
[Federal Register Volume 82, Number 78 (Tuesday, April 25, 2017)]
[Notices]
[Pages 19115-19117]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-08284]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80486; File No. SR-NYSEArca-2016-177]


Self-Regulatory Organizations; NYSE Arca, Inc.; Order Instituting 
Proceedings To Determine Whether To Approve or Disapprove a Proposed 
Rule Change Relating to the Listing and Trading of Shares of the USCF 
Canadian Crude Oil Index Fund Under NYSE Arca Equities Rule 8.200

April 19, 2017.

I. Introduction

    On December 30, 2016, 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 USCF 
Canadian Crude Oil Index Fund (``Fund'') under NYSE Arca Equities Rule 
8.200. The proposed rule change was published for comment in the 
Federal Register on January 23, 2017.\3\ On March 8, 2017, pursuant to 
Section 19(b)(2) of the Act,\4\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\5\ The Commission has received no 
comments on the proposed rule change. This order institutes proceedings 
under Section 19(b)(2)(B) of the Act \6\ to determine whether to 
approve or disapprove 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. 79793 (January 13, 
2017), 82 FR 7885 (``Notice'').
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 80180, 82 FR 13702 
(March 14, 2017). The Commission designated April 23, 2017 as the 
date by which the Commission shall either approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
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II. Exchange's Description of the Proposal

    The Exchange proposes to list and trade Shares of the Fund under 
NYSE Arca Equities Rule 8.200, Commentary .02, which governs the 
listing and trading of Trust Issued Receipts.\7\ The Fund is a series 
of the United States Commodity Index Funds Trust (``Trust'') \8\ and is 
a commodity pool that will continuously issue common shares of 
beneficial interest that may be purchased and sold on the Exchange. The 
Trust and the Fund are managed and controlled by United States 
Commodity Funds LLC (``USCF'' or ``Sponsor''), which is registered as a 
commodity pool operator with the Commodity Futures Trading Commission 
and is a member of the National Futures Association. Brown Brothers 
Harriman & Co., Inc. will be the administrator and custodian for the 
Fund. ALPS Distributors, Inc. will be the marketing agent (``Marketing 
Agent'') for the Fund.
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    \7\ 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.
    \8\ According to the Exchange, the Trust filed with the 
Commission on June 16, 2016 a registration statement on Form S-1 
under the Securities Act of 1933 relating to the Fund (File No. 333-
212089) (``Registration Statement'').
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    The Exchange has made the following representations and statements 
in describing the Fund and its investment strategies, including the 
Fund's portfolio holdings and investment restrictions.\9\
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    \9\ The Commission notes that additional information regarding 
the Trust, the Fund, and the Shares, including investment 
strategies, risks, net asset value (``NAV'') calculation, creation 
and redemption procedures, fees, availability of information, 
trading rules and halts, surveillance, information bulletins, 
distributions, and taxes, among other information, is included in 
the Notice and the Registration Statement, as applicable. See Notice 
and Registration Statement, supra notes 3 and 8, respectively.

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[[Page 19116]]

A. Investment Objective and Principal Investments of the Fund

    According to the Exchange, the investment objective of the Fund is 
for the daily changes in percentage terms of its per-Share NAV to 
reflect the daily changes in percentage terms of the Canadian Crude 
Excess Return Index (``CCIER''),\10\ plus interest income from the 
Fund's short-term fixed income holdings, less the Fund's expenses. The 
CCIER targets an exposure that represents an approximately 3-month 
rolling position in the following futures contracts: (i) ICE Crude 
Diff--TMX WCS 1B Index Futures (``WCS Futures'') and (ii) ICE WTI Crude 
Futures (``WTI Futures,'' and together with WCS Futures, collectively, 
``Benchmark Component Futures Contracts'').\11\
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    \10\ The Exchange represents that the CCIER is owned and 
maintained by Auspice Capital Advisors Ltd. and is designed to 
measure the performance of the Canadian crude oil market. It is 
calculated and tracked daily and reported each trading day via major 
market data vendors.
    \11\ According to the Exchange, the WCS Futures are monthly 
cash-settled futures based on the TMX WCS (Western Canadian Select) 
Daily Weighted Average Price Index (``TMX WCS 1b Index'') traded on 
ICE Futures Europe. The TMX WCS 1b Index is expressed as a 
differential to the NYMEX WTI 1st Line Futures (Calendar Month 
Average). The WTI Futures are the ICE West Texas Intermediate (WTI) 
Light Sweet Crude Oil Futures Contracts traded on ICE Futures 
Europe. ICE Futures Europe, NYMEX, and other futures exchanges on 
which the Fund may trade listed futures contracts are referred to 
collectively as ``Futures Exchanges.''
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    The Fund will seek to achieve its investment objective by first 
entering into cash-settled over-the-counter (``OTC'') total return swap 
and forward transactions intended to replicate the return of the CCIER 
(``OTC Derivatives Contracts'') and, second, to the extent market 
conditions are more favorable for futures as compared to OTC 
Derivatives Contracts, investing in the Benchmark Component Futures 
Contracts that comprise the CCIER. The Fund will support these 
investments by holding the amounts of its margin, collateral, and other 
requirements relating to these obligations in short-term obligations of 
the United States of two years or less, cash, and cash equivalents.
    If constrained by regulatory requirements, or in view of market 
conditions, or if one or more of the other Benchmark Component Futures 
Contracts is not available, the Fund may next invest in exchange-traded 
futures contracts that are economically identical or substantially 
similar to the Benchmark Component Futures Contracts, e.g., futures 
contracts that are based on changes in the price of WTI oil traded on 
the Chicago Mercantile Exchange. When, in view of regulatory 
requirements and market conditions, the Fund has invested to the 
fullest extent possible in the OTC Derivatives Contracts and exchange-
traded futures contracts, the Fund may then invest in other OTC 
derivative contracts and/or other contracts and instruments based on 
the Benchmark Component Futures Contracts or on the price of the crude 
oil underlying the Benchmark Component Futures Contracts, such as cash-
settled options, cleared swap contracts, and swap contracts other than 
cleared swap contracts.\12\
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    \12\ The Exchange notes that Benchmark Component Futures 
Contracts, other exchange-traded futures contracts that are 
economically identical or substantially similar to the Benchmark 
Component Futures Contracts, and other contracts and instruments 
based on the Benchmark Component Futures Contracts, are referred to 
collectively as ``Other Crude Oil-Related Investments,'' and 
together with OTC Derivatives Contracts, ``Crude Oil Interests.'' 
The Exchange notes that market conditions that USCF currently 
anticipates could cause the Fund to invest in Other Crude Oil-
Related Investments include those allowing the Fund to obtain 
greater liquidity, to execute transactions with more favorable 
pricing, or if the Fund or USCF exceeds position limits or 
accountability levels established by an exchange.
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    The Fund will seek to achieve its investment objective by investing 
so that the average daily percentage change in the Fund's NAV for any 
period of 30 successive valuation days will be within plus/minus 10% of 
the average daily percentage change in the CCIER over the same period. 
The Sponsor believes that market arbitrage opportunities will cause 
daily changes in the Fund's Share price on the Exchange on a percentage 
basis to closely track the daily changes in the Fund's per Share NAV on 
a percentage basis. The Sponsor also believes that the net effect of 
this expected relationship and the expected relationship described 
above between the Fund's per Share NAV and the CCIER will be that the 
daily changes in the price of the Fund's Shares on the Exchange on a 
percentage basis will closely track the daily changes in the CCIER on a 
percentage basis, plus interest income from the Fund's short-term fixed 
income holdings, less the Fund's expenses.

B. OTC Derivatives Contracts

    According to the Exchange, the Fund will primarily invest in OTC 
Derivatives Contracts that are based on Benchmark Component Futures 
Contracts and, in the opinion of the Sponsor, are traded in sufficient 
volume to permit the ready taking and liquidation of positions.\13\
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    \13\ The Exchange states that the OTC Derivatives Contracts will 
be entered between two parties, outside of public exchanges, in 
private contracts. Unlike the exchange-traded Benchmark Component 
Futures Contracts, each party to an OTC Derivatives Contract bears 
credit risk with respect to the other party. To reduce such credit 
risk, the Fund will generally enter into an agreement with each 
counterparty based on the Master Agreement published by the 
International Swaps and Derivatives Association, Inc. (``ISDA'') 
that provides for the netting of overall exposure between 
counterparties. In accordance with the terms and conditions of the 
Fund's ISDA Master Agreement, pursuant to which the Fund's OTC 
Derivatives Contracts will be entered into, the Fund will be 
entitled to increase or decrease its notional exposure to the CCIER 
from time to time to, among other things, manage Share purchases and 
reinvestment of distributions, Fund Share redemptions and market 
repurchases of Shares, and meet other liquidity needs. Reducing 
notional exposure may be achieved through different methods, 
including the use of offsetting forwards and partial terminations of 
OTC Derivatives Contracts. Moreover, the Exchange states that, in 
connection with the Master Agreements, the Sponsor will enter into 
ISDA Credit Support Annexes with its counterparties to mitigate 
counterparty credit exposure. According to the Exchange, the Sponsor 
will assess or review, as appropriate, the creditworthiness of each 
potential or existing counterparty to an OTC Derivatives Contract 
pursuant to guidelines approved by the Sponsor's board. In respect 
of the OTC Derivatives Contracts, the Fund will have the ability to 
replace a counterparty or engage additional counterparties at any 
time.
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    The Fund may enter into multiple OTC Derivatives Contracts for the 
purpose of achieving its investment objective. If an OTC Derivatives 
Contract is terminated, the Fund may either pursue the same or other 
alternative investment strategies with an acceptable counterparty, or 
make direct investments in the Benchmark Component Futures Contracts or 
other investments that provide a similar return to investing in the 
Benchmark Component Futures Contracts.
    The Fund may also enter into certain transactions where an OTC 
component is exchanged for a corresponding futures contract (``EFRP'' 
transactions).\14\ The Fund may also employ spreads or straddles in its 
trading to mitigate the differences in its investment portfolio and its 
goal of tracking the price of the Benchmark Component Futures 
Contracts.\15\
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    \14\ According to the Exchange, in the most common type of EFRP 
transaction entered into by the Fund, the OTC component is the 
purchase or sale of one or more baskets of the Fund's Shares.
    \15\ The Exchange states that the Fund would use a spread when 
it chooses to take simultaneous long and short positions in futures 
written on the same underlying asset, but with different delivery 
months.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2016-177 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \16\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the

[[Page 19117]]

legal and policy issues raised by the proposed rule change. Institution 
of proceedings does not indicate that the Commission has reached any 
conclusions with respect to any of the issues involved. Rather, as 
described below, the Commission seeks and encourages interested persons 
to provide comments on the proposed rule change.
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    \16\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\17\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade,'' and ``to protect investors and the public 
interest.'' \18\
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    \17\ Id.
    \18\ 15 U.S.C. 78f(b)(5).
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    Under the proposal, the NAV for a normal trading day will be 
released after 4:00 p.m. Eastern Time (``E.T.''), and an Authorized 
Participant must place an order with the Marketing Agent to redeem one 
or more baskets of Shares by 10:30 a.m. E.T. or the close of regular 
trading on the Exchange, whichever is earlier. The Commission notes 
that the proposal does not specify the creation order cut-off time, and 
does not provide an explanation for the early redemption order cut-off 
time. The proposal also does not explain whether an early cut-off time 
would have any impact on the trading of the Shares, including any 
impact on arbitrage. Accordingly, the Commission seeks commenters' 
views on the 10:30 a.m. E.T. (or the close of regular trading on the 
Exchange, whichever is earlier) cut-off time, and whether the 
Exchange's statements relating to the creation and redemption process 
support a determination that the listing and trading of the Shares 
would be consistent with Section 6(b)(5) of the Act, which, among other 
things, requires that the rules of an exchange be designed to prevent 
fraudulent and manipulative acts and practices, to promote just and 
equitable principles of trade, and to protect investors and the public 
interest.
    In addition, under the proposal, the Fund will seek to achieve its 
investment objective by holding Crude Oil Interests.\19\ The Exchange 
states that the Fund's total portfolio composition will be disclosed 
each business day that the Exchange is open for trading on the Fund's 
Web site. The Web site disclosure will include, with respect to OTC 
Derivatives Contracts and each Benchmark Component Futures Contract, 
their name, percentage weighting, and value. The Commission seeks 
commenters' views on the sufficiency of the information that would be 
provided with respect to the Fund's Crude Oil Interests, and whether 
the information will allow market participants to value these interests 
intraday.
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    \19\ See supra note 12 (defining ``Crude Oil Interests'').
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IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposal is 
consistent with Section 6(b)(5) or any other provision of the Act, or 
the rules and regulations thereunder. Although there do not appear to 
be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\20\
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    \20\ Section 19(b)(2) of the Act, as amended by the Securities 
Acts Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Acts Amendments of 1975, Senate Comm. 
on Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposal should be approved or 
disapproved by May 16, 2017. Any person who wishes to file a rebuttal 
to any other person's submission must file that rebuttal by May 30, 
2017. The Commission asks that commenters address the sufficiency of 
the Exchange's statements in support of the proposal, which are set 
forth in the Notice,\21\ in addition to any other comments they may 
wish to submit about the proposed rule change.
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    \21\ See supra note 3.
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    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEArca-2016-177 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2016-177. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSEArca-2016-177 and should 
be submitted on or before May 16, 2017. Rebuttal comments should be 
submitted by May 30, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(57).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-08284 Filed 4-24-17; 8:45 am]
 BILLING CODE 8011-01-P


