

[Federal Register: April 20, 2007 (Volume 72, Number 76)]
[Notices]               
[Page 19987-19988]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr20ap07-123]                         


[[Page 19987]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55632; File No. SR-Amex-2006-112]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
No. 1, Relating to the Listing and Trading of Units of the United 
States Natural Gas Fund, LP

April 13, 2007.

I. Introduction

    On December 1, 2006, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposal to list and trade units (a ``Unit'' or collectively, the 
``Units'') of the United States Natural Gas Fund, LP (``USNG'') 
pursuant to Amex Rules 1500 et seq. On February 14, 2007, the Exchange 
submitted Amendment No. 1 to the proposed rule change. The proposed 
rule change, as modified by Amendment No. 1, was published for comment 
in the Federal Register on March 7, 2007 for a 15-day comment 
period.\3\ The Commission received no comments regarding the proposal. 
This order approves the proposed rule change, as modified by Amendment 
No. 1.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 55372 (February 28, 
2007), 72 FR 10267.
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to list and trade the Units issued by USNG 
pursuant to Amex Rules 1500 et seq. The Units represent ownership of a 
fractional undivided beneficial interest in the net assets of USNG.\4\ 
The net assets of USNG will consist of investments in futures contracts 
based on natural gas, crude oil, heating oil, gasoline, and other 
petroleum-based fuels traded on the New York Mercantile Exchange 
(``NYMEX''), Intercontinental Exchange (``ICE Futures'') or other U.S. 
and foreign exchanges (collectively, ``Futures Contracts''). USNG may 
also invest in other natural gas-related investments such as cash-
settled options on Futures Contracts, forward contracts for natural 
gas, and over-the-counter transactions that are based on the price of 
natural gas, oil and other petroleum-based fuels, Futures Contracts and 
indices based on the foregoing (collectively, ``Other Natural Gas 
Related Investments''). Futures Contracts and Other Natural Gas Related 
Investments collectively are referred to as ``Natural Gas Interests.''
---------------------------------------------------------------------------

    \4\ USNG is a commodity pool that will issue Units that may be 
purchased and sold on the Exchange.
---------------------------------------------------------------------------

    USNG will invest in Natural Gas Interests to the fullest extent 
possible without being leveraged or unable to satisfy its current or 
potential margin or collateral obligations. In pursuing this objective, 
the primary focus of USNG's investment manager, Victoria Bay Asset 
Management, LLC (``General Partner''), will be the investment in 
Futures Contracts and the management of its investments in short-term 
obligations of the United States, cash equivalents, and cash for 
margining purposes and as collateral.
    The investment objective of USNG is for changes in percentage terms 
of a Unit's net asset value (``NAV'') to reflect the changes in 
percentage terms of the price of natural gas delivered at the Henry 
Hub, Louisiana as measured by the natural gas futures contract traded 
on the NYMEX (the ``Benchmark Futures Contract''). The Benchmark 
Futures Contract employed is the near month expiration contract, except 
when the near month contract is within two (2) weeks of expiration, in 
which case the Benchmark Futures Contract is the next expiration 
month.\5\
---------------------------------------------------------------------------

    \5\ The Benchmark Futures Contracts will be changed or 
``rolled'' from the near month contract to expire over to the next 
month to expire over a four (4) day period.
---------------------------------------------------------------------------

    The General Partner will attempt to place USNG's trades in Natural 
Gas Interests and otherwise manage USNG's investments so that ``A'' 
will be within plus/minus 10 percent of ``B,'' where:
     A is the average daily change in USNG's NAV for any period 
of 30 successive valuation days, i.e., any day as of which USNG 
calculates its NAV; and
     B is the average daily change in the price of the 
Benchmark Futures Contract over the same period.
    USNG will be subject to the criteria in Amex Rule 1502 for initial 
and continued listing of the Units. The Amex stated that it will 
require a minimum of 100,000 Units to be outstanding at the start of 
trading and expects that the initial price of a Unit will be $50.00.\6\ 
The Exchange represented that it prohibits the initial and/or continued 
listing of any security that is not in compliance with Rule 10A-3 under 
the Act.\7\ Further, the Exchange stated that it will file a proposed 
rule change with the Commission pursuant to Rule 19b-4 under the Act 
seeking approval to continue trading the Units and, unless approved, 
the Exchange will commence delisting the Units if more than a temporary 
disruption exists in connection with the pricing of the Benchmark 
Futures Contract or the calculation or dissemination of the NAV is more 
than temporarily disrupted, or the NAV is not disseminated to all 
market participants at the same time.
---------------------------------------------------------------------------

    \6\ USNG expects that the initial Authorized Purchaser will 
purchase the initial Basket of 100,000 Units at the initial offering 
price per Unit of $50.00. On the date of the public offering and 
thereafter, USNG will continuously issue Units in Baskets of 100,000 
Units to Authorized Purchasers at NAV.
    \7\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    Amex Rule 1503 relating to certain specialist prohibitions will 
address potential conflicts of interest in connection with acting as a 
specialist in the Units. Specifically, 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. In particular, Amex Rule 1503 
provides that an approved person of an equity specialist that has 
established and obtained Exchange approval for procedures restricting 
the flow of material, non-public market information between itself and 
the specialist member organization, and any member, officer, or 
employee associated therewith, may act in a market making capacity, 
other than as a specialist in the Units on another market center, in 
the underlying asset or commodity, related futures or options on 
futures, or any other related derivatives.
    Amex Rule 1504 will also ensure that specialists handling the Units 
provide the Exchange with all the necessary information relating to 
their trading in physical assets or commodities, related futures 
contracts and options thereon or any other derivative. 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

[[Page 19988]]

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.

III. Discussion and Commission Findings

    After careful consideration, the Commission finds that the proposed 
rule change is consistent with the requirements of the Act and the 
rules and regulations thereunder applicable to a national securities 
exchange \8\ and, in particular, the requirements of Section 6 of the 
Act.\9\ Specifically, the Commission finds that the proposed rule 
change is consistent with Section 6(b)(5) of the Act,\10\ which 
requires, among other things, that the rules of a national securities 
exchange be 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 
a national market system, and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \8\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. 15 U.S.C. 78c(f).
    \9\ 15 U.S.C. 78f.
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\11\ which sets forth 
Congress' finding that it is in the public interest and appropriate for 
the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transaction in 
securities. Amex represented that quotation for and last-sale 
information regarding the futures contracts held by USNG, including the 
future contracts underlying the Benchmark Index are widely disseminated 
through a variety of market data vendors worldwide, including Bloomberg 
and Reuters. In addition, the Exchange further represented that real-
time futures data is available by subscription from Reuters and 
Bloomberg. The NAV of the Units is available at the Web site of the 
Exchange. The Commission believes that Amex's proposal is reasonable 
designed to promote transparency in the pricing of the Units, and to 
prevent trading when a reasonable degree of transparency cannot be 
assured. The proposal also appears reasonably designed to prevent the 
misuse of information by specialists.
---------------------------------------------------------------------------

    \11\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
---------------------------------------------------------------------------

    In support of this proposal, the Exchange has made the following 
representations:
    (1) The Exchange represented that it currently has in place an 
Information Sharing Agreement 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 ICE Futures, 
respectively. To the extent that USNG invests in Natural Gas Interests 
traded on other exchanges, the Amex represented that it will seek to 
enter into Information Sharing arrangements with those particular 
exchanges.
    (2) Amex would distribute an information circular to Exchange 
members and member organizations, prior to the commencement of trading 
providing guidance with regard to member firm compliance 
responsibilities (including suitability recommendations) when handling 
transaction in the Units. In addition, investors purchasing Units 
directly from USNG (by delivery of the Deposit Amount) would receive a 
prospectus from USNG. Amex members purchasing Units from USNG for 
resale to investors would deliver a prospectus to such investors.
    (3) Amex 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 units of the United States Oil Fund, LP as well as 
other commodity-based trusts, trust issued receipts and exchange-traded 
funds. In addition, the surveillance procedures will incorporate and 
rely upon existing Amex surveillance procedures governing options and 
equities.
    (4) Amex 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.\12\
---------------------------------------------------------------------------

    \12\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    This order is conditioned on Amex's adherence to these 
representations.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\13\ that the proposed rule change (SR-Amex-2006-112), as modified 
by Amendment No. 1, be, and is hereby approved.
---------------------------------------------------------------------------

    \13\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
---------------------------------------------------------------------------

    \14\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Florence E. Harmon,
Deputy Secretary.
[FR Doc. E7-7486 Filed 4-19-07; 8:45 am]

BILLING CODE 8010-01-P
