Document ID: SEC-2020-1298-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE Arca, Inc.
Posted Date: 2020-08-14T04:00Z

[Federal Register Volume 85, Number 158 (Friday, August 14, 2020)]
[Notices]
[Pages 49701-49703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17753]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89511; File No. SR-NYSEArca-2020-72]

Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to Certain 
Changes Regarding the Underlying Benchmark for the ProShares Ultra 
Bloomberg Crude Oil ETF and ProShares UltraShort Bloomberg Crude Oil 
ETF

August 10, 2020.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that, on July 31, 2020, NYSE Arca, Inc. (``NYSE Arca'' or the 
``Exchange'') filed with the Securities and Exchange Commission (the 
``Commission'') the proposed rule change as described in Items I and II 
below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes certain changes regarding the underlying 
benchmark for the ProShares Ultra Bloomberg Crude Oil ETF and ProShares 
UltraShort Bloomberg Crude Oil ETF, which are currently listed and 
traded on the Exchange under NYSE Arca Rule 8.200-E (Trust Issued 
Receipts). The proposed rule change is available on the Exchange's 
website at www.nyse.com, at the principal office of the Exchange, and 
at the Commission's Public Reference Room.

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

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

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

1. Purpose
    The Exchange currently lists and trades shares of the ProShares 
Ultra Bloomberg Crude Oil ETF and ProShares UltraShort Bloomberg Crude 
Oil ETF (each a ``Fund'' and, together, the ``Funds'') under NYSE Arca 
Rule 8.200-E (Trust Issued Receipts). The Exchange proposes certain 
changes regarding the benchmark index underlying the Funds. Shares of 
the Funds initially were approved for listing on the American Stock 
Exchange LLC (``Amex'') in 2008,\4\ and were subsequently listed on the 
Exchange in 2008.\5\
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    \4\ See Securities Exchange Act Release Nos. 57932 (June 5, 
2008), 73 FR 33467 (June 12, 2008) (SR-Amex-2008-39) (Notice of 
Filing of Proposed Rule Change and Amendment No. 1 thereto Relating 
to the Listing and Trading of Trust Issued Receipts that Directly 
Hold Investments in Certain Financial Instruments and to Permit the 
Listing and Trading of Shares of Fourteen Funds of the Commodities 
and Currency Trust) (``Prior Amex Notice''); 58161 (July 15, 2008), 
73 FR 42380 (July 21, 2008) (SR-Amex-2008-39) (Order Granting 
Approval of Proposed Rule Change, as Modified by Amendment No. 1 
Thereto, Relating to the Listing and Trading of Trust Issued 
Receipts that Directly Hold Investments in Certain Financial 
Instruments and to Permit the Listing and Trading of Shares of 
Fourteen Funds of the Commodities and Currency Trust) (``Prior Amex 
Order'' and, together with the Prior Amex Notice, the ``Prior Amex 
Releases'').
    \5\ See Securities Exchange Act Release No. 58457 (September 3, 
2008), 73 FR 52711 (September 10, 2008) (SR-NYSEArca-2008-91) 
(Notice of Filing and Order Granting Accelerated Approval of 
Proposed Rule Change Regarding the Listing of Fourteen Funds of the 
Commodities and Currency Trust).
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    The Funds are series of the ProShares Trust II (``Trust'').\6\ 
ProShare Capital Management LLC (``Managing Owner'' or ``Sponsor'') 
serves as the commodity pool operator for each Fund. The Managing Owner 
is registered as a commodity pool operator with the Commodity Futures 
Trading Commission, and with the National Futures Association. The 
Funds were identified in the Prior Amex Releases as the Ultra DJ-AIG 
Crude Oil ProShares and UltraShort DJAIG Crude Oil ProShares, 
respectively.\7\
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    \6\ See Securities Exchange Act Release No. 58647 (September 25, 
2008), 73 FR 57399 (October 2, 2008) (SR-NYSEArca-2008-99) (Notice 
of Filing and Immediate Effectiveness of Proposed Rule Change 
Relating to the ProShares Trust II) (``Prior NYSE Arca Notice'').
    \7\ The Commission has previously approved listing of Trust 
Issued Receipts based on oil on the Amex and NYSE Arca. See, e.g., 
Securities Exchange Act Release Nos. 53582 (March 31, 2006), 71 FR 
17510 (April 6, 2006) (SR-Amex-2005-127) (order approving listing 
and trading of shares of United States Oil Fund, LP); 57188 (January 
23, 2008), 73 FR 5607 (January 30, 2008) (SR-Amex-2007-70) (order 
approving listing and trading of shares of United States Heating Oil 
Fund, LP and United States Gasoline Fund, LP); 61881 (April 9, 
2010), 75 FR 20028 (April 16, 2010) (SR-NYSEArca-2010-14) (order 
approving listing and trading of shares of United States Brent Oil 
Fund, LP); 62527 (July 19, 2010), 75 FR 4360 (July 26, 2010) (order 
approving listing and trading of shares of United States Commodity 
Index Fund); 81655 (September 19, 2017), 82 FR 44678) (September 25, 
2017) (SR-NYSEArca-2016-177) (Notice of Filing of Amendment No. 4, 
and Order Granting Accelerated Approval of a Proposed Rule Change, 
as Modified by Amendment No. 4, Relating to the Listing and Trading 
of Shares of the USCF Canadian Crude Oil Index Fund Under NYSE Arca 
Rule 8.200-E); 81686 (September 22, 2017), 82 FR 45643 (September 
29, 2017) (SR-NYSEArca-2017-05) (Order Granting Approval of a 
Proposed Rule Change, as Modified by Amendment Nos. 2 and 3 Thereto, 
to List and Trade Shares of Direxion Daily Crude Oil Bull 3x Shares 
and Direxion Daily Crude Oil Bear 3x Shares under NYSE Arca Equities 
Rule 8.200); 80427 (April 11, 2017), 82 FR 18058 (April 14, 2017) 
(SR-NYSEArca-2016-173) (Order Approving a Proposed Rule Change, as 
Modified by Amendments No. 2 and No. 3 Thereto, To List and Trade 
Shares of the United States 3x Oil Fund and United States 3x Short 
Oil Fund Under NYSE Arca Equities Rule 8.200, Commentary .02).
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    The Prior Amex Releases stated that the Ultra DJ-AIG Crude Oil 
ProShares (now known as the ProShares Ultra Bloomberg Crude Oil ETF) 
seeks daily investment results, before fees and expenses, that 
correspond to twice (200%) the daily performance of the Fund's 
underlying benchmark (described below); and the UltraShort DJ-AIG Crude 
Oil ProShares (now known as ProShares UltraShort Bloomberg Crude Oil 
ETF) seeks daily investment results, before fees and expenses, that 
correspond to twice the inverse (-200%) of the daily performance of the 
Fund's underlying benchmark. The Prior Amex Releases stated that the 
Funds may hold any combination of investments, including cash, 
securities, options on securities and indices, commodities, futures 
contracts, options on futures contracts, forward contracts, equity 
caps, collars, and floors, and swap agreements (collectively, 
``Financial Instruments'').
The Funds' Current Benchmark
    The Funds' underlying benchmark (``Current Benchmark'') was 
identified in the Prior Amex Releases as the Dow Jones-AIG Crude Oil 
Sub-Index Excess Return. The Dow Jones-AIG Crude Oil Sub-Index Excess 
Return was renamed the Bloomberg WTI Crude Oil Subindex as of July 1, 
2014, after Bloomberg

[[Page 49702]]

Finance L.P. replaced Dow Jones as the index administrator. Each Fund 
changed its name to reflect this change. The Current Benchmark aims to 
track the price of nearby futures contracts of sweet, light crude oil 
traded on the New York Mercantile Exchange, Inc. (``NYMEX''). It 
consists of a single WTI crude oil futures contract selected from the 
three nearest expiration dates for such contract. The Current Benchmark 
reflects the cost of rolling the futures contracts included in the 
Current Benchmark, without regard to income earned on cash positions. 
The Current Benchmark is a subindex of the Bloomberg Commodity Index 
and conforms to the representations in the Prior Amex Releases 
regarding the Dow Jones-AIG Crude Oil Sub-Index Excess Return.
    As stated in the Prior Amex Releases, in seeking to achieve each 
Fund's investment objective, the Managing Owner determines the type, 
quantity, and mix of investment positions that it believes in 
combination should produce daily returns consistent with a Fund's 
investment objective. Each Fund invests principally in any one of, or 
combinations of, Financial Instruments with respect to the underlying 
benchmark to the extent determined appropriate by the Managing Owner. 
In addition, each Fund may establish long or short positions in 
Financial Instruments as the Managing Owner believes will further the 
investment objective of each Fund.
The Funds' New Benchmark
    The Trust intends to change the underlying benchmark for the Funds 
from the Current Benchmark to a new benchmark, the Bloomberg Commodity 
Balanced WTI Crude Oil Index the (``New Benchmark''). Bloomberg Index 
Services Limited (``Bloomberg'') is the index administrator for the New 
Benchmark. The Trust intends to amend the current registration 
statement for the Funds to implement this change.\8\
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    \8\ See Pre-Effective Amendment No. 2 to the Trust's 
registration statement on Form S-3 filed with the Commission on July 
15, 2020 (File No. 333-237993) (``Registration Statement''). The 
representations herein relating to the Funds and the Trust are 
based, in part, on the Registration Statement. The Trust will not 
change each Fund's underlying benchmark until this proposed rule 
change is effective and operative.
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    According to the Registration Statement, the New Benchmark aims to 
track the performance of three separate contract schedules for West 
Texas Intermediate (``WTI'') Crude Oil futures traded on NYMEX. The 
contract schedules are equally-weighted in the New Benchmark (\1/3\ 
each) at each semi-annual reset in March and September. At each semi-
annual reset date, one-third of the New Benchmark is designated to 
follow a monthly roll schedule. Each month this portion of the New 
Benchmark rolls from the current futures contract (called ``Lead'' by 
Bloomberg, and which expires one month out) into the following month's 
contract (called ``Next'' by Bloomberg and which expires two months 
out).\9\ The second portion of the New Benchmark is always designated 
to be in a June contract, and follows an annual roll schedule in March 
of each year in which the June contract expiring in the current year is 
rolled into the June contract expiring the following year.\10\ The 
remaining portion is always designated to be in a December contract, 
and follows an annual roll schedule in September of each year in which 
the December contract expiring in the current year is rolled into the 
December contract expiring the following year.\11\ The weighting (i.e., 
percentage) of each of the three contract schedules included in the New 
Benchmark fluctuate above or below one-third between the semi-annual 
reset dates due to changing futures prices and the impact of rolling 
the futures positions.\12\ As a result, the weighting of each contract 
in the New Benchmark will ``drift'' away from equal weighting. The New 
Benchmark reflects the cost of rolling the futures contracts included 
in the New Benchmark, without regard to income earned on cash 
positions.
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    \9\ For example, at the beginning of January each year, one 
third of the New Benchmark will be rolled from the March futures 
contract (which expires in February) to the April futures contract 
(which expires in March). As a result of this roll, this portion of 
the New Benchmark will be exposed to the futures contract that is 
third closest to expiration (i.e., the April contract--as each of 
the February, March and April contracts trade at the beginning of 
January).
    \10\ For example, at the beginning of March 2021, the second 
portion of the New Benchmark will be rolled from the June 2021 
futures contract to the June 2022 futures contract.
    \11\ For example, at the beginning of September 2020, the third 
portion of the New Benchmark will be rolled from the December 2020 
futures contract to the December 2021 futures contract.
    \12\ For example, at the close of the first business day of 
March each year, the target weights for each contract in the New 
Benchmark will be reset to 33.33%, 33.33% and 33.33%. Each 
subsequent business day up to the September semi-annual reset date, 
the contract weights will fluctuate away from 33.33%, 33.33%, 33.33% 
depending on futures prices and the impact from rolling the futures. 
At the close of the first business day of September of that same 
year, the target weights will once again be reset to 33.33%, 33.33%, 
33.33% and will fluctuate thereafter until the next semi-annual 
reset date.
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    Values for the New Benchmark are determined on each day on which 
NYMEX is open for trading. The New Benchmark's methodology and values 
are publicly available on Bloomberg's website.\13\
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    \13\ See: https://data.bloomberglp.com/professional/sites/10/Bloomberg-Commodity-Balanced-WTI-Crude-Oil-Index-Methodology.pdf
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Differences Between the Current Benchmark and the New Benchmark
    The Funds' Current Benchmark includes only a single WTI crude oil 
futures contract selected from the three nearest expiration dates. As 
noted herein, the New Benchmark is equally weighted (at each semi-
annual reset date) across three different WTI futures contract 
schedules and includes longer-dated contracts than those included in 
the Current Benchmark.
    Other than the change to the Funds' underlying benchmark, as 
described above, each of the Funds will continue to comply with all 
other listing requirements set forth in the Prior Amex Releases, the 
Prior NYSE Arca Notice and NYSE Arca Rule 8.200-E, as applicable.
2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \14\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative acts and practices, 
to promote just and equitable principles of trade, to remove 
impediments to, and perfect the mechanism of a free and open market 
and, in general, to protect investors and the public interest.
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    \14\ 15 U.S.C. 78f(b)(5).
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    The Sponsor has represented to the Exchange that it believes that 
the proposed change to the New Benchmark should benefit Fund investors 
by diversifying the Funds' exposure across futures contracts with three 
different expiration dates, including longer-dated contracts than those 
included in the Current Benchmark, thereby potentially reducing the 
volatility of each Fund. The Sponsor has further represented to the 
Exchange that it believes the potential for lower volatility is 
especially important to Fund investors in light of global events during 
the first half of 2020, which could continue for the foreseeable 
future, including the COVID-19 pandemic, a significant oversupply in 
the crude oil market, a significant increase in volatility, and 
contango that resulted in a negative price in the May 2020 WTI crude 
oil futures contract.
    The Funds' benchmark will continue to be based on pricing of WTI 
crude oil futures, and the types of Financial Instruments in which the 
Funds may

[[Page 49703]]

invest are consistent with those described in the Prior Amex Releases. 
The Exchange notes that the Commission has previously approved listing 
of Trust Issued Receipts based on oil on the Amex and NYSE Arca.\15\
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    \15\ See note 7, supra.
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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 purpose of the Act. The Exchange believes that 
the proposed rule change will facilitate fair and orderly trading of 
Shares of the Funds utilizing the New Benchmark that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.

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

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

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

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \18\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \19\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has asked the Commission to waive the 30-day operative delay. The 
Exchange states that waiver of the 30-day operative delay would permit 
the Funds to more quickly change their underlying benchmark. According 
to the Exchange, other than the change to the Funds' underlying 
benchmark, as described above, each of the Funds will continue to 
comply with all other listing requirements set forth in the Prior Amex 
Releases, the Prior NYSE Arca Notice and NYSE Arca Rule 8.200-E, as 
applicable. The proposed rule change does not raise any novel 
regulatory issues, and the Commission believes that waiver of the 30-
day operative delay is consistent with the protection of investors and 
the public interest. Therefore, the Commission hereby waives the 
operative delay and designates the proposal as operative upon 
filing.\20\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule change should be approved or 
disapproved.

IV. Solicitation of Comments

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2020-72 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-NYSEArca-2020-72. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (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 website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEArca-2020-72, and should be 
submitted on or before September 4, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17753 Filed 8-13-20; 8:45 am]
BILLING CODE 8011-01-P