Document ID: SEC-2007-1665-0001
Agency: sec
Document Type: Notice
Title: Self-regulatory organizations; proposed rule changes: American Stock Exchange LLC
Posted Date: 2007-12-07T05:00Z

[Federal Register: December 7, 2007 (Volume 72, Number 235)]
[Notices]               
[Page 69259-69261]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr07de07-88]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56880; File No. SR-Amex-2006-96]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Approving Proposed Rule Change, as Modified by Amendment Nos. 1, 2, 3, 
4, 5, and 6 Thereto, Relating to the Listing and Trading of Trust Units 
of the Nuveen Commodities Income and Growth Fund

December 3, 2007.

I. Introduction

    On October 12, 2006, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change pursuant to section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder \2\ to list and trade trust units of the Nuveen Commodities 
Income and Growth Fund (``Fund'') (``Shares'') pursuant to proposed 
Amex Rules 1600 et. seq. On March 2, 2007, March 21, 2007, May 14, 
2007, August 15, 2007, August 28, 2007, and September 17, 2007 the Amex 
submitted Amendment Nos. 1, 2, 3, 4, 5, and 6, respectively, to the 
proposed rule change. The proposed rule change, as amended, was 
published for comment in the Federal Register on September 25, 2007.\3\ 
The Commission received one comment letter regarding the proposal.\4\ 
This order approves the proposed rule change, as amended.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 56465 (September 19, 
2007), 72 FR 54489 (``Notice'').
    \4\ See letter to Nancy M. Morris, Secretary, Commission, from 
John G. Gaine, President, Managed Funds Association (``MFA''), dated 
October 15, 2007 (``MFA Letter'').
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II. Description of the Proposal

    The Exchange proposes to add Amex rules 1600 et seq. that would 
permit the listing and trading of units of a trust or other similar 
entity (``Trust Units'') that invests in the assets of a trust, 
partnership, limited liability company, corporation or other similar 
entity constituted as a commodity pool that holds investments 
comprising or otherwise based on futures contracts, options on futures 
contracts, forward contracts, commodities and high credit quality 
short-term fixed income securities or other securities. Pursuant to 
these proposed rules, the Amex proposes to list and trade the Shares, 
which represent beneficial ownership interests in the assets of the 
Fund, which in turn, consist solely of units (``Master Fund Units'') of 
the Nuveen Commodities Income and Growth Master Fund LLC (the ``Master 
Fund''). The Exchange also proposes to amend section 141 of the Amex 
Company Guide (``Company Guide'') regarding listing fees to accommodate 
the listing of Trust Units.\5\
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    \5\ The Amex original listing fee applicable to the listing of 
the Fund is $5,000. Under Section 141 of the Company Guide, the 
annual listing fee will be based upon the year-end aggregate number 
of units in all series of the Fund outstanding at the end of each 
calendar year.
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    As described in the Exchange's proposal,\6\ the Fund's primary 
investment objective is to seek total return through broad exposure to 
the commodities markets. The Fund's secondary objective is to provide 
investors with monthly income and capital distributions not commonly 
associated with commodity investments. The Master Fund will invest in 
commodity futures and forward contracts, options on commodity futures 
and forward contracts, and over-the-counter (``OTC'') commodity options 
in the following commodity groups: energy, industrial metals, precious 
metals, livestock, agriculturals, and tropical foods and fibers and may 
in the future include other commodity investments that

[[Page 69260]]

become the subject of commodity futures trading.\7\
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    \6\ For a more detailed description of the Fund and Master Fund, 
including their structure, investment objectives, holdings, 
applicable exchange listing and trading rules, disclosure of pricing 
information, surveillance, and other regulation, see Notice at 
54489-94.
    \7\ For information regarding the futures contracts and other 
investments in which the Master Fund may invest, see Notice at 
54490.
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    The Fund and the Master Fund are commodity pools. The Master Fund 
is managed by Nuveen Commodities Asset Management, LLC (the 
``Manager''). The Manager is registered as a commodity pool operator 
(the ``CPO'') and a commodity trading advisor (the ``CTA'') with the 
Commodity Futures Trading Commission (``CFTC'') and is a member of the 
National Futures Association (``NFA'').
    The Manager will serve as the CPO and CTA of the Fund and the 
Master Fund. The Manager will determine the Master Fund's overall 
investment strategy, including: (i) The selection and ongoing 
monitoring of the Master Fund's sub-advisors; (ii) the management of 
the Fund's and Master Fund's business affairs; and (iii) the provision 
of certain clerical, bookkeeping and other administrative services. 
Gresham Investment Management LLC (the ``Commodity Sub-Advisor'') will 
invest on a notional basis substantially all of the Master Fund's 
assets in commodity futures and forward contracts pursuant to a 
proprietary commodity investment strategy (the Tangible Asset 
Program[supreg] (``TAP[supreg]'')) \8\ and a risk management program. 
The Commodity Sub-Advisor is a Delaware limited liability company and 
is registered with the CFTC as a CTA and a CPO and is a member of the 
NFA. The Commodity Sub-Advisor is also registered with the Commission 
as an investment adviser. Nuveen Asset Management (the ``Collateral 
Sub-Advisor''), an affiliate of the Manager, will invest the Master 
Fund's collateral in short-term, investment grade quality debt 
instruments. The Collateral Sub-Advisor is registered with the 
Commission as an investment adviser.
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    \8\ TAP[supreg] is an actively managed, rules-based commodity 
investment strategy. TAP[supreg] is fundamental in nature and is 
designed to maintain consistent, fully collateralized exposure to 
commodities as an asset class. TAP[supreg] does not require the 
existence of price trends in order to be successful. TAP[supreg] 
currently requires investment in futures or forward contracts for 
three commodities in each of the energy, industrial metals, 
livestock, agriculturals, tropical foods and fibers and precious 
metal commodity groups. Commodity group weightings and individual 
commodity weightings are chosen by a process that blends two-thirds 
of five year global production value and one-third of five year 
value of commodity futures contracts traded in dollars. The process 
constrains the weightings of each commodity group such that no group 
may constitute more than 35% of TAP[supreg] and no single commodity 
interest can constitute more than 70% of its group. In addition, 
each commodity is rebalanced.
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    The Exchange submits that proposed Amex Rules 1600 et seq. will 
accommodate the listing and trading of Trust Units.\9\
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    \9\ Pursuant to Commentary .01 to proposed Amex Rule 1602, the 
Exchange shall file separate proposals under Section 19(b) of the 
Act before listing and trading separate and distinct Trust Units 
designated on different underlying investments, commodities, assets 
and/or portfolios.
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III. Comment Letter and Response

    The Commission received one comment letter, submitted by the 
MFA,\10\ which expressed concerns about the daily disclosure of the 
Fund's holdings and net asset value (``NAV''). MFA believed that such 
daily disclosure is proper in the case of traditional exchange-traded 
funds (``ETFs'') because it facilitates the daily creation and 
redemption of units, which lowers the tracking error between an ETF's 
NAV and the trading price of such ETF.\11\ In the case of the Fund, 
however, which does not provide for a continuous creation and 
redemption process, MFA argued that disclosure of the Fund's assets has 
no ``commercially reasonable purpose,'' and may frustrate continued 
innovation and ultimately harm investors. The MFA believed that daily 
disclosure could allow market participants to discover proprietary 
trading strategies through reverse engineering. MFA argued that this 
could result in front-running and also remove incentives for the 
formation of new closed-end funds and strategies.\12\ Likewise, daily 
disclosure of the Fund's NAV, in the MFA's view, is not necessary and 
may have negative consequences. MFA believed that closed-end exchange-
traded commodity pools such as the Fund should be subject to the same 
NAV and portfolio holding disclosure requirements applicable to closed-
end exchange-traded registered investment companies.\13\
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    \10\ See MFA Letter, supra note 4.
    \11\ See id. at 1-2.
    \12\ See id. at 2-4.
    \13\ See id. at 4-5. MFA noted that many closed-end registered 
investment companies report their NAV weekly and the Investment 
Company Act of 1940 requires only quarterly portfolio holdings 
disclosure for closed-end registered investment companies.
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    In its response,\14\ the Exchange disagreed with the MFA regarding 
disclosure of the Fund's NAV. Amex argued that daily disclosure allows 
investors to determine whether actual discounts or premiums to NAV per 
share based on supply and demand and future expectation are consistent 
with market fundamentals.\15\ With respect to the daily disclosure of 
the Fund's holdings, Amex largely agreed with MFA's comments, noting 
that it did not believe the daily portfolio holdings disclosure 
requirement to be particularly helpful or necessary, and agreeing that 
the Fund's structure does not provide for a mechanism to cause the 
market price per share to track NAV per share.\16\
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    \14\ See letter to Nancy M. Morris, Secretary, Commission, from 
Jeffrey P. Burns, Vice President and Associate General Counsel, 
Exchange, dated November 7, 2007.
    \15\ Id. at 3.
    \16\ Id. at 1-2. Though the Exchange in its current letter 
believed that there was significant justification to eliminate the 
proposed requirement or daily portfolio holdings disclosure, the 
Exchange did not file an amendment to propose such a change with 
respect to the Fund.
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IV. Discussion and Commission Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities 
exchange.\17\ In particular, the Commission finds that the proposed 
rule change is consistent with section 6(b)(5) of the Act,\18\ which 
requires that the rules of an exchange be designed, among other things, 
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.
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    \17\ In approving this proposed rule change, the Commission 
notes that it has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
    \18\ 15 U.S.C. 78f(b)(5).
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    The Commission further believes that the proposal is consistent 
with section 11A(a)(1)(C)(iii) of the Act,\19\ which sets forth 
Congress's 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. As described in the Notice, the Exchange represents that 
futures, forwards and related exchange traded options, quotes and last 
sale information for the commodity contracts held by the Fund are 
widely disseminated through a variety of market data vendors worldwide, 
including Bloomberg and Reuters. In addition, the Exchange further 
represents that complete real-time data for such futures, forwards and 
exchange traded options is available by subscription from Reuters and 
Bloomberg. The relevant futures and forward exchanges also provide 
delayed futures and forward contract information on current and past 
trading

[[Page 69261]]

sessions and market news free of charge on their respective Web sites. 
The contract specifications for the futures and forward contracts are 
also available from the futures and forward exchanges on their Web 
sites as well as other financial informational sources. Finally, the 
Web site for the Fund and the Manager, which will be publicly 
accessible at no charge, will contain the following information: (a) 
The prior business day's NAV and the reported closing price; (b) 
calculation of the premium or discount of such price against such NAV; 
and (c) other applicable quantitative information.
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    \19\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    Furthermore, the Commission believes that the proposal to list and 
trade the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately. 
The Commission notes that the Exchange will, prior to listing, obtain a 
representation from the Fund that the NAV per share will be calculated 
daily and made available to all market participants at the same 
time.\20\ In addition, the Exchange represents that disclosure of the 
portfolio composition of the Fund will be made to all market 
participants at the same time.\21\ Moreover, the Exchange notes that 
each of the Manager, the Commodity Broker, and the Commodity Sub-
Advisor has represented to the Exchange that it will establish firewall 
procedures with respect to personnel who have access to information 
concerning changes and adjustments to components of the Fund to prevent 
the use and dissemination of material non-public information.\22\ 
Further, the trading of the Shares is subject to the specialist 
prohibitions in Proposed Amex Rule 1603.
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    \20\ See proposed Amex Rule 1602(a)(ii).
    \21\ See Notice, supra note 3, at note 15.
    \22\ See Notice at 54492.
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    The Commission also believes that the Exchange's trading halt rules 
are reasonably designed to prevent trading in the Shares when 
transparency is impaired. Proposed Amex Rule 1602(b)(ii) provides that 
the Exchange will halt trading in the Shares if the circuit breaker 
parameters of Amex Rule 117 have been reached. In exercising its 
discretion to halt or suspend trading in the Shares, the Exchange may 
consider factors such as those set forth in Amex Rule 918C(b) in 
addition to other factors that may be relevant. In particular, if the 
portfolio holdings and net asset value per share are not being 
disseminated as required, the Exchange may halt trading during the day 
in which the interruption to the dissemination of the portfolio 
holdings or net asset value per share occurs. If the interruption to 
the dissemination of the portfolio holdings or net asset value per 
share 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.
    The Commission further believes that the trading rules and 
procedures to which the Shares will be subject pursuant to this 
proposal are consistent with the Act. The Exchange has represented that 
the Shares are equity securities subject to Amex's rules governing the 
trading of equity securities.
    In support of this proposal, the Exchange has made the following 
representations:
    (1) The Exchange's surveillance procedures are adequate to properly 
monitor the trading of the Shares. Specifically, Amex will rely on its 
existing surveillance procedures governing Index Fund Shares. In 
addition, Amex has represented that it has information sharing 
agreements with the InterContinental Exchange, the Chicago Mercantile 
Exchange, and the New York Mercantile Exchange and may obtain market 
surveillance information from other exchanges, including the Chicago 
Board of Trade, London Metals Exchange, and the New York Board of Trade 
through the Intermarket Surveillance Group.
    (2) Prior to the commencement of trading, the Exchange will inform 
its members and member organizations in an Information Circular 
regarding the prospectus or delivery requirements that apply to the 
Shares. The Information Circular will also provide guidance with regard 
to member firm compliance responsibilities when effecting transactions 
in the Shares and highlighting the special risks and characteristics of 
the Funds and Shares, as well as applicable Exchange rules. In 
addition, the Information Circular will also reference the fact that 
there is no regulated source of last sale information regarding 
physical commodities and note the respective jurisdictions of the SEC 
and CFTC .
    This approval order is based on the Exchange's representations.
    Finally, the Commission believes that the daily disclosure 
requirements relating to the Fund's holdings and NAV are appropriate. 
Specifically, the Commission believes that daily disclosure of the 
Fund's NAV per share should aid investors in determining the degree to 
which the Shares are tracking the Fund's NAV per share. The Commission 
believes that the same is true for daily disclosure of the holdings of 
the Fund as such disclosure provides additional transparency. In 
addition, the Commission notes that the Exchange did not file an 
amendment seeking to change this disclosure requirement. Accordingly, 
the Commission does not believe that the commenter's assertions form a 
basis either to disapprove or to delay approval of the Exchange's 
proposed rule change and listing of the Fund.

V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\23\ that the proposed rule change (SR-Amex-2006-96), as modified, 
be, and it hereby is, approved.
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    \23\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-23747 Filed 12-6-07; 8:45 am]

BILLING CODE 8011-01-P