

[Federal Register: October 9, 2007 (Volume 72, Number 194)]
[Notices]               
[Page 57364-57366]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr09oc07-119]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56592; File No. SR-Amex-2007-60]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Approval of a Proposed Rule Change, as Modified by Amendment 
Nos. 1 and 2 Thereto, Relating to the Listing and Trading of Shares of 
Eight Funds of the ProShares Trust Based on International Equity 
Indexes

October 1, 2007.

I. Introduction

    On June 15, 2007, 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, a 
proposal to list and trade the shares of eight funds of the ProShares 
Trust based on certain international equity indexes.\2\ On July 27, 
2007, Amex filed Amendment No. 1 to the proposed rule change. The 
proposed rule change, as amended, was published for comment in the 
Federal Register on August 15, 2007 for a 15-day comment period.\3\ The 
Commission received no comments on the proposal. On September 7, 2007, 
Amex filed Amendment No. 2 to the proposed rule change.\4\ This order 
approves the proposed rule change, as modified by Amendment Nos. 1 and 
2 thereto.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 56223 (August 8, 
2007), 72 FR 45837 (``Notice'').
    \4\ In Amendment No. 2, the Exchange clarified that: (a) The 
value of the MSCI Japan Index will be calculated and disseminated 
every 15 seconds from 8 p.m. to 2 a.m. Eastern Time (``ET''); (b) 
the value of the MSCI EAFE Index will be calculated and disseminated 
every 60 seconds from 8 p.m. to 12 p.m. ET; (c) the value of the 
FTSE/Xinhua China 25 Index will be calculated and disseminated every 
15 seconds from 10 p.m. to 4 a.m. ET; and (d) the Funds are expected 
to be highly inversely correlated (-0.95 or greater). Because 
Amendment No. 2 is technical in nature, the Commission is not 
republishing the notice of filing for public comment.
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II. Description of the Proposal

    The Exchange proposes to list and trade under Amex Rule 1000A-AEMI 
the shares (the ``Shares'') of eight funds of the ProShares Trust (the 
``Trust'') that are designated as Short Funds (the ``Short Funds'') and 
UltraShort Funds (the ``UltraShort Funds,'' and together with the Short 
Funds, collectively referred to as the ``Funds''). The Exchange 
represents that the Funds will comply with all applicable provisions of 
Amex Rules 1000A-AEMI and 1001A-1003A.\5\ Each of the Funds has a 
distinct investment objective by attempting, on a daily basis, to 
correspond to a specified multiple of the inverse performance of a 
particular equity securities index. The Funds will be based on the 
following benchmark indexes: (1) MSCI Emerging Markets Index; (2) MSCI 
Japan Index; (3) MSCI EAFE Index; and (4) FTSE/Xinhua China 25 Index 
(each, an ``Underlying Index,'' and collectively, the ``Underlying 
Indexes'').\6\ Each of the Underlying Indexes is rebalanced quarterly, 
calculated in U.S. dollars on a real-time basis, and, consistent with 
Commentary .02(b)(ii) to Amex Rule 1000A-AEMI, widely disseminated 
during Exchange trading hours.
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    \5\ E-mail from Nyieri Nazarian, Assistant General Counsel, 
Amex, to Edward Cho, Special Counsel, Division of Market Regulation, 
Commission, dated September 19, 2007.
    \6\ A detailed discussion of the Underlying Indexes and 
dissemination of the values thereof, investment objective of the 
Funds, portfolio investment methodology, investment techniques, 
availability of information and key values, creation and redemption 
of Shares, dividends and distributions, Amex's initial and continued 
listing standards, Amex trading rules and trading halts, information 
circular to Exchange members, and other related information 
regarding the Funds can be found in the Notice. See Notice, supra 
note 3.
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    Specifically, the Exchange proposes to list and trade Shares of the 
Short Funds that seek daily investment results, before fees and 
expenses, that correspond to the inverse or opposite of the daily 
performance (-100%) of the Underlying Indexes. If each of these Short 
Funds is successful in meeting its objective, the net asset value 
(``NAV'') of the Shares of each Short Fund should increase 
approximately as much, on a percentage basis, as the respective 
Underlying Index loses when the prices of the securities in the 
Underlying Index decline on a given day, or should decrease 
approximately as much, on a

[[Page 57365]]

percentage basis, as the respective Underlying Index gains when the 
prices of the securities in the Underlying Index rise on a given day, 
before fees and expenses.
    The Exchange also proposes to list and trade Shares of the 
UltraShort Funds that seek daily investment results, before fees and 
expenses, that correspond to twice the inverse or opposite (-200%) of 
the daily performance of the Underlying Indexes. If each of these 
UltraShort Funds is successful in meeting its objective, the NAV of the 
Shares of each UltraShort Fund should increase approximately twice as 
much, on a percentage basis, as the respective Underlying Index loses 
when the prices of the securities in the Underlying Index decline on a 
given day, or should decrease approximately twice as much, on a 
percentage basis, as the respective Underlying Index gains when the 
prices of the securities in the Underlying Index rise on a given day, 
before fees and expenses.

III. Commission's Findings and Order Granting Approval of the Proposed 
Rule Change

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations thereunder applicable to a national securities exchange.\7\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\8\ which requires that an 
exchange have rules designed, among other things, to promote just and 
equitable principles of trade, to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest. The 
Commission notes that it previously approved the original listing and 
trading of certain inverse leveraged fund shares based on a variety of 
indexes.\9\ The Commission also notes that it has previously approved 
the listing and trading of exchange-traded funds based on each of the 
Underlying Indexes.\10\
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    \7\ 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).
    \8\ 15 U.S.C. 78f(b)(5).
    \9\ See Securities Exchange Act Release Nos. 55117 (January 17, 
2007), 72 FR 3442 (January 25, 2007) (SR-Amex-2006-101) (approving 
the listing and trading of shares of short and ultrashort funds, 
among others, of the Trust based on certain underlying indexes); 
54040 (June 23, 2006), 71 FR 37629 (June 30, 2006) (SR-Amex-2006-41) 
(approving the listing and trading of shares of bearish funds, among 
others, of the Trust based on certain underlying indexes); and 52553 
(October 3, 2005), 70 FR 59100 (October 11, 2005) (SR-Amex-2004-62) 
(approving the listing and trading of shares of bearish funds, among 
others, of the xtraShares Trust based on certain underlying 
indexes).
    \10\ See Securities Exchange Act Release Nos. 44990 (October 25, 
2001), 66 FR 55712 (November 2, 2001) (SR-Amex-2001-45) (approving 
the listing and trading of shares of funds of iShares, Inc. based on 
certain foreign stock indexes, including the MSCI Emerging Markets 
(Free) Index); 36947 (March 8, 1996), 61 FR 10606 (March 14, 1996) 
(SR-Amex-95-43) (approving the listing and trading of Index Fund 
Shares based on the MSCI Japan Index, among other indexes); 44700 
(August 14, 2001), 66 FR 43927 (August 21, 2001) (SR-Amex-2001-34) 
(approving the listing and trading of shares of a fund based on the 
MSCI EAFE Index, among other indexes); 50505 (October 8, 2004), 69 
FR 61280 (October 15, 2004) (SR-NYSE-2004-55) (approving the listing 
and trading of shares of the iShares FTSE/Xinhua China 25 Index 
Fund); and 50800 (December 6, 2004), 69 FR 72228 (December 13, 2004) 
(SR-Amex-2004-85) (approving the trading of shares of the iShares 
FTSE/Xinhua China 25 Index Fund pursuant to unlisted trading 
privileges).
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    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\11\ which sets forth 
Congress's finding that it is in the public interest and appropriate 
for the protection of investors and the maintenance of fair and orderly 
markets to assure the availability to brokers, dealers, and investors 
of information with respect to quotations for and transactions in 
securities. Quotations and last-sale information for the Shares will be 
disseminated over the CT.\12\ In addition, the Exchange will 
disseminate through the CT the IIV at least every 15 seconds throughout 
Amex's trading day, the market value of a Share for each Fund, the most 
recent NAV for each Fund, the number of Shares outstanding for each 
Fund, and the estimated cash amount and total cash amount per Creation 
Unit. The Exchange will also make available on its Web site daily 
trading volume, the closing prices, the NAV, and the final dividend 
amounts to be paid for each Fund. Furthermore, the value of each 
Underlying Index will be updated intra-day on a real-time basis as its 
individual component securities change in price and disseminated at 
least every 15 or 60 seconds, as applicable, throughout the trading day 
by Amex or another organization authorized by the relevant Underlying 
Index provider. The Trust's Web site will contain a variety of other 
quantitative information for the Shares of each Fund. Finally, each 
Fund's total portfolio composition will be disclosed on the Web site of 
the Trust or another relevant Web site as determined by the Trust and/
or the Exchange. Web site disclosure of portfolio holdings will be made 
daily and will include, as applicable, the specific types of Financial 
Instruments and characteristics of such Financial Instruments and the 
cash equivalents and amount of cash held in the portfolio of each Fund.
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    \11\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \12\ E-mail from Nyieri Nazarian, Assistant General Counsel, 
Amex, to Edward Cho, Special Counsel, Division of Market Regulation, 
Commission, dated August 21, 2007 (clarifying the information to be 
disseminated through the CT). Capitalized terms used but not 
otherwise defined herein shall have the meanings ascribed to such 
terms in the Notice. See Notice, supra note 3.
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    Furthermore, the Commission believes that the proposal to list and 
trade the Shares is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Shares appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission notes that the Exchange will obtain a 
representation from the Trust (for each Fund), prior to listing, that 
the NAV per Share for each Fund will be calculated daily and made 
available to all market participants at the same time.\13\ In addition, 
the Exchange represents that the Web site disclosure of the portfolio 
composition of each Fund and the disclosure by the Advisor of the IIV 
File and the PCF will occur at the same time. Commentary .02(b) to Amex 
Rule 1000A-AEMI provides for ``fire wall'' procedures with respect to 
personnel who have access to information concerning changes and 
adjustments to the Underlying Index and the implementation of 
procedures to prevent the use and dissemination of material non-public 
information regarding the Underlying Index. Commentary .09 to Amex Rule 
1000A-AEMI restricts members or persons associated with members who 
have knowledge of all material terms and conditions of an order being 
facilitated or orders being crossed to enter, based on such knowledge, 
an order to buy or sell a Share that is the subject of the order, an 
order to buy or sell the overlying option class, or an order to buy or 
sell any related instrument \14\ until all the terms of the order are 
disclosed to the trading crowd or the trade is no longer imminent in 
view of the passage of time since the order was received.
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    \13\ See Amex Rule 1002A(a)(ii).
    \14\ For purposes of Commentary .09, an order to buy or sell a 
``related instrument'' means an order to buy or sell securities 
comprising ten percent or more of the component securities in the 
Underlying Index or an order to buy or sell a futures contract on 
any economically equivalent index. See Commentary .09 to Amex Rule 
1000A-AEMI.
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    The Commission also believes that the Exchange's trading halt rules 
are reasonably designed to prevent trading in the Shares when 
transparency is impaired. Amex Rule 1002A(b)(ii) provides that the 
Exchange will halt

[[Page 57366]]

trading in the Shares if the circuit breaker parameters of Amex Rule 
117 have been reached. In exercising its discretion to halt or suspend 
trading in the Shares, the Exchange may consider factors such as those 
set forth in Amex Rule 918C(b) and other relevant factors. In addition, 
Amex Rule 1002A(b)(ii) provides that, if the IIV or the Underlying 
Index value applicable to that series of Index Fund Shares is not being 
disseminated as required, the Exchange may halt trading during the day 
in which the interruption to the dissemination of the IIV or the 
Underlying Index value occurs. If the interruption to the dissemination 
of the IIV or the Underlying Index value persists past the trading day 
in which it occurred, the Exchange will halt trading no later than the 
beginning of the trading day following the interruption.
    The Commission further believes that the trading rules and 
procedures to which the Shares will be subject pursuant to this 
proposal are consistent with the Act. The Exchange has represented that 
the Shares are equity securities subject to Amex's rules governing the 
trading of equity securities.
    In support of this proposal, the Exchange has made the following 
representations:
    (1) The Exchange's surveillance procedures are adequate to properly 
monitor the trading of the Shares. Specifically, Amex will rely on its 
existing surveillance procedures governing Index Fund Shares.
    (2) Prior to the commencement of trading, the Exchange will inform 
its members and member organizations in an Information Circular 
regarding the application of Commentary .06 to Amex Rule 1000A-AEMI to 
the Funds and the prospectus and/or product description delivery 
requirements that apply to the Funds. The Information Circular will 
also provide guidance with regard to member firm compliance 
responsibilities when effecting transactions in the Shares and 
highlighting the special risks and characteristics of the Funds and 
Shares, as well as applicable Exchange rules. In addition, the 
Information Circular will disclose that the procedures for purchases 
and redemptions of Shares in Creation Units are described in each 
Fund's prospectus, and that Shares are not individually redeemable, but 
are redeemable only in Creation Unit aggregations or multiples thereof.
    (3) The Exchange represents that the Trust is required to comply 
with Rule 10A-3 under the Act \15\ for the initial and continued 
listing of the Shares.
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    \15\ 17 CFR 240.10A-3.
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    This approval order is based on the Exchange's representations.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\16\ that the proposed rule change (SR-Amex-2007-60), as modified 
by Amendment Nos. 1 and 2 thereto, be, and it hereby is, approved.
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    \16\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\17\
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    \17\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-19752 Filed 10-5-07; 8:45 am]

BILLING CODE 8011-01-P
