
[Federal Register Volume 78, Number 162 (Wednesday, August 21, 2013)]
[Notices]
[Pages 51769-51775]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-20336]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-70209; File No. SR-NYSEArca-2013-60]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting 
Approval of Proposed Rule Change To List and Trade Shares of Market 
Vectors Low Volatility Commodity ETF and Market Vectors Long/Short 
Commodity ETF Under NYSE Arca Equities Rule 8.200

August 15, 2013.

I. Introduction

    On June 12, 2013, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
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 proposed rule change to 
list and trade shares (``Shares'') of the Market Vectors Low Volatility 
Commodity ETF (``Low Volatility ETF'') and Market Vectors Long/Short 
Commodity ETF (``Long/Short ETF'' and, together with the Low Volatility 
ETF, ``Funds'') under NYSE Arca Equities Rule 8.200. The proposed rule 
change was published for comment in the Federal Register on July 2, 
2013.\3\ The Commission received no comments on the proposed rule 
change. This order grants approval of the proposed rule change.
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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. 69862 (June 26, 
2013), 78 FR 39810 (``Notice'').
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II. Description of Proposed Rule Change

    The Exchange proposes to list and trade Shares of the Funds 
pursuant to NYSE Arca Equities Rule 8.200, Commentary .02.\4\ Each Fund 
is a series of the Market Vectors Commodity Trust (``Trust''), a 
Delaware statutory trust.\5\ Van Eck Absolute Return Advisers Corp. is 
the managing owner of the Funds (``Managing Owner'').\6\ The Managing 
Owner also serves as the commodity pool operator and commodity trading 
advisor of the Funds. The Managing Owner is registered as a commodity 
pool operator and commodity trading advisor with the Commodity Futures 
Trading Commission (``CFTC'') and is a member of National Futures 
Association. Wilmington Trust, National Association (``Trustee''), a 
national bank with its principal place of business in Delaware, is the 
sole trustee of the Trust. The Bank of New York Mellon will be the 
custodian, administrator, and transfer agent for the Funds.
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    \4\ Commentary .02 to NYSE Arca Equities Rule 8.200 applies to 
Trust Issued Receipts that invest in ``Financial Instruments.'' The 
term ``Financial Instruments,'' as defined in Commentary .02(b)(4) 
to NYSE Arca Equities Rule 8.200, means any combination of 
investments, including cash; securities; options on securities and 
indices; futures contracts; options on futures contracts; forward 
contracts; equity caps, collars, and floors; and swap agreements.
    \5\ The Trust filed a pre-effective amendment to its 
registration statements with respect to the Funds on Form S-1 under 
the Securities Act of 1933 (``1933 Act'') on December 7, 2012 (File 
No. 333-179435 for the Low Volatility ETF (``Low Volatility 
Registration Statement'')) and File No. 333-179432 for the Long/
Short ETF (``Long/Short Registration Statement'' and, together with 
the Low Volatility Registration Statement, ``Registration 
Statements'').
    \6\ The Managing Owner is affiliated with a broker-dealer and 
has implemented a ``fire wall'' with respect to such broker-dealer 
and has policies and procedures in place regarding access to 
information concerning the composition and/or changes to the Funds' 
portfolio composition.
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Overview of the Funds

    The Low Volatility ETF will seek to track changes, whether positive 
or negative, in the performance of the Morningstar[supreg] Long/Flat 
Commodity Index\SM\ (``Long/Flat Index'') over time. The Long/Short ETF 
will seek to track changes, whether positive or negative, in the 
performance of the Morningstar[supreg] Long/Short Commodity Index\SM\ 
(``Long/Short Index'' and, together with the Long/Flat Index, 
``Indexes'') over time.
    Each Fund will seek to achieve its respective investment objective 
by investing principally in exchange-traded futures contracts on 
commodities (``Index Commodity Contracts'') comprising the Long/Flat 
Index and the Long/Short Index, respectively, and U.S. Treasury bills 
maturing in eight weeks or less to reflect ``flat'' positions and, in 
certain circumstances (as described below), futures contracts other 
than Index Commodity Contracts traded on

[[Page 51770]]

U.S. or foreign exchanges (``Other Commodity Contracts'').\7\ In 
addition, to a limited extent, the Funds may also invest in swap 
agreements on Index Commodity Contracts or Other Commodity Contracts 
cleared through a central clearing house or the clearing house's 
affiliate (``Cleared Swaps''), forward contracts, exchange-traded cash-
settled options (including options on one or more Index Commodity 
Contracts, Other Commodity Contracts, or indexes that include any Index 
Commodity Contracts or Other Commodity Contracts), swaps other than 
Cleared Swaps, and other over-the-counter (``OTC'') transactions that 
provide economic exposure to the investment returns of the commodities 
markets, as represented by the Indexes and their constituents 
(collectively, ``Other Commodity Instruments,'' and, together with 
Other Commodity Contracts and Cleared Swaps, ``Other Instruments''), as 
described below. The Funds also may invest in U.S. Treasury bonds, 
other U.S. Treasury bills, and other U.S. government securities and 
related securities, money market funds, certificates of deposit, time 
deposits, and other high credit quality short-term fixed income 
securities, as described in the Registration Statements (collectively, 
``Cash Instruments''). The Cash Instruments used to track flat 
positions in the Indexes will be U.S. Treasury bills.
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    \7\ According to the Exchange, the Managing Owner expects that 
Other Commodity Contracts in which a Fund may invest in the 
circumstances described below would include futures contracts of 
different expirations, on different commodities, or traded on 
different exchanges than Index Commodity Contracts.
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    Each Fund intends to invest first in Index Commodity Contracts. 
Thereafter, if a Fund reaches the position limits applicable to one or 
more Index Commodity Contracts or a ``Futures Exchange'' \8\ imposes 
limitations on the Fund's ability to maintain or increase its positions 
in an Index Commodity Contract after reaching accountability levels or 
a price limit is in effect on an Index Commodity Contract during the 
last 30 minutes of its regular trading session, the Fund's intention is 
to invest first in Cleared Swaps, to the extent permitted under the 
position limits applicable to Cleared Swaps and appropriate in light of 
the liquidity in the Cleared Swaps market, and then, using its 
commercially reasonable judgment, in Other Commodity Contracts or in 
Other Commodity Instruments. By using certain or all of these 
investments, the Managing Owner will endeavor to cause a Fund's 
performance to closely track that of the Long/Flat Index or Long/Short 
Index, respectively, over time. The specific circumstances under which 
investments in Other Commodity Contracts and Other Commodity 
Instruments may be used are discussed below.
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    \8\ The Futures Exchanges are the exchanges on which the Index 
Commodity Contracts are traded and include the following: the 
Chicago Mercantile Exchange, Inc. (``CME''), Chicago Board of Trade 
(``CBOT'', a division of CME), NYMEX (a division of CME), ICE 
Futures US (``ICE-US''), and ICE Futures Europe (``ICE-UK''). Some 
of a Fund's futures trading may be conducted on commodity futures 
exchanges outside the United States. Trading on such exchanges is 
not regulated by any U.S. governmental agency and may involve 
certain risks not applicable to trading on U.S. exchanges, including 
different or diminished investor protections.
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    Consistent with seeking to achieve each Fund's investment 
objective, if a Fund reaches position limits applicable to one or more 
Index Commodity Contracts or when a Futures Exchange has imposed 
limitations on a Fund's ability to maintain or increase its positions 
in an Index Commodity Contract, the Managing Owner may cause a Fund to 
first enter into or hold Cleared Swaps and then, if applicable, enter 
into and hold Other Commodity Contracts or Other Commodity Instruments. 
For example, certain Cleared Swaps have standardized terms similar, and 
are priced by reference, to a corresponding Index Commodity Contract or 
Other Commodity Contract. Additionally, certain Other Commodity 
Instruments can generally be structured as the parties to the contract 
desire. Therefore, a Fund might enter into multiple Cleared Swaps and/
or certain Other Commodity Instruments intended to exactly replicate 
the performance of one or more Index Commodity Contracts or Other 
Commodity Contracts, or a single Other Commodity Instrument designed to 
replicate the performance of the applicable Index as a whole.\9\
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    \9\ Assuming that there is no default by a counterparty to an 
Other Commodity Instrument, the performance of the Other Commodity 
Instrument should positively correlate with the performance of the 
Long/Flat Index or Long/Short Index, as applicable, or the 
applicable Index Commodity Contract.
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    After reaching position limits or when a Futures Exchange has 
imposed limitations on the Fund's ability to maintain or increase its 
positions in an Index Commodity Contract as described above, and after 
entering into or holding Cleared Swaps, a Fund might also enter into or 
hold Other Commodity Contracts or Other Commodity Instruments that 
would (1) facilitate effective trading, consistent with a Fund's long/
flat or long/short strategy, as applicable; or (2) be expected to 
alleviate overall deviation between a Fund's performance and that of 
the Long/Flat Index or Long/Short Index, as applicable, that may result 
from certain market and trading inefficiencies or other reasons.
    By using certain or all of these investments, the Managing Owner 
will endeavor to cause a Fund's performance to closely track that of 
the Long/Flat Index or Long/Short Index, as applicable, over time. Each 
Fund will invest to the fullest extent possible in Index Commodity 
Contracts and Other Instruments without being leveraged (i.e., without 
seeking performance that is a multiple (e.g., 2X or 3X) or inverse 
multiple of the Fund's respective Index) or unable to satisfy its 
expected current or potential margin or collateral obligations with 
respect to its investments in Index Commodity Contracts and Other 
Commodity Contracts or Other Instruments.\10\
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    \10\ The Managing Owner will attempt to minimize these market 
and credit risks by requiring the Funds to abide by various trading 
limitations and policies, which will include limiting margin 
accounts and trading only in liquid markets. The Managing Owner will 
implement procedures which will include, but will not be limited to: 
Executing and clearing trades with creditworthy counterparties; 
limiting the amount of margin or premium required for any Index 
Commodity Contract or Other Commodity Contract or all Index 
Commodity Contracts or Other Commodity Contracts combined; and 
generally limiting transactions to Index Commodity Contracts or 
Other Commodity Contracts which will be traded in sufficient volume 
to permit the taking and liquidating of positions. The Funds will 
enter into Other Commodity Instruments traded OTC (if any) with 
counterparties selected by the Managing Owner. The Managing Owner 
will select such Other Commodity Instrument (if any) counterparties 
giving due consideration to such factors as it deems appropriate, 
including, without limitation, creditworthiness, familiarity with 
the applicable Index, and price. Under no circumstances will the 
Funds enter into an Other Commodity Instrument traded OTC (if any) 
with any counterparty whose credit rating is lower than investment-
grade at the time a contract is entered into. The Funds expect that 
investments in OTC Other Commodity Instruments (if any) will be made 
on terms that are standard in the market for such OTC Other 
Commodity Instruments. In connection with such OTC Other Commodity 
Instruments, the Funds may post or receive collateral in the form of 
Cash Instruments, which will be marked to market daily.
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    Each of the Indexes is currently composed of long, flat, or short 
(as applicable) positions in Index Commodity Contracts, each of which 
is subject to speculative position limits and other position 
limitations, as applicable, which are imposed by either the CFTC or the 
rules of the Futures Exchanges on which the Index Commodity Contracts 
are traded. These position limits prohibit any person from holding a 
position of more than a specific number of such Index Commodity 
Contracts.
    Futures Exchanges may establish daily price fluctuation limits on 
futures contracts. The daily price fluctuation

[[Page 51771]]

limit establishes the maximum amount that the price of futures 
contracts may vary either up or down from the previous day's settlement 
price. Once the daily price fluctuation limit has been reached in a 
particular futures contract, no trades may be made at a price beyond 
that limit. Futures Exchanges may also establish accountability levels 
applicable to futures contracts. A Futures Exchange may order a person 
who holds or controls aggregate positions in excess of specified 
position accountability levels not to further increase the positions, 
to comply with any prospective limit which exceeds the size of the 
position owned or controlled, or to reduce any open position which 
exceeds position accountability levels if the Futures Exchange 
determines that such action is necessary to maintain an orderly market. 
Position limits, accountability levels, and daily price fluctuation 
limits set by the Futures Exchanges have the potential to cause 
tracking error, which could cause changes in the net asset value 
(``NAV'') per Share to substantially vary from changes in the level of 
the Index and prevent an investor from being able to effectively use 
the Fund as a way to indirectly invest in the global commodity markets.
    According to the Exchange, although the Managing Owner does not 
expect the Funds to have a significant exposure to Other Commodity 
Instruments that trade OTC, the Trust's Declaration of Trust does not 
limit the amount of funds that the Funds may invest in such Other 
Commodity Instruments. Therefore, as the amount of funds invested in 
Other Commodity Instruments that trade OTC increase, the applicable 
risks described in the Registration Statements increase 
correspondingly.\11\
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    \11\ Markets in which a Fund may effect a transaction in certain 
Other Commodity Instruments may be in the OTC markets. The 
participants and dealers in such markets are typically not subject 
to the same level of credit evaluation and regulatory oversight as 
are members of the exchange-based markets. This exposes a Fund to 
the risk that a counterparty will not settle a transaction in 
accordance with its terms and conditions because of a credit or 
liquidity problem or a dispute over the terms of the contract 
(whether or not bona fide), thus causing the Fund to suffer a loss. 
See note 10, supra.
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The Long/Flat Index

    The Long/Flat Index is a rules-based, fully collateralized 
commodity futures index that employs a momentum rule to determine if 
exposure to a particular commodity should be maintained with its 
prescribed weighting (``long position'') or moved to cash (``flat 
position'').\12\ For each Index Commodity Contract represented by the 
Long/Flat Index, Morningstar[supreg], Inc. (``Morningstar'') \13\ 
calculates a ``linked price'' \14\ that incorporates both price changes 
and roll yield.\15\ Whether a position will be long or flat is 
determined, at the time of a monthly repositioning, by comparing the 
linked price of each Index Commodity Contract to its 12-month moving 
average. For example, if, at a monthly repositioning, the linked price 
for an Index Commodity Contract exceeds its 12-month moving average, 
the Long/Flat Index takes the long position in the subsequent month. 
Conversely, if the linked price for an Index Commodity Contract is 
below its 12-month moving average, the Long/Flat Index moves the 
position to cash, i.e., flat.
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    \12\ According to the Exchange, a long position is a position 
that will increase in market price if the price of the commodities 
comprising the Long/Flat Index, in the aggregate, are rising during 
the period when the position is open. A flat position is a position 
that will not increase in market price whether the price of the 
commodities comprising the Long/Flat Index, in the aggregate, is 
rising or falling.
    \13\ Morningstar, Inc. is the index provider (``Index Provider'' 
or ``Morningstar'') with respect to the Indexes. Morningstar is not 
registered as a broker-dealer. Morningstar Investment Services 
(``MIS''), a wholly-owned subsidiary of the Index Provider, is a 
broker-dealer and a registered investment adviser under the 
Investment Advisers Act of 1940. Morningstar has implemented 
procedures designed to prevent the illicit use and dissemination of 
material, non-public information regarding the Indexes and has 
implemented a ``fire wall'' with respect to its affiliated broker-
dealer regarding the Indexes.
    \14\ A ``linking'' factor is defined for each commodity that 
converts the price of the contract in effect at each point in time 
to a value that accounts for contract rolls, i.e., the ``linked 
price.'' Each time a contract is rolled, the ``linking'' factor is 
adjusted by the ratio of the closing price of the current contract 
to the closing price of the new contract.
    \15\ Roll yield is the amount of return generated (either 
positive or negative) by rolling a short-term contract into a 
longer-term contract and profiting or losing money from the 
convergence toward a higher or lower spot price. The linked price is 
determined on the basis of price changes and roll yields. Rolling a 
futures contract means closing out a position on near-dated (i.e., 
commodity futures contracts that are nearing expiration) commodity 
futures contracts before they expire and establishing an equivalent 
position in a longer-dated futures contract (i.e., commodity futures 
contracts that have an expiration date further in the future) on the 
same commodity. Futures contacts can be in ``backwardation,'' which 
means that futures contracts with longer-term expirations are priced 
lower than those with shorter-term expirations, or can exhibit 
``contango,'' which means that futures contacts with longer-term 
expirations are priced higher than those with shorter-term 
expirations. In backwardation, market roll yields are positive. In 
contango, market roll yields are negative.
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    To be considered for inclusion in the Long/Flat Index, a commodity 
future must be listed on a U.S. futures exchange, be denominated in 
U.S. dollars and rank in the top 95% by total U.S. dollar value of the 
total open interest pool of all eligible commodities. The weight of 
each Index Commodity Contract is the product of two factors: magnitude 
and the direction of the momentum signal (i.e., 1 for long, 0 for flat, 
or -1 for short). On the annual reconstitution date, the magnitude is 
the open interest weight of the Index Commodity Contract, calculated on 
the second Friday of December, using data through the last trading day 
of November. Individual contract weights are capped at 10%. Between 
reconstitution dates, the weights vary based on the performance of the 
individual commodity positions. The Long/Flat Index is reconstituted 
annually and directions (i.e., whether long or flat) of each Index 
Commodity Contract are determined monthly on the second Friday of each 
month, which is one week prior to the monthly repositioning. As of 
February 28, 2013, the sector weightings of the Long/Flat Index were 
Agriculture (29.44%), Energy (50.37%), Livestock (4.48%), and Metals 
(15.71%).

The Long/Short Index

    The Long/Short Index is a rules-based, fully collateralized 
commodity futures index that employs a momentum rule to determine if 
exposure to a particular Index Commodity Contract should be maintained 
with its prescribed weighting (``long position'') or moved to a short 
weighting (``short position'').\16\ For each Index Commodity Contract 
represented by the Long/Short Index, Morningstar calculates a ``linked 
price''\17\ that incorporates both price

[[Page 51772]]

changes and roll yield.\18\ Whether a position will be long or short 
(or cash, i.e., flat in the case of energy futures contracts, as 
described below) is determined, at the time of a monthly repositioning, 
by comparing the linked price of each Index Commodity Contract to its 
12-month moving average. For example, if, at a monthly repositioning, 
the linked price for an Index Commodity Contract exceeds its 12-month 
moving average, the Long/Short Index takes a long position in the 
subsequent month. Conversely, if the linked price for an Index 
Commodity Contract is below its 12-month moving average, the Long/Short 
Index takes a short position. An exception is made for commodities in 
the energy sector. If the signal for an Index Commodity Contract in the 
energy sector is short, the weight of that Index Commodity Contract is 
moved to cash (i.e., flat). According to the Long/Short Registration 
Statement, energy is unique in that its price is extremely sensitive to 
geopolitical events and not necessarily driven purely by demand-supply 
imbalances.
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    \16\ A short position is a position that will increase in market 
price if the price of the Index Commodity Contracts comprising the 
Long/Short Index, in the aggregate, are falling during the period 
when the position is open. The Long/Short Index includes short 
positions in Index Commodity Contracts. The Long/Short ETF may also 
obtain a short position relative to certain Index Commodity 
Contracts by establishing a short position with a counterparty by 
investing in Other Instruments. According to the Long/Short 
Registration Statement, the Long/Short ETF will profit if the price 
of a short position in an Index Commodity Contract or Other 
Instrument that provides exposure to a short position in such Index 
Commodity Contract falls while the position is open, and the Long/
Short ETF will suffer loss if the price of a short position in an 
Index Commodity Contract or Other Instrument that provides exposure 
to a short position in such Index Commodity Contract rises while the 
position is open. Because the value of the Index Commodity Contract 
or Other Instrument could rise an unlimited amount, a short position 
in an Index Commodity Contract or Other Instrument that provides 
exposure to a short position in such Index Commodity Contract 
theoretically will expose the Long/Short ETF to unlimited losses. In 
circumstances where a market has reached its maximum price limits 
imposed by the applicable exchange, the Long/Short ETF may be unable 
to offset its short position until the next trading day, when prices 
could expand again in rapid trading.
    \17\ See note 14, supra.
    \18\ See note 15, supra.
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    To be considered for inclusion in the Long/Short Index, a commodity 
future must be listed on a U.S. futures exchange, be denominated in 
U.S. dollars and rank in the top 95% by total U.S. dollar value of the 
total open interest pool of all eligible commodities. The weight of 
each individual Index Commodity Contract is the product of two factors: 
magnitude and the direction of the momentum signal (i.e., 1 for long, 0 
for flat, or -1 for short). On the annual reconstitution date, the 
magnitude is the open interest weight of the Index Commodity Contract, 
calculated on the second Friday of December, using data through the 
last trading day of November. Individual contract weights are capped at 
10%. Between reconstitution dates, the weights vary based on the 
performance of the individual Index Commodity Contract positions. The 
Long/Short Index is reconstituted annually and directions (i.e., 
whether long, flat, or short) of each Index Commodity Contract are 
determined monthly on the second Friday of each month, which is one 
week prior to the monthly repositioning. As of February 28, 2013, the 
sector weightings of the Long/Short Index were Agriculture (29.40%), 
Energy (49.57%), Livestock (4.69%), and Metals (16.34%). The inception 
date of the Long/Short Index was December 21, 1979.

Composition of the Indexes

    Information on the composition of the Indexes as of February 28, 
2013, including the Index Commodity Contracts, percentage weightings 
and signals, as well as the Futures Exchanges on which the Index 
Commodity Contracts trade, is set forth in the Notice.\19\
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    \19\ See Notice, supra note 3, at 39814-5.
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    With respect to each of the Indexes, the following are excluded:
    (1) Financial futures contracts (e.g., securities, currencies, 
interest rates, etc.).
    (2) Commodity futures contracts not denominated in U.S. dollars.
    (3) Commodity futures contracts with less than twelve months of 
pricing.
    Morningstar sorts all commodity futures contracts that meet the 
above eligibility requirements in descending order by the total U.S. 
dollar value of open interest. All commodity futures contracts that 
make up the top 95% of the total open interest pool of all eligible 
commodity futures contracts, starting with the one with the largest 
open interest value, will be included in each of the Indexes.
    The weight of each Index Commodity Contract in the Indexes is the 
product of two factors: magnitude and the direction of the momentum 
signal. Morningstar initially sets the magnitude based on the 12-month 
average of the dollar value of open interest of each Index Commodity 
Contract. Morningstar then caps the top magnitude at 10%, 
redistributing any overage to the magnitudes of the remaining Index 
Commodity Contracts. Morningstar chooses this capped open-interest 
weighting system in order to reflect the importance of each Index 
Commodity Contract in a global economy and to keep the Indexes 
diversified across commodities.
    Each of the Indexes is reconstituted and rebalanced (i.e., the 
Indexes' membership and constituent weights are reset) annually, on the 
third Friday of December after the day's closing values of the Indexes 
have been determined. The reconstitution is effective at the open of 
trading on first trading day after the third Friday of December.
    Morningstar implements all futures contract rolls on the third 
Friday of each month to coincide with portfolio repositioning and the 
rolling of the U.S. Treasury bills used for collateral. If the third 
Friday of the month is a trading holiday, Morningstar rolls and 
rebalances or reconstitutes on the trading day prior to the third 
Friday. To ensure that contracts are rolled before becoming committed 
to receive physical delivery, contracts are selected so that the 
delivery month is at least two months away from the upcoming month. On 
each potential roll date, the delivery month of the current contract is 
compared to the delivery month of the nearest contract whose delivery 
month is at least two months away from the upcoming month. If the 
latter is further into the future than the former, the contract is 
rolled.
    A more detailed description of the Funds and the Shares, the 
Indexes and the Index Commodity Contracts, as well as investment risks, 
creation and redemption procedures, NAV calculation, availability of 
values and other information regarding the Funds' holdings, and fees, 
among other things, is included in the Notice and the Registration 
Statements, as applicable.\20\
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    \20\ See supra notes 3 and 5, respectively.
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III. Discussion and Commission's Findings

    After careful review, the Commission finds that the proposed rule 
change is consistent with the requirements of Section 6 of the Act \21\ 
and the rules and regulations thereunder applicable to a national 
securities exchange.\22\ In particular, the Commission finds that the 
proposed rule change is consistent with Section 6(b)(5) of the Act,\23\ 
which requires, among other things, that the Exchange's rules be 
designed 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, 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 
the Shares must comply with the requirements of NYSE Arca Equities Rule 
8.200 and Commentary .02 thereto to be listed and traded on the 
Exchange.
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    \21\ 15 U.S.C. 78f.
    \22\ 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).
    \23\ 15 U.S.C. 78f(b)(5).
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    The Commission finds that the proposal to list and trade the Shares 
on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the 
Act,\24\ 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. According to

[[Page 51773]]

the Exchange, quotation and last-sale information for the Shares will 
be disseminated through the facilities of the Consolidated Tape 
Association (``CTA''). Further, the prices of the Index Commodity 
Contracts, Other Instruments (except as described below) and Cash 
Instruments held by the Fund will be available from the applicable 
exchanges and market data vendors. The closing prices and settlement 
prices of Index Commodity Contracts or Other Commodity Contracts held 
by the Funds are readily available from the Web sites of the applicable 
Futures Exchanges, other futures exchanges, automated quotation 
systems, published or other public sources, or on-line information 
services such as Bloomberg or Reuters. Moreover, according to the 
Exchange, the relevant futures exchanges on which the Index Commodity 
Contracts or Other Commodity Contracts are listed also provide delayed 
futures information on current and past trading sessions and market 
news free of charge on their respective Web sites. The specific 
contract specifications for the Index Commodity Contracts or Other 
Commodity Contracts are also available on such Web sites, as well as 
other financial informational sources. The prices of forward 
agreements, swaps, and other OTC transactions held by the Funds are not 
available from the exchanges, but will be available from major market 
data vendors and financial information service providers such as 
Reuters and Bloomberg and will be included in the calculation of the 
NAV and the intra-day indicative value (``IIV'') for the Shares.
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    \24\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
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    Each Fund will disseminate its respective holdings on a daily basis 
on the Funds' Web site, which will include, as applicable, the names, 
quantity, price and market value of Index Commodity Contracts, Other 
Instruments (including forward contracts, OTC swaps, and other OTC 
transactions), and Cash Instruments. This Web site disclosure of the 
portfolio composition of the Funds will occur at the same time as the 
disclosure by the Managing Owner of the portfolio composition to 
authorized participants so that all market participants are provided 
portfolio composition information at the same time.\25\
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    \25\ Disclosure regarding the components of each Index, the 
percentage weightings of the components of each Index and the long, 
short, or flat positions therein is available at http://corporate.morningstar.com/US/asp/subject.aspx?page=2649&filter=Commodity&xmlfile=2738.xml.
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    The intra-day level and the most recent end-of-day closing level of 
each Index will be published by the Exchange once every 15 seconds 
throughout the Exchange's Core Trading Session and as of the close of 
business for the Exchange, respectively. Any adjustments made to an 
Index will be published on Morningstar's Web site. The IIV \26\ per 
Share of each Fund will be widely disseminated by one or more major 
market data vendors at least every 15 seconds during the NYSE Arca Core 
Trading Session.\27\ The NAV per Share of each Fund will be calculated 
as of the closing time of NYSE Arca Core Trading Session or the last to 
close of the Futures Exchanges on which the Index Commodity Contracts 
or Other Commodity Contracts (which are listed on futures exchanges 
other than Futures Exchanges) are traded, whichever is later.\28\ The 
NAV for each Fund will be disseminated to all market participants at 
the same time. The Exchange will make available on its Web site daily 
trading volume of the Shares, closing prices of the Shares, and the 
corresponding NAV.
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    \26\ The IIV will be based on the prior day's final NAV per 
Share, adjusted every 15 seconds during the NYSE Arca Core Trading 
Session to reflect the continuous price changes of a Fund's Index 
Commodity Contracts and other holdings. The Exchange represents that 
the normal trading hours for Index Commodity Contracts may begin 
after 9:30 a.m. and end before 4:00 p.m., Eastern Time, and that 
there will be a gap in time at the beginning and the end of each day 
during which the Funds' Shares will be traded on the Exchange, but 
real-time trading prices for at least some of the Index Commodity 
Contracts held by the Funds are not available. As a result, during 
those gaps the IIVs of the Funds will be updated but will reflect 
the closing prices for such Index Commodity Contracts that have 
stopped trading before the NAV is calculated.
    \27\ According to the Exchange, several major market data 
vendors display and/or make widely available IIVs taken from the CTA 
or other data feeds.
    \28\ All open commodity futures contracts traded on a U.S. or 
non-U.S. exchange will be calculated at their then current market 
value, which will be based upon the settlement price for that 
particular commodity futures contract traded on the applicable U.S. 
or non-U.S. exchange on the date with respect to which NAV is being 
determined; provided, that if a commodity futures contract traded on 
a U.S. or on a non-U.S. exchange could not be liquidated on such 
day, due to the operation of daily limits (if applicable) or other 
rules of the exchange upon which that position is traded or 
otherwise, the settlement price on the most recent day on which the 
position could have been liquidated will be the basis for 
determining the market value of such position for such day. The 
value of Cleared Swaps will be determined based on the value of the 
Index Commodity Contract in connection with each specific Cleared 
Swap. In calculating the NAV of a Fund, the settlement value of a 
Cleared Swap (if any) and an OTC Other Commodity Instrument (if any) 
will be determined by either applying the then-current disseminated 
value for the related Index Commodity Contracts or the terms as 
provided under the applicable Cleared Swap or OTC Other Commodity 
Instrument, as applicable. However, in the event that one or more of 
the related Index Commodity Contracts are not trading due to the 
operation of daily limits or otherwise, the Managing Owner may in 
its sole discretion choose to value the applicable Fund's Cleared 
Swaps or OTC Other Commodity Instruments (if any) on a fair value 
basis in order to calculate such Fund's NAV. These fair value prices 
would be generally determined based on available inputs about the 
current value of the Index Commodity Contract to which the Cleared 
Swap or OTC Other Commodity Instrument relates and would be based on 
principles that the Managing Owner deems fair and equitable so long 
as such principles are consistent with normal industry standards. 
Exchange-traded Other Commodity Instruments will be valued at their 
market prices on the exchanges on which such instruments trade.
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    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. If 
the Exchange becomes aware that the NAV with respect to the Shares is 
not disseminated to all market participants at the same time, it will 
halt trading in the Shares until such time as the NAV is available to 
all market participants. Further, the Exchange represents that it may 
halt trading during the day in which an interruption to the 
dissemination of the IIV, an Index value, or the value of the Index 
Commodity Contracts or Other Instruments occurs. If the interruption 
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 Exchange may halt trading in the Shares if 
trading is not occurring in the Index Commodity Contracts or Other 
Instruments, or if other unusual conditions or circumstances 
detrimental to the maintenance of a fair and orderly market are 
present.\29\ The Exchange states that it has a general policy 
prohibiting the distribution of material, non-public information by its 
employees. Moreover, the trading of the Shares will be subject to NYSE 
Arca Equities Rule 8.200, Commentary .02(e), which sets forth certain 
restrictions on Equity Trading Permit (``ETP'') Holders \30\ acting as 
registered Market Makers \31\ in Trust Issued Receipts to facilitate 
surveillance.
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    \29\ With respect to trading halts, the Exchange may consider 
all relevant factors in exercising its discretion to halt or suspend 
trading in the Shares. Trading in the Shares will be subject to 
trading halts caused by extraordinary market volatility pursuant to 
the Exchange's ``circuit breaker'' rule in NYSE Arca Equities Rule 
7.12. Trading also may be halted because of market conditions or for 
reasons that, in the view of the Exchange, make trading in the 
Shares inadvisable.
    \30\ See NYSE Arca Equities Rule 1.1(n) (defining ETP Holder).
    \31\ See NYSE Arca Equities Rule 1.1(v) (defining Market Maker).

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[[Page 51774]]

    The Commission notes that the Financial Industry Regulatory 
Authority (``FINRA''), on behalf of the Exchange,\32\ will communicate 
as needed regarding trading in the Shares with other markets and other 
entities that are members of the Intermarket Surveillance Group 
(``ISG'') and FINRA may obtain trading information regarding trading in 
the Shares, futures contracts, and exchange-traded options from such 
markets and other entities. In addition, the Exchange may obtain 
information regarding trading in the Shares, futures contracts, and 
exchange-traded options from markets and other entities that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.\33\ The Managing Owner is affiliated 
with a broker-dealer and has implemented a ``fire wall'' with respect 
to such broker-dealer, and has policies and procedures in place 
regarding access to information concerning the composition and/or 
changes to the Funds' portfolio composition. The Index provider is not 
registered as a broker-dealer but is affiliated with a broker-dealer 
and has implemented procedures designed to prevent the illicit use and 
dissemination of material, non-public information regarding the Indexes 
and has implemented a ``fire wall'' with respect to its affiliated 
broker-dealer regarding the Indexes.
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    \32\ The Exchange states that, while FINRA surveils trading on 
the Exchange pursuant to a regulatory services agreement, the 
Exchange is responsible for FINRA's performance under this 
regulatory services agreement.
    \33\ The Exchange states that CME Group, Inc., (which includes 
CME, CBOT, and NYMEX), and ICE-US are members of ISG. In addition, 
the Exchange states that it has entered into a comprehensive 
surveillance sharing agreement with ICE-UK that applies with respect 
to trading in Index Commodity Contracts.
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    The Exchange represents that the Shares are deemed to be equity 
securities, thus rendering trading in the Shares subject to the 
Exchange's existing rules governing the trading of equity securities. 
In support of this proposal, the Exchange has made representations, 
including:
    (1) Each Fund will meet the initial and continued listing 
requirements applicable to Trust Issued Receipts in NYSE Arca Equities 
Rule 8.200 and Commentary .02 thereto.
    (2) The Exchange has appropriate rules to facilitate transactions 
in the Shares during all trading sessions.
    (3) The trading in the Shares will be subject to the existing 
trading surveillances, administered by FINRA on behalf of the Exchange, 
which are designed to detect violations of Exchange rules and 
applicable federal securities laws, and that these procedures are 
adequate to properly monitor Exchange trading of the Shares in all 
trading sessions and to deter and detect violations of Exchange rules 
and applicable federal securities laws.
    (4) Prior to the commencement of trading, the Exchange will inform 
its ETP Holders in an Information Bulletin of the special 
characteristics and risks associated with trading the Shares. 
Specifically, the Information Bulletin will discuss the following: (a) 
The risks involved in trading the Shares during the Opening and Late 
Trading Sessions when an updated IIV will not be calculated or publicly 
disseminated, as well as during the Core Trading Session where the IIV 
may be based in part on static underlying values; (b) the procedures 
for purchases and redemptions of Shares in creation baskets and 
redemption baskets (and that Shares are not individually redeemable); 
(c) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due 
diligence on its ETP Holders to learn the essential facts relating to 
every customer prior to trading the Shares; (d) how information 
regarding the IIV is disseminated; (e) the requirement that ETP Holders 
deliver a prospectus to investors purchasing newly issued Shares prior 
to or concurrently with the confirmation of a transaction; and (f) 
trading information.
    (5) With respect to application of Rule 10A-3 under the Act,\34\ 
the Funds rely on the exception contained in Rule 10A-3(c)(7).\35\
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    \34\ 17 CFR 240.10A-3.
    \35\ 17 CFR 240.10A-3(c)(7).
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    (6) Each Fund intends to invest first in Index Commodity Contracts. 
Thereafter, if a Fund reaches the position limits applicable to one or 
more Index Commodity Contracts or a Futures Exchange imposes 
limitations on the Fund's ability to maintain or increase its positions 
in an Index Commodity Contract after reaching accountability levels or 
a price limit is in effect on an Index Commodity Contract during the 
last 30 minutes of its regular trading session, each Fund's intention 
is to invest first in Cleared Swaps to the extent permitted under the 
position limits applicable to Cleared Swaps and appropriate in light of 
the liquidity in the Cleared Swaps market, and then, using its 
commercially reasonable judgment, in Other Commodity Contracts or in 
Other Commodity Instruments. Each Fund's investments will be consistent 
with such Fund's investment objective and will not be used to enhance 
leverage.
    (7) With respect to the Funds' assets traded on exchanges, not more 
than 10% of the weight of such assets in the aggregate shall consist of 
components whose principal trading market is not a member of ISG or is 
a market with which the Exchange does not have a comprehensive 
surveillance sharing agreement.
    (8) The Managing Owner will attempt to minimize market and credit 
risks by requiring the Funds to abide by various trading limitations 
and policies, which will include limiting margin accounts and trading 
only in liquid markets. The Managing Owner will implement procedures 
which will include, but will not be limited to: executing and clearing 
trades with creditworthy counterparties; limiting the amount of margin 
or premium required for any Index Commodity Contract or Other Commodity 
Contract or all Index Commodity Contracts or Other Commodity Contracts 
combined; and generally limiting transactions to Index Commodity 
Contracts or Other Commodity Contracts which will be traded in 
sufficient volume to permit the taking and liquidating of positions.
    (9) The Funds will enter into Other Commodity Instruments traded 
OTC (if any) with counterparties selected by the Managing Owner. The 
Managing Owner will select such Other Commodity Instrument 
counterparties giving due consideration to such factors as it deems 
appropriate, including, without limitation, creditworthiness, 
familiarity with the applicable Index, and price. Under no 
circumstances will the Funds enter into an OTC Other Commodity 
Instrument with any counterparty whose credit rating is lower than 
investment-grade at the time a contract is entered into. The Funds 
expect that investments in OTC Other Commodity Instruments (if any) 
will be made on terms that are standard in the market for such OTC 
Other Commodity Instruments. In connection with such OTC Other 
Commodity Instruments, the Funds may post or receive collateral in the 
form of Cash Instruments, which will be marked to market daily.
    (10) A minimum of 100,000 Shares of each Fund will be outstanding 
at the commencement of trading on the Exchange.
    This approval order is based on all of the Exchange's 
representations and description of the Funds, including those set forth 
above and in the Notice.\36\
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    \36\ The Commission notes that it does not regulate the market 
for U.S.-traded futures in which the Funds plans to take positions, 
which is the responsibility of the CFTC. The CFTC has the authority 
to set limits on the positions that any person may take in such 
futures. These limits may be directly set by the CFTC or by the 
markets on which such futures are traded. The Commission has no role 
in establishing position limits on such futures even though such 
limits could impact an exchange-traded product that is under the 
jurisdiction of the Commission.

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[[Page 51775]]

    For the foregoing reasons, the Commission finds that the proposed 
rule change is consistent with Section 6(b)(5) of the Act \37\ and the 
rules and regulations thereunder applicable to a national securities 
exchange.
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    \37\ 15 U.S.C. 78f(b)(5).
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IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\38\ that the proposed rule change (SR-NYSEArca-2013-60) be, and it 
hereby is, approved.
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    \38\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\39\
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    \39\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2013-20336 Filed 8-20-13; 8:45 am]
BILLING CODE 8011-01-P


