

[Federal Register: January 30, 2008 (Volume 73, Number 20)]
[Notices]               
[Page 5607-5609]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30ja08-125]                         

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-57188; File No. SR-Amex-2007-70]

 
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 Heating Oil Fund and the United States Gasoline Fund, 
LP

January 23, 2008.

I. Introduction

    On June 29, 2007, the American Stock Exchange LLC (``Amex'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') a proposed rule change pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder \2\ to list and trade units (a ``Unit,'' and collectively, 
the ``Units'') of each of the United States Heating Oil Fund, LP 
(``USHO'') and the United States Gasoline Fund, LP (``USG'') (each, a 
``Partnership,'' and collectively, the ``Partnerships'') pursuant to 
Amex Rules 1500-AEMI and 1501 through 1505. On August 16, 2007, the 
Exchange submitted Amendment No. 1 to the proposed rule change. On 
December 20, 2007, the Exchange submitted Amendment No. 2 to the 
proposed rule change. The proposed rule change, as amended, was 
published for comment in the Federal Register on January 3, 2008 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 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. 57042 (December 26, 
2007), 73 FR 514 (``Notice'').
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II. Description of Proposal

    The Exchange proposes to list and trade Units issued by USHO and 
USG 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 Securities 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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    Each Unit represents ownership of a fractional undivided beneficial 
interest in the net assets of USHO and USG.\6\ The net assets of each 
Partnership will consist primarily of investments in futures contracts 
for heating oil, gasoline, crude oil, 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 USHO, 
the predominant investments are expected to be based on, or related to, 
heating oil. The predominant investments of USG are expected to be 
based on, or related to, gasoline.
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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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    USHO may also invest in other heating-oil-related investments such 
as cash-settled options on Futures Contracts, forward contracts for 
heating oil, and over-the-counter (``OTC'') contracts that are based on 
the price of heating oil, oil and other petroleum-based fuels, Futures 
Contracts, and indices based on the foregoing (collectively, ``Other 
Heating Oil Related Investments''). Futures Contracts and Other Heating 
Oil Related Investments collectively are referred to as ``Heating Oil 
Interests.''
    Similarly, USG may also invest in other gasoline-related 
investments such as cash-settled options on Futures Contracts, forward 
contracts for gasoline, and OTC transactions based on the price of 
gasoline, oil, and other petroleum-based fuels, Futures Contracts, and 
indices based on the

[[Page 5608]]

foregoing (collectively, ``Other Gasoline-Related Investments''). 
Futures Contracts and Other Gasoline-Related Investments collectively 
are referred to as ``Gasoline Interests.''
    Each of USHO and USG will invest in Heating Oil Interests and 
Gasoline 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 USHO's and USG's investment manager, Victoria Bay 
Asset Management, LLC (``Victoria Bay'' or ``General Partner''), will 
be investment in Futures Contracts and the management of Partnership 
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 Partnership 
seeks to track price changes in percentage terms of an underlying 
commodity as measured by a benchmark defined to be the price of a 
specified futures contract. Each Partnership seeks to track price 
changes in percentage terms of an underlying commodity as measured by a 
benchmark defined to be the price of a specified futures contract.\7\
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    \7\ A detailed discussion of the underlying benchmark for each 
Partnership, dissemination of the values thereof, investment 
objective of the Partnership, portfolio investment methodology, 
investment techniques, availability of information and key values, 
creation and redemption of Units, arbitrage, 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 Partnership can 
be found in the Notice. See supra note 3.
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    Accordingly, the investment objective of USHO is for the changes in 
percentage terms of a Unit's net asset value (``NAV'') to reflect the 
changes in percentage terms of a specified price of heating oil (also 
known as No. 2 fuel) delivered at the New York harbor, as measured by 
the changes in the price of the heating oil futures contract traded on 
the NYMEX (the ``Heating Oil Benchmark Futures Contract''), less USHO's 
expenses. Similarly, the investment objective of USG is for changes in 
percentage terms of a Unit's NAV to reflect the changes in percentage 
terms of the price of unleaded gasoline (also known as reformulated 
gasoline blendstock for oxygen blending or ``RBOB''), for delivery to 
New York harbor, as measured by the changes in the price of a specified 
unleaded gasoline futures contract traded on the NYMEX (the ``Gasoline 
Benchmark Futures Contract''), less USG's expenses. The Heating Oil 
Benchmark Futures Contract and Gasoline Benchmark Futures Contract 
employed are, in each case, the near month expiration contract, except 
when the near month contract is within two weeks of expiration, in 
which case it will invest in the next expiration month.\8\
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    \8\ The Heating Oil Benchmark Futures Contract and Gasoline 
Benchmark Futures Contract will be changed or ``rolled'' over a 
four-day period by selling the near month contract that expires the 
following month.
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    The General Partner will attempt to place USHO's trades in Heating 
Oil Interests and otherwise manage USHO's investments so that ``A'' 
will be within plus/minus 10% of ``B'', where:
     A is the average daily change in USHO's NAV for any period 
of 30 successive valuation days, i.e., any day as of which USHO 
calculates its NAV, and
     B is the average daily change in the price of the 
Benchmark Futures Contract over the same period.
    The General Partner will attempt to place USG's trades in Gasoline 
Interests and otherwise manage USG's investments so that ``A'' will be 
within plus/minus 10% of ``B'', where:
     A is the average daily change in USG's NAV for any period 
of 30 successive valuation days, i.e., any day as of which USG 
calculates its NAV, and
     B is the average daily change in the price of the 
Benchmark Futures Contract over the same period.

The General Partner believes that market arbitrage opportunities should 
cause USHO's and USG's Unit prices to closely track each Partnership's 
per-Unit NAV, which are targeted at the current Heating Oil Benchmark 
Futures Contract and Gasoline Benchmark Futures Contract, respectively.

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 thereunder applicable to a national securities exchange.\9\ 
In particular, the Commission finds that the proposed rule change is 
consistent with Section 6(b)(5) of the Act,\10\ 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.\11\
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    \9\ 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).
    \10\ 15 U.S.C. 78f(b)(5).
    \11\ See Securities Exchange Act Release Nos. 56831 (November 
21, 2007), 72 FR 67612 (November 29, 2007) (SR-Amex-2007-98) 
(approving listing and trading of units of the United States 12 
Month Oil Fund, LP and the United States 12 Month Natural Gas Fund, 
LP); 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) (``Amex 2005-127 Order''); 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) (``Amex 2006-112 Order'').
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    The Commission further believes that the proposal is consistent 
with Section 11A(a)(1)(C)(iii) of the Act,\12\ 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. 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 Partnerships will be made daily and will include, as 
applicable, the specific types, the name and value of each Heating Oil 
or Gasoline Interest, the specific types of Heating Oil or Gasoline 
Interests and characteristics of such interests, Treasuries, and amount 
of Cash held in the portfolio of the Partnerships. 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

[[Page 5609]]

further represented that real-time futures data is available by 
subscription from Reuters and Bloomberg.
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    \12\ 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. If the IPV or the underlying benchmark 
futures contract of a Partnership 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 IPV 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.\13\ In addition, the Exchange has represented that, 
if it learns or becomes aware that a Partnership fails to disseminate 
its NAV to all market participants at the same time, trading of such 
Partnership Units will be halted.\14\
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    \13\ E-mail from Jeffrey P. Burns, Vice President & Associate 
General Counsel, Exchange, to Michou Nguyen, Special Counsel, 
Division of Trading and Markets, Commission, on January 22, 2008; 
see also Amex Rule 1502(b)(ii)-(iii).
    \14\ E-mail from Jeffrey P. Burns, Vice President & Associate 
General Counsel, Exchange, to Brian Trackman, Special Counsel, 
Division of Trading and Markets, Commission, on January 17, 2008.
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    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 USHO and USG 
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 Partnership 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 \15\ 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 Heating Oil Interests or Gasoline 
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.
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    \15\ See Amex 2005-127 Order and Amex 2006-112 Order, supra note 
11.
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    (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 heating oil and 
gasoline 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 
\16\ for the initial and continued listing of the Units.
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    \16\ 17 CFR 240.10A-3.
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    This approval order is based on the Exchange's representations.

IV. Acceleration

    The Commission finds good cause, pursuant to Section 19(b)(2) of 
the Act,\17\ 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,\18\ 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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    \17\ 15 U.S.C. 78s(b)(2).
    \18\ See supra, note 11.
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    Accordingly, the Commission finds that there is good cause, 
consistent with Section 6(b)(5) of the Act,\19\ to approve the 
proposal, as amended, on an accelerated basis.
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    \19\ 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,\20\ that the proposed rule change (SR-Amex-2007-70), as amended, 
be, and is hereby approved on an accelerated basis.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Florence E. Harmon,
Deputy Secretary.
[FR Doc. E8-1613 Filed 1-29-08; 8:45 am]

BILLING CODE 8011-01-P
