

[Federal Register: November 29, 2007 (Volume 72, Number 229)]
[Notices]               
[Page 67612-67615]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29no07-41]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-56831; File No. SR-Amex-2007-98]

 
Self-Regulatory Organizations; American Stock Exchange LLC; Order 
Granting Accelerated Approval of a Proposed Rule Change, as Modified by 
Amendment Nos. 1 and 2, Relating to the Listing and Trading of Units of 
the United States 12 Month Oil Fund, LP and the United States 12 Month 
Natural Gas Fund, LP

November 21, 2007.

I. Introduction

    Pursuant to section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 \2\ thereunder, notice is hereby given 
that on August 23, 2007, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I and 
II below, which Items have been substantially prepared by the Exchange. 
On September 14, 2007, the Exchange submitted Amendment No. 1 to the 
proposed rule change. On October 25, 2007, the Exchange submitted 
Amendment No. 2 to the proposed rule change. The proposed rule change, 
as

[[Page 67613]]

amended, was published for comment in the Federal Register on November 
2, 2007 for a 15-day comment period.\3\ This order approves the 
proposed rule change, as modified by Amendment Nos. 1 and 2 on an 
accelerated basis.
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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. 56719 (October 29, 
2007), 72 FR 62277 (``Notice'').
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II. Description of Proposal

    The Exchange proposes to list and trade units (each a ``Unit'' and, 
collectively, the ``Units'') of each of the United States 12 Month Oil 
Fund, LP (``12 Month Oil Fund'') and the United States 12 Month Natural 
Gas Fund, LP (``12 Month Natural Gas Fund'') (each a ``Partnership'' 
and, collectively, the ``Partnerships'') pursuant to Amex Rules 1500-
AEMI and 1501 through 1505.\4\ The Exchange has represented that the 
Units will conform to the initial and continued listing criteria under 
Rule 1502,\5\ specialist prohibitions under Rule 1503 and the 
obligations of specialists under Rule 1504.
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    \4\ Amex Rule 1500-AEMI provides for the listing of Partnership 
Units, which are defined as securities, that are: (a) issued by a 
partnership that invests in any combination of futures contracts, 
options on futures contracts, forward contracts, commodities, and/or 
securities; and (b) that are issued and redeemed daily in specified 
aggregate amounts at net asset value. See Exchange Act Release No. 
53582 (March 31, 2006), 71 FR 17510 (April 6, 2006) (SR-Amex-2005-
127) (approving Amex Rules 1500-AEMI and 1501 through 1505 in 
conjunction with the listing and trading of Units of the United 
States Oil Fund, LP).
    \5\ 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.
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    Ownership of a Partnership Unit represents a fractional undivided 
unit of a beneficial interest in the net assets of that Partnership.\6\ 
Each of the net assets of the 12 Month Oil Fund and the 12 Month 
Natural Gas Fund will consist primarily of investments in futures 
contracts for crude oil, heating oil, gasoline, natural gas, and other 
petroleum-based fuels that are traded on the New York Mercantile 
Exchange (``NYMEX''), Intercontinental Exchange (``ICE Futures'') or 
other U.S. and foreign exchanges (collectively, ``Futures Contracts''). 
In the case of the 12 Month Oil Fund, the predominant investments are 
expected to be based on, or related to, crude oil. Similarly, for the 
12 Month Natural Gas Fund, the predominant investments are expected to 
be based on, or related to, natural gas.
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    \6\ Each Partnership is a commodity pool that will issue Units 
that may be purchased and sold on the Exchange.
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    The 12 Month Oil Fund may also invest in other crude oil-related 
investments such as cash-settled options on Futures Contracts, forward 
contracts for crude oil, and over-the-counter (``OTC'') transactions 
based on the price of crude oil, heating oil, gasoline, natural gas, 
other petroleum-based fuels, Futures Contracts, and indices based on 
the foregoing (collectively, ``Other Crude Oil-Related Investments''). 
Futures Contracts and Other Crude Oil-Related Investments collectively 
are referred to as ``Crude Oil Interests.'' Similarly, the 12 Month 
Natural Gas Fund may also invest in other natural gas-related 
investments such as cash-settled options on Futures Contracts, forward 
contracts for natural gas, and OTC transactions based on the price of 
natural gas, crude 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.''
    Each of the 12 Month Oil Fund and the 12 Month Natural Gas Fund 
will invest in Crude Oil Interests and Natural Gas Interests, 
respectively, 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 each 
Partnership'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 of two years or less (``Treasuries'') and cash and cash 
equivalents (collectively, ``Cash'') for margining purposes and as 
collateral.
    Each Fund seeks to track price changes in percentage terms of an 
underlying commodity as measured by a benchmark defined to be the 
average price of specified futures contracts.\7\ The investment 
objective of the 12 Month Oil Fund is for the changes in percentage 
terms of the Units' net asset value (``NAV'') to reflect the changes in 
percentage terms of the price of light, sweet crude oil delivered to 
Cushing, Oklahoma, as measured by the changes in the average of the 
prices of twelve crude oil futures contracts traded on NYMEX (the ``Oil 
Benchmark Futures Contracts''), less the 12 Month Oil Fund's 
expenses.\8\ Similarly, the investment objective of the 12 Month 
Natural Gas Fund is for the changes in percentage terms of the Units' 
NAV to reflect the changes in percentage terms of the price of natural 
gas delivered at the Henry Hub, Louisiana, as measured by the changes 
in the average of the prices of 12 futures contracts on natural gas 
traded on NYMEX (the ``Natural Gas Benchmark Futures Contracts''), less 
the 12 Month Natural Gas Fund's expenses.\9\ With respect to both 
funds, when calculating the daily movement of the average price of the 
relevant twelve futures contracts, each contract month will be equally 
weighted.
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    \7\ A detailed discussion of the underlying benchmark for each 
Fund, 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 Units, 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 supra note 3.
    \8\ The Oil Benchmark Futures Contracts consist of the near 
month contract to expire and the contracts for the following eleven 
months, for a total of twelve consecutive months' contracts, except 
when the near month contract is within two weeks of expiration, in 
which case it will be measured by the futures contracts that are the 
next month contract to expire and the contracts for the eleven 
consecutive months following that contract. The average price is 
determined by summing up the 12 individual monthly prices and 
dividing them by 12, and then comparing that result to the prior 
day's average price determined in the same fashion. The composition 
of the Oil Benchmark Futures Contracts will be changed or ``rolled'' 
over a one day period by selling the near month contract and buying 
the contract, which at that time is the thirteen month contract.
    \9\ The Natural Gas Benchmark Futures Contracts consist of the 
near month contract to expire and the contracts for the following 
eleven months, for a total of twelve consecutive months' contracts, 
except when the near month contract is within two weeks of 
expiration, in which case it will be measured by the futures 
contracts that are the next month contract to expire and the 
contracts for the eleven consecutive months following that contract. 
The average price is determined by summing up the 12 individual 
monthly prices and dividing them by 12, and then comparing that 
result to the prior day's average price determined in the same 
fashion. The composition of the Natural Gas Benchmark Futures 
Contract will be changed or ``rolled'' over a one day period by 
selling the near month contract and buying the contract which at 
that time is the thirteen month contract on the same day.
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    The General Partner for the Funds will employ a ``neutral'' 
investment strategy intended to track the changes in the price of crude 
oil and natural gas, respectively, regardless of whether the price of 
those commodities goes up or goes down. The ``neutral'' investment 
strategy is designed to permit investors to purchase and sell the 
Funds' Units for the purpose of investing indirectly in crude oil and 
natural gas in a cost-effective manner and/or to permit market 
participants to hedge the risk of losses in crude oil or natural gas 
investments.

III. Commission Findings and Accelerated Approval

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of the Act and the rules and 
regulations

[[Page 67614]]

thereunder applicable to a national securities exchange.\10\ In 
particular, the Commission finds that the proposed rule change is 
consistent with section 6(b)(5) of the Act,\11\ which requires that an 
exchange have rules designed, among other things, to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, and 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; and is not designed to permit unfair 
discrimination between customers, issuers, brokers, or dealers, or to 
regulate by virtue of any authority conferred by the Act matters not 
related to the purpose of the Act or the administration of the 
Exchange. The Commission notes that it previously approved the original 
listing and trading of certain partnership units similar to the 
Units.\12\
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    \10\ 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).
    \11\ 15 U.S.C. 78f(b)(5).
    \12\ See Securities Exchange Act Release Nos. 53582 (March 31, 
2006), 71 FR 17510 (April 6, 2006) (SR-Amex-2005-127) (approving 
Amex Rules 1500-AEMI and 1501 through 1505 in conjunction with the 
listing and trading of Units of the United States Oil Fund, LP); and 
55632 (April 13, 2007), 72 FR 19987 (April 20, 2007) (SR-Amex-2006-
112) (approving the listing and trading of shares of the United 
States Natural Gas Fund, LP).
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    The Commission further believes that the proposal is consistent 
with section 11A(a)(1)(C)(iii) of the Act,\13\ 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 transactions in 
securities. The Amex will disseminate for each Partnership every 15 
seconds throughout Amex's trading day by means of the Consolidated Tape 
Association/Consolidated Quote High Speed Lines information with 
respect to the indicative partnership value (``IPV''). The Exchange 
will also make available on its Web site daily trading volume, the 
closing prices, and the NAV. Web site disclosure of portfolio holdings 
for both Funds will be made daily and will include, as applicable, the 
specific types, the name and value of each Crude Oil or Natural Gas 
Interest, the specific types of Crude Oil or Natural Gas Interests and 
characteristics of such Crude Oil or Natural Gas Interests, Treasuries, 
and amount of Cash held in the portfolio of the Funds. In addition, 
Amex represented that quotations and last-sale information regarding 
the Futures Contracts 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.
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    \13\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    Furthermore, the Commission believes that the proposal to list and 
trade the Units is reasonably designed to promote fair disclosure of 
information that may be necessary to price the Units appropriately and 
to prevent trading when a reasonable degree of transparency cannot be 
assured. The Commission also believes that the Exchange's trading halt 
rules are reasonably designed to prevent trading in the Units when 
transparency is impaired. Trading in the Units will be halted in the 
event the market volatility trading halt parameters set forth in Amex 
Rule 117 have been reached. In addition, Amex Rule 1502(b)(ii)-(iii) 
provides that, if the IPV or the underlying benchmark futures contract 
of a Fund is not being disseminated as required, the Exchange may halt 
trading during the day in which the interruption to the dissemination 
occurs. If the interruption to the dissemination of the IIV or the 
underlying benchmark futures contract 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 Units will be subject pursuant to this proposal 
are consistent with the Act. The Exchange has represented that the 
Units will be traded on the Exchange similar to other equity 
securities.
    In support of this proposal, the Exchange has made the following 
representations:
    (1) The Exchange will obtain a representation from each 
Partnership, prior to listing, that the NAV per Unit for each Fund will 
be calculated daily and made available to all market participants at 
the same time. In addition, the Exchange represents that disclosure of 
the portfolio composition for each Fund will be made to all market 
participants at the same time.
    (2) The Exchange's surveillance procedures are adequate to deter 
and detect violations of Exchange rules relating to trading of the 
Units. Specifically, the surveillance procedures will be similar to 
those used for units of the United States Oil Fund, LP and the United 
States Natural Gas 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. The Exchange 
currently has in place a comprehensive surveillance sharing agreement 
with each of NYMEX and ICE Futures for the purpose of providing 
information in connection with trading in, or related to, futures 
contracts traded on NYMEX and ICE Futures, respectively. To the extent 
that a Partnership invests in Crude Oil Interests or Natural Gas 
Interests traded on other exchanges, the Amex will enter into 
comprehensive surveillance sharing agreements with those particular 
exchanges. The Exchange has represented that each of the Partnerships 
will only invest in futures contracts on markets where the Exchange has 
entered into the appropriate comprehensive surveillance sharing 
agreements.
    (3) Prior to the commencement of trading, the Exchange will inform 
its members and member organizations in an Information Circular. The 
Information Circular will discuss the special characteristics, and 
risks, of trading in the Units. Specifically, the Information Circular, 
among other things, will discuss what the Units are, how a basket of 
Units is created and redeemed, the requirement that members and member 
firms deliver a prospectus to investors purchasing the Units prior to, 
or concurrently with, the confirmation of a transaction, applicable 
Amex rules, dissemination of information regarding the per-Unit IPV, 
trading information, and applicable suitability rules. The Information 
Circular will also reference the fact that there is no regulated source 
of last sale information regarding physical commodities, and describe 
the regulatory framework relating to the trading of crude oil, natural 
gas, heating oil, gasoline, or other petroleum-based fuels and crude 
oil- and natural gas-based futures contracts and related options. The 
Information Circular will also discuss any relief, if granted, by the 
Commission or the staff from any rules under the Act.
    (4) The Trust is required to comply with Rule 10A-3 under the Act 
\14\ for the initial and continued listing of the Units.
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    \14\ 17 CFR 240.10A-3.

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[[Page 67615]]

    This approval order is based on the Exchange's representations.

Acceleration

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\15\ for approving the proposed rule change, as amended, prior 
to the thirtieth day after the date of publication of notice in the 
Federal Register. The Commission notes that the present proposal is 
similar to prior proposals that the Commission has approved,\16\ is 
consistent with current Amex listing requirements, and received no 
comments following publication in the Federal Register. The Commission 
does not believe that the proposed rule change, as amended, raises 
novel regulatory issues. Consequently, the Commission believes that it 
is appropriate to permit investors to benefit from these additional 
investment choices without delay.
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    \15\ 15 U.S.C. 78s(b)(2).
    \16\ See supra, note 12.
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    Accordingly, the Commission finds that there is good cause, 
consistent with section 6(b)(5) of the Act,\17\ to approve the 
proposal, as amended, on an accelerated basis.
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    \17\ 15 U.S.C. 78s(b)(5).
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V. Conclusion

    It is therefore ordered, pursuant to section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-Amex-2007-98), as amended, 
be, and is hereby approved on an accelerated basis.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Nancy M. Morris,
Secretary.
[FR Doc. E7-23169 Filed 11-28-07; 8:45 am]

BILLING CODE 8011-01-P
