[Federal Register Volume 85, Number 158 (Friday, August 14, 2020)]
[Notices]
[Pages 49701-49703]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-17753]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-89511; File No. SR-NYSEArca-2020-72]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
and Immediate Effectiveness of Proposed Rule Change Relating to Certain
Changes Regarding the Underlying Benchmark for the ProShares Ultra
Bloomberg Crude Oil ETF and ProShares UltraShort Bloomberg Crude Oil
ETF
August 10, 2020.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby
given that, on July 31, 2020, NYSE Arca, Inc. (``NYSE Arca'' or the
``Exchange'') filed with the Securities and Exchange Commission (the
``Commission'') the proposed rule change as described in Items I and II
below, which Items have been prepared by the self-regulatory
organization. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 15 U.S.C. 78a.
\3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes certain changes regarding the underlying
benchmark for the ProShares Ultra Bloomberg Crude Oil ETF and ProShares
UltraShort Bloomberg Crude Oil ETF, which are currently listed and
traded on the Exchange under NYSE Arca Rule 8.200-E (Trust Issued
Receipts). The proposed rule change is available on the Exchange's
website at www.nyse.com, at the principal office of the Exchange, and
at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the self-regulatory organization
included statements concerning the purpose of, and basis for, the
proposed rule change and discussed any comments it received on the
proposed rule change. The text of those statements may be examined at
the places specified in Item IV below. The Exchange has prepared
summaries, set forth in sections A, B, and C below, of the most
significant parts of such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and the
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange currently lists and trades shares of the ProShares
Ultra Bloomberg Crude Oil ETF and ProShares UltraShort Bloomberg Crude
Oil ETF (each a ``Fund'' and, together, the ``Funds'') under NYSE Arca
Rule 8.200-E (Trust Issued Receipts). The Exchange proposes certain
changes regarding the benchmark index underlying the Funds. Shares of
the Funds initially were approved for listing on the American Stock
Exchange LLC (``Amex'') in 2008,\4\ and were subsequently listed on the
Exchange in 2008.\5\
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\4\ See Securities Exchange Act Release Nos. 57932 (June 5,
2008), 73 FR 33467 (June 12, 2008) (SR-Amex-2008-39) (Notice of
Filing of Proposed Rule Change and Amendment No. 1 thereto Relating
to the Listing and Trading of Trust Issued Receipts that Directly
Hold Investments in Certain Financial Instruments and to Permit the
Listing and Trading of Shares of Fourteen Funds of the Commodities
and Currency Trust) (``Prior Amex Notice''); 58161 (July 15, 2008),
73 FR 42380 (July 21, 2008) (SR-Amex-2008-39) (Order Granting
Approval of Proposed Rule Change, as Modified by Amendment No. 1
Thereto, Relating to the Listing and Trading of Trust Issued
Receipts that Directly Hold Investments in Certain Financial
Instruments and to Permit the Listing and Trading of Shares of
Fourteen Funds of the Commodities and Currency Trust) (``Prior Amex
Order'' and, together with the Prior Amex Notice, the ``Prior Amex
Releases'').
\5\ See Securities Exchange Act Release No. 58457 (September 3,
2008), 73 FR 52711 (September 10, 2008) (SR-NYSEArca-2008-91)
(Notice of Filing and Order Granting Accelerated Approval of
Proposed Rule Change Regarding the Listing of Fourteen Funds of the
Commodities and Currency Trust).
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The Funds are series of the ProShares Trust II (``Trust'').\6\
ProShare Capital Management LLC (``Managing Owner'' or ``Sponsor'')
serves as the commodity pool operator for each Fund. The Managing Owner
is registered as a commodity pool operator with the Commodity Futures
Trading Commission, and with the National Futures Association. The
Funds were identified in the Prior Amex Releases as the Ultra DJ-AIG
Crude Oil ProShares and UltraShort DJAIG Crude Oil ProShares,
respectively.\7\
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\6\ See Securities Exchange Act Release No. 58647 (September 25,
2008), 73 FR 57399 (October 2, 2008) (SR-NYSEArca-2008-99) (Notice
of Filing and Immediate Effectiveness of Proposed Rule Change
Relating to the ProShares Trust II) (``Prior NYSE Arca Notice'').
\7\ The Commission has previously approved listing of Trust
Issued Receipts based on oil on the Amex and NYSE Arca. See, e.g.,
Securities Exchange Act Release Nos. 53582 (March 31, 2006), 71 FR
17510 (April 6, 2006) (SR-Amex-2005-127) (order approving listing
and trading of shares of United States Oil Fund, LP); 57188 (January
23, 2008), 73 FR 5607 (January 30, 2008) (SR-Amex-2007-70) (order
approving listing and trading of shares of United States Heating Oil
Fund, LP and United States Gasoline Fund, LP); 61881 (April 9,
2010), 75 FR 20028 (April 16, 2010) (SR-NYSEArca-2010-14) (order
approving listing and trading of shares of United States Brent Oil
Fund, LP); 62527 (July 19, 2010), 75 FR 4360 (July 26, 2010) (order
approving listing and trading of shares of United States Commodity
Index Fund); 81655 (September 19, 2017), 82 FR 44678) (September 25,
2017) (SR-NYSEArca-2016-177) (Notice of Filing of Amendment No. 4,
and Order Granting Accelerated Approval of a Proposed Rule Change,
as Modified by Amendment No. 4, Relating to the Listing and Trading
of Shares of the USCF Canadian Crude Oil Index Fund Under NYSE Arca
Rule 8.200-E); 81686 (September 22, 2017), 82 FR 45643 (September
29, 2017) (SR-NYSEArca-2017-05) (Order Granting Approval of a
Proposed Rule Change, as Modified by Amendment Nos. 2 and 3 Thereto,
to List and Trade Shares of Direxion Daily Crude Oil Bull 3x Shares
and Direxion Daily Crude Oil Bear 3x Shares under NYSE Arca Equities
Rule 8.200); 80427 (April 11, 2017), 82 FR 18058 (April 14, 2017)
(SR-NYSEArca-2016-173) (Order Approving a Proposed Rule Change, as
Modified by Amendments No. 2 and No. 3 Thereto, To List and Trade
Shares of the United States 3x Oil Fund and United States 3x Short
Oil Fund Under NYSE Arca Equities Rule 8.200, Commentary .02).
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The Prior Amex Releases stated that the Ultra DJ-AIG Crude Oil
ProShares (now known as the ProShares Ultra Bloomberg Crude Oil ETF)
seeks daily investment results, before fees and expenses, that
correspond to twice (200%) the daily performance of the Fund's
underlying benchmark (described below); and the UltraShort DJ-AIG Crude
Oil ProShares (now known as ProShares UltraShort Bloomberg Crude Oil
ETF) seeks daily investment results, before fees and expenses, that
correspond to twice the inverse (-200%) of the daily performance of the
Fund's underlying benchmark. The Prior Amex Releases stated that the
Funds may hold any combination of investments, including cash,
securities, options on securities and indices, commodities, futures
contracts, options on futures contracts, forward contracts, equity
caps, collars, and floors, and swap agreements (collectively,
``Financial Instruments'').
The Funds' Current Benchmark
The Funds' underlying benchmark (``Current Benchmark'') was
identified in the Prior Amex Releases as the Dow Jones-AIG Crude Oil
Sub-Index Excess Return. The Dow Jones-AIG Crude Oil Sub-Index Excess
Return was renamed the Bloomberg WTI Crude Oil Subindex as of July 1,
2014, after Bloomberg
[[Page 49702]]
Finance L.P. replaced Dow Jones as the index administrator. Each Fund
changed its name to reflect this change. The Current Benchmark aims to
track the price of nearby futures contracts of sweet, light crude oil
traded on the New York Mercantile Exchange, Inc. (``NYMEX''). It
consists of a single WTI crude oil futures contract selected from the
three nearest expiration dates for such contract. The Current Benchmark
reflects the cost of rolling the futures contracts included in the
Current Benchmark, without regard to income earned on cash positions.
The Current Benchmark is a subindex of the Bloomberg Commodity Index
and conforms to the representations in the Prior Amex Releases
regarding the Dow Jones-AIG Crude Oil Sub-Index Excess Return.
As stated in the Prior Amex Releases, in seeking to achieve each
Fund's investment objective, the Managing Owner determines the type,
quantity, and mix of investment positions that it believes in
combination should produce daily returns consistent with a Fund's
investment objective. Each Fund invests principally in any one of, or
combinations of, Financial Instruments with respect to the underlying
benchmark to the extent determined appropriate by the Managing Owner.
In addition, each Fund may establish long or short positions in
Financial Instruments as the Managing Owner believes will further the
investment objective of each Fund.
The Funds' New Benchmark
The Trust intends to change the underlying benchmark for the Funds
from the Current Benchmark to a new benchmark, the Bloomberg Commodity
Balanced WTI Crude Oil Index the (``New Benchmark''). Bloomberg Index
Services Limited (``Bloomberg'') is the index administrator for the New
Benchmark. The Trust intends to amend the current registration
statement for the Funds to implement this change.\8\
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\8\ See Pre-Effective Amendment No. 2 to the Trust's
registration statement on Form S-3 filed with the Commission on July
15, 2020 (File No. 333-237993) (``Registration Statement''). The
representations herein relating to the Funds and the Trust are
based, in part, on the Registration Statement. The Trust will not
change each Fund's underlying benchmark until this proposed rule
change is effective and operative.
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According to the Registration Statement, the New Benchmark aims to
track the performance of three separate contract schedules for West
Texas Intermediate (``WTI'') Crude Oil futures traded on NYMEX. The
contract schedules are equally-weighted in the New Benchmark (\1/3\
each) at each semi-annual reset in March and September. At each semi-
annual reset date, one-third of the New Benchmark is designated to
follow a monthly roll schedule. Each month this portion of the New
Benchmark rolls from the current futures contract (called ``Lead'' by
Bloomberg, and which expires one month out) into the following month's
contract (called ``Next'' by Bloomberg and which expires two months
out).\9\ The second portion of the New Benchmark is always designated
to be in a June contract, and follows an annual roll schedule in March
of each year in which the June contract expiring in the current year is
rolled into the June contract expiring the following year.\10\ The
remaining portion is always designated to be in a December contract,
and follows an annual roll schedule in September of each year in which
the December contract expiring in the current year is rolled into the
December contract expiring the following year.\11\ The weighting (i.e.,
percentage) of each of the three contract schedules included in the New
Benchmark fluctuate above or below one-third between the semi-annual
reset dates due to changing futures prices and the impact of rolling
the futures positions.\12\ As a result, the weighting of each contract
in the New Benchmark will ``drift'' away from equal weighting. The New
Benchmark reflects the cost of rolling the futures contracts included
in the New Benchmark, without regard to income earned on cash
positions.
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\9\ For example, at the beginning of January each year, one
third of the New Benchmark will be rolled from the March futures
contract (which expires in February) to the April futures contract
(which expires in March). As a result of this roll, this portion of
the New Benchmark will be exposed to the futures contract that is
third closest to expiration (i.e., the April contract--as each of
the February, March and April contracts trade at the beginning of
January).
\10\ For example, at the beginning of March 2021, the second
portion of the New Benchmark will be rolled from the June 2021
futures contract to the June 2022 futures contract.
\11\ For example, at the beginning of September 2020, the third
portion of the New Benchmark will be rolled from the December 2020
futures contract to the December 2021 futures contract.
\12\ For example, at the close of the first business day of
March each year, the target weights for each contract in the New
Benchmark will be reset to 33.33%, 33.33% and 33.33%. Each
subsequent business day up to the September semi-annual reset date,
the contract weights will fluctuate away from 33.33%, 33.33%, 33.33%
depending on futures prices and the impact from rolling the futures.
At the close of the first business day of September of that same
year, the target weights will once again be reset to 33.33%, 33.33%,
33.33% and will fluctuate thereafter until the next semi-annual
reset date.
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Values for the New Benchmark are determined on each day on which
NYMEX is open for trading. The New Benchmark's methodology and values
are publicly available on Bloomberg's website.\13\
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\13\ See: https://data.bloomberglp.com/professional/sites/10/Bloomberg-Commodity-Balanced-WTI-Crude-Oil-Index-Methodology.pdf
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Differences Between the Current Benchmark and the New Benchmark
The Funds' Current Benchmark includes only a single WTI crude oil
futures contract selected from the three nearest expiration dates. As
noted herein, the New Benchmark is equally weighted (at each semi-
annual reset date) across three different WTI futures contract
schedules and includes longer-dated contracts than those included in
the Current Benchmark.
Other than the change to the Funds' underlying benchmark, as
described above, each of the Funds will continue to comply with all
other listing requirements set forth in the Prior Amex Releases, the
Prior NYSE Arca Notice and NYSE Arca Rule 8.200-E, as applicable.
2. Statutory Basis
The basis under the Act for this proposed rule change is the
requirement under Section 6(b)(5) \14\ that an exchange have rules that
are designed to prevent fraudulent and manipulative acts and practices,
to promote just and equitable principles of trade, to remove
impediments to, and perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest.
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\14\ 15 U.S.C. 78f(b)(5).
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The Sponsor has represented to the Exchange that it believes that
the proposed change to the New Benchmark should benefit Fund investors
by diversifying the Funds' exposure across futures contracts with three
different expiration dates, including longer-dated contracts than those
included in the Current Benchmark, thereby potentially reducing the
volatility of each Fund. The Sponsor has further represented to the
Exchange that it believes the potential for lower volatility is
especially important to Fund investors in light of global events during
the first half of 2020, which could continue for the foreseeable
future, including the COVID-19 pandemic, a significant oversupply in
the crude oil market, a significant increase in volatility, and
contango that resulted in a negative price in the May 2020 WTI crude
oil futures contract.
The Funds' benchmark will continue to be based on pricing of WTI
crude oil futures, and the types of Financial Instruments in which the
Funds may
[[Page 49703]]
invest are consistent with those described in the Prior Amex Releases.
The Exchange notes that the Commission has previously approved listing
of Trust Issued Receipts based on oil on the Amex and NYSE Arca.\15\
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\15\ See note 7, supra.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. The Exchange believes that
the proposed rule change will facilitate fair and orderly trading of
Shares of the Funds utilizing the New Benchmark that will enhance
competition among market participants, to the benefit of investors and
the marketplace.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were solicited or received with respect to the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) thereunder.\17\
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the
Act \18\ normally does not become operative for 30 days after the date
of its filing. However, Rule 19b-4(f)(6)(iii) \19\ permits the
Commission to designate a shorter time if such action is consistent
with the protection of investors and the public interest. The Exchange
has asked the Commission to waive the 30-day operative delay. The
Exchange states that waiver of the 30-day operative delay would permit
the Funds to more quickly change their underlying benchmark. According
to the Exchange, other than the change to the Funds' underlying
benchmark, as described above, each of the Funds will continue to
comply with all other listing requirements set forth in the Prior Amex
Releases, the Prior NYSE Arca Notice and NYSE Arca Rule 8.200-E, as
applicable. The proposed rule change does not raise any novel
regulatory issues, and the Commission believes that waiver of the 30-
day operative delay is consistent with the protection of investors and
the public interest. Therefore, the Commission hereby waives the
operative delay and designates the proposal as operative upon
filing.\20\
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\18\ 17 CFR 240.19b-4(f)(6).
\19\ 17 CFR 240.19b-4(f)(6)(iii).
\20\ For purposes only of waiving the 30-day operative delay,
the Commission also has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. 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 [email protected]. Please include
File Number SR-NYSEArca-2020-72 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-2020-72. 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 website (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 website 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. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-NYSEArca-2020-72, and should be
submitted on or before September 4, 2020.
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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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-17753 Filed 8-13-20; 8:45 am]
BILLING CODE 8011-01-P