Document ID: SEC-2011-0035-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2011-01-10T05:00Z

[Federal Register Volume 76, Number 6 (Monday, January 10, 2011)]
[Notices]
[Pages 1477-1487]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-162]

[[Page 1477]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63636; File No. SR-NYSEArca-2010-121]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
of Proposed Rule Change Relating to the Listing and Trading of 
FactorShares Funds

January 3, 2011.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that, on December 22, 2010, NYSE Arca, Inc. (``Exchange'' or ``NYSE 
Arca'') filed with the Securities and Exchange Commission 
(``Commission'' or ``SEC'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by the Exchange. 
The Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to list and trade shares of the following 
pursuant to NYSE Arca Equities Rule 8.200: FactorShares 2X: S&P500 
Bull/TBond Bear; FactorShares 2X: TBond Bull/S&P500 Bear; FactorShares 
2X: S&P500 Bull/USD Bear; FactorShares 2X: Oil Bull/S&P500 Bear; and 
FactorShares 2X: Gold Bull/S&P500 Bear. The text of the proposed rule 
change is available at the Exchange, the Commission's Public Reference 
Room, and http://www.nyse.com.

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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    NYSE Arca Equities Rule 8.200, Commentary .02, permits the trading 
of Trust Issued Receipts (``TIRs'') either by listing or pursuant to 
unlisted trading privileges (``UTP'').\3\ The Exchange proposes to list 
and trade the shares of the following pursuant to NYSE Arca Equities 
Rule 8.200: FactorShares 2X: S&P500 Bull/TBond Bear; FactorShares 2X: 
TBond Bull/S&P500 Bear; FactorShares 2X: S&P500 Bull/USD Bear; 
FactorShares 2X: Oil Bull/S&P500 Bear; and FactorShares 2X: Gold Bull/
S&P500 Bear (each a ``Fund'' and, collectively, the ``Funds'').\4\ All 
Funds except for the FactorShares 2X: TBond Bull/S&P500 Bear are also 
referred to as ``Leveraged Funds,'' and FactorShares 2X: TBond Bull/
S&P500 Bear is referred to as the ``Leveraged Inverse Fund.'' \5\
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    \3\ Commentary .02 to NYSE Arca Equities Rule 8.200 applies to 
TIRs that invest in ``Financial Instruments.'' The term ``Financial 
Instruments,'' as defined in Commentary .02(b)(4) to NYSE Arca 
Equities Rule 8.200, means any combination of investments, including 
cash; securities; options on securities and indices; futures 
contracts; options on futures contracts; forward contracts; equity 
caps, collars and floors; and swap agreements.
    \4\ See Pre-Effective Amendment No. 3 to Form S-1, dated 
November 3, 2010, for each Fund (individually, a ``Registration 
Statement,'' and, collectively, the ``Registration Statements'') 
(File Nos. 333-164754, 333-164758, 333-164757, 333-164756 and 333-
164755, respectively). The description of the Funds and the Shares 
contained herein are based on the Registration Statements.
    \5\ Terms relating to the Funds and the Indexes referred to, but 
not defined, herein are defined in the common Prospectus within the 
Registration Statements.
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    The Exchange notes that the Commission has previously approved the 
listing and trading of other issues of TIRs on the American Stock 
Exchange LLC (``Amex''),\6\ trading on NYSE Arca pursuant to UTP,\7\ 
and listing on NYSE Arca.\8\ In addition, the Commission has approved 
other exchange-traded fund-like products linked to the performance of 
underlying commodities.\9\
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    \6\ See, e.g., Securities Exchange Act Release No. 58161 (July 
15, 2008), 73 FR 42380 (July 21, 2008) (SR-Amex-2008-39) (order 
approving amendments to Amex Rule 1202, Commentary .07, and listing 
on Amex of 14 funds of the Commodities and Currency Trust).
    \7\ See, e.g., Securities Exchange Act Release No. 58162 (July 
15, 2008), 73 FR 42391 (July 21, 2008) (SR-NYSEArca-2008-73) (notice 
of effectiveness of UTP trading on NYSE Arca of 14 funds of the 
Commodities and Currency Trust).
    \8\ See, e.g., Securities Exchange Act Release No. 58457 
(September 3, 2008), 73 FR 52711 (September 10, 2008) (SR-NYSEArca-
2008-91) (order approving listing on NYSE Arca of 14 funds of the 
Commodities and Currency Trust).
    \9\ See, e.g., Securities Exchange Act Release Nos. 55585 (April 
5, 2007), 72 FR 18500 (April 12, 2007) (SR-NYSE-2006-75) (approving 
for NYSE listing the iShares GS Commodity Light Energy Indexed 
Trust; iShares GS Commodity Industrial Metals Indexed Trust; iShares 
GS Commodity Livestock Indexed Trust and iShares GS Commodity Non-
Energy Indexed Trust); 56932 (December 7, 2007), 72 FR 71178 
(December 14, 2007) (SR-NYSEArca-2007-112) (order granting 
accelerated approval to list iShares S&P GSCI Commodity-Indexed 
Trust); and 59895 (May 8, 2009), 74 FR 22993 (May 15, 2009) (SR-
NYSEArca-2009-40) (order granting accelerated approval for NYSE Arca 
listing the ETFS Gold Trust).
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    Each of the Funds was formed on January 26, 2010 as a separate 
Delaware statutory trust, and each Fund will issue and offer common 
units of beneficial interest (``Shares''), which represent units of 
fractional beneficial undivided interest in and ownership of such Fund.
    Factor Capital Management, LLC, (``Managing Owner''), a Delaware 
limited liability company, will serve as the Managing Owner of each 
Fund. Interactive Brokers LLC, a Connecticut limited liability company, 
will serve as each Fund's clearing broker (``Commodity Broker''). The 
Commodity Broker is registered with the Commodity Futures Trading 
Commission (``CFTC'') as a futures commission merchant and is a member 
of the National Futures Association in such capacity. Each Fund has 
appointed State Street Bank and Trust Company, (``State Street''), as 
the Administrator, the Transfer Agent and the Custodian of each Fund.
    Each Fund has appointed Foreside Fund Services, LLC as the 
Distributor to assist the Managing Owner and the Funds with certain 
functions and duties relating to distribution, compliance of sales and 
marketing materials, and certain regulatory compliance matters. The 
Distributor will not open or maintain customer accounts or handle 
orders for any of the Funds.
Overview of the Standard & Poor's Factor Index Series (``Indexes'')
    According to the Registration Statements, the Indexes are intended 
to reflect the daily spreads, or the differences, in the relative 
return, positive or negative, between the corresponding sub-indexes 
constructed from futures contracts (``Index Futures Contracts'') of 
each Index. Each Index is comprised of a long sub-index (``Long Sub-
Index'') and a short sub-index (``Short Sub-Index'') (individually, a 
``Sub-Index'' and, collectively, the ``Sub-Indexes''). The Long Sub-
Index is composed of the long front Index Futures Contract (``Long 
Index Futures Contract'').\10\ The Short Sub-Index is composed of the 
short front Index Futures Contract (``Short Index Futures

[[Page 1478]]

Contract'').\11\ Each Index is calculated to reflect the corresponding 
relative return, or spread, which is the difference in the daily 
changes, positive or negative, between the value of the Long Sub-Index 
and the value of the Short Sub-Index, plus the return on a risk free 
component.
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    \10\ The term ``long front'' refers to a long position in the 
near month contract.
    \11\ The term ``short front'' refers to a short position in the 
near month contract.
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    The objective of each Index is to track the daily price spreads, or 
difference between the Sub-Indexes, and in turn, the underlying Index 
Futures Contracts. Although each Index is calculated to reflect both an 
excess return and a total return, each Fund tracks an Index that is 
calculated to reflect a total return. Standard & Poor's Financial 
Services LLC is the Index Sponsor for the Indexes and is the 
calculation agent for the Indexes and Sub-Indexes.\12\
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    \12\ Standard & Poor's Financial Services LLC is the Index 
Sponsor with respect to the Indexes and is not affiliated with a 
broker-dealer. The Index Sponsor has implemented procedures designed 
to prevent the use and dissemination of material, non-public 
information regarding the Indexes.
    \13\ The Base Date for each Index is September 9, 1997 and each 
Sub-Index Base Weight is 100%.
    \14\ ``CME'' means the Chicago Mercantile Exchange, Inc. ``ICE'' 
means the Intercontinental Exchange, Inc. ``NYMEX'' means the New 
York Mercantile Exchange. ``COMEX'' means the COMEX division of 
NYMEX.
    \15\ The S&P 500[supreg] Non-U.S. Dollar Index is calculated on 
a Total Return basis.
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    Each Index is intended to reflect the difference in the daily 
return between two market segments. The Long Sub-Index tracks the 
changes in the Long Index Futures Contract. The Short Sub-Index tracks 
the changes in the Short Index Futures Contract.
    The Sub-Indexes, Index Futures Contracts, trading hours of the 
applicable Index Futures Contracts, and related information are set 
forth in the chart below.

----------------------------------------------------------------------------------------------------------------
                                  Sub-indexes and
           Index \13\              index futures    Exchange \14\ (symbol)   Contract months     Trading hours
                                     contracts                                                   (eastern time)
----------------------------------------------------------------------------------------------------------------
S&P U.S. Equity Risk Premium     Long Sub-Index:    CME (ES)..............  March, June,       Monday-Thursday:
 Total Return Index.              S&P 500[supreg]                            September,         6 p.m.-4:15 p.m.
                                  Futures Excess                             December.          (next day) &
                                  Return Index.                                                 4:30 p.m.-5:30
                                 Long Index                                                     p.m.; Sunday: 6
                                  Futures                                                       p.m.-4:15 p.m.
                                  Contract: E-mini                                              (next day).
                                  Standard and
                                  Poor's 500 Stock
                                  Price Index\TM\
                                  Futures.
                                 Short Sub-Index:   CME (US)..............  .................  Monday-Friday:
                                  S&P 30-Year                                                   8:20 a.m.-3 p.m.
                                  Treasury Bond
                                  Futures Excess
                                  Return Index.
                                 Short Index
                                  Futures
                                  Contract: 30-
                                  Year U.S.
                                  Treasury Bond
                                  Futures.
S&P 500[supreg] Non-U.S. Dollar  Long Sub-Index:    CME (ES)..............  March, June,       Monday-Thursday:
 Index.\15\                       S&P 500[supreg]                            September,         6 p.m.-4:15 p.m.
                                  Futures Excess                             December.          (next day) &
                                  Return Index.                                                 4:30 p.m.-5:30
                                 Long Index                                                     p.m.; Sunday: 6
                                  Futures                                                       p.m.-4:15 p.m.
                                  Contract: E-mini                                              (next day).
                                  Standard and
                                  Poor's 500 Stock
                                  Price Index\TM\
                                  Futures.
                                 Short Sub-Index:   ICE (DX)..............  .................  Monday-Friday: 8
                                  S&P U.S. Dollar                                               p.m.-6 p.m.
                                  Futures Excess                                                (next day)
                                  Return Index.                                                 Sunday: 6 p.m.-6
                                 Short Index                                                    p.m. (next day).
                                  Futures
                                  Contract: U.S.
                                  Dollar
                                  Index[supreg]
                                  Futures.
S&P Crude Oil-Equity Spread      Long Sub-Index:    NYMEX (CL)............  Rolled pursuant    Monday-Friday: 9
 Total Return Index.              S&P GSCI[supreg]                           to S&P             a.m.-2:30 p.m.
                                  Crude Oil Excess                           GSCI[supreg]
                                  Return Index.                              schedule.
                                 Long Index
                                  Futures
                                  Contracts: Light
                                  Sweet Crude Oil
                                  Futures.
                                 Short Sub-Index:   CME (ES)..............  March, June,       Monday-Thursday:
                                  S&P 500[supreg]                            September,         6 p.m.-4:15 p.m.
                                  Futures Excess                             December.          (next day) &
                                  Return Index.                                                 4:30 p.m.-5:30
                                 Short Index                                                    p.m.; Sunday: 6
                                  Futures                                                       p.m.-4:15 p.m.
                                  Contract: E-mini                                              (next day).
                                  Standard and
                                  Poor's 500 Stock
                                  Price Index\TM\
                                  Futures.
S&P Gold-Equity Spread Total     Long Sub-Index:    COMEX (GC)............  Rolled pursuant    Monday-Friday:
 Return Index.                    S&P GSCI[supreg]                           to S&P             8:20 a.m.-1:30
                                  Gold Excess                                GSCI[supreg]       p.m.
                                  Return Index.                              schedule.
                                 Long Index
                                  Futures
                                  Contract: Gold
                                  Futures.
                                 Short Sub-Index:   CME (ES)..............  March, June,       Monday-Thursday:
                                  S&P 500[supreg]                            September,         6 p.m.-4:15 p.m.
                                  Futures Excess                             December.          (next day) &
                                  Return Index.                                                 4:30 p.m.-5:30
                                 Short Index                                                    p.m.; Sunday: 6
                                  Futures                                                       p.m.-4:15 p.m.
                                  Contract: E-mini                                              (next day).
                                  Standard and
                                  Poor's 500 Stock
                                  Price Index\TM\
                                  Futures.
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[[Page 1479]]

Operation of the Funds
    According to the Registration Statements, the objective of each 
Fund will be to reflect the spread, or the difference, in daily return, 
on a leveraged basis, between two predetermined market segments. Each 
Fund will represent a relative value or ``spread'' strategy seeking to 
track the differences in daily returns between two futures-based Index 
components (as discussed above under ``Overview of the Indexes''). By 
simultaneously buying and selling two benchmark Index Futures Contracts 
(or, as necessary, substantively equivalent combinations of Substitute 
Futures and Financial Instruments),\16\ each Leveraged Fund and 
Leveraged Inverse Fund will target a daily return equivalent to 
approximately +200% and -200%, respectively, of the spread, or the 
difference, in daily return between a long futures contract and a short 
futures contract (before fees, expenses and interest income).
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    \16\ According to the Registration Statements, the term 
``Substitute Futures'' refers to futures contracts other than the 
specific Index Futures Contracts that underlie the applicable Index 
that the Managing Owner expects will tend to exhibit trading prices 
or returns that generally correlate with an Index Futures Contract. 
The term ``Financial Instruments'' refers to forward agreements and 
swaps that the Managing Owner expects will tend to exhibit trading 
prices or returns that generally correlate with an Index Futures 
Contract. Shareholders may review a Fund's monthly Account Statement 
that will be posted on the Fund's Web site at http://www.factorshares.net or a Fund's periodic reports on Form 10-Q and/
or Form 10-K as filed with the SEC at http://www.sec.gov for 
additional information. In addition, investors will have access to 
the current portfolio composition of the Funds through the Funds' 
Web site, as described below.
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    Each Fund will hold a portfolio of Index Futures Contracts, each of 
which are traded on various futures markets in the United States. In 
the event a Fund reaches position limits imposed by the CFTC or a 
futures exchange with respect to an Index Futures Contract, the 
Managing Owner, may in its commercially reasonable judgment, cause the 
Fund to invest in Substitute Futures or Financial Instruments 
referencing the particular Index Futures Contract, or Financial 
Instruments not referencing the particular Index Futures Contract, if 
such instruments tend to exhibit trading prices or returns that 
correlate with the corresponding Index or any Index Futures Contract 
and will further the investment objective of the Fund.\17\ A Fund may 
also invest in Substitute Futures or Financial Instruments if the 
market for a specific Index Futures Contract experiences emergencies 
(such as a natural disaster, terrorist attack or an act of God) or 
disruptions (such as a trading halt or flash crash) that prevent the 
Fund from obtaining the appropriate amount of investment exposure to 
the affected Index Futures Contract.\18\
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    \17\ To the extent practicable, a Fund will invest in swaps 
cleared through the facilities of a centralized clearing house.
    \18\ According to the Registration Statements, the Managing 
Owner will also attempt to mitigate each Fund's credit risk by 
transacting only with large, well-capitalized institutions using 
measures designed to determine the creditworthiness of a 
counterparty. The Managing Owner will take various steps to limit 
counterparty credit risk, as described under the section ``Financial 
Instrument Counterparties'' in the Registration Statements.
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    Each Fund also will hold cash and United States Treasury securities 
and other high credit quality short-term fixed income securities 
(``Fixed Income Instruments'') for deposit with its Commodity Broker as 
margin. No Fund will be ``managed'' by traditional methods, which 
typically involve effecting changes in the composition of a portfolio 
on the basis of judgments relating to economic, financial and market 
considerations with a view to obtaining positive results under changing 
market conditions.
    According to the Registration Statements, each Leveraged Fund will 
allow investors to potentially profit from the daily return of a Long 
Index Futures Contract in excess of the daily return of a Short Index 
Futures Contract (each term as defined above). The Leveraged Inverse 
Fund will allow investors to potentially profit from the daily return 
of a Short Index Futures Contract in excess of the daily return of a 
Long Index Futures Contract.
    A Fund's Index consists of two Sub-Indexes. A Long Sub-Index 
reflects a passive exposure to a certain near-month long Index Futures 
Contract. A Short Sub-Index reflects a passive exposure to a certain 
near-month short Index Futures Contract.\19\ Each Index is designed to 
reflect +100% of the spread, or the difference, in daily return, 
positive or negative, between the Long Sub-Index and the Short Sub-
Index plus the return on a risk free component.
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    \19\ The Long Sub-Index, Long Index Futures Contract, Short Sub-
Index and Short Index Futures Contract for each Fund are set forth 
in the chart above.
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    Each Fund intends to track its corresponding Index on a leveraged 
basis by creating a portfolio of long and short positions. The Managing 
Owner will determine the type, quantity and combination of Index 
Futures Contracts, and, as applicable, Substitute Futures and Financial 
Instruments, the Managing Owner believes may produce daily returns 
consistent with the applicable Fund's daily and leveraged objective.
    Each Index is rebalanced daily as of the Index Calculation Time (as 
defined below) in order to continue to reflect the spread, or the 
difference in the daily return between two specific market segments. By 
rebalancing each Index on a daily basis as of the Index Calculation 
Time, each Index will then be comprised of equal notional amounts 
(i.e., +100% and -100%, respectively) of both of its Long Index Futures 
Contracts and Short Index Futures Contracts in accordance with its 
daily objectives. Daily rebalancing of each Index will lead to 
different results than would otherwise occur if an Index, and in turn, 
its corresponding Fund, were to be rebalanced less frequently or more 
frequently than daily.
    Because each Fund will seek to achieve its daily investment 
objective by tracking its corresponding Index on a daily and leveraged 
basis, each Fund will seek to rebalance daily both its long and short 
positions around the net asset value (``NAV'') Calculation Time (as 
described below under ``Net Asset Value''). The purpose of daily 
rebalancing is to reposition each Fund's investments in accordance with 
its daily investment objective.
    As described in the Registration Statements, each Fund will have a 
leverage ratio of approximately 4:1 \20\ upon daily rebalancing, which 
increases the potential for trading profits and losses. The use of 
leverage increases the potential for both trading profits and losses, 
depending on the changes in market value of the Long Index Futures 
Contracts positions, the Short Index Futures Contracts positions (and/
or Substitute Futures and Financial Instruments, as applicable), of 
each Fund. Holding futures positions with a notional amount in excess 
of each Fund's NAV constitutes a form of leverage. Because the notional 
value of each Fund's Index Futures Contracts (and/or Substitute Futures 
and Financial Instruments, as applicable), will rise or fall throughout 
each trading day and prior to rebalancing, the leverage ratio could be 
higher or lower than an approximately 4:1 leverage ratio between the 
notional value of a Fund's portfolio and a Fund's Equity (estimated 
NAV) immediately after rebalancing. As the ratio increases, an 
investor's losses may increase correspondingly.
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    \20\ See also discussion regarding dollar neutrality in the 
following section ``Examples Explaining the Initial Allocation of 
the Funds.''
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    Each Sub-Index, which is comprised of a certain Index Futures 
Contract, includes provisions for the replacement (also referred to as 
``rolling'') of its Index Futures Contract as it approaches its

[[Page 1480]]

expiration date. ``Rolling'' is a procedure which involves closing out 
the Index Futures Contract that will soon expire and establishing a 
position in a new Index Futures Contract with a later expiration date 
pursuant to the rules of each Sub-Index. In turn, each Fund will seek 
to roll its Index Futures Contracts in a manner consistent with its 
Sub-Index's provisions for the replacement of an Index Futures Contract 
that is approaching maturity.
Examples Explaining the Initial Allocation of the Funds
    As described below, each Fund will seek to invest in a manner such 
that the dollar value i.e., described as Fund Equity below) of a Fund's 
holdings of both its Long Index Futures Contracts and Short Index 
Futures Contracts will be approximately equal, which is commonly 
referred to as ``dollar neutrality.''
    Each Fund's daily performance will reflect the gain or loss from 
the spread, or the difference between the applicable Long Index Futures 
Contracts and Short Index Futures Contracts, any income from a Fund's 
collateral, and a decrease in the NAV of the Fund due to its fees and 
expenses.
Leveraged Funds
    For a Leveraged Fund, a long position is established in the Long 
Index Futures Contract seeking to provide a leveraged exposure to the 
Long Sub-Index. A Leveraged Fund will purchase a sufficient number of 
Long Index Futures Contracts targeting a long notional exposure 
equivalent to approximately +200% of a Fund's estimated NAV, or Fund 
Equity. Additionally, a Leveraged Fund will establish a short position 
in the Short Index Futures Contracts seeking to provide a leveraged 
exposure to the Short Sub-Index. Accordingly, a Leveraged Fund will 
sell a sufficient number of Short Index Futures Contracts targeting a 
short notional exposure equivalent to approximately -200% of Fund 
Equity. Therefore, immediately after establishing each of these 
positions, the target gross notional exposure of a Leveraged Fund's 
aggregate Long Index Futures Contracts and Short Index Futures 
Contracts will equal approximately +400% (i.e., +200% long and +200% 
short) of Fund Equity.
    For example, assume that Fund Equity is $100 million. A Leveraged 
Fund may seek to purchase a quantity of Long Index Futures Contracts 
with a total long notional value of approximately + $200 million (i.e., 
+200% of $100 million). Additionally, a Leveraged Fund may seek to sell 
a quantity of Short Index Futures Contracts with a total short notional 
value of approximately -$200 million (i.e., -200% of $100 million). 
Consequently, a Leveraged Fund may seek to hold Long Index Futures 
Contracts and Short Index Futures Contracts with a gross notional value 
of approximately +$400 million (i.e., +$200 million long and + $200 
million short). A Leveraged Fund will experience a gain or loss 
depending predominantly on the Fund's beginning exposure to its Index 
Futures Contracts, and the ensuing return of the Index Futures 
Contracts.
    As described previously, assume initially that Fund Equity was $100 
million. Prior to any changes in the value of Fund Equity, the 
beginning exposure to the Long Index Futures Contract would be +$200 
million and the beginning exposure to the Short Index Futures Contract 
would be - $200 million. Therefore, the Leveraged Fund would be 
positioned to return +200% of the spread, or the difference in return 
between the Long Index Futures Contract and the Short Index Futures 
Contract.
Leveraged Inverse Fund
    For the Leveraged Inverse Fund, a long position is established in 
the Short Index Futures Contract seeking to provide a leveraged 
exposure to the Short Sub-Index. The Leveraged Inverse Fund will 
purchase a sufficient number of Short Index Futures Contracts targeting 
a long notional exposure equivalent to approximately +200% of Fund 
Equity. Additionally, the Leveraged Inverse Fund will establish a short 
position in the Long Index Futures Contracts seeking to provide a 
leveraged exposure to the Long Sub-Index. Accordingly, the Leveraged 
Inverse Fund will sell a sufficient number of Long Index Futures 
Contracts targeting a short notional exposure equivalent to 
approximately -200% of Fund Equity. Therefore, immediately after 
establishing each of these positions, the target gross notional 
exposure of the Leveraged Inverse Fund's aggregate Long Index Futures 
Contracts and Short Index Futures Contracts will equal approximately 
+400% (i.e., +200% long and +200% short) of Fund Equity.
    For example, assume that Fund Equity is $100 million. As 
illustrated below, the Leveraged Inverse Fund may seek to purchase a 
quantity of Short Index Futures Contracts with a total long notional 
value of approximately +$200 million (i.e., +200% of $100 million). 
Additionally, the Leveraged Inverse Fund may seek to sell a quantity of 
Long Index Futures Contracts with a total short notional value of 
approximately -$200 million (i.e., -200% of $100 million). 
Consequently, the Leveraged Inverse Fund may seek to hold Long Index 
Futures Contracts and Short Index Futures Contracts with a gross 
notional value of approximately +$400 million (i.e., +$200 million long 
and +$200 million short).
    The Leveraged Inverse Fund will experience a gain or loss depending 
predominantly on the Fund's beginning exposure to its Index Futures 
Contracts and the ensuing return of the Index Futures Contracts.
    As described previously, assume initially that Fund Equity was $100 
million. Prior to any changes in the value of Fund Equity, the 
beginning exposure to the Short Index Futures Contract would be +$200 
million and the beginning exposure to the Long Index Futures Contract 
would be -$200 million. Therefore, the Leveraged Inverse Fund would be 
positioned to return -200% of the spread, or the difference in return 
between the Long Index Futures Contract and the Short Index Futures 
Contract.
Overview of the Funds
FactorShares 2X: S&P500 Bull/TBond Bear
    The FactorShares 2X: S&P500 Bull/TBond Bear is designed for 
investors who believe the large-cap U.S. equity market segment will 
increase in value relative to the long-dated U.S. Treasury market 
segment. According to its Registration Statement, the objective of the 
FactorShares 2X: S&P500 Bull/TBond Bear will be to seek to track 
approximately +200% of the daily return of the S&P U.S. Equity Risk 
Premium Total Return Index. The Fund will seek to track the spread, or 
the difference in daily returns between the U.S. equity and interest 
rate market segments by primarily establishing a leveraged long 
position in the E-mini Standard and Poor's 500 Stock Price Index\TM\ 
Futures (``Equity Index Futures Contract''), and a leveraged short 
position in the 30-Year U.S. Treasury Bond Futures (``Treasury Index 
Futures Contract'').
    The Equity Index Futures Contract provides an exposure to a major 
benchmark index with respect to large-cap U.S. equities known as the 
S&P 500[supreg] Index. The Equity Index Futures Contract is a futures 
contract that provides and permits investors to invest in a substitute 
instrument in place of the underlying, speculate or hedge, as 
applicable, in large-cap U.S. equities. The Equity Index Futures 
Contract serves as a proxy for large-cap U.S.

[[Page 1481]]

equities because the performance of the Equity Index Futures Contract 
is dependent upon and reflects the changes in the S&P 500[supreg], 
which is an index that reflects the performance of each of the 
underlying 500 large-cap U.S. equities. The Treasury Index Futures 
Contract provides an exposure to the interest rate market segment with 
respect to 30-Year U.S. Treasury Bonds. The Treasury Index Futures 
Contract is a futures contract that provides and permits investors to 
invest in a substitute instrument in place of the underlying, speculate 
or hedge, as applicable, in the direction of interest rates with 
respect to long-term Treasury Bonds. The Treasury Index Futures 
Contract serves as a proxy for 30-Year U.S. Treasury Bonds because the 
performance of the Treasury Index Futures Contract is dependent upon 
and reflects the changes in the price of the underlying 30-Year U.S. 
Treasury Bonds.
    In order to pursue its investment objective, the FactorShares 2X: 
S&P500 Bull/TBond Bear will seek to invest approximately +200% of the 
value of its Fund Equity (i.e., the estimated NAV) in the front month 
Equity Index Futures Contract and/or Substitute Futures and Financial 
Instruments, as applicable. Simultaneously, the Fund seeks to invest 
approximately -200% of the value of its Fund Equity in the front month 
Treasury Index Futures Contract and/or Substitute Futures and Financial 
Instruments, as applicable. Around the NAV Calculation Time, and in 
order to continue to pursue its daily investment objective, the Fund 
seeks to rebalance daily its front month Equity Index Futures Contracts 
and/or Substitute Futures and Financial Instruments, as applicable, to 
equal approximately +200% of the value of its Fund Equity. Similarly, 
around the NAV Calculation Time, the Fund will seek to rebalance daily 
its front month Treasury Index Futures Contract and/or Substitute 
Futures and Financial Instruments, as applicable, to equal 
approximately -200% of the value of its Fund Equity.
FactorShares 2X: TBond Bull/S&P500 Bear
    The FactorShares 2X: TBond Bull/S&P500 Bear is designed for 
investors who believe the long-dated U.S. Treasury market segment will 
increase in value relative to the large-cap U.S. equity market segment. 
According to its Registration Statement, the objective of the 
FactorShares 2X: TBond Bull/S&P500 Bear will be to seek to track 
approximately -200% of the daily return of the S&P U.S. Equity Risk 
Premium Total Return Index. The Fund will seek to track the spread or 
the difference in daily returns between the interest rate and U.S. 
equity market segments by primarily establishing a leveraged long 
position in the Treasury Index Futures Contract and a leveraged short 
position in the Equity Index Futures Contract.
    The Treasury Index Futures Contract provides an exposure to the 
interest rate market segment with respect to 30-Year U.S. Treasury 
Bonds. The Treasury Index Futures Contract is a futures contract that 
provides and permits investors to invest in a substitute instrument in 
place of the underlying, speculate or hedge, as applicable, in the 
direction of interest rates with respect to long-term Treasury Bonds. 
The Treasury Index Futures Contract serves as a proxy for 30-Year U.S. 
Treasury Bonds because the performance of the Treasury Index Futures 
Contract is dependent upon and reflects the changes in the price of the 
underlying 30-Year U.S. Treasury Bonds. The Equity Index Futures 
Contract provides an exposure to the S&P 500[supreg] Index. The Equity 
Index Futures Contract is a futures contract that provides and permits 
investors to invest in a substitute instrument in place of the 
underlying, speculate or hedge, as applicable, in large-cap U.S. 
equities. The Equity Index Futures Contract serves as a proxy for 
large-cap U.S. equities because the performance of the Equity Index 
Futures Contract is dependent upon and reflects the changes in the S&P 
500[supreg].
    In order to pursue its investment objective, the FactorShares 2X: 
TBond Bull/S&P500 Bear will seek to invest approximately +200% of the 
value of its Fund Equity (i.e., the estimated NAV) in the front month 
Treasury Index Futures Contract and/or Substitute Futures and Financial 
Instruments, as applicable. Simultaneously, the Fund will seek to 
invest approximately - 200% of the value of its Fund Equity in the 
front month Equity Index Futures Contract and/or Substitute Futures and 
Financial Instruments, as applicable. Around the NAV Calculation Time, 
and in order to continue to pursue its daily investment objective, the 
Fund will seek to rebalance daily its front month Treasury Index 
Futures Contracts and/or Substitute Futures and Financial Instruments, 
as applicable, to equal approximately +200% of the value of its Fund 
Equity. Similarly, around the NAV Calculation Time, the Fund will seek 
to rebalance daily its front month Equity Index Futures Contract and/or 
Substitute Futures and Financial Instruments, as applicable, to equal 
approximately - 200% of the value of its Fund Equity.
FactorShares 2X: S&P500 Bull/USD Bear
    The FactorShares 2X: S&P500 Bull/USD Bear is designed for investors 
who believe the large-cap U.S. equity market segment will increase in 
value relative to the general indication of the international value of 
the U.S. dollar. According to its Registration Statement, the objective 
of the FactorShares 2X: S&P500 Bull/USD Bear will be to seek to track 
approximately +200% of the daily return of the S&P 500 Non-U.S. Dollar 
Index. The Fund will seek to track the spread or the difference in 
daily returns between the U.S. equity and currency market segments by 
primarily establishing a leveraged long position in the Equity Index 
Futures Contract, and a leveraged short position in the U.S. Dollar 
Index[supreg] Futures (``Currency Index Futures Contract'').
    The Equity Index Futures Contract provides an exposure to the S&P 
500[supreg] Index. The Equity Index Futures Contract is a futures 
contract that provides and permits investors to invest in a substitute 
instrument in place of the underlying, speculate or hedge, as 
applicable, in large-cap U.S. equities. The Equity Index Futures 
Contract serves as a proxy for large-cap U.S. equities because the 
performance of the Equity Index Futures Contract is dependent upon and 
reflects the changes in the S&P 500[supreg]. The Currency Index Futures 
Contract provides an exposure to the international value of the U.S. 
dollar. The Currency Index Futures Contract is a futures contract that 
provides and permits investors to invest in a substitute instrument in 
place of the underlying, speculate or hedge, as applicable, in the 
direction of the U.S. dollar relative to a basket of six major world 
currencies. The Currency Index Futures Contract serves as a proxy for 
the international value of the U.S. dollar relative to the six major 
world currencies because the performance of the Currency Index Futures 
Contract is dependent upon and reflects the changes in the U.S. Dollar 
Index (USDX[supreg]), which is an index which reflects the performance 
of each of the underlying basket of six major world currencies relative 
to the U.S. dollar.
    In order to pursue its investment objective, the FactorShares 2X: 
S&P500 Bull/USD Bear will seek to invest approximately +200% of the 
value of its Fund Equity (i.e., the estimated NAV) in the front month 
Equity Index Futures Contract and/or Substitute Futures and Financial 
Instruments, as applicable. Simultaneously, the Fund seeks to invest 
approximately -200% of the value of its Fund Equity in the front month 
Currency Index Futures Contract

[[Page 1482]]

and/or Substitute Futures and Financial Instruments, as applicable. 
Around the NAV Calculation Time, and in order to continue to pursue its 
daily investment objective, the Fund seeks to rebalance daily its front 
month Equity Index Futures Contracts and/or Substitute Futures and 
Financial Instruments, as applicable, to equal approximately +200% of 
the value of its Fund Equity. Similarly, around the NAV Calculation 
Time, the Fund will seek to rebalance daily its front month Currency 
Index Futures Contract and/or Substitute Futures and Financial 
Instruments, as applicable, to equal approximately -200% of the value 
of its Fund Equity.
FactorShares 2X: Oil Bull/S&P500 Bear
    The FactorShares 2X: Oil Bull/S&P500 Bear is designed for investors 
who believe that crude oil will increase in value relative to the 
large-cap U.S. equity market segment. According to its Registration 
Statement, the objective of the FactorShares 2X: Oil Bull/S&P500 Bear 
will be to seek to track approximately +200% of the daily return of the 
S&P Crude Oil-Equity Spread Total Return Index. The Fund will seek to 
track the spread or the difference in daily returns between the oil and 
U.S. equity market segments by primarily establishing a leveraged long 
position in the Oil Index Futures Contract, as defined below, and a 
leveraged short position in the Equity Index Futures Contract.
    The Oil Index Futures Contract provides an exposure to the oil 
market segment with respect to light sweet crude oil. The Oil Index 
Futures Contract is a futures contract that provides and permits 
investors to invest in a substitute instrument in place of the 
underlying, speculate or hedge, as applicable, in the direction of the 
value of light sweet crude oil. The Oil Index Futures Contract serves 
as a proxy for light sweet crude oil because the performance of the Oil 
Index Futures Contract is dependent upon and reflects the changes in 
the price of light sweet crude oil. The Equity Index Futures Contract 
provides an exposure to the S&P 500[supreg] Index. The Equity Index 
Futures Contract is a futures contract that provides and permits 
investors to invest in a substitute instrument in place of the 
underlying, speculate or hedge, as applicable, in large-cap U.S. 
equities. The Equity Index Futures Contract serves as a proxy for 
large-cap U.S. equities because the performance of the Equity Index 
Futures Contract is dependent upon and reflects the changes in the S&P 
500[supreg].
    In order to pursue its investment objective, the FactorShares 2X: 
Oil Bull/S&P500 Bear will seek to invest approximately +200% of the 
value of its Fund Equity (i.e., the estimated NAV) in the front month 
Oil Index Futures Contract and/or Substitute Futures and Financial 
Instruments, as applicable. Simultaneously, the Fund will seek to 
invest approximately-200% of the value of its Fund Equity in the front 
month Equity Index Futures Contract and/or Substitute Futures and 
Financial Instruments, as applicable. Around the NAV Calculation Time, 
and in order to continue to pursue its daily investment objective, the 
Fund will seek to rebalance daily its front month Oil Index Futures 
Contracts and/or Substitute Futures and Financial Instruments, as 
applicable, to equal approximately +200% of the value of its Fund 
Equity. Similarly, around the NAV Calculation Time, the Fund will seek 
to rebalance daily its front month Equity Index Futures Contract and/or 
Substitute Futures and Financial Instruments, as applicable, to equal 
approximately -200% of the value of its Fund Equity.
FactorShares 2X: Gold Bull/S&P500 Bear
    The FactorShares 2X: Gold Bull/S&P500 Bear is designed for 
investors who believe that gold will increase in value relative to the 
large-cap U.S. equity market segment. According to its Registration 
Statement, the objective of the FactorShares 2X: Gold Bull/S&P500 Bear 
will be to seek to track approximately +200% of the daily return of the 
S&P Gold-Equity Spread Total Return Index. The Fund will seek to track 
the spread or the difference in daily returns between the gold and U.S. 
equity market segments by primarily establishing a leveraged long 
position in the Gold Index Futures Contract, as defined below, and a 
leveraged short position in the Equity Index Futures Contract.
    The Gold Index Futures Contract provides an exposure to the 
precious metals market segment with respect to gold. The Gold Index 
Futures Contract is a futures contract that provides and permits 
investors to invest in a substitute instrument in place of the 
underlying, speculate or hedge, as applicable, in the direction of the 
value of gold. The Gold Index Futures Contract serves as a proxy for 
gold because the performance of the Gold Index Futures Contract is 
dependent upon and reflects the changes in the price of gold. The 
Equity Index Futures Contract provides an exposure to the S&P 
500[supreg] Index. The Equity Index Futures Contract is a futures 
contract that provides and permits investors to invest in a substitute 
instrument in place of the underlying, speculate or hedge, as 
applicable, in large-cap U.S. equities. The Equity Index Futures 
Contract serves as a proxy for large-cap U.S. equities because the 
performance of the Equity Index Futures Contract is dependent upon and 
reflects the changes in the S&P 500[supreg].
    In order to pursue its investment objective, the FactorShares 2X: 
Gold Bull/S&P500 Bear will seek to invest approximately +200% of the 
value of its Fund Equity (i.e., the estimated NAV) in the front month 
Gold Index Futures Contract and/or Substitute Futures and Financial 
Instruments, as applicable. Simultaneously, the Fund will seek to 
invest approximately - 200% of the value of its Fund Equity in the 
front month Equity Index Futures Contract and/or Substitute Futures and 
Financial Instruments, as applicable. Around the NAV Calculation Time, 
and in order to continue to pursue its daily investment objective, the 
Fund will seek to rebalance daily its front month Gold Index Futures 
Contracts and/or Substitute Futures and Financial Instruments, as 
applicable, to equal approximately +200% of the value of its Fund 
Equity. Similarly, around the NAV Calculation Time, the Fund will seek 
to rebalance daily its front month Equity Index Futures Contract and/or 
Substitute Futures and Financial Instruments, as applicable, to equal 
approximately- 200% of the value of its Fund Equity.
Net Asset Value
    According to each Registration Statement, NAV, in respect of a 
Fund, means the total assets of the applicable Fund including, but not 
limited to, all cash and cash equivalents or other debt securities less 
total liabilities of such Fund, each determined on the basis of 
generally accepted accounting principles in the United States, 
consistently applied under the accrual method of accounting. In 
particular, NAV includes any unrealized profit or loss on open futures 
contracts, Financial Instruments (if any), and any other credit or 
debit accruing to a Fund but unpaid or not received by a Fund. All open 
futures contracts traded on a United States exchange are calculated at 
their then current market value, which are based upon the settlement 
price for that particular futures contract traded on the applicable 
United States exchange on the date with respect to which NAV is being 
determined; provided, that if a futures contract traded on a United 
States exchange could not be liquidated on such day, due to the 
operation of daily limits or

[[Page 1483]]

other rules of the exchange upon which that position is traded or 
otherwise, the settlement price on the most recent day on which the 
position could have been liquidated will be the basis for determining 
the market value of such position for such day. The current market 
value of all open futures contracts traded on a non-United States 
exchange, to the extent applicable, are based upon the settlement price 
for that particular futures contract traded on the applicable non-
United States exchange on the date with respect to which NAV is being 
determined; provided further, that if a futures contract traded on a 
non-United States exchange, to the extent applicable, could not be 
liquidated on such day, due to the operation of daily limits (if 
applicable) or other rules of the exchange upon which that position is 
traded or otherwise, the settlement price on the most recent day on 
which the position could have been liquidated will be the basis for 
determining the market value of such position for such day. The 
Managing Owner may in its discretion (and under extraordinary 
circumstances, including, but not limited to, periods during which a 
settlement price of a futures contract is not available due to exchange 
limit orders or force majeure type events such as systems failure, 
natural or man-made disaster, act of God, armed conflict, act of 
terrorism, riot or labor disruption or any similar intervening 
circumstance) value any asset of a Fund pursuant to such other 
principles as the Managing Owner deems fair and equitable so long as 
such principles are consistent with normal industry standards. Interest 
earned on any Fund's futures brokerage account, if applicable, will be 
accrued at least monthly. The amount of any distribution will be a 
liability of such Fund from the day when the distribution is declared 
until it is paid.
    The NAV of each Fund is calculated as of the first to settle of the 
corresponding Index Futures Contracts, provided that no Fund will 
calculate its NAV after 4 p.m. Eastern Time (``E.T.''). For example, 
the futures exchanges on which the E-mini Standard and Poor's 500 Stock 
Price IndexTM Futures (Long Index Futures Contracts) and the 
30-Year U.S. Treasury Bond Futures (Short Index Futures Contracts) of 
the FactorShares 2X: S&P500 Bull/TBond Bear fund settle at 4:15 p.m. 
E.T. and 3 p.m. E.T., respectively. Therefore, as detailed in the table 
below, the FactorShares 2X: S&P500 Bull/TBond Bear fund will calculate 
its NAV, or NAV Calculation Time, as of 3 p.m. E.T.
---------------------------------------------------------------------------

    \21\ The Commission previously has approved commodity-based or 
currency-based trust securities for which the NAV is calculated 
earlier than 4 p.m., E.T. See, e.g., Securities Exchange Act Release 
Nos. 50603 (October 28, 2004), 69 FR 64614 (November 5, 2004) (SR-
NYSE-2004-22) (order approving listing of streetTRACKS Gold Trust); 
52843 (November 28, 2005), 70 FR 72486 (December 5, 2005) (SR-NYSE-
2005-65) (order approving listing of Euro Currency Trust); and 61219 
(December 22, 2009), 74 FR 68886 (December 29, 2009) (SR-NYSEArca-
2009-95) (order approving listing of ETFS Platinum Trust).
    \22\ Because the first to settle Index Futures Contracts for the 
FactorShares 2X: Oil Bull/S&P500 Bear and FactorShares 2X: Gold 
Bull/S&P500 Bear funds are each different than the first to settle 
Index Futures Contracts for the remaining Funds, the NAV Calculation 
Time for each of the FactorShares 2X: Oil Bull/S&P500 Bear and 
FactorShares 2X: Gold Bull/S&P500 Bear funds differ from the 
remaining Funds.
---------------------------------------------------------------------------

    Fund NAV Calculation Times (E.T.):

----------------------------------------------------------------------------------------------------------------
                                      Long Index Futures    Short Index Futures
               Fund                  Contract: settlement  Contract: settlement  First to settle/NAV Calculation
                                             time                  time                     Time \21\
----------------------------------------------------------------------------------------------------------------
FactorShares 2X: S&P500 Bull/TBond  E-mini Standard and    30 Year U.S.          3 p.m.
 Bear.                               Poor's 500 Stock       Treasury Bond
                                     Price Index\TM\        Futures: 3 p.m.
                                     Futures: 4:15 p.m.
FactorShares 2X: TBond Bull/S&P500  30 Year U.S. Treasury  E-mini Standard and   3 p.m.
 Bear.                               Bond Futures: 3 p.m.   Poor's 500 Stock
                                                            Price Index\TM\
                                                            Futures: 4:15 p.m.
FactorShares 2X: S&P500 Bull/USD    E-mini Standard and    U.S. Dollar           3 p.m.
 Bear.                               Poor's 500 Stock       Index[supreg]
                                     Price Index\TM\        Futures:.
                                     Futures: 4:15 p.m.    3 p.m...............
FactorShares 2X: Oil Bull/S&P500    Light Sweet Crude Oil  E-mini Standard and   2:30 p.m.
 Bear \22\.                          Futures: 2:30 p.m.     Poor's 500 Stock
                                                            Price Index\TM\
                                                            Futures: 4:15 p.m.
FactorShares 2X: Gold Bull/S&P500   Gold Futures: 1:30     E-mini Standard and   1:30 p.m.
 Bear.                               p.m.                   Poor's 500 Stock
                                                            Price Index\TM\
                                                            Futures: 4:15 p.m.
----------------------------------------------------------------------------------------------------------------

    A Fund's daily NAV may reflect the closing settlement price and/or 
the last traded value just before the NAV Calculation Time, as 
applicable, for each of its Index Futures Contracts. A Fund's daily NAV 
will reflect the closing settlement price for each of its Index Futures 
Contracts if an Index Future Contract's closing settlement price is 
determined at or just before the NAV Calculation Time. If the exchange 
on which a Fund's Index Futures Contract does not determine the closing 
settlement price at or just before the NAV Calculation Time, then the 
last traded value for that Index Futures Contract up until (but 
excluding) the NAV Calculation Time will be reflected in the NAV.
    For example, the closing settlement price of the 30-Year U.S. 
Treasury Bond Futures occurs at or around 3 p.m. E.T., or just before 
the NAV Calculation Time for the FactorShares 2X: S&P500 Bull/TBond 
Bear. Accordingly, the Index Futures Contract price used to determine 
the NAV for 30-Year U.S. Treasury Bond Futures positions held by the 
FactorShares 2X: S&P500 Bull/TBond Bear will be the corresponding 
closing settlement price of 30-Year U.S. Treasury Bond Futures as 
reported by CME. However, the closing settlement price for the E-mini 
Standard and Poor's 500 Stock Price IndexTM Futures is 
determined at or around 4:15 p.m. E.T., which occurs 75 minutes after 
the NAV Calculation Time of FactorShares 2X: S&P500 Bull/TBond Bear. 
Therefore, the Index Futures Contract price used to determine the NAV 
for E-mini Standard and Poor's 500 Stock Price IndexTM 
Futures positions held by the FactorShares 2X: S&P500 Bull/TBond Bear 
will be the last traded value for the E-mini Standard and Poor's 500 
Stock Price IndexTM Futures up until (but excluding) 3 p.m. 
E.T.
    In calculating the NAV of a Fund, the settlement value of a 
Financial Instrument is determined by applying the terms as provided 
under the applicable Financial Instrument. However, in the event that 
an underlying Index Futures Contract is not trading due to the 
operation of daily limits or otherwise, the Managing Owner may in its 
sole discretion choose to value the Fund's Financial Instruments 
referencing such Index Futures Contract on a fair value basis in order 
to calculate the Fund's NAV.
    NAV per Fund Share, in respect of a Fund, is the NAV of the Fund 
divided by the number of its outstanding Fund Shares.

[[Page 1484]]

Pricing Information Available on the NYSE Arca and Other Sources
    According to the Registration Statements, the Index Sponsor will 
calculate the Indicative Index Value (``IIV'') of each Index on a total 
return basis. In order to calculate the IIV, the Index Sponsor polls 
Reuters every 15 seconds of each trading day to determine the real-time 
value of each of the following components of each Index: Price of the 
underlying Long Index Futures Contracts; price of the underlying Short 
Index Futures Contracts; and the pro-rated risk free rate, which is the 
3-month U.S. Treasury bill, with respect to each applicable Index. The 
Index Sponsor then applies a set of rules to the above values to create 
the indicative level of each Long Sub-Index and each Short Sub-Index, 
and in turn, each Index. The IIV and closing level of each Index and 
Sub-Index will be calculated until the last to settle of NYSE Arca or 
the last to settle of the exchanges on which the Fund's Index Futures 
Contracts are traded, provided, however, that no IIV will be calculated 
after 4:15 p.m. E.T. (``Index Calculation Time''). These rules are 
consistent with the rules which the Index Sponsor applies at the end of 
each trading day to calculate the closing level of each Index and Sub-
Index. A similar polling process is applied to the U.S. Treasury bills, 
or any other applicable Fixed Income Instruments, to determine the 
indicative value of the Fixed Income Instruments held by each Fund 
every 15 seconds throughout the trading day.
    An Index and Sub-Index value will be calculated on each business 
day as determined by the futures exchanges on which each Index's Long 
Index Futures Contract and/or a Short Index Futures Contract trades. 
The Index Sponsor will continue to calculate each Index and Sub-Index 
even on days when the futures exchanges on which each Index's Long 
Index Futures Contract and/or a Short Index Futures Contract trades are 
open and NYSE Arca is closed.
    The IIV per Share of each Fund is calculated by applying the 
percentage price change of each Fund's holdings in futures contracts 
(and/or Substitute Futures and Financial Instruments, as applicable) to 
the last published NAV of each Fund and will be disseminated (in U.S. 
dollars) by one or more market data vendors every 15 seconds during the 
NYSE Arca Core Trading Session of 9:30 a.m. to 4 p.m. E.T.
    The current trading price per Share of each Fund (quoted in U.S. 
dollars) will be published continuously under its own ticker symbol as 
trades occur throughout each trading day on the consolidated tape, 
Reuters and/or Bloomberg.
    The Index Sponsor publishes the intra-day level of each Index and 
Sub-Index, which is available to subscribers. The intra-day level of 
each Index and Sub-Index is also published once every 15 seconds during 
the NYSE Arca Core Trading Session on the consolidated tape, Reuters 
and/or Bloomberg.
    The Index Sponsor publishes the closing level of each Index and the 
Sub-Indexes daily at the Index Sponsor's Web site at http://www.standardandpoors.com. The most recent end-of-day closing level of 
each Index and Sub-Index is published under its own symbol as of the 
close of business for NYSE Arca each trading day on the consolidated 
tape, Reuters and/or Bloomberg, or any successor thereto.
    The Managing Owner publishes the NAV of each Fund and the NAV per 
Share of each Fund daily. The most recent end-of-day NAV of each Fund 
is published under its own symbol as of the close of business on 
Reuters and/or Bloomberg and on the Managing Owner's Web site at http://www.factorshares.net, or any successor thereto. In addition, the most 
recent end-of-day NAV of each Fund is published the following morning 
on the consolidated tape.
    The Funds will provide Web site disclosure of the portfolio 
holdings daily and will include, as applicable, the names and value (in 
U.S. dollars) of Index Futures Contracts, Substitute Futures and 
Financial Instruments, as applicable, and characteristics of these 
Index Futures Contracts and Substitute Futures and Financial 
Instruments, as applicable, and Fixed Income Instruments, and the 
amount of cash held in the portfolio of the Funds. This Web site 
disclosure of the portfolio composition of the Funds will occur at the 
same time as the disclosure by the Managing Owner of the portfolio 
composition to Authorized Participants so that all market participants 
are provided portfolio composition information at the same time. 
Therefore, the same portfolio information will be provided on the 
Funds' public Web site as well as in electronic files provided to 
Authorized Participants. Accordingly, each investor will have access to 
the current portfolio composition of the Funds through the Managing 
Owner's Web site.
Creation and Redemption of Shares
    Each Fund creates and redeems Shares from time-to-time, but only in 
one or more Baskets. A Basket is a block of 100,000 Shares. Baskets may 
be created or redeemed only by Authorized Participants, as described in 
the Registration Statements, except that the initial Baskets will be 
created by the Initial Purchaser. Except when aggregated in Baskets, 
the Shares are not redeemable securities. Authorized Participants pay a 
transaction fee of $500 in connection with each order to create or 
redeem one or more Baskets. Authorized Participants may sell the Shares 
included in the Baskets they purchase from the Funds to other 
investors.
    On any business day, an Authorized Participant may place an order 
with the Distributor to create one or more Baskets. For purposes of 
processing both purchase and redemption orders, a ``business day'' 
means any day other than a day when banks in New York City are required 
or permitted to be closed. Purchase orders must be placed by no later 
than 5 hours prior to the close of NYSE Arca, which would be 
customarily 11 a.m. E.T. However, from time-to-time, NYSE Arca may have 
an early close at, for example, 1 p.m. E.T. (e.g., day after 
Thanksgiving). On these days, purchase orders must be placed by no 
later than 8 a.m. E.T., which would be 5 hours prior to the early close 
of NYSE Arca. The day on which the Distributor receives a valid 
purchase order is the purchase order date. Purchase orders are 
irrevocable. By placing a purchase order, and prior to delivery of such 
Baskets, an Authorized Participant's DTC account will be charged the 
non-refundable transaction fee due for the purchase order.
Determination of Required Payment
    The total cash payment required to create each Basket is the NAV of 
100,000 Shares of the applicable Fund as of the NAV Calculation Time, 
on the purchase order date. Baskets are issued as of noon, E.T., on the 
business day immediately following the purchase order date at the 
applicable NAV per Share as of the NAV Calculation Time, on the 
purchase order date, but only if the required payment has been timely 
received.
    Because orders to purchase Baskets must be placed by no later than 
5 hours prior to the close of NYSE Arca, but the total payment required 
to create a Basket will not be determined until the NAV Calculation 
Time on the date the purchase order is received, Authorized 
Participants will not know the total amount of the payment required to 
create a Basket at the time they submit an irrevocable purchase order 
for the Basket. The NAV of a Fund and the total amount of the payment 
required to

[[Page 1485]]

create a Basket could rise or fall substantially between the time an 
irrevocable purchase order is submitted and the NAV Calculation Time.
Redemption Procedures
    The procedures by which an Authorized Participant can redeem one or 
more Baskets mirror the procedures for the creation of Baskets. On any 
business day, an Authorized Participant may place an order with the 
Distributor to redeem one or more Baskets. Redemption orders must be 
placed by no later than 5 hours prior to the close of NYSE Arca, which 
would be customarily 11 a.m. E.T. However, from time-to-time, NYSE Arca 
may have an early close at, for example, 1 p.m. E.T. On these days, 
redemption orders must be placed by no later than 8 a.m. E.T., which 
would be 5 hours prior to the early close of NYSE Arca. The day on 
which the Distributor receives a valid redemption order is the 
redemption order date. Redemption orders are irrevocable. The 
redemption procedures allow Authorized Participants to redeem Baskets. 
Individual shareholders may not redeem directly from a Fund. Instead, 
individual shareholders may only redeem Shares in integral multiples of 
100,000 and only through an Authorized Participant.
    By placing a redemption order, an Authorized Participant agrees to 
deliver the Baskets to be redeemed through DTC's book-entry system to 
the applicable Fund not later than noon, E.T., on the business day 
immediately following the redemption order date. By placing a 
redemption order, and prior to receipt of the redemption proceeds, an 
Authorized Participant's DTC account will be charged the non-refundable 
transaction fee due for the redemption order.
Determination of Redemption Proceeds
    The redemption proceeds from a Fund consist of the cash redemption 
amount. The cash redemption amount is equal to the NAV of the number of 
Basket(s) of such Fund requested in the Authorized Participant's 
redemption order as of the NAV Calculation Time, on the redemption 
order date. The Distributor will instruct the Transfer Agent and the 
Custodian of redemption orders by close of business on the redemption 
order date. The Custodian will distribute the cash redemption amount at 
noon, E.T., on the business day immediately following the redemption 
order date through DTC to the account of the Authorized Participant as 
recorded on DTC's book-entry system, but only if the applicable Baskets 
have been timely received.
    The redemption proceeds due from a Fund are delivered to the 
Authorized Participant at noon, E.T., on the business day immediately 
following the redemption order date if, by such time on such business 
day immediately following the redemption order date, the Fund's DTC 
account has been credited with the Baskets to be redeemed. If the 
Fund's DTC account has not been credited with all of the Baskets to be 
redeemed by such time, the redemption distribution is delivered to the 
extent of whole Baskets received. Any remainder of the redemption 
distribution is delivered on the next business day to the extent of 
remaining whole Baskets received if the Transfer Agent receives the fee 
applicable to the extension of the redemption distribution date which 
the Transfer Agent after consulting with the Managing Owner may, from 
time-to-time, determine and the remaining Baskets to be redeemed are 
credited to the Fund's DTC account by noon, E.T., on such next business 
day. Any further outstanding amount of the redemption order will be 
cancelled. The Distributor, after consulting with the Managing Owner, 
will also be authorized to deliver the redemption distribution 
notwithstanding that the Baskets to be redeemed are not credited to the 
Fund's DTC account by noon, E.T., on the business day immediately 
following the redemption order date if the Authorized Participant has 
collateralized its obligation to deliver the Baskets through DTC's 
book-entry system on such terms as the Managing Owner may determine 
from time-to-time.
Availability of Information Regarding the Shares
    The current trading price per Share of each Fund (quoted in U.S. 
dollars) will be published continuously under its ticker symbol as 
trades occur throughout each trading day on the consolidated tape, 
Reuters and/or Bloomberg.
    The NAV for each Fund will be calculated by the Administrator once 
a day and will be disseminated daily to all market participants at the 
same time. The Exchange also will disseminate on a daily basis via the 
Consolidated Tape Association (``CTA'') information with respect to the 
recent NAV, and Shares outstanding. The Exchange will also make 
available on its Web site daily trading volume of each of the Shares. 
The closing price and settlement prices of the Index Futures Contracts 
are also readily available from the NYMEX, CME, COMEX and ICE, as 
applicable, and from automated quotation systems, published or other 
public sources, or online information services such as Bloomberg or 
Reuters. Quotation and last-sale information regarding the Shares will 
be disseminated through the facilities of the CTA.
    The Web site for the Funds and/or the Exchange, which are publicly 
available at no charge, will contain the following information: (a) The 
current NAV per Share daily and the prior business day's NAV; (b) the 
reported closing price; (c) the Prospectus; and (d) other quantitative 
information.
    The daily settlement prices for the Index Futures Contracts are 
publicly available on the Web site of the NYMEX, CME and COMEX at 
http://www.cmegroup.com and the ICE Web site at http://www.theice.com. 
In addition, various data vendors and news publications publish futures 
prices and data. The Exchange represents that futures quotes and last-
sale information for the Index Futures Contracts are widely 
disseminated through a variety of major market data vendors worldwide, 
including Bloomberg and Reuters. In addition, the Exchange further 
represents that complete real-time data for the Index Futures Contracts 
is available by subscription from Reuters and Bloomberg. NYMEX, CME, 
COMEX and ICE also provide delayed futures information on current and 
past trading sessions and market news free of charge on their Web 
sites. The applicable specific contract specifications for the futures 
contracts are also available from such Web sites, as well as other 
financial informational sources.
    The Funds will provide Web site disclosure of portfolio holdings 
daily and will include, as applicable, the names and value (in U.S. 
dollars) of Index Futures Contracts, Substitute Futures and Financial 
Instruments and characteristics of these Index Futures Contracts, 
Substitute Futures and Financial Instruments, as applicable, and Fixed 
Income Instruments, and the amount of cash held in the portfolio of the 
Funds. This Web site disclosure of the portfolio composition of the 
Funds will occur at the same time as the disclosure by the Managing 
Owner of the portfolio composition to Authorized Participants so that 
all market participants are provided portfolio composition information 
at the same time. Therefore, the same portfolio information will be 
provided on the public Web site as well as in electronic files provided 
to Authorized Participants. Accordingly, each investor will have access 
to the current portfolio composition of the Funds through the Funds' 
Web site.
    In addition, in order to provide updated information relating to 
each

[[Page 1486]]

Fund for use by investors and market professionals, an IIV per Share of 
each Fund will be calculated, adjusted four times per minute throughout 
the NYSE Arca Core Trading Session to reflect the continuous price 
changes of such Fund's Index Futures Contracts, Substitute Futures and 
Financial Instruments, as applicable. The IIV will provide a 
continuously updated estimated NAV per Share and is calculated by using 
the prior day's closing NAV per Share of each Fund as a base and 
updating that value throughout the trading day to reflect changes in 
the value of the applicable Index Futures Contracts, Substitute Futures 
and Financial Instruments. The IIV disseminated during NYSE Arca Core 
Trading Session should not be viewed as an actual real-time update of 
each Fund's NAV, which is calculated only once a day.
    As noted above, the IIV will be disseminated on a per Share basis 
by one or more major market data vendors every 15 seconds during NYSE 
Arca Core Trading Session. The value of a Share of a Fund may be 
influenced by non-concurrent trading hours between the NYSE Arca and 
the NYMEX, CME, COMEX and ICE Futures, which are the futures exchanges 
on which the Index Futures Contracts are traded (collectively, the 
``Futures Exchanges''). As a result, during periods when the NYSE Arca 
is open and one or more of the Futures Exchanges is closed, trading 
spreads and the resulting premium or discount on the Shares may widen 
and, therefore, increase the difference between the price of the Shares 
and the NAV of the Shares.
    The Exchange believes that dissemination of the IIV provides 
additional information regarding each Fund that is not otherwise 
available to the public and is useful to professionals and investors in 
connection with the related Shares trading on the Exchange or the 
creation or redemption of such Shares.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. Shares will trade on 
the NYSE Arca Marketplace from 4 a.m. to 8 p.m. E.T. The Exchange has 
appropriate rules to facilitate transactions in the Shares during all 
trading sessions. As provided in NYSE Arca Equities Rule 7.6, 
Commentary .03, the minimum price variation (``MPV'') for quoting and 
entry of orders in equity securities traded on the NYSE Arca 
Marketplace is $0.01, with the exception of securities that are priced 
less than $1.00 for which the MPV for order entry is $0.0001.
    The trading of the Shares will be subject to NYSE Arca Equities 
Rule 8.200, Commentary .02(e), which sets forth certain restrictions on 
ETP Holders acting as registered Market Makers in Trust Issued Receipts 
to facilitate surveillance. See ``Surveillance'' below for more 
information.
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. Trading may be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. These may include: (1) The extent to 
which trading is not occurring in the underlying Index Futures 
Contracts, or (2) whether other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present. In addition, trading in Shares will be subject to trading 
halts caused by extraordinary market volatility pursuant to the 
Exchange's ``circuit breaker'' rule\23\ or by the halt or suspension of 
trading of the underlying Index Futures Contracts.
---------------------------------------------------------------------------

    \23\ See NYSE Arca Equities Rule 7.12.
---------------------------------------------------------------------------

    The Fund will meet the initial and continued listing requirements 
applicable to Trust Issued Receipts in NYSE Arca Equities Rule 8.200 
and Commentary .02 thereto. The Exchange represents that, for the 
initial and continued listing of the Shares, the Shares must be in 
compliance with NYSE Arca Equities Rule 5.3 and Rule 10A-3 under the 
Act.\24\ A minimum of 100,000 Shares for each Fund will be outstanding 
as of the start of trading on the Exchange.
---------------------------------------------------------------------------

    \24\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    The Exchange represents that the Exchange may halt trading during 
the day in which the interruption to the dissemination of the IIV, the 
Indexes, the Sub-Indexes or the value of the underlying futures 
contracts occurs. If the interruption to the dissemination of the IIV, 
the Indexes, the Sub-Indexes or the value of the underlying futures 
contracts persists past the trading day in which it occurred, the 
Exchange will halt trading no later than the beginning of the trading 
day following the interruption. In addition, if the Exchange becomes 
aware that the NAV with respect to the Shares is not disseminated to 
all market participants at the same time, it will halt trading in the 
Shares until such time as the NAV is available to all market 
participants.
Surveillance
    The Exchange intends to utilize its existing surveillance 
procedures applicable to derivative products, including Trust Issued 
Receipts, to monitor trading in the Shares. The Exchange represents 
that these procedures are adequate to properly monitor Exchange trading 
of the Shares in all trading sessions and to deter and detect 
violations of Exchange rules and applicable Federal securities laws.
    The Exchange's current trading surveillances focus on detecting 
securities trading outside their normal patterns. 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. The Exchange is able to 
obtain information regarding trading in the Shares, the physical 
commodities included in, or options, futures or options on futures on, 
Shares through ETP Holders, in connection with such ETP Holders' 
proprietary or customer trades which they effect through ETP Holders on 
any relevant market. The Exchange can obtain market surveillance 
information, including customer identity information, with respect to 
transactions occurring on the NYMEX, CME and COMEX in that CME Group, 
Inc., the parent company of NYMEX, CME and COMEX, is a member of the 
Intermarket Surveillance Group (``ISG'').\25\ In addition, ICE is a 
member of ISG, and the Exchange, therefore, can obtain market 
surveillance information from such exchange.
---------------------------------------------------------------------------

    \25\ For a list of the current members of ISG, see http://www.isgportal.org. The Exchange may obtain information from futures 
exchanges with which the Exchange has entered into a surveillance 
sharing agreement or that are ISG members. The Exchange notes that 
not all components of the portfolio for the Funds may trade on 
markets that are members of ISG or with which the Exchange has in 
place a comprehensive surveillance sharing agreement.
---------------------------------------------------------------------------

    In addition, for components traded on exchanges, not more than 10% 
of the weight of a Fund's portfolio in the aggregate shall consist of 
components whose principal trading market is not a member of ISG or is 
a market with which the Exchange does not have a comprehensive 
surveillance sharing agreement.
    The Exchange also has a general policy prohibiting the distribution 
of material, non-public information by its employees.
Information Bulletin
    Prior to the commencement of trading, the Exchange will inform its 
ETP Holders in an Information Bulletin of the special characteristics 
and risks

[[Page 1487]]

associated with trading the Shares. Specifically, the Information 
Bulletin will discuss the following: (1) The risks involved in trading 
the Shares during the Opening and Late Trading Sessions when an updated 
IIV will not be calculated or publicly disseminated; (2) the procedures 
for purchases and redemptions of Shares in Creation Baskets and 
Redemption Baskets (and that Shares are not individually redeemable); 
(3) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due 
diligence on its ETP Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (4) how information 
regarding the IIV is disseminated; (5) the requirement that ETP Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; and (6) 
trading information.
    In addition, the Information Bulletin will advise ETP Holders, 
prior to the commencement of trading, of the prospectus delivery 
requirements applicable to the Funds. The Exchange notes that investors 
purchasing Shares directly from the Funds will receive a Prospectus. 
ETP Holders purchasing Shares from the Funds for resale to investors 
will deliver a Prospectus to such investors. The Information Bulletin 
will also discuss any exemptive, no-action and interpretive relief 
granted by the Commission from any rules under the Act.
    The Information Bulletin will further advise ETP Holders that FINRA 
has implemented increased customer margin requirements applicable to 
leveraged ETFs (which include the Shares) and options on leveraged 
ETFs, as described in FINRA Regulatory Notices 09-53 (August 2009) and 
09-65 (November 2009).
    In addition, the Information Bulletin will reference that the Funds 
are subject to various fees and expenses described in the Registration 
Statements. The Information Bulletin will also reference that the CFTC 
has regulatory jurisdiction over the trading of futures contracts 
traded on U.S. markets.
    The Information Bulletin will also disclose the trading hours of 
the Shares of the Funds and that the NAV for the Shares is calculated 
after 4 p.m. E.T. each trading day. The Bulletin will disclose that 
information about the Shares of the Funds is publicly available on the 
Funds' Web site.
2. Statutory Basis
    The proposed rule change is consistent with Section 6(b) of the 
Act,\26\ in general, and furthers the objectives of Section 
6(b)(5),\27\ in particular, in that it is designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, to foster cooperation and coordination 
with persons engaged in facilitating transactions in securities, and to 
remove impediments to and perfect the mechanism of a free and open 
market and a national market system. The Exchange believes that the 
proposed rule change 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, the listing and trading criteria set 
forth in Rule 8.200 are intended to protect investors and the public 
interest.
---------------------------------------------------------------------------

    \26\ 15 U.S.C. 78f(b).
    \27\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

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

    No written comments were solicited or received with respect to the 
proposed rule change.

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

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

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2010-121 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2010-121. This 
file number should be included on the subject line if e-mail is used. 
To help the Commission process and review your comments more 
efficiently, please use only one method. The Commission will post all 
comments on the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, 
all written statements with respect to the proposed rule change that 
are filed with the Commission, and all written communications relating 
to the proposed rule change between the Commission and any person, 
other than those that may be withheld from the public in accordance 
with the provisions of 5 U.S.C. 552, will be available for Web site 
viewing and printing in the Commission's Public Reference Room, 100 F 
Street, NE., Washington, DC 20549-1090 on official business days 
between 10 a.m. and 3 p.m. Copies of the filing will also be available 
for inspection and copying at the Exchange's principal office. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2010-121 and should 
be submitted on or before January 31, 2011.
---------------------------------------------------------------------------

    \28\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\28\
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-162 Filed 1-7-11; 8:45 am]
BILLING CODE 8011-01-P