

[Federal Register: April 6, 2006 (Volume 71, Number 66)]
[Notices]               
[Page 17510-17519]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06ap06-107]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-53582; File No. SR-Amex-2005-127]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Approving Proposed Rule Change and Amendment Nos. 1 and 2 Thereto 
Relating to the Listing and Trading of Units of the United States Oil 
Fund, LP

 March 31, 2006.

I. Introduction

    On December 6, 2005, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change pursuant to Section 19(b)(1) 
of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ On January 20, 2006, the Exchange filed Amendment No. 1 
to the proposed rule change.\3\ On February 15, 2006, the Exchange 
filed Amendment No. 2 to the proposed rule change.\4\ The proposed rule 
change, as amended by Amendment Nos. 1 and 2, was published for comment 
in the Federal Register on February 24, 2006.\5\ The Commission 
received no comments on the proposal. This order approves the proposed 
rule change, as amended by Amendment Nos. 1 and 2.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Partial Amendment dated, January 20, 2006 (``Amendment 
No. 1''). In Amendment No. 1, the Amex made clarifying changes to 
the ``purpose'' section of the proposed rule change.
    \4\ See Partial Amendment dated, February 15, 2006 (``Amendment 
No. 2''), which made technical and clarifying changes to the 
``purpose'' section of the proposed rule change.
    \5\ See Securities Exchange Act Release No. 53324 (February 16, 
2006), 71 FR 9614 (February 24, 2006)(``USOF Notice'').
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II. Description of the Proposal

    The Exchange proposes to add new Rules 1500 et seq. to permit the 
listing and trading of units in a partnership that is a commodity pool 
under the

[[Page 17511]]

Commodity Exchange Act (``CEA'') \6\ that are designed to track a 
specified commodity or index of commodities by holding any combination 
of investments (i) comprised of or based on futures contracts, options 
on futures contracts, forward contracts, swaps, and over-the-counter 
(``OTC'') contracts for commodities or based on price changes in 
commodities, and (ii) in securities that may be required to satisfy 
margin or collateral requirements associated with investments in the 
financial instruments listed in item (i) above. Pursuant to these 
proposed rules, the Amex proposes to list and trade units (the 
``Units'') of the United States Oil Fund, LP (``USOF'' or the 
``Partnership''). The Units represent ownership of a fractional 
undivided beneficial interest in the net assets of USOF.
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    \6\ The offering of the Units of the Partnership is registered 
with the Commission under the Securities Act of 1933.
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    USOF, a Delaware limited partnership, is a commodity pool.\7\ It is 
operated by Victoria Bay Asset Management, LLC, a single member 
Delaware limited liability company (the ``General Partner'' or 
``Victoria Bay''), which is wholly owned by Wainwright Holdings, Inc. 
The General Partner was formed for the specific purpose of managing and 
controlling USOF and has registered as a Commodity Pool Operator 
(``CPO'') with the Commodity Futures Trading Commission (``CFTC'') and 
become a member of the National Futures Association (``NFA'').\8\
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    \7\ The Exchange states that USOF is not an investment company 
as defined in Section 3(a) of the Investment Company Act of 1940.
    \8\ Telephone conversation between Jeffrey Burns, Senior 
Associate General Counsel, Amex, Florence Harmon, Senior Special 
Counsel, Division of Market Regulation (``Division''), Commission, 
and Johnna B. Dumler, Attorney, Division, Commission, on February 
15, 2006. Additional information about the management and structure 
of USOF is found in the USOF Notice, supra note 5.
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    The investment objective of the USOF is for its net asset value 
(``NAV'') \9\ to reflect the performance of the spot price of West 
Texas Intermediate light, sweet crude oil delivered to Cushing, 
Oklahoma (the ``WTI light, sweet crude oil''),\10\ as represented by 
the performance of the price of the ``Benchmark Oil Futures Contract,'' 
\11\ less the expense of operation of USOF. The ``Benchmark Oil Futures 
Contract'' is the near-month (i.e., spot month) future contract for 
delivery of WTI light, sweet crude oil traded on the New York 
Mercantile Exchange (``NYMEX'').\12\ The Exchange states that an 
investment in the Units will allow both retail and institutional 
investors to easily gain exposure to the crude oil market in a cost-
effective manner.
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    \9\ NAV is the total assets, less total liabilities of USOF, 
determined on the basis of generally accepted accounting principles. 
NAV per Unit is the NAV of USOF divided by the number of outstanding 
Units.
    \10\ The types of crude oil are typically described by a 
combination of their physical attributes and their place of origin. 
A few of these types of crude oil are widely traded and their prices 
serve as benchmarks in determining the spot and forward prices of 
the other types of crude oil. The three most important types of 
crude oil that are used as benchmarks are the light, sweet crude 
from the United States known as ``West Texas Intermediate,'' a 
light, sweet crude from Europe's North Sea known as ``Brent Crude,'' 
and a medium crude oil from the Middle East known as ``Dubai 
Crude.'' These three types of crude oil are the ones used most 
frequently in the trading of listed futures contracts, listed 
options, and non-exchange listed derivative contracts based on crude 
oil.
    \11\ Telephone conversation between Florence E. Harmon, Senior 
Special Counsel, Division, Commission, and Cliff Weber, Senior Vice 
President, Amex, on March 24, 2006.
    \12\ The Exchange will file a Form 19b-4 to obtain Commission 
approval for the continued listing and trading of the Units should 
the General Partner change the Benchmark Oil Futures Contract from 
this NYMEX WTI light, sweet crude oil futures contract. Telephone 
conversation between Jeffrey Burns, Senior Associate General 
Counsel, Amex, Florence Harmon, Senior Special Counsel, Division, 
Commission, and Johnna B. Dumler, Attorney, Division, Commission, on 
February 13, 2006.
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    The assets of USOF will consist of futures contracts for light, 
sweet crude oil and other petroleum based fuels that are traded on the 
NYMEX or other U.S. and foreign exchanges \13\ (collectively, ``Oil 
Futures Contracts''). USOF will also purchase other oil interests, such 
as cash-settled options on Oil Futures Contracts, forward contracts for 
oil, and OTC transactions that are based on the price of oil, other 
petroleum-based fuels, and indices based on the foregoing 
(collectively, ``Other Oil Interests'') (Oil Futures Contracts and 
Other Oil Interests are collectively referred to as ``Oil Interests.'') 
The Oil Interests for light, sweet crude oil and other petroleum based 
fuels in which USOF will invest are based on domestic oil, (WTI light, 
sweet crude), international oil (Brent Crude Oil), heating oil, natural 
gas, and gasoline. A description of these commodities and the primary 
trading market for futures contracts based on such commodities is set 
out in the USOF Notice.\14\
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    \13\ USOF will primarily purchase WTI light, sweet crude Oil 
Futures Contracts traded on the NYMEX, but may also purchase Oil 
Futures Contracts on other exchanges, including the Intercontinental 
Exchange, formerly known as the International Petroleum Exchange, 
which operates its futures business through ICE Futures (``ICE 
Futures''), and the Singapore Oil Exchange.
    \14\ See USOF Notice, supra note 5.
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    USOF will also invest in short term obligations of the United 
States Government (``Treasuries'') to be used to satisfy its current or 
future margin and collateral requirements and to otherwise satisfy its 
obligations with respect to its investments in Oil Interests.
    Commodity-Based Trust Shares are trust issued receipts (``TIRs'') 
based on the value of an underlying commodity or index of commodities 
held by a trust.\15\ Because of USOF's structure as a partnership and 
the nature of its investments, the current Commodity-Based Trust Shares 
rules (Amex Rules 1200A et seq.) do not specifically permit the 
Exchange to list this product. This proposal seeks to expand the 
ability of the Exchange to list and/or trade securities based on a 
portfolio of underlying investments that may not be ``securities'' in 
circumstances where the issuer is a partnership, organized as a 
commodities pool under the CEA.
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    \15\ See Securities Exchange Act Release No. 51446 (March 29, 
2005), 70 FR 17272 (April 5, 2005). The Exchange listed and traded 
the iShares[reg] COMEX Gold Trust under Amex Rule 1200A as the first 
Commodity Based Trust Share. Recently, the Exchange commenced the 
trading of shares of the streetTRACKS[reg] Gold Trust (GLD) pursuant 
to Amex Rule 1000B on an unlisted trading privileges (``UTP'') 
basis. See also Securities Exchange Act Release No. 53105 (January 
11, 2006), 71 FR 3129 (January 19, 2006) (order approving listing 
and trading of DB Commodity Index Tracking Fund).
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    Under proposed Amex Rule 1501, the Exchange would be able to list 
and trade the Units issued by USOF. For units issued by other 
commodity-based partnerships or other types of units issued by USOF, if 
any, the Exchange will submit a filing pursuant to Section 19(b) of the 
Act, subject to the review and approval of the Commission. The Exchange 
submits that the Units will conform to the initial and continued 
listing criteria under proposed Amex Rule 1502.\16\
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    \16\ Proposed Amex Rule 1502 for listing the Units is 
substantially similar to current Amex Rule 1202A relating to 
Commodity-Based Trust Shares. As set forth in the section ``Initial 
and Continued Listing'' of proposed Amex Rule 1502, the minimum 
number of Units required to be outstanding at the time of trading 
will be 100,000. This section of the proposed rule specifically 
details the initial and continued listing standards for the Units.
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    Information about the liquidity, depth, and pricing mechanisms of 
the international oil market, operation of the USOF, and descriptions 
of the Units of USOF follows below.\17\
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    \17\ Further information about the USOF is provided in the USOF 
Notice, supra note 5.
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Description of the Oil Market

    The Exchange states that crude oil is the world's most actively 
traded commodity. The investment objective of USOF is to track the spot 
month futures contracts for WTI light, sweet crude traded on the NYMEX, 
and thus USOF will primarily purchase WTI light, sweet crude Oil 
Futures Contracts traded on the NYMEX. The Oil Futures Contracts for 
light, sweet crude oil that

[[Page 17512]]

are traded on the NYMEX are the world's most liquid forum for crude oil 
trading, as well as the most liquid futures contracts on a physical 
commodity. Due to the liquidity and price transparency of Oil Futures 
Contracts, they are used as a principal international pricing 
benchmark. Oil Futures Contracts for WTI light, sweet crude oil trade 
on the NYMEX in units of 1,000 U.S. barrels (42,000 gallons) and, if 
not closed out before maturity, will result in delivery of the oil to 
Cushing, Oklahoma, which is also accessible to the world market by two 
major interstate petroleum pipeline systems.\18\
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    \18\ In practice, few Oil Futures Contracts result in delivery 
of the underlying oil.
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Futures Regulation

    The CEA \19\ governs the regulation of commodity interest 
transactions, markets, and intermediaries. The CFTC administers the 
CEA. Among other things, the CEA provides that the trading of commodity 
interest contracts generally must be upon exchanges designated as 
contract markets or derivatives transaction execution facilities and 
that all trading on those exchanges must be done by or through exchange 
members. Commodity interest trading between sophisticated persons may 
be traded on a trading facility not regulated by the CFTC. As a general 
matter, the Exchange states that trading in spot contracts, forward 
contracts, options on forward contracts or options on commodities, or 
swap contracts between eligible contract participants is not within the 
jurisdiction of the CFTC and may therefore be effectively unregulated.
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    \19\ 7 U.S.C. 1 et seq.
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    The Exchange states that non-U.S. futures exchanges differ in 
certain respects from their U.S. counterparts. Importantly, non-U.S. 
futures exchanges are not subject to regulation by the CFTC, but rather 
are regulated by their home country regulator. In contrast to U.S. 
designated contract markets, some non-U.S. exchanges are principals' 
markets, where trades remain the liability of the traders involved, and 
the exchange or an affiliated clearing organization, if any, does not 
become substituted for any party. Due to the absence of a clearing 
system, the Exchange states that such exchanges are significantly more 
susceptible to disruptions. Further, participants in such markets must 
often satisfy themselves as to the individual creditworthiness of each 
entity with which they enter into a trade. Trading on non-U.S. 
exchanges is often in the currency of the exchange's home jurisdiction. 
Consequently, USOF may be subject to the additional risk of 
fluctuations in the exchange rate between such currencies and U.S. 
dollars and the possibility that exchange controls could be imposed in 
the future.

Investment Strategy

    In connection with tracking the price of the Benchmark Oil Futures 
Contract, the General Partner will endeavor to place USOF's trades in 
Oil Futures Contracts and Other Oil Interests and otherwise manage 
USOF's investments so that ``A'' will be within 10 percent 
of ``B'', where:
     A is the average daily change in USOF's NAV for any period 
of 30 successive valuation days, i.e., any day as of which USOF 
calculates its NAV; and
     B is the average daily change in the price of the 
Benchmark Oil Futures Contract over the same period.
    Therefore, USOF's investment objective is to manage its assets so 
that the average daily change in the NAV for any period of 30 
successive valuation days will be within 10% of the average daily 
change in the price of the Benchmark Oil Futures Contract over the same 
period.\20\
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    \20\ Telephone conversation between Jeffrey Burns, Senior 
Associate General Counsel, Amex, Florence Harmon, Senior Special 
Counsel, Division, Commission, and Johnna B. Dumler, Attorney, 
Division, Commission, on February 13, 2006.
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    The Exchange believes that market arbitrage opportunities should 
cause USOF's Unit price to closely track USOF's per Unit NAV, which is 
targeted at the current Benchmark Oil Futures Contract. The price of 
the Benchmark Oil Futures Contract has closely tracked the spot price 
of WTI light, sweet crude oil over time.\21\ Accordingly, the General 
Partner expects that the price of USOF's Units on the Exchange will 
closely track the spot price of a barrel of WTI light, sweet crude oil, 
less USOF's expenses.
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    \21\ See Exhibit A attached to the Form 19b-4 filed by the 
Exchange, showing the tracking of the Benchmark Oil Futures Contract 
and the WTI spot price.
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Investments

    USOF believes that it will be able to use a combination of Oil 
Futures Contracts and Other Oil Interests to manage the portfolio to 
achieve its investment objective of tracking the price of the Benchmark 
Oil Futures Contract. USOF further anticipates that the exact mix of 
Oil Futures Contracts and Other Oil Interests held by the portfolio 
will vary over time depending on, among over things, the amount of 
invested assets in the portfolio, price movements of oil, the rules and 
regulations of the various futures and commodities exchanges and 
trading platforms that deal in Oil Interests, and innovations in the 
Oil Interests marketplace including both the creation of new Oil 
Interest investment vehicles and the creation of new trading venues 
that trade in Oil Interests.
    USOF's total portfolio composition will be disclosed each business 
day that the Amex is open for trading on its Web site at http://www.unitedstatesoilfund.com and/or the Exchange's Web site at http://

http://www.amex.com. USOF states that Web site disclosure of portfolio 

holdings will be made daily and will include, as applicable, the name 
and value of each Oil Interest, the specific types of Other Oil 
Interests and characteristics of such Other Oil Interests, Treasuries 
and amount of cash held in the portfolio of USOF.\22\
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    \22\ See Amendment No. 1. The public Web site disclosure of the 
portfolio composition of USOF will coincide with the disclosure by 
the Administrator on each business day of the NAV for the Units and 
the Basket Amount (for orders placed during the day). Therefore, the 
same portfolio information will be provided on the public Web site, 
as well as in the facsimile or electronic mail message to Authorized 
Purchasers containing the NAV and Basket Amount (``Daily 
Dissemination''). The format of the public Web site disclosure and 
the Daily Dissemination will differ because the public Web site will 
list all portfolio holdings, while the Daily Dissemination will 
provide the portfolio holdings in a format appropriate for 
Authorized Purchasers, i.e., the exact components of a Creation 
Unit.
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Oil Futures Contracts
    The principal Oil Interests to be invested in by USOF are Oil 
Futures Contracts. In particular, USOF expects to purchase futures on 
the WTI light, sweet crude oil traded on the NYMEX. USOF may also 
purchase futures on Brent crude oil traded on NYMEX.\23\ Brent crude 
oil futures contracts are also listed on the ICE Futures. In addition 
to the commodities and futures exchanges in New York and London, 
several other established futures exchanges currently offer, or have 
announced plans to offer, trading in futures contracts on light, 
medium, or heavy crude oils, including exchanges in Singapore, Tokyo, 
Shanghai and Dubai.\24\
    As noted above, the NYMEX futures contracts on WTI light, sweet 
crude oil have historically closely tracked the investment objective of 
USOF over both

[[Page 17513]]

the short-term, medium-term, and the long-term.\25\ For that reason, 
USOF anticipates making significant investments in the current 
Benchmark Oil Futures Contract. The General Partner submits that Other 
Oil Futures Contracts, such as the Brent crude oil futures contract 
traded on the NYMEX and ICE Futures, the Dubai crude oil futures 
contract traded in Singapore and elsewhere, and other NYMEX petroleum-
based futures contracts such as heating oil and gasoline, have also 
tended to track the investment objective of USOF, though not as closely 
as the NYMEX light, sweet crude (WTI) oil futures contract.\26\
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    \23\ Brent crude oil is the price reference for two-thirds of 
the world's traded oil.
    \24\ The Exchange has represented that the USOF will only 
purchase Oil Futures Contracts on markets where the Exchange has 
entered into the appropriate comprehensive surveillance sharing 
arrangements. See infra, note 53.
    \25\ See supra note 21 and text accompanying note 12.
    \26\ See Exhibit B attached to the Form 19b-4 filed by the 
Exchange, tracking the NYMEX futures contracts on light, sweet crude 
oil, heating oil, natural gas and gasoline from November 17, 1995 to 
November 11, 2005.
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Other Oil Interests
    In addition to Oil Futures Contracts, there are also a number of 
listed options on Oil Futures Contracts on the principal commodities 
and futures exchanges. These option contracts offer investors and 
hedgers another vehicle for managing exposure to the crude oil market. 
USOF may purchase oil-related listed options on these exchanges in 
pursuing its investment objective.
    In addition to the Oil Futures Contracts and related listed 
options, there also exists an active OTC market in derivatives linked 
to crude oil. These OTC derivative transactions are privately-
negotiated agreements between two parties. Unlike most of the exchange-
traded Oil Futures Contracts or related options, each party to an OTC 
contract bears the credit risk that the counterparty may not be able to 
perform its obligations.
    Some oil-based derivatives transactions contain fairly generic 
terms and conditions and are available from a wide range of 
participants. Other oil-based derivatives have highly customized terms 
and conditions and are not as widely available. Many of these OTC 
contracts are cash-settled forwards for the future delivery of oil-or 
petroleum-based fuels that have terms similar to the Oil Futures 
Contracts. Others take the form of ``swaps'' in which the two parties 
exchange cash flows based on pre-determined formulas tied to the price 
of oil as determined by the spot, forward, or futures markets. USOF may 
enter into OTC derivative contracts whose value will be tied to changes 
in the difference between the WTI spot price, the price of Oil Futures 
Contracts traded on NYMEX, and the prices of non-NYMEX Oil Futures 
Contracts that may be invested in by USOF.
    To protect itself from the credit risk that arises in connection 
with such contracts, USOF will enter into agreements with each 
counterparty that provide for the netting of its overall exposure to 
its counterparty and/or provide collateral or other credit support to 
address USOF's exposure.\27\ The counterparties to an OTC contract will 
generally be major broker-dealers and banks or their affiliates, though 
certain institutions, such as large energy companies or other 
institutions active in oil commodities markets, may also be 
counterparties. The creditworthiness of each potential counterparty 
will be assessed by the General Partner. The General Partner will 
assess or review, as appropriate, the creditworthiness of each 
potential or existing counterparty to an OTC contract pursuant to 
guidelines approved by the General Partner's Board of Directors. 
Furthermore, the General Partner on behalf of USOF will only enter into 
OTC contracts with (a) members of the Federal Reserve System or foreign 
banks with branches regulated by the Federal Reserve Board; (b) primary 
dealers in U.S. government securities; (c) broker-dealers; (d) 
commodities futures merchants; or (e) affiliates of the foregoing. 
Existing counterparties will also be reviewed periodically by the 
General Partner.
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    \27\ The agreements published by the International Swap and 
Derivatives Association (``ISDA'') and used extensively in the OTC 
derivatives market provides ``netting'' provisions. As discussed 
above, USOF's total portfolio composition will be disclosed, each 
business day that the Amex is open for trading, on its Web site at 
http://www.unitedstatesoilfund.com and/or the Exchange's Web site at 

http://www.amex.com, with a valuation assigned to these instruments.

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    USOF anticipates that the use of Other Oil Interests, together with 
its investments in Oil Futures Contracts, will produce price and total 
return results that closely track the investment objective of USOF.
Treasuries and Cash
    USOF will invest virtually all of its assets not invested in Oil 
Interests in Treasuries, currently anticipated to be those securities 
with a remaining maturity of two years or less. The Treasuries and any 
cash will be available to be used to meet USOF's current or potential 
margin and collateral requirements with respect to its investments in 
Oil Interests. USOF will not use Treasuries as margin for new 
investments unless it has a sufficient amount of Treasuries and cash to 
meet the margin or collateral requirements that may arise due to 
changes in the value of its currently held Oil Interests. Other than in 
connection with a redemption of Units, USOF does not intend to 
distribute cash or property to its Unit holders. Interest earned on 
Treasuries and cash held by USOF will be retained by it to pay its 
expenses, to make investments to satisfy its investment objectives, or 
to satisfy its margin or collateral requirements.
Impact of Speculative Position Limits
    The CFTC and U.S. designated contract markets, such as the NYMEX, 
have speculative position limits or position limits on the maximum net 
long or net short speculative position that any person or group of 
persons under common trading control (other than a hedger) may hold, 
own, or control in commodity interests. Among the purposes of 
speculative position limits is to prevent a corner or squeeze on a 
market or undue influence on prices by any single trader or group of 
traders.\28\
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    \28\ Most U.S. futures exchanges limit the amount of fluctuation 
in some futures contracts or options on futures contract prices 
during a single trading session. These regulations specify what are 
referred to as daily price fluctuation limits (i.e., daily limits). 
The daily limits establish the maximum amount that the price of a 
futures contract or options on a futures contract may vary either up 
or down from the previous day's settlement price. Once the daily 
limit has been reached in a particular futures contract or options 
on a futures contract, no trades may be made at a price beyond the 
limit.
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    The foregoing speculative position limits will impact the mix of 
investments in Oil Interests by USOF, with such mix varying depending 
on the level of assets held by USOF. The following example illustrates 
how the mix will vary as assets increase, assuming the spot price of 
WTI light, sweet crude oil remains the same: Assuming the spot price 
for WTI light, sweet crude oil and the Unit price were each $60, USOF 
anticipates that it would invest the first $300 million of its daily 
net assets only in Oil Futures Contracts. The majority of those 
contracts will consist of the current Benchmark Oil Futures Contract. 
At this level, USOF could purchase 5,000 of such contacts or 25% of the 
NYMEX's speculative position limit for such contracts. When daily net 
assets exceed $300 million, USOF anticipates that it will invest the 
majority of its assets above that amount in the current Benchmark Oil 
Futures Contract with the balance of its net assets being invested in a 
mix of other Oil Futures Contracts, such as the Brent crude oil futures 
contract traded on NYMEX or the ICE Futures, and Other Oil Interests. 
At this level, USOF anticipates that it

[[Page 17514]]

would also invest in various OTC derivative contracts to hedge the 
short-term price movements of Oil Futures Contracts against the current 
Benchmark Oil Futures Contract.
    Once the daily net assets of the portfolio exceed approximately 
$1.2 billion, USOF anticipates that a majority of all further 
investments will be made in Oil Futures Contracts, other than the 
current Benchmark Oil Futures Contract, and in Other Oil Interests.
    USOF anticipates that once the daily net assets of the portfolio 
exceed approximately $2.4 billion, the ability of the portfolio to 
invest in additional current Benchmark Oil Futures Contracts may be 
sharply limited due to speculative position limit rules in effect on 
the NYMEX. Assuming the current Benchmark Oil Futures Contract is at 
the same price level and half of the USOF's assets were then fully 
invested in such contracts ($1.2 billion), the current NYMEX position 
limits for such contracts (20,000 contracts) would be met. Under that 
scenario, all additional investments above the $2.4 billion level would 
be required to be invested in other Oil Future Contracts and Other Oil 
Interests. USOF anticipates that at or above the $2.4 billion daily net 
asset level, the majority of the total portfolio holdings would be in 
other Oil Futures Contracts or Other Oil Interests.

Issuance and Redemption of USOF Units

    There will be two markets for investors to purchase and sell Units. 
New issuances of the Units will be made only in baskets of 100,000 
Units or multiples thereof (a ``Basket''). USOF will issue and redeem 
Baskets of the Units on a continuous basis by or through participants 
who have entered into authorized purchaser agreements (``Authorized 
Purchaser Agreement'' and each such participant, an ``Authorized 
Purchaser'') \29\ with the General Partner, at the NAV per Unit next 
determined after an order to purchase the Units in a Basket is received 
in proper form. Baskets may be issued and redeemed on any Business day 
(defined as any day other than a day on which the Amex, the NYMEX or 
the New York Stock Exchange is closed for regular trading) through the 
Marketing Agent in exchange for cash and/or Treasuries, which the 
Custodian receives from Authorized Purchasers or transfers to 
Authorized Purchasers, in each case on behalf of USOF. Baskets are then 
separable upon issuance into identical Units that will be listed and 
traded on the Exchange as equity securities.\30\
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    \29\ An ``Authorized Purchaser'' is a person, who at the time of 
submitting to the General Partner an order to create or redeem one 
or more Baskets: (i) Is a registered broker-dealer or other market 
participants, such as banks and other financial institutions, that 
are exempt from broker-dealer registration; (ii) is a DTC 
Participant; and (iii) has in effect a valid Authorized Participant 
Agreement. Telephone conversation between Jeffrey Burns, Senior 
Associate General Counsel, Amex, Florence Harmon, Senior Special 
Counsel, Division, Commission, and Johnna B. Dumler, Attorney, 
Division, Commission, on February 13, 2006 (clarifying that the 
reference to ``trustee'' in this sentence should be changed to 
``General Partner'').
    \30\ The Exchange expects that the number of outstanding Units 
will increase and decrease as a result of creations and redemptions 
of Baskets.
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    Baskets will be issued in exchange for Treasuries and/or cash in an 
amount equal to the NAV per Unit times 100,000 Units (the ``Basket 
Amount''). Authorized Purchasers that wish to purchase a Basket must 
transfer the Basket Amount to the Administrator (the ``Deposit 
Amount''). Authorized Purchasers that wish to redeem a Basket will 
receive an amount of Treasuries and cash in exchange for each Basket 
surrendered in an amount equal to the NAV per Basket (the ``Redemption 
Amount'').
    On each business day, the Administrator will make available prior 
to the opening of trading on the Exchange, the estimated Basket Amount 
for the creation of a Basket based on the prior day's NAV.\31\ The 
Exchange will disseminate at least every 15 seconds throughout the 
trading day, via the facilities of the Consolidated Tape Association 
(``CTA''), an amount representing, on a per Unit basis, the current 
indicative value of the Basket Amount (See ``Indicative Partnership 
Value'' below). Shortly after 4 p.m. Eastern Time (``ET''), the 
Administrator will determine the NAV for USOF as described below. At or 
about 4 p.m. ET on each business day, the Administrator will determine 
the Actual Basket Amount (``Actual Basket Amount'') for orders placed 
by Authorized Purchasers received before 12 p.m. ET that day.\32\ Thus, 
although Authorized Purchasers place orders to purchase Units during 
the trading day until 12 p.m. ET, the Actual Basket Amount is 
determined as of 4 p.m. ET.
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    \31\ Amex clarified that it intended for this sentence to 
indicate that the Administrator will make available an ``estimated'' 
Basket Amount prior to the opening of trading on the Exchange, 
rather than the Actual Basket Amount (as described below), which 
will not be available until shortly after the close of trading on 
each business day. Additionally, such information (NAV, Actual 
Basket Amount, Estimated Basket Amount, daily disclosure of 
portfolio holdings) will be available to all market participants at 
the same time to avoid any informational advantage. Telephone 
conversation between Jeffrey Burns, Senior Associate General 
Counsel, Amex, Florence Harmon, Senior Special Counsel, Division, 
Commission, and Johnna B. Dumler, Attorney, Division, Commission, on 
February 8, 2006.
    \32\ See Amendment No. 2, supra note 4. See also ``Calculation 
and Payment of Deposit Amount'' and ``Calculation and Payment of 
Redemption Amount,'' infra.
---------------------------------------------------------------------------

    Shortly after 4 p.m. ET on each business day, the Administrator, 
Amex, and the General Partner will disseminate the NAV for the Units 
and the Actual Basket Amount (for orders placed during the day). The 
Basket Amount and the NAV are communicated by the Administrator to all 
Authorized Purchasers via facsimile or electronic mail message. The 
Amex will also disclose the NAV and the Actual Basket Amount on its Web 
site at http://www.amex.com.\33\ On each day that the Amex is open for 

regular trading, the Administrator will adjust the Deposit Amount as 
appropriate to reflect the prior day's Partnership NAV and accrued 
expenses. The Administrator will then determine the Deposit Amount for 
a given business day.
---------------------------------------------------------------------------

    \33\ See supra, note 32.
---------------------------------------------------------------------------

Calculation of USOF's NAV
    The Administrator will calculate NAV as follows: (1) Determine the 
current value of USOF assets and (2) subtract the liabilities of USOF. 
The NAV will be calculated at 4 p.m. ET using the settlement value \34\ 
of Oil Futures Contracts traded on the NYMEX as of the close of open-
outcry trading on the NYMEX at 2:30 p.m. ET,\35\ and for the value of 
other Oil Futures Interests and Treasuries, the value of such 
investments as of the earlier of 4 p.m. ET or the close of trading on 
the New York Stock Exchange. The NAV is calculated by including any 
unrealized profit or loss on Oil Futures Contracts and other Oil 
Interests and any other credit or debit accruing to USOF but unpaid or 
not received by USOF. The NAV is then used to compute all fees 
(including the management and administrative fees) that are calculated 
from the value of Partnership assets. The Administrator will calculate 
the NAV per unit by dividing the NAV by the number of Units 
outstanding.
---------------------------------------------------------------------------

    \34\ See Rule 6.52 of the NYMEX Rulebook.
    \35\ Telephone conversation between Jeffrey Burns, Senior 
Associate General Counsel, Amex, Florence Harmon, Senior Special 
Counsel, Division, Commission, and Johnna B. Dumler, Attorney, 
Division, Commission, on February 8, 2006.
---------------------------------------------------------------------------

    When calculating NAV for USOF, the Administrator will value Oil 
Futures Contracts based on the closing settlement prices quoted on the 
relevant commodities and futures exchange and obtained from various 
market data

[[Page 17515]]

vendors such as Bloomberg or Reuters.\36\ The value of the Other Oil 
Interests for purposes of determining the NAV will be valued based upon 
the determination of the Administrator as to their fair market value. 
Certain types of Other Oil Interests, such as listed options on futures 
contracts, have closing prices that are available from the exchange 
upon which they are traded or from various market data vendors. If 
available from an exchange, Other Oil Interests will be valued based on 
the last sale price on the exchange or market where traded. If a 
contract fails to trade, the value shall be the most recent bid 
quotation from the third-party source.
---------------------------------------------------------------------------

    \36\ The Amex confirmed that the pricing for the NAV also will 
be derived from the NYMEX futures contract nearest to settlement 
(spot month) for WTI light, sweet crude.
---------------------------------------------------------------------------

    Other types of Other Oil Interests, such as crude oil forward 
contracts do not trade on established exchanges, but typically have 
prices that are widely available from third-party sources. The 
Administrator may make use of such third-party sources in calculating a 
fair market value of these Other Oil Interests.
    Certain types of Other Oil Interests, such as ``swaps,'' also do 
not have established exchanges upon which they trade and may not have 
readily available price quotes from third parties. Swaps and other 
similar derivative or contractual-type instruments will be first valued 
at a price provided by a single broker or dealer, typically the 
counterparty. If no such price is available, the contract will be 
valued at the price at which the counterparty to such contract would 
repurchase the instrument or terminate the contract. In determining the 
fair market value of such derivative contracts, the Administrator may 
make use of quotes from other providers of similar derivatives. If 
these are not available, the Administrator may calculate a fair market 
value of the derivative contract based on the terms of the contract and 
the movement of the underlying price factors of the contract.
Calculation and Payment of the Deposit Amount
    The Deposit Amount of Treasuries and cash will be in the same 
proportion to the total net assets of USOF as the number of Units to be 
created is in proportion to the total number of Units outstanding. The 
General Partner will determine the requirements for the Treasuries that 
may be included in the Deposit Amount and will disseminate these 
requirements prior to the start of each business day. The amount of 
cash that is required is the difference between the aggregate market 
value of the Treasuries required to be included in the Deposit Amount 
as of 4 p.m. ET on the date of purchase and the total required deposit.
    All purchase orders must be received by the Marketing Agent by 12 
p.m. ET. Delivery of the Deposit Amount, i.e., Treasuries and cash, to 
the Administrator must occur by the third Business day following the 
purchase order date.\37\ Thus, the General Partner will disseminate 
shortly after 4 p.m. ET the amount of Treasuries and cash to be 
deposited with the Custodian for each Basket (100,000 Units) order 
properly submitted by Authorized Purchasers by 12 p.m. ET that business 
day, (e.g., the Actual Basket Amount).
---------------------------------------------------------------------------

    \37\ Authorized Purchasers are required to pay a transaction fee 
of $1,000 for each order to create one or more Baskets.
---------------------------------------------------------------------------

Calculation and Payment of the Redemption Amount
    The Units will not be individually redeemable but will only be 
redeemable in Baskets. To redeem, an Authorized Purchaser will be 
required to accumulate enough Units to constitute a Basket (i.e., 
100,000 Units). An Authorized Purchaser redeeming a Basket will receive 
the Redemption Amount.
    Upon the surrender of the Units and payment of applicable 
redemption transaction fee,\38\ taxes or charges, the Custodian will 
deliver to the redeeming Authorized Purchaser the Redemption Amount. 
The Redemption Amount of Treasuries and cash will be in the same 
proportion to the total net assets of USOF as the number of Units to be 
redeemed is in proportion to the total number of Units outstanding. The 
General Partner will determine the Treasuries to be included in the 
Redemption Amount. The amount of cash that is required is the 
difference between the aggregate market value of the Treasuries 
required to be included in the Redemption Amount calculated as of 4:00 
p.m. ET on the date of redemption and the total Redemption Amount. All 
redemption orders must be received by the Marketing Agent by 12:00 p.m. 
ET on the date redemption is requested. Delivery of the Basket to be 
redeemed to the Custodian and payment of Redemption Amount will occur 
by the third business day (T+3) following the redemption order date.
---------------------------------------------------------------------------

    \38\ Authorized Purchasers are required to pay a transaction fee 
of $1,000 for each order to redeem one or more Baskets.
---------------------------------------------------------------------------

    The Exchange believes that the Units will not trade at a material 
discount or premium to a Unit's NAV based on potential arbitrage 
opportunities. Due to the fact that the Units can be created and 
redeemed only in Baskets at the NAV, the Exchange submits that 
arbitrage opportunities should provide a mechanism to mitigate the 
effect of any premiums or discounts that may exist from time to time.

Dissemination and Availability of Information

Oil Futures Contracts
    The daily settlement prices for the NYMEX traded Oil Futures 
Contracts held by USOF are publicly available on the NYMEX Web site at 
http://www.nymex.com The Exchange's Web site at http://www.amex.com. 
will also include a hyperlink to the NYMEX Web site for the purpose of 
disclosing futures contract pricing. In addition, various market data 
vendors and news publications publish futures prices and related data. 
The Exchange represents that quote and last sale information for the 
Oil Futures Contracts are widely disseminated through a variety of 
market data vendors worldwide, including Bloomberg and Reuters. Thus, 
last sale information for the Benchmark Oil Futures Contract will be 
updated and disseminated at least every 15 seconds in accordance with 
the continued listing standards by one or more major market data 
vendors during the time the Units trade on Amex.\39\ From 2:30 p.m. ET 
to the opening of NYMEX ACCESS at 3:15 p.m. ET, the pricing for the 
Benchmark Oil Futures Contract will not be updated. The Exchange 
further represents that real-time futures data is available by 
subscription from Reuters and Bloomberg. The NYMEX also provides 
delayed futures information on current and past trading sessions and 
market news free of charge on its Web site. The specific contract 
specifications for the Oil Futures Contracts are also available on the 
NYMEX Web site and the ICE Futures Web site at https://www.the ice.com.

---------------------------------------------------------------------------

    \39\ Telephone conversation between Florence E. Harmon, Senior 
Special Counsel, Division, Commission, and Cliff Weber, Senior Vice 
President, Amex, on March 24, 2006.
---------------------------------------------------------------------------

USOF Units
    The Web site for USOF, which will be publicly accessible at no 
charge, will include the following information: (1) The prior business 
day's NAV and the reported closing price; (2) the mid-point of the bid-
ask price \40\ in relation to the NAV as of the time the NAV is 
calculated (the ``Bid-Ask Price''); (3)

[[Page 17516]]

calculation of the premium or discount of such price against such NAV; 
(4) data in chart form displaying the frequency distribution of 
discounts and premiums of the Bid-Ask Price against the NAV, within 
appropriate ranges for each of the four (4) previous calendar quarters; 
(5) the prospectus and the most recent periodic reports filed with the 
Commission or required by the CFTC; and (6) other applicable 
quantitative information. In addition, information on USOF's daily 
portfolio holdings will be available on its Web site at http://www.unitedstatesoilfund.com
 and will be equally accessible to investors 

and Authorized Purchasers.\41\
---------------------------------------------------------------------------

    \40\ The Bid-Ask Price of Units is determined using the highest 
bid and lowest offer as of the time of calculation of the NAV.
    \41\ See Amendment No. 1, supra note 3.
---------------------------------------------------------------------------

    As described above, the NAV for USOF will be calculated and 
disseminated daily. The Amex also intends to disseminate for USOF on a 
daily basis by means of CTA/CQ High Speed Lines information with 
respect to the Indicative Partnership Value (as discussed below), 
recent NAV, Units outstanding, the estimated Basket Amount and the 
Deposit Amount (e.g., the Actual Basket Amount). The Exchange will also 
make available on its Web site daily trading volume, closing prices and 
the NAV. The closing price and settlement prices of the Oil Futures 
Contracts held by USOF are also readily available from the NYMEX, 
automated quotation systems, published or other public sources, or on-
line information services such as Bloomberg or Reuters. In addition, 
the Exchange will provide a hyperlink on its Web site at http://www.amex.com
 to USOF's Web site.

Indicative Partnership Value
    The Exchange will disseminate through the facilities of the CTA an 
updated Indicative Partnership Value (the ``Indicative Partnership 
Value'') per Unit basis at least every 15 seconds during the regular 
Amex trading hours of 9:30 a.m. to 4:15 p.m. ET. The Indicative 
Partnership Value will be calculated based on the Treasuries and cash 
required for creations and redemptions (i.e., NAV per limit x 100,000) 
adjusted to reflect the price changes of the current Benchmark Oil 
Futures Contract.
    The Indicative Partnership Value will not reflect price changes to 
the price of the current Benchmark Oil Futures Contract between the 
close of open-outcry trading of these oil futures contract on the NYMEX 
at 2:30 p.m. ET and the open of trading on the NYMEX ACCESS market at 
3:15 p.m. ET.\42\ The Indicative Partnership Value after 3:15 p.m. ET 
will reflect changes to the current Benchmark Oil Futures Contract as 
provided for through NYMEX ACCESS. The value of a Unit may accordingly 
be influenced by the non-concurrent trading hours of the Amex and 
NYMEX. While the Units will trade on the Amex from 9:30 a.m. to 4:15 
p.m. ET, the current Benchmark Oil Futures Contract will trade, in 
open-outcry, on the NYMEX from 10:00 a.m. ET to 2:30 p.m. ET and NYMEX 
ACCESS from 3:15 p.m. ET through the following morning 9:30 a.m. ET.
---------------------------------------------------------------------------

    \42\ NYMEX ACCESS(r), an electronic trading system, is open for 
price discovery on the NYMEX light, sweet crude oil futures contract 
each Monday through Thursday at 3:15 p.m. ET through the following 
morning at 9:30 a.m. ET, and from 7:00 p.m. Sunday night until 
Monday morning 9:30 a.m. ET.
---------------------------------------------------------------------------

    The Exchange represents that while the NYMEX (open outcry) is open 
for trading, the Indicative Partnership Value can be expected to 
closely approximate the value per unit of the Basket Amount. However, 
during Amex trading hours when the Oil Futures Contracts have ceased 
trading, spreads and resulting premiums or discounts may widen, and 
therefore, increase the difference between the price of the Units and 
the NAV of the Units. The Exchange believes that dissemination of the 
Indicative Partnership Value based on the cash amount required for a 
Basket provides additional information that is not otherwise available 
to the public and is useful to professionals and investors in 
connection with the Units trading on the Exchange or the creation or 
redemption of the Units.

Criteria for Initial and Continued Exchange Listing

    USOF will be subject to the criteria in proposed Amex Rule 1502 for 
initial and continued listing of the Units. These continued listing 
criteria provide for the delisting or removal from listing of the Units 
under any of the following circumstances:
     Following the initial twelve month period from the date of 
commencement of trading of the Units: (i) If USOF has more than 60 days 
remaining until termination and there are fewer than 50 record and/or 
beneficial holders of the Units for 30 or more consecutive trading 
days; (ii) if USOF has fewer than 50,000 Units issued and outstanding; 
or (iii) if the market value of all Units issued and outstanding is 
less than $1,000,000.
     If the value of the underlying spot commodity or Oil 
Futures Contract is no longer calculated or available on at least a 15-
second delayed basis or the Exchange stops providing a hyperlink on its 
Web site to any such investment commodity or asset value.
     The Indicative Partnership Value is no longer made 
available on at least a 15-second delayed basis.
     If such other event shall occur or condition exists which 
in the opinion of the Exchange makes further dealings on the Exchange 
inadvisable.
    A minimum of 100,000 Units will be required to be outstanding at 
the start of trading.\43\ It is anticipated that the initial price of a 
Unit will be approximately $67.00 based upon the WTI light, sweet crude 
oil spot price on March 30, 2006.\44\ USOF expects that the initial 
Authorized Purchaser will purchase the initial Basket of 100,000 Units 
at the initial offering price per Unit equal to the closing price of 
the expiration month light, sweet crude (WTI) oil futures contract 
listed on the NYMEX on the first Business day prior to the launch date. 
On the date of the public offering and thereafter, USOF will 
continuously issue Units in Baskets of 100,000 Units to Authorized 
Purchasers at NAV. The Exchange believes that the anticipated minimum 
number of Units outstanding at the start of trading is sufficient to 
provide adequate market liquidity and to further USOF's objective to 
seek to provide a simple and cost effective means of accessing the 
commodity futures markets.
---------------------------------------------------------------------------

    \43\ Telephone conversation between Florence E. Harmon, Senior 
Special Counsel, Division, Commission, and Cliff Weber, Senior Vice 
President, Amex, on March 29, 2006.
    \44\ Telephone conversation between Jeffrey Burns, Associate 
General Counsel, Amex, and Florence E. Harmon, Senior Special 
Counsel, Division, Commission, on March 31, 2006. As of March 30, 
2006, the settlement spot price was $67.15 for a barrel of oil. The 
exact price of a Unit will be determined on the date of launch. Id.
---------------------------------------------------------------------------

    The Exchange represents that it prohibits the initial and/or 
continued listing of any security that is not in compliance with Rule 
10A-3 under the Act.\45\
---------------------------------------------------------------------------

    \45\ The Exchange represents that the listed issuer of the USOF 
Units qualifies for the exemption in Rule 10A-3(c)(7) of the Act.
---------------------------------------------------------------------------

Original and Annual Listing Fees

    The Amex original listing fee applicable to the listing of USOF is 
$5,000. In addition, the annual listing fee applicable under Section 
141 of the Amex Company Guide will be based on the year-end aggregate 
number of Units in all series of USOF outstanding at the end of each 
calendar year.

Trading Rules

    The Units are equity securities subject to Amex Rules governing the 
trading of equity securities, including, among others, rules governing 
priority, parity and precedence of orders, specialist responsibilities 
and account opening

[[Page 17517]]

and customer suitability (Amex Rule 411). Initial equity margin 
requirements of 50% will apply to transactions in the Units. Units will 
trade on the Amex until 4:15 p.m. ET each business day and will trade 
in a minimum price variation of $0.01 pursuant to Amex Rule 127. 
Trading rules pertaining to odd-lot trading in Amex equities (Amex Rule 
205) will also apply.
    Amex Rule 154, Commentary .04(c) provides that stop and stop limit 
orders to buy or sell a security (other than an option, which is 
covered by Amex Rule 950(f) and Commentary thereto) the price of which 
is derivatively priced based upon another security or index of 
securities, may with the prior approval of a Floor Official, be elected 
by a quotation, as set forth in Commentary .04(c)(i-v). The Exchange 
has designated the Units as eligible for this treatment.\46\
---------------------------------------------------------------------------

    \46\ See Securities Exchange Act Release No. 29063 (April 10, 
1991), 56 FR 15652 (April 17, 1991) at note 8, regarding the 
Exchange's designation of equity derivative securities as eligible 
for such treatment under Amex Rule 154, Commentary .04(c).
---------------------------------------------------------------------------

    The Units will be deemed ``Eligible Securities'', as defined in 
Amex Rule 230, for purposes of the Intermarket Trading System Plan and 
therefore will be subject to the trade-through provisions of Amex Rule 
236 which require that Amex members avoid initiating trade-throughs for 
ITS securities.
    Specialist transactions of the Units made in connection with the 
creation and redemption of Units will not be subject to the 
prohibitions of Amex Rule 190, which generally prohibits business 
transactions between a specialist (or its member organization) and a 
company (or its officers, directors, or 10% stockholder) in which the 
specialist is registered.\47\ Unless exemptive or no-action relief is 
available, the Units will be subject to the short sale rule, Rule 10a-1 
under the Act and Regulation SHO.\48\ If exemptive or no-action relief 
is provided, the Exchange will issue a notice detailing the terms of 
the exemption or relief. The Units will generally be subject to the 
Exchange's stabilization rule, Amex Rule 170, except that specialists 
may buy on ``plus ticks'' and sell on ``minus ticks,'' in order to 
bring the Units into parity with the underlying commodity or 
commodities and/or futures contract price. Commentary .01 to Amex Rule 
1503 sets forth this limited exception to Amex Rule 170.
---------------------------------------------------------------------------

    \47\ See Commentary .05 to Amex Rule 190.
    \48\ USOF expects to seek relief, in the near future, from the 
Commission in connection with the trading of the Units from the 
operation of the short sale rule, Rule 10a-1 under the Act, no-
action relief from Regulation SHO, and other no-action or exemptive 
relief from the Act.
---------------------------------------------------------------------------

    The Amex proposes Rule 1503 to address potential conflicts of 
interest in connection with acting as a specialist in the Units. 
Specifically, Amex Rule 1503 provides that the prohibitions in Amex 
Rule 175(c) apply to a specialist in the Units so that the specialist 
or affiliated person may not act or function as a market-maker in an 
underlying asset, related futures contract or option or any other 
related derivative. An affiliated person of the specialist, consistent 
with Amex Rule 193, may be afforded an exemption to act in a market 
making capacity, other than as a specialist in the Units on another 
market center, in the underlying asset, related futures or options or 
any other related derivative.
    Amex Rule 1504(a) provides that the member organization acting as 
specialist in the Units is obligated to conduct all trading in the 
Units in its specialist account, subject to only the ability to have 
one or more investment accounts, all of which must be reported to the 
Exchange (See Rule 170).
    Moreover, Amex Rule 1504(b) requires that the specialist in the 
Units make available to the Exchange information relating to its 
transactions or the transactions of any member, member organization, 
limited partner, officer or approved person thereof, registered or non-
registered employee affiliated with such entity for its or their own 
accounts in the underlying physical asset or commodity, related futures 
or options on futures, or any other related derivatives.\49\ Finally, 
Amex Rule 1504(c) prohibits the specialist registered as such in the 
Units from using any material nonpublic information received from any 
person associated with a member, member organization or employee of 
such person regarding trading by such person or employee in the 
physical asset or commodity, futures or options on futures, or any 
other related derivatives.
---------------------------------------------------------------------------

    \49\ As a general matter, the Exchange has regulatory 
jurisdiction over its members, member organizations and approved 
persons of a member organization. The Exchange also has regulatory 
jurisdiction over any person or entity controlling a member 
organization, as well as a subsidiary or affiliate of a member 
organization that is in the securities business. A subsidiary or 
affiliate of a member organization that does business only in 
commodities or futures contracts would not be subject to Exchange 
jurisdiction, but the Exchange could obtain information regarding 
the activities of such subsidiary or affiliate through surveillance 
sharing agreements with regulatory organizations of which such 
subsidiary or affiliate is a member.
---------------------------------------------------------------------------

Trading Halts

    Prior to the commencement of trading, the Exchange will issue an 
Information Circular (described below) to members informing them of, 
among other things, Exchange policies regarding trading halts in the 
Units. First, the Information Circular will advise that trading will be 
halted in the event the market volatility trading halt parameters set 
forth in Amex Rule 117 have been reached. Second, the Information 
Circular will advise that, in addition to the parameters set forth in 
Amex Rule 117, the Exchange will halt trading in the Units if trading 
in the current Benchmark Oil Futures Contract is halted or suspended. 
Third, with respect to a halt in trading that is not specified above, 
the Exchange may also consider other relevant factors and the existence 
of unusual conditions or circumstances that may be detrimental to the 
maintenance of a fair and orderly market. Additionally, the Exchange 
represents that it will cease trading the Units if the conditions in 
Amex Rule 1202(d)(2)(ii) or (iii) exist (i.e., if there is a halt or 
disruption in the dissemination of the Indicative Partnership Value 
and/or underlying Benchmark Futures Contract (spot commodity) 
value).\50\
---------------------------------------------------------------------------

    \50\ In the event the Benchmark Oil Futures Contract value or 
Indicative Partnership Value is no longer calculated or 
disseminated, the Exchange would immediately contact the Commission 
to discuss measures that may be appropriate under the circumstances. 
Telephone conversation between Jeffrey Burns, Associate General 
Counsel, Amex, Florence Harmon, Senior Special Counsel, Division, 
Commission and Johnna B. Dumler, Attorney, Division, Commission on 
February 8, 2006.
---------------------------------------------------------------------------

Information Circular

    The Amex will distribute an Information Circular to its members in 
connection with the trading of the Units. The Information Circular, 
will discuss the special characteristics of and risks of trading in the 
Units. Specifically, the Information Circular, among other things, will 
discuss what the Units are, how a basket is created and redeemed, the 
requirement that members and member firms deliver a prospectus to 
investors purchasing newly issued Units prior to or concurrently with 
the confirmation of a transaction, applicable Amex rules, dissemination 
information regarding the per unit Indicative Partnership Value, 
trading information and applicable suitability rules. The Information 
Circular will also explain that USOF is subject to various fees and 
expenses described in the Registration Statement. The Information 
Circular will also reference the fact that there is no regulated source 
of last sale information regarding physical commodities, that the 
Commission has no jurisdiction over the trading of WTI light, sweet 
crude oil, Brent crude oil, heating oil, gasoline,

[[Page 17518]]

natural gas or other petroleum-based fuels, that the CFTC has 
regulatory jurisdiction over the trading of oil-based futures contracts 
and related options, and that trading in certain OTC commodity based 
derivatives is not within the jurisdiction of the CFTC and may 
therefore be effectively unregulated.\51\
---------------------------------------------------------------------------

    \51\ Telephone conversation between Jeffrey Burns, Senior 
Associate General Counsel, Amex, and Florence Harmon, Senior Special 
Counsel, Division, Commission, on March 31, 2006.
---------------------------------------------------------------------------

    The Information Circular will inform members and member 
organizations, prior to commencement of trading, of the prospectus 
delivery requirements applicable to USOF. The Exchange notes that 
investors purchasing Units directly from USOF (by delivery of the 
Deposit Amount) will receive a prospectus. Amex members purchasing 
Units from USOF for resale to investors will deliver a prospectus to 
such investors.
    The Information Circular will also notify members and member 
organizations about the procedures for purchases and redemptions of 
Units in Baskets, and that Units are not individually redeemable but 
are redeemable only in Baskets or multiples thereof.
    The Information Circular will advise members of their suitability 
obligations with respect to recommended transactions to customers in 
the Units pursuant to Amex Rule 411. The Information Circular will also 
discuss any exemptive or no-action relief, if granted, by the 
Commission or the staff from any rules under the Act. The Information 
Circular will disclose that the NAV for Units will be calculated 
shortly after 4:00 p.m. ET each trading day.

Surveillance

    The Exchange submits that its surveillance procedures are adequate 
to deter and detect violations of Exchange rules relating to the 
trading of the units. The surveillance procedures for the Units will be 
similar to those used for the iShares([reg]) COMEX Gold Trust and the 
streetTRACKS([reg]) Gold Trust Shares, as well as other TIRs and 
exchange-traded funds. In addition, the surveillance procedures will 
incorporate and rely on existing Amex surveillance procedures governing 
options and equities.\52\
---------------------------------------------------------------------------

    \52\ Proposed Rule 1504 will aid the Exchange in conducting 
appropriate surveillance.
---------------------------------------------------------------------------

    The Exchange currently has in place a comprehensive surveillance 
sharing agreement with the NYMEX for the purpose of providing 
information in connection with trading in or related to futures 
contracts traded on the NYMEX. In addition, the Exchange has entered 
into a comprehensive surveillance sharing arrangement with ICE Futures 
for the purpose of providing information in connection with the trading 
in or related to futures contracts traded on the ICE Futures. To the 
extent that USOF invests in Oil Interests traded on other exchanges, 
the Amex will enter into comprehensive surveillance sharing 
arrangements, acceptable to the Commission staff, with those particular 
exchanges.\53\
---------------------------------------------------------------------------

    \53\ In such event, the Exchange will file a proposed rule 
change pursuant to Rule 19b-4 of the Act, indicating such 
surveillance arrangements. Telephone conversation between Jeffrey 
Burns, Senior Associate General Counsel, Amex, and Florence Harmon, 
Senior Special Counsel, Division, Commission, on March 29, 2006. See 
also USOF Notice, supra note 5, at n.14.
---------------------------------------------------------------------------

III. Discussion and Commission's Findings

    After careful consideration, the Commission finds that the proposed 
rule change, as amended, is consistent with the requirements of the Act 
and the rules and regulations thereunder applicable to a national 
securities exchange.\54\ In particular, the Commission finds that the 
proposed rule change, as amended, is consistent with the requirements 
of Section 6(b)(5) of the Act,\55\ which requires, among other things, 
that the Exchange's rules be designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system and, in general, 
to protect investors and the public interest.
---------------------------------------------------------------------------

    \54\ 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).
    \55\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

A. Surveillance

    Information sharing agreements with primary markets are an 
important part of a self-regulatory organization's ability to monitor 
for trading abuses in derivative products. The Commission believes that 
the Exchange's comprehensive surveillance sharing agreements with the 
NYMEX and ICE Futures for the purpose of providing information in 
connection with trading in or related to futures contracts traded on 
the NYMEX and the ICE Futures create the basis for the Amex to monitor 
for fraudulent and manipulative practices in the trading of the Units. 
Should the USOF invest in oil derivatives traded on markets such as the 
Singapore Oil Market, the Exchange represents that it will file a 
proposed rule change pursuant to Section 19(b) of the Act, seeking 
Commission approval of the Exchange's surveillance arrangement with 
such market.
    Moreover, Amex Rule 1504(b) requires that specialists handling the 
Units provide the Exchange with necessary information relating to its 
transactions and the trading activities of any member, member 
organization, limited partner, officer or approved person thereof, 
registered or non-registered employee affiliated with such entity in 
the underlying physical assets or commodities, related futures 
contracts and options thereon or any other derivative. Furthermore, 
Amex Rule 1504(c) prohibits the specialist registered as such in the 
Units from using any material nonpublic information received from any 
person associated with a member, member organization or employee of 
such person regarding trading by such person or employee in the 
physical asset or commodity, futures or options on futures, or any 
other related derivatives. The Commission believes that these rules 
provide the Amex with the tools necessary to adequately surveil trading 
in the Units.

B. Dissemination of Information

    The Commission believes that sufficient venues exist for obtaining 
reliable information so that investors in the Units can monitor the 
underlying Benchmark Oil Futures Contract market relative to the NAV of 
their Units. There is a considerable amount of oil futures contract 
price and information available through public Web sites and 
professional subscription services, including Bloomberg and Reuters. 
Other than from 2:30 p.m. to 3:15 p.m. ET, quote and last sale 
information for the Benchmark Oil Futures Contract will be updated and 
disseminated at least every 15 seconds, in accordance with the 
continued listing standards, by one or more major market data vendors 
during the time the Units trade on Amex. In addition, the daily 
settlement prices for the NYMEX traded Oil Futures Contracts held by 
USOF are publicly available on the NYMEX Web site at (http://www.nymex.com
) and various market data vendors, and news publications 

publish futures prices and related data. The NYMEX also provides 
delayed futures information on current and past trading sessions and 
market news free of charge on its Web site.
    The Commission further notes that the Web site for USOF, which will 
publicly accessible at no charge, will contain the following 
information: (1) The prior business day's NAV and the reported closing 
price; (2) the mid-point

[[Page 17519]]

of the bid-ask price \56\ in relation to the NAV as of the time the NAV 
is calculated (the ``Bid-Ask Price''); (3) calculation of the premium 
or discount of such price against such NAV; (4) data in chart form 
displaying the frequency distribution of discounts and premiums of the 
Bid-Ask Price against the NAV, within appropriate ranges for each of 
the four (4) previous calendar quarters; (5) the prospectus and the 
most recent periodic reports filed with the Commission or required by 
the CFTC; and (6) other applicable quantitative information. In 
addition, information on USOF's daily portfolio holdings will be 
available on its Web site at (http://www.unitedstatesoilfund.com) and 

will be equally accessible to investors and Authorized Purchasers.
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    \56\ The Bid-Ask Price of Units is determined using the highest 
bid and lowest offer as of the time of calculation of the NAV.
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    In addition, the NAV for the USOF will be calculated and 
disseminated on a daily basis. The Exchange represents that it intends 
to disseminate for USOF on a daily basis by means of CTA/CQ High Speed 
Lines information with respect to the Indicative Partnership Value, 
recent NAV, Units outstanding, the estimated Basket Amount and the 
Actual Basket Amount. The Exchange will also make available on its Web 
site (http://www.amex.com) daily trading volume, closing prices and the 

NAV. The Commission believes that the wide availability of information 
about the Units the Oil Futures Contracts held by the USOF and NAV will 
facilitate transparency with respect to the proposed Units and diminish 
the risk of manipulation or unfair informational advantage.

C. Listing and Trading

    The Commission finds that the Exchange's proposed rules and 
procedures for the listing and trading of the proposed Units are 
consistent with the Act. The Units will trade as equity securities 
subject to Amex rules including, among others, rules governing 
priority, parity and precedence of orders, specialist responsibilities, 
account opening and customer suitability requirements. The Commission 
believes that the listing and delisting criteria for the Units should 
help to maintain a minimum level of liquidity and therefore minimize 
the potential for manipulation of the Units. Finally, the Commission 
notes that the Information Circular the Exchange will distribute will 
inform members and member organizations about the terms, 
characteristics and risks in trading the Units, including their 
prospectus delivery obligations.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that the proposed rule change (SR-Amex-2005-127), as amended, be, and 
it hereby is, approved.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\57\
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    \57\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E6-4971 Filed 4-5-06; 8:45 am]

BILLING CODE 8010-01-P
