable 
AccuShares Fund will reset its Share Index Factors. An investor 
receiving distributions in cash can then choose to either do nothing or 
reinvest all or part of the distribution in the desired class of Shares 
to gain more economic exposure to the Underlying Benchmark.
---------------------------------------------------------------------------

    \40\ The VIX Fund and the AccuShares S&P GSCI Natural Gas Spot 
Fund will engage in monthly regular distributions on the 15th day of 
each calendar month (or the next following business day if the 
scheduled regular distribution date is not a business day). Each of 
the other five AccuShares Funds will engage in quarterly regular 
distributions on March 15, June 15, September 15 and December 15 of 
each year (or the next following business day if the scheduled 
regular distribution date is not a business day).
---------------------------------------------------------------------------

    An investor receiving distributions in pairs of Shares can (i) sell 
the Shares received for cash and maintain the proceeds in cash, (ii) 
sell only the opposing class of Shares received and maintain proceeds 
in cash or (iii) sell only the opposing class of Shares received and 
reinvest the proceeds in the desired class of Shares to gain more 
economic exposure to the Underlying Benchmark.
Special Distributions
    Special distributions are a measure designed to protect the 
AccuShares Funds and the investors in the AccuShares Funds during 
periods when the AccuShares Fund's Underlying Benchmark experiences 
unexpected degrees of volatility. The AccuShares Funds will effect a 
special distribution and a resetting of the Share Index Factors between 
regular distribution dates where the change in the Underlying Benchmark 
exceeds a specified percentage value since the prior distribution date, 
as set forth in the applicable AccuShares Fund prospectus.\41\ A 
reverse share split may also be executed in conjunction with any 
special distributions.
---------------------------------------------------------------------------

    \41\ The percentage value for special distributions for each of 
the AccuShares Funds will be 75%.
---------------------------------------------------------------------------

Value of Regular and Special Distributions
    When the Class Values per Share of the Up Shares and the Down 
Shares of an AccuShares Fund differ at the close of a Measuring Period 
(after adjusting for any net income distribution for such Shares), the 
Share class with the higher Class Value per Share is expected to 
receive a regular or special distribution on that distribution date.
    The value of a distribution relating to each of an AccuShares 
Fund's Up Shares (where such Shares are valued at their respective 
Class Values per Share) entitled to a distribution on a distribution 
date will be equal to the positive amount, if any, of the closing Class 
Value per Share of the AccuShares Fund's Up Shares (after adjusting for 
any net income distribution) less the closing Class Value per Share of 
the AccuShares Fund's Down Shares (after adjusting for any net income 
distribution).
    The value of a distribution relating to each of an AccuShares 
Fund's Down Shares (where such Shares are valued at their respective 
Class Values per Share) entitled to a distribution on a distribution 
date will be equal to the positive amount, if any, of the closing Class 
Value per Share of the AccuShares Fund's Down Shares (after adjusting 
for any net income distribution) less the closing Class Value per Share 
of the AccuShares Fund's Up Shares (after adjusting for any net income 
distribution).
    Regular and special distributions will ordinarily be made in the 
form of cash during the first six months of trading in an AccuShares 
Fund's Shares. Thereafter, each AccuShares Fund will pay all or any 
part of any regular or special distribution in Paired Class Shares 
instead of cash where further cash distributions would adversely affect 
the liquidity of the market for the AccuShares Fund's Shares \42\ or 
impact the AccuShares Fund's ability to meet minimum asset size 
Exchange listing standards.\43\ All payments made in Paired Class 
Shares shall be made in equal numbers of Up and Down Shares. To the 
extent a Share distribution would result in the distribution of 
fractional Shares, cash in an amount equal to the value of the 
fractional Shares will be distributed rather than fractional Shares.
---------------------------------------------------------------------------

    \42\ The AccuShares Fund would engage in distributions of Paired 
Class Shares in order to maintain a net asset value sufficient to 
meet the net asset value expectations of certain institutional 
shareholders that condition their investment in ETPs to only those 
ETPs having more than a minimum amount of net assets. Consequently, 
Paired Class Share distributions will have the effect of preserving 
an AccuShares Fund's net assets (aggregate Class Values) to attract 
and retain these institutional investors and thereby increase the 
liquidity of the market for an AccuShares Fund's Shares for the 
benefit all of an AccuShares Fund's shareholders.
    \43\ For the minimum asset size Exchange listing standards, see 
proposed Rule 5713(f)(ii)(A)(iii).
---------------------------------------------------------------------------

Corrective Distributions
    Corrective distributions will occur for the AccuShares Funds after 
the trading price of an AccuShares Fund's Shares deviates materially 
and persistently from Class Value per Share according to fixed 
thresholds as set forth in the applicable AccuShares Fund prospectus. 
Corrective distributions are

[[Page 35620]]

a formulaic process that continuously measures for any material 
deviation between the Class Value per Share of the Shares and the 
closing trading prices of the Shares as reported on the Exchange. After 
a specified period of time following an AccuShares Fund's inception, if 
the closing trading prices of the Shares of the AccuShares Fund deviate 
significantly from their Class Value per Share by a specified amount 
over a specified period of time, as set forth in the applicable 
AccuShares Fund prospectus, the AccuShares Fund will make a corrective 
distribution in addition to a regular distribution or special 
distribution on the next scheduled regular distribution date or special 
distribution date if previously triggered.\44\ In a corrective 
distribution, each Share (including those to be distributed on the 
related regular or special distribution date) will be resolved into a 
risk neutral position comprised of an equal number of Up Shares and 
Down Shares. The corrective distribution will distribute (1) a number 
of Down Shares equal to the number of outstanding Up Shares to the Up 
Shares holders and (2) a number of Up Shares equal to the number of 
outstanding Down Shares to the Down Shares holders. Once the 
requirements for a corrective distribution are triggered, the 
corrective distribution will occur on the next available regular or 
special distribution date.
---------------------------------------------------------------------------

    \44\ The corrective distribution threshold for the VIX Fund will 
be a 10.0% deviation for three consecutive business days. The 
corrective distribution threshold for the AccuShares S&P GSCI 
Natural Gas Spot Fund will be a 7.5% deviation for three consecutive 
business days. The corrective distribution threshold for each of the 
other five AccuShares Funds will be a 5.0% deviation over three 
consecutive business days.
---------------------------------------------------------------------------

Net Income Distributions
    Whenever an AccuShares Fund engages in a regular or special 
distribution, such AccuShares Fund will determine whether any of its 
classes has a positive Net Investment Income. Shareholders of any class 
that has a positive Net Investment Income will receive a net income 
distribution. Net income distributions may occur for any class 
regardless of whether such class receives a regular or special 
distribution on that date.
Share Splits
    Reverse share splits will be declared to maintain a positive Class 
Value per Share for either the Up Shares or the Down Shares of an 
AccuShares Fund should the Class Value per Share of either class 
approach zero. Reverse share splits are expected to occur in the 
context of special distributions and are expected to be triggered after 
Class Value per Share declines below a specified dollar threshold as 
set forth in the applicable AccuShares Fund prospectus.\45\ No other 
share splits are expected to occur, although the Sponsor will have the 
right to declare in its sole discretion a share split, either forward 
or reverse, pursuant to the Trust Agreement. In the event of a reverse 
share split, the Share Index Factors and the per Share calculations for 
Net Investment Income will be adjusted to reflect the split to maintain 
continuity in tracking the AccuShares Fund's Underlying Benchmark.
---------------------------------------------------------------------------

    \45\ The specified dollar threshold for each AccuShares Fund 
will be $4.00.
---------------------------------------------------------------------------

Notification
    Each AccuShares Fund engaging in a regular distribution, a special 
distribution, a corrective distribution or a net income distribution 
will provide at least three business days' advance notice (or longer 
advance notice as may be required by the Exchange) \46\ of such an 
event. Each AccuShares Fund engaging in a share split will provide at 
least ten calendar days' advance notice (or longer advance notice as 
may be required by the Exchange) \47\ of such an event. In each 
instance, the Sponsor will notify the Exchange, and post a notice of 
such event and its details on the Sponsor's Web site 
(www.AccuShares.com).
---------------------------------------------------------------------------

    \46\ The Exchange may determine that longer notice is advisable 
in some circumstances (e.g. an extended, or unexpected, market 
break).
    \47\ Id.
---------------------------------------------------------------------------

    With respect to regular distributions, the information provided 
will consist of the schedule of distributions and associated 
distribution dates, and a notification, as of the record date for such 
regular distribution, on the Sponsor's Web site (www.AccuShares.com) as 
to whether or not the regular distribution will occur. For regular 
distributions that occur on schedule, the Sponsor will cause a press 
release to be issued identifying the receiving class, the amount of 
cash, the amount of Paired Class Shares (if any), and any other 
information the Sponsor deems relevant regarding the distribution and 
post such information on the Sponsor's Web site. This information will 
also be contained in the AccuShares Fund's quarterly and annual reports 
on Forms 10-Q and 10-K and annual reports to shareholders.
    With respect to special distributions, corrective distributions and 
share splits, the information provided will include the relevant ex-, 
record and payment dates for each such event and relevant data 
concerning each such event. These events will also be reported in press 
releases, on the Sponsor's Web site (www.AccuShares.com) and under 
current reports on Form 8-K as material events as well as the 
AccuShares Fund's periodic reports.
    In addition, notice of net income distributions for each class of 
an AccuShares Fund, if any, will also be included in the notifications 
of regular, special and corrective distributions.
Information Available to the Public
    Information about the AccuShares Trust, the AccuShares Funds and 
Shares will appear in the AccuShares Fund prospectuses as well as in 
periodic and current reports by the AccuShares Trust under the Exchange 
Act. Information about the AccuShares Trust, the AccuShares Funds and 
the Shares will also be available from the Web site www.AccuShares.com.
Intraday Indicative Value
    For each AccuShares Fund, an estimated value, defined in proposed 
Rule 5713(f)(ii)(D) as the ``Intraday Indicative Value,'' will be 
disseminated. The Intraday Indicative Value, made available by a major 
market vendor, will be based upon the previous day's Class Value per 
Share, as adjusted throughout the day based on changes in the value of 
the AccuShares Fund's Underlying Benchmark or the value of an 
equivalent front futures contract price, and will be updated and widely 
disseminated and broadly displayed on at least a 15-second delayed 
basis during the Regular Market Session.\48\ Premiums and discounts 
between a Share's Intraday Indicative Value and its Class Value per 
Share may occur. The Intraday Indicative Value should not be viewed as 
an actual real-time update of Class Value per Share because Class Value 
per

[[Page 35621]]

Share is calculated only once at the end of each business day. The 
Intraday Indicative Value also should not be viewed as a precise value 
of the Shares. The dissemination of the Intraday Indicative Value will 
provide a close estimate of that value throughout the trading day.
---------------------------------------------------------------------------

    \48\ The value of an equivalent futures contract price may be 
used for calculation of the IIV only (a) during such time that the 
value of the AccuShares Fund's Underlying Benchmark is unavailable, 
and (b) if the equivalent futures contract price is available and 
used in calculation of the Underlying Benchmark. Once the Underlying 
Benchmark becomes available again, the calculation of the AccuShares 
Fund's IIV promptly will resume based on the Underlying Benchmark. 
During such time that an equivalent futures contract price is 
utilized, the Sponsor will so note for the affected AccuShares Fund 
on its Web site at www.AccuShares.com. The substitution of 
equivalent futures contract price in lieu of the Underlying 
Benchmark value may be needed where the provider of the Underlying 
Benchmark is unable to use the Underlying Benchmark for calculation 
of the IIV due to unforeseen circumstances arising with the provider 
of the Underlying Benchmark or its service providers (e.g., 
technical or continuity issues). The Exchange, the Sponsor and the 
AccuShares Trust believe that a substitution of an equivalent 
futures contract price in lieu of an Underlying Benchmark value 
would rarely, if ever, occur.
---------------------------------------------------------------------------

Trading Halts and Trading Pauses
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of an AccuShares Fund. NASDAQ will halt or pause 
trading in an AccuShares Fund's Shares under the conditions specified 
in NASDAQ Rules 4120 and 4121, including the trading pauses under 
NASDAQ Rules 4120(a)(11) and (12). Trading may be halted for reasons 
that, in the view of the Exchange, make trading in the AccuShares 
Fund's Shares inadvisable.\49\ Additionally, trading in an AccuShares 
Fund's Shares will be subject to proposed Rule 5713(f)(ii), which sets 
forth additional circumstances under which trading in Paired Class 
Shares may be halted.
---------------------------------------------------------------------------

    \49\ For instance, a trading halt may be instituted where 
unusual conditions or circumstances detrimental to the maintenance 
of a fair and orderly market are present.
---------------------------------------------------------------------------

    If the intraday level of an AccuShares Fund's Underlying Benchmark 
or the Intraday Indicative Value is not being disseminated as required, 
the Exchange may halt trading during the day in which the disruption 
occurs; if the interruption persists past the day in which it occurred, 
the Exchange will halt trading no later than the beginning of the 
trading day following the interruption. The Exchange will obtain a 
representation from the AccuShares Trust on behalf of each AccuShares 
Fund that the Class Value per Share of each of its Up Shares and Down 
Shares will be calculated daily and that these Class Values per Share 
and information about the assets of the AccuShares Fund will be made 
available to all market participants at the same time.
Availability of Information
    The Sponsor's Web site (www.AccuShares.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for each AccuShares Fund that may be downloaded. The 
Sponsor's Web site will include additional information updated on a 
daily basis, including, for each AccuShares Fund: (1) The prior 
business day's reported Class Values and Class Values per Share; and 
(2) notifications with respect to distributions and share splits.
    Investors will also be able to obtain each AccuShares Fund's annual 
and quarterly reports (together, ``Reports''). Each AccuShares Fund's 
Reports will be available free upon request from the AccuShares Trust, 
and those documents may be viewed on-screen or downloaded from the 
Commission's Web site at www.sec.gov. Information regarding market 
price and volume of the Shares will be continually available on a real-
time basis throughout the day on brokers' computer screens and other 
electronic services. Information regarding the previous day's closing 
price and trading volume information for the Shares will be published 
daily in the financial section of newspapers. Quotation and last sale 
information will also be available via NASDAQ proprietary quote and 
trade services, as well as in accordance with any UTP plans for an 
AccuShares Fund's Shares, if applicable. The value of each AccuShares 
Fund's Underlying Benchmark will be published by one or more major 
market data vendors on at least a 15-second delayed basis during the 
Regular Market Session. Information about each AccuShares Fund's 
Underlying Benchmark constituents, the weighting of the constituents, 
the Underlying Benchmark's methodology and the Underlying Benchmark's 
rules will be available at no charge on the Index Provider's Web site 
at us.spindices.com or, in the case of the VIX Fund, the CBOE's Web 
site at www.cboe.com/VIX.
    Additional information regarding the AccuShares Funds and the 
Shares, including risks, creation and redemption procedures, fees, 
distributions and taxes, is included in the Registration Statement.
Trading Rules
    The Exchange deems the Shares to be equity securities, which 
include, among other things, exchange traded funds and exchange traded 
notes, thus rendering trading in the Shares subject to the Exchange's 
existing rules governing the trading of such securities. The Exchange 
will allow trading Paired Class Shares during all trading sessions.\50\ 
As provided in Rule 4613(a)(2)(I), the minimum quotation increment for 
quotations of $1.00 and above in Paired Class Shares on the Exchange is 
$0.01.
---------------------------------------------------------------------------

    \50\ See Commentary .02.
---------------------------------------------------------------------------

Surveillance
    The Exchange represents that trading in Paired Class Shares will be 
subject to the existing trading surveillances, administered by both the 
Exchange and 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.\51\ The Exchange 
represents that these procedures are adequate to properly monitor 
trading of Paired Class Shares and to deter and detect violations of 
Exchange rules and applicable federal securities laws.
---------------------------------------------------------------------------

    \51\ 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 Paired Class Shares and in the securities in 
which the AccuShares Fund will invest with other markets and other 
entities that are members of the Intermarket Surveillance Group 
(``ISG'') or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\52\ In addition, FINRA may obtain 
trading information regarding trading in the Shares and in the 
securities in which the AccuShares Fund will invest with such markets 
and other entities; and the Exchange may obtain information regarding 
trading in the Shares and in the securities in which the AccuShares 
Fund will invest from markets and other entities that are members of 
the ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
---------------------------------------------------------------------------

    \52\ For a list of the current members of ISG, see 
www.isgportal.org.
---------------------------------------------------------------------------

    In addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading Paired Class Shares. Specifically, the 
Information Circular will discuss the following: (1) The procedures for 
purchases and redemptions of Paired Class Shares; (2) Rule 2111A, which 
imposes suitability obligations on Exchange members with respect to 
recommending transactions in Paired Class Shares to customers; (3)

[[Page 35622]]

how information regarding the Underlying Benchmark and Intraday 
Indicative Value is disseminated; (4) the risks involved in trading 
Paired Class Shares during the Pre-Market and Post-Market sessions when 
an updated Underlying Benchmark and Intraday Indicative Value will not 
be calculated or publicly disseminated; (5) the requirement that 
members deliver a prospectus to investors purchasing newly issued 
Paired Class Shares; (6) trading information; and (7) how information 
regarding distributions and share splits is disseminated and the 
requirements of public notification of these events.\53\
---------------------------------------------------------------------------

    \53\ In addition, the Information Circular will also discuss any 
exemptive, no-action and interpretive relief granted by the 
Commission from any rules under the Act.
---------------------------------------------------------------------------

    The Exchange believes that its proposal to establish a rule to 
enable listing Paired Class Shares is, as noted, substantively similar 
to the Arca rule to establish listing PTS. In approving Arca's PTS Rule 
8.400, the Commission stated that ``. . .the Exchange's proposed rules 
and procedures for the listing and trading of the Paired Trust Shares 
are consistent with the Act. The Paired Trust Shares will trade as 
equity securities subject to the Exchange's existing rules governing 
the trading of equity securities.'' \54\ Similarly, the Exchange's 
existing equity rules will be applicable to Paired Class Shares.
---------------------------------------------------------------------------

    \54\ In the PTS approval order, the Commission stated further 
that it ``. . .finds that proposed NYSE Arca Equities Rule 8.400(e) 
establishing certain restrictions on [members] acting as registered 
Market Makers in Paired Trust Shares is reasonably designed to 
address potential conflicts of interest in connection with [members] 
acting as registered Market Makers in Paired Trust Shares. The 
Commission believes that the listing and delisting criteria for the 
Paired Trust Shares should help to maintain a minimum level of 
liquidity and therefore minimize the potential for manipulation of 
the Paired Trust Shares.'' See Securities Exchange Act Release No. 
55033 (December 29, 2006), 72 FR 1253 (January 10, 2007)(SR-
NYSEArca-2006-75).
---------------------------------------------------------------------------

    The Exchange believes that this proposal will allow investors to 
execute trading and hedging decisions using a new product, Paired Class 
Shares, which offers the ability to invest in securities tied to 
increases or decreases in the prices of securities, commodities or 
other financial assets on an unleveraged basis. Paired Class Shares 
accomplishes this result without the need to replicate the return 
profile using other financial assets and thus reduces or avoids typical 
portfolio costs and risks, such as portfolio transaction costs, country 
risk, counterparty risk and liquidity risk associated with the 
underlying investments. As such, the Exchange believes that Paired 
Class Shares will benefit market participants and the market in 
general.\55\
---------------------------------------------------------------------------

    \55\ As discussed, the uniqueness of Paired Class Shares in 
comparison to PTS lies in the periodic distributions, periodic Share 
Index Factor resets, and active market monitoring of Paired Class 
Shares. These unique factors allow Paired Class Shares to provide 
investors with: (i) A reduction of persistent or cumulative 
deviations in share trading price to actual index performance; (ii) 
improved correlations over the life of the securities between 
percentage changes in the index and percentage changes in the share 
price of the Fund shares; and (iii) significant reduction of the 
need to liquidate the issuer in response to large movements in its 
related index.
---------------------------------------------------------------------------

    Moreover, we believe that the structure of Paired Class Shares in 
terms of paired Up Shares and Down Shares have characteristics that 
would provide unique benefits and opportunities to market participants.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act \56\ in general, and furthers the objectives of Section 
6(b)(5) of the Act \57\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest.\58\
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    \56\ 15 U.S.C. 78f(b).
    \57\ 15 U.S.C. 78f(b)(5).
    \58\ The proposal is likewise consistent with Section 
11A(a)(1)(C)(iii) of the Act, 15 U.S.C. 78k-1(a)(1)(C)(iii), which 
sets forth Congress' finding that it is in the public interest and 
appropriate for the protection of investors and the maintenance of 
fair and orderly markets to assure the availability to brokers, 
dealers, and investors of information with respect to quotations for 
and transactions in securities.
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    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that, to be listed, each Fund \59\ must meet newly-established initial 
listing standards per proposed Rule 5713 that include: (1) A minimum 
number of Paired Class Shares for each Fund required to be outstanding 
at the time of commencement of trading on NASDAQ, (2) a representation 
from the Trust issuing Paired Class Shares on behalf of each Fund that 
the underlying value per share of each Up Share and Down Share will be 
calculated daily and that these underlying values and information about 
the assets of the Fund will be made available to all market 
participants at the same time, and (3) an appropriate ``firewall'' if 
the Underlying Benchmark is maintained by a broker-dealer or investment 
advisor. Similarly, once listed, each Fund must meet continued listing 
standards.
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    \59\ The Exchange notes that the Statutory Basis discussion 
applies equally to the AccuShares Funds and the AccuShares Trust.
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    The proposed rule change is also designed to promote just and 
equitable principles of trade and to protect investors and the public 
interest through its distribution provision. Once listed each Fund may 
engage in (1) scheduled regular distributions, (2) special 
distributions that are automatically triggered upon the Underlying 
Benchmark exceeding a fixed rate of change since the Fund's prior 
distribution date, and (3) corrective distributions that are 
automatically triggered when the trading price of a Paired Class Share 
deviates by a specified amount from its Class Value per Share for a 
specified period of time. These distributions provide investors with 
the expected value of their Paired Class Shares periodically as well as 
upon the occurrence of specified events, and are also expected to limit 
the frequency and magnitude of oscillations between fund trading price 
premiums and discounts to Class Value per Share.
    Moreover, a large amount of information will be publicly available 
regarding the Funds and their Paired Class Shares, thereby promoting 
market transparency. The Intraday Indicative Value of each listed Up 
Share and Down Share of a Fund, and the intraday level of each Fund's 
Underlying Benchmark, will be widely disseminated by one or more major 
market data vendors, such as Reuters or Bloomberg, and broadly 
displayed on at least a 15-second delayed basis during the Regular 
Market Session. Information regarding market price and trading volume 
of each Fund's Up Shares and Down Shares will be continually available 
on a real-time basis throughout the day on brokers' computer screens 
and other electronic services, and quotation and last sale information 
will also be available via NASDAQ proprietary quote and trade services, 
as well as in accordance with any UTP plans for a Fund's paired Class 
Shares, if applicable.
    Trading in a Fund's Paired Class Shares will be halted or paused 
under the conditions specified in NASDAQ Rules 4120 and 4121, including 
the trading pauses under NASDAQ Rules 4120(a)(11) and (12). Trading may 
be halted for reasons that, in the view of the Exchange, make trading 
in the Paired Class Shares inadvisable, and trading in Paired Class 
Shares will be subject to proposed Rule 5713(f)(ii), which sets forth 
additional circumstances under which trading in Paired Class Shares may 
be halted. In addition, as noted above, investors will have ready 
access to information

[[Page 35623]]

regarding each Fund's Intraday Indicative Values and Underlying 
Benchmark, as well as quotation and last sale information for each 
Fund's Paired Class 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 
an additional type of exchange-traded product that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace. In addition, as noted above, investors will have ready 
access to information regarding each Fund's Intraday Indicative Values 
and Underlying Benchmark, as well as quotation and last sale 
information for each Fund's Paired Class Shares.
    For the above reasons, NASDAQ believes the proposed rule change is 
consistent with the requirements of Section 6(b)(5) of the Act.

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 not necessary or appropriate in 
furtherance of the purposes of the Act. To the contrary, the Exchange 
believes that no burden exists in that no other Exchange has a listing 
rule regarding this product. Paired Class Shares represent a 
significant improvement over a product that is no longer traded, PTS, 
because of the periodic distributions, periodic index resets, and 
active market monitoring of Paired Class Shares. These unique factors 
allow Paired Class Shares to provide investors with: (i) A reduction of 
persistent or cumulative deviations in share trading price to actual 
index performance; (ii) improved correlations over the life of the 
securities between percentage changes in the index and the percentage 
changes in the share price of the shares; and (iii) significant 
reduction of the need to liquidate the issuer in response to large 
movements in its related index, which represent significant benefits to 
traders and investors.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days after 
publication (i) as the Commission may designate if it finds such longer 
period to be appropriate and publishes its reasons for so finding or 
(ii) as to which the self-regulatory organization consents, the 
Commission will:
    (A) by order approve or disapprove the proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NASDAQ-2014-065 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NASDAQ-2014-065. 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 such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2014-065, and should 
be submitted on or before July 14, 2014.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\60\
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    \60\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-14540 Filed 6-20-14; 8:45 am]
BILLING CODE 8011-01-P