[Federal Register Volume 77, Number 219 (Tuesday, November 13, 2012)]
[Notices]
[Pages 67707-67711]
[FR Doc No: 2012-27550]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68165; File No. SR-NYSEArca-2012-102]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of Proposed Rule Change Relating to the Listing and Trading of
Twelve Funds of the Direxion Shares ETF Trust II Under NYSE Arca
Equities Rule 8.200

 November 6, 2012.

I. Introduction

    On September 5, 2012, 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'' or ``Exchange Act'') \1\ and Rule 19b-4
thereunder,\2\ a proposed rule change to list and trade shares
(``Shares'') of twelve funds of the Direxion Shares ETF Trust II (each
a ``Fund'' and, collectively, ``Funds'') under NYSE Arca Equities Rule
8.200, Commentary .02. The proposed rule change was published for
comment in the Federal Register on September 24, 2012.\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. 67882 (September 18,
2012), 77 FR 58881 (``Notice'').
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II. Description of the Proposed Rule Change

    The Exchange proposes to list and trade Shares of the following
Funds pursuant to NYSE Arca Equities Rule 8.200, Commentary .02:
Direxion Daily Gold Bear 1X Shares; Direxion Daily Gold Bull 3X Shares;
Direxion Daily Gold Bear 3X Shares; Direxion Daily Silver Bear 1X
Shares; Direxion Daily Silver Bull 3X Shares; Direxion Daily Silver
Bear 3X Shares; Direxion Daily Japanese Yen Bull 3X Shares; Direxion
Daily Japanese Yen Bear 3X Shares; Direxion Daily Dollar Bull 3X
Shares; Direxion Daily Dollar Bear 3X Shares; Direxion Daily Euro Bull
3X Shares; and Direxion Daily Euro Bear 3X Shares.\4\
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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.
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    The Shares will be issued by Direxion Shares ETF Trust II
(``Trust''), a Delaware statutory trust.\5\ Direxion Asset Management,
LLC will be the sponsor (``Sponsor'') for the Trust. The Bank of New
York Mellon will be the administrator, custodian, and transfer agent
for the Funds, and Foreside Fund Services, LLC will be the distributor
for the Shares.
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    \5\ See Pre-Effective Amendment No. 1 to Form S-1, dated October
13, 2010 (``Registration Statement'') (File No. 333-168227).
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Twelve Funds of the Direxion Shares ETF Trust II

    All Funds except for the Direxion Daily Gold Bear 1X Shares and
Direxion Daily Silver Bear 1X Shares are also referred to herein as
``Leveraged Funds,'' and the Direxion Daily Gold Bear 1X Shares and
Direxion Daily Silver Bear 1X Shares are also referred to herein as
``Bear 1X Funds.'' The Leveraged Funds will seek daily leveraged
investment results and are intended to be used as short-term trading
vehicles. The Leveraged Funds with the word ``Bull'' in their name
(collectively, ``Leveraged Bull Funds'') will attempt to provide daily
leveraged investment results (before fees and expenses) that correlate
positively to three times (300%) the daily return of a target
benchmark, meaning a Leveraged Bull Fund will attempt to move in the
same direction as the target benchmark. The Leveraged Funds with the
word ``Bear'' in their name (collectively, ``Leveraged Bear Funds'')
will attempt to provide daily leveraged investment results (before fees
and expenses) that correlate to the inverse (opposite) of three times
the return of a target benchmark, meaning that the Leveraged Bear Funds
will attempt to move in the opposite or inverse direction of the target
benchmark.
    The Bear 1X Funds will attempt to provide daily investment results
(before fees and expenses) that correlate to the inverse (opposite) of
the return of a target benchmark commodity, meaning that the Bear 1X
Funds will attempt to move in the opposite or inverse direction of a
target benchmark commodity.

Principal Investment Strategies

    In seeking to achieve each Fund's daily investment objective, the
Sponsor will use statistical and quantitative analysis to determine the
investments each Fund will make and the techniques it will employ.
Using this approach, the Sponsor will determine the type, quantity, and
mix of investment positions that the Sponsor believes in combination
should produce daily returns consistent with a Fund's objective. The
Sponsor will rely upon a pre-determined model to generate orders that
result in repositioning each Fund's investments in accordance with its
daily investment objective. As a consequence, if a Fund is performing
as designed, the return of the applicable benchmark (as discussed
below) will dictate the return for that Fund. Each Fund will pursue its
investment objective regardless of market conditions and will not take
defensive positions.
    Each of the Direxion Daily Gold Bear 1X Shares, Direxion Daily Gold
Bull 3X Shares, and Direxion Daily Gold Bear 3X Shares (collectively,
``Gold Funds'') and Direxion Daily Silver Bear 1X Shares, Direxion
Daily Silver Bull 3X Shares, and Direxion Daily Silver Bear 3X Shares
(collectively, ``Silver Funds,'' and collectively with the Gold Funds,
``Commodity Funds'') will seek to achieve its investment objective by
investing in futures contracts related to its benchmark commodity. As
such, the Gold Funds will invest in gold futures contracts traded on
the Commodity Exchange, Inc. (``COMEX,'' an affiliate of the CME Group,
Inc. (``CME'')) (``Gold Futures Contracts''), and the Silver Funds will
invest in silver futures contracts traded on COMEX (``Silver Futures
Contracts'' and, collectively with Gold Futures Contracts,

``Commodity Futures Contracts'').\6\ For each of the Commodity Funds,
in the event position limits or position accountability levels are
reached with respect to the applicable Commodity Futures Contracts, or
if trading of such Commodity Futures Contracts is suspended due to
price fluctuation limits being reached or if the CME imposes any other
suspension or limitation on trading in a Commodity Futures Contract,
the Sponsor may, in its commercially reasonable judgment, cause the
Commodity Funds to obtain exposure through cash-settled, exchange-
traded options on Commodity Futures Contracts, as applicable, and
forward contracts, swaps,\7\ and other over-the-counter transactions
that are based on the price of Commodity Futures Contracts, as
applicable, if such instruments tend to exhibit trading prices or
returns that correlate with any Commodity Futures Contract and will
further the investment objective of such Commodity Fund (collectively,
``Commodity Financial Instruments'').\8\
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    \6\ According to the Exchange, Gold and Silver Futures Contracts
traded on COMEX are the global benchmark contracts and most liquid
futures contracts in the world for each respective commodity. As of
March 15, 2012, open interest in Gold Futures Contracts and Silver
Futures Contracts traded on the CME was $23.7 billion and $8.5
billion, respectively. Gold Futures Contracts and Silver Futures
Contracts had an average daily trading volume in 2011 of 138,964
contracts and 63,913 contracts, respectively. The trading hours for
the Gold Futures Contracts and Silver Futures Contracts are 8:20
a.m. until 1:30 p.m. Eastern Time (``E.T.'').
    \7\ To the extent practicable, the Commodity Funds will invest
in swaps cleared through the facilities of a centralized clearing
house.
    \8\ Each Fund will enter into swap agreements and other over-
the-counter transactions only with large, established and well
capitalized financial institutions that meet certain credit quality
standards and monitoring policies. Each Fund will use various
techniques to minimize credit risk including early termination or
reset and payment, using different counterparties and limiting the
net amount due from any individual counterparty.
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    The Gold Funds' benchmark will be the daily last sale price
occurring on or before 4:00 p.m. E.T. of a standard Gold Futures
Contract for 100 troy ounces of gold, specified by the CME to be of a
grade and quality that shall assay to a minimum of 995 fineness, as
measured in U.S. Dollars and cents per troy ounce with a minimum
fluctuation of $0.10 per troy ounce (``Gold Benchmark Futures
Contract''). The Silver Funds' benchmark will be the daily last sale
price occurring on or before 4:00 p.m. E.T. of a standard Silver
Futures Contract for 5,000 troy ounces of silver, specified by the CME
to be at a grade and quality that shall assay to a minimum of 999
fineness, as measured in U.S. Dollars and cents per troy ounce with a
minimum fluctuation of $0.10 per troy ounce (``Silver Benchmark Futures
Contract''). For both the Gold Benchmark Futures Contract and the
Silver Benchmark Futures Contract, the last sale price value will be
calculated as the last sale price published by the CME on or before
4:00 p.m. E.T. for the current active month Commodity Futures Contract.
The last sale price and benchmark valuation may reflect trades
occurring and published by the CME outside the normal trading session
for the applicable Commodity Futures Contract.
    Each of the Direxion Daily Japanese Yen Bull 3X Shares and Direxion
Daily Japanese Yen Bear 3X Shares (collectively, ``Yen Funds'');
Direxion Daily Dollar Bull 3X Shares and Direxion Daily Dollar Bear 3X
Shares (collectively, ``Dollar Funds''); and Direxion Daily Euro Bull
3X Shares and Direxion Daily Euro Bear 3X Shares (collectively, ``Euro
Funds'' and, collectively with the Yen Funds and Dollar Funds,
``Currency Funds'') will seek to achieve its investment objective by
investing in futures contracts related to its benchmark currency. As
such, the Yen Funds will invest in Japanese Yen futures contracts
traded on the CME (``Yen Futures Contracts''), the Euro Funds will
invest in Euro futures traded on the CME (``Euro Futures Contracts''),
and the Dollar Funds will invest in U.S. Dollar Index futures contracts
traded on the ICE Futures U.S. (``ICE'') (``Dollar Futures Contracts''
and, collectively with Yen Futures Contracts and Euro Futures
Contracts, ``Currency Futures Contracts'').\9\ For each Currency Fund
except the Dollar Funds, which invest in futures contracts that do not
have position limits, accountability levels, or price fluctuation
limits, in the event position limits or position accountability levels
are reached with respect to the applicable Currency Futures Contracts,
or if trading of such Currency Futures Contracts is suspended due to
price fluctuation limits being reached or if the CME or ICE (with
respect to the Dollar Funds), as applicable, imposes any other
suspension or limitation on trading in a Currency Futures Contract, the
Sponsor may, in its commercially reasonable judgment, cause the
Currency Funds to obtain exposure through cash-settled, exchange-traded
options on Currency Futures Contracts, as applicable, and forward
contracts, swaps,\10\ and other over-the-counter transactions that are
based on the price of Currency Futures Contracts, as applicable, if
such instruments tend to exhibit trading prices or returns that
correlate with any Currency Futures Contract and will further the
investment objective of such Currency Fund (collectively, ``Currency
Financial Instruments'').
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    \9\ According to the Exchange, the CME constitutes the largest
regulated foreign exchange marketplace in the world, with over $100
billion in daily liquidity. As of March 15, 2012, open interest in
Euro Futures Contracts and Yen Futures Contracts traded on the CME
and, for Dollar Futures Contracts, on the ICE, were $42.7 billion,
$20.8 billion, and $4.8 billion, respectively. Euro Futures
Contracts, Yen Futures Contracts, and Dollar Futures Contracts had
an average daily trading volume in 2011 of 325,103, 106,824, and
27,258 contracts, respectively. The trading hours for the Euro
Futures Contracts and Yen Futures Contracts are 8:20 a.m. until 3:00
p.m. E.T., and the trading hours for the Dollar Futures Contracts
are 8:00 p.m. E.T. until 5:00 p.m. E.T. the following day.
    \10\ To the extent practicable, the Currency Funds will invest
in swaps cleared through the facilities of a centralized clearing
house.
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    The benchmark for the Yen Funds will be the last sale price
occurring on or before 4:00 p.m. E.T. of a standard Yen Futures
Contract for 12,500,000 Japanese Yen, priced in U.S. Dollars and traded
on the CME (``Yen Benchmark Futures Contract''). The benchmark for the
Euro Funds will be the last sale price occurring on or before 4:00 p.m.
E.T. of a standard Euro Futures Contract for 125,000 Euro, priced in
U.S. Dollars and traded on the CME (``Euro Benchmark Futures
Contract''). For both the Yen Benchmark Futures Contract and Euro
Benchmark Futures Contract, the last sale price value will be
calculated as the last sale price published by the CME on or before
4:00 p.m. E.T. for the current active month Currency Futures Contract.
The last sale price and benchmark valuation may reflect trades
occurring and published by the CME outside the normal trading session
for the applicable Currency Futures Contract.
    The benchmark for the Dollar Funds will be the last sale price
occurring on or before 4:00 p.m. E.T. of a standard Dollar Futures
Contract for $1,000 times the U.S. Dollar Index value as measured in
U.S. Dollars and traded on the ICE (``Dollar Benchmark Futures
Contract'' and, collectively with the Gold Benchmark Futures Contract,
Silver Benchmark Futures Contract, Yen Benchmark Futures Contract, and
Euro Benchmark Futures Contract, ``Benchmark Futures Contracts''). The
U.S. Dollar Index indicates the general international value of the U.S.
Dollar. The U.S. Dollar Index does this by geometrically weighting the
exchange rates between the U.S. Dollar and six major world currencies.
The U.S. Dollar Index consists of the following six currencies: Euro,
Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss
Franc. The components and weightings are held

constant, and have not changed since the introduction of the Euro.
Because the U.S. Dollar Index is geometrically weighted, holding the
individual currencies in their specified weights will not necessarily
mimic U.S. Dollar Index moves. The last sale price for the Dollar
Benchmark Futures Contract will be calculated using the last sale price
published by the ICE on or before 4:00 p.m. E.T. for the current active
month Dollar Futures Contract.
    In seeking its investment objective, each Fund will invest in
Commodity or Currency Futures Contracts, as applicable, including (but
not limited to) \11\ the Fund's related Benchmark Futures Contract, as
well as Commodity or Currency Financial Instruments in certain
circumstances. Assets of each Fund not invested in Commodity Futures
Contracts, Currency Futures Contracts, or other Commodity Financial
Instruments or Currency Financial Instruments, as applicable, will be
held in cash or invested in cash equivalents and/or U.S. Treasury
Securities or other high credit quality short-term fixed-income or
similar securities (such as shares of money market funds, bank
deposits, bank money market accounts, certain variable rate-demand
notes, and repurchase agreements collateralized by government
securities, whether denominated in U.S. or the applicable foreign
currency with respect to a Currency Fund) that serve as collateral for
Commodity Futures Contracts, Currency Futures Contracts, and Commodity
or Currency Financial Instruments, as applicable.
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    \11\ A Fund, in seeking to achieve its investment objective by
investing in futures contracts related to its target benchmark, may
be invested in futures contracts that are not the current active
month futures contracts on which the Fund's target benchmark is
based. For example, if, on a date in September 2012, the current
active month futures contract with respect to a target benchmark is
December 2012, a Fund may have a portion of its assets in the
October 2012 or February 2013 contracts. A Fund may use this
flexibility, for example, in case of liquidity issues with respect
to the applicable, current active month futures contracts or when
deciding when to roll the Fund's assets into the next current active
month contract.
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    At the close of the U.S. equity markets each trading day, each Fund
will position its portfolio to ensure that the Fund's exposure to its
benchmark is consistent with the Fund's stated goals. The impact of
market movements during the day will determine whether a portfolio
needs to be repositioned. If the target benchmark has risen on a given
day, a Leveraged Bull Fund's net assets should rise, meaning their
exposure may need to be increased. Conversely, if the target benchmark
has fallen on a given day, a Leveraged Bull Fund's net assets should
fall, meaning their exposure may need to be reduced.
    If a Leveraged Bull Fund is successful in meeting its objective,
its value in a given day (before fees and expenses) should gain
approximately three times as much on a percentage basis as its
corresponding benchmark when the benchmark rises during a given day.
Conversely, its value in a given day (before fees and expenses) should
lose approximately three times as much on a percentage basis as the
corresponding benchmark when the benchmark declines during a given day.
Each Leveraged Bull Fund will acquire long exposure through investment
in Commodity or Currency Futures Contracts, including (but not limited
to) the applicable Benchmark Futures Contracts, and, once position
limits or position accountability levels are reached, if trading of
such Commodity or Currency Futures Contracts is suspended due to price
fluctuation limits being reached, or if the CME or ICE, as applicable,
imposes any other suspension or limitation on trading in a Commodity or
Currency Futures Contract, in Commodity Financial Instruments or
Currency Financial Instruments, as applicable, such that each Leveraged
Bull Fund has approximately 300% exposure to the corresponding
benchmark at the time of the net asset value (``NAV'') calculation.
    If a Leveraged Bear Fund is successful in meeting its objective,
its value in a given day (before fees and expenses) should gain
approximately three times as much on a percentage basis as its
corresponding benchmark loses when the benchmark falls in a given day.
Conversely, its value in a given day (before fees and expenses) should
lose approximately three times as much on a percentage basis as the
corresponding benchmark gains when the benchmark rises in a given day.
Each Leveraged Bear Fund will acquire short exposure through investment
in Commodity or Currency Futures Contracts, including (but not limited
to) the applicable Benchmark Futures Contracts, and, once position
limits or position accountability levels are reached, if trading of
such Commodity or Currency Futures Contracts is suspended due to price
fluctuation limits being reached, or if the CME or ICE, as applicable,
imposes any other suspension or limitation on trading in a Commodity or
Currency Futures Contract, in Commodity Financial Instruments or
Currency Financial Instruments, as applicable, such that each Leveraged
Bear Fund has approximately -300% exposure to the corresponding
benchmark at the time of the NAV calculation.
    If a Bear 1X Fund is successful in meeting its objective, its value
in a given day (before fees and expenses) should gain approximately an
equal amount on a percentage basis as its corresponding benchmark when
the benchmark falls in a given day. Conversely, its value in a given
day (before fees and expenses) should lose approximately an equal
amount on a percentage basis as the corresponding benchmark when the
benchmark rises in a given day. Each Bear 1X Fund will acquire short
exposure through investment in Commodity Futures Contracts, including
(but not limited to) the applicable Benchmark Futures Contracts, and,
once position limits or position accountability levels, if applicable,
are reached, if trading of the Commodity Futures Contracts is suspended
due to price fluctuation limits being reached, or if the CME imposes
any other suspension or limitation on trading in a Commodity Futures
Contract, a Bear 1X Fund may invest in Commodity Financial Instruments
such that each Bear 1X Fund has approximately -100% exposure to the
corresponding benchmark at the time of the NAV calculation.
    In the event that trading of a Commodity or Currency Futures
Contract is suspended due to price fluctuation limits being reached for
that futures contract, or if CME or ICE, as applicable, imposes any
other suspension or limitation on trading in a Commodity or Currency
Futures Contract, the related Fund or Funds may be limited in their
ability to seek their investment objective until trading resumes.
    Additional information regarding the Funds and the Shares,
including investment strategies, risks, creation and redemption
procedures, NAV, fees, portfolio holdings disclosure, distributions,
and taxes, among other things, is included in the Notice and
Registration Statement, as applicable.\12\
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    \12\ See Notice and Registration Statement, 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 \13\
and the rules and regulations thereunder applicable to a national
securities exchange.\14\ In

particular, the Commission finds that the proposed rule change is
consistent with Section 6(b)(5) of the Act,\15\ 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 Funds
and 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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    \13\ 15 U.S.C. 78f.
    \14\ 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).
    \15\ 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,\16\ 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. Quotation and last-
sale information for the Shares will be disseminated through the
facilities of the Consolidated Tape Association (``CTA''). The value of
the benchmarks, updated at least every 15 seconds during the NYSE Arca
Core Trading Session, will be disseminated by one or more major market
data vendors. The closing and daily settlement prices for the Commodity
and Currency Futures Contracts are publicly available on the Web site
of the CME and ICE, as applicable. Intraday prices for the Commodity
and Currency Futures Contracts are updated at least every 15 seconds
and are available through major market data vendors. Further, the
applicable specific contract specifications for Commodity and Currency
Futures Contracts are available from the CME and ICE Web sites, as well
as other financial information sources. Real-time dissemination of spot
pricing for gold, silver, Yen, Euro, and currencies included in the
U.S. Dollar Index is available on a 24-hour basis worldwide from
various major market data vendors. In addition, there is a considerable
amount of foreign currency price and market information available on
public Web sites and through professional and subscription services,
including price information with respect to currencies included in the
U.S. Dollar Index. The U.S. Dollar Index value is disseminated every 15
seconds by major market data vendors during the Exchange's Core Trading
Session. Further, the Funds will provide Web site disclosure of
portfolio holdings daily and will include, as applicable, the names and
value (in U.S. dollars) of Commodity Futures Contracts and Currency
Futures Contracts, as applicable; Commodity Financial Instruments and
Currency Financial Instruments, if any; and the amount of cash and/or
cash equivalents held in the portfolio of the Funds. This Web site
disclosure will occur at the same time as the disclosure by the Sponsor
of the portfolio composition to authorized participants so that all
market participants are provided portfolio composition information at
the same time. The current trading prices of each Fund will be
published continuously under its ticker symbol as trades occur
throughout each trading day via CTA, Reuters, and/or Bloomberg. The
intraday indicative value (``IIV'') with respect to each Fund will be
updated every 15 seconds and be widely disseminated by one or more
major market data vendors during the NYSE Arca Core Trading
Session.\17\ The NAV of each Fund will be calculated at 4:00 p.m. E.T.
and will be disseminated daily to all market participants at the same
time. Recent NAV and Shares outstanding will be disseminated on a daily
basis via CTA. The Web site of the Funds and/or the Exchange will
include the prospectus for the Funds and additional data relating to
NAV and other applicable quantitative information.
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    \16\ 15 U.S.C. 78k-1(a)(1)(C)(iii).
    \17\ According to the Exchange, several major market data
vendors display and/or make widely available IIVs taken from the CTA
or other data feeds. In addition, the Exchange states that
circumstances may arise in which the NYSE Arca Core Trading Session
is in progress, but trading in Commodity or Currency Futures
Contracts is not occurring. Such circumstances may result from
reasons including, but not limited to, the CME or ICE, as
applicable, having a separate holiday schedule than the NYSE Arca,
the CME or ICE closing prior to the close of the NYSE Arca, price
fluctuation limits being reached in a Commodity or Currency Futures
Contract, or the CME or ICE, as applicable, imposing any other
suspension or limitation on trading in a Commodity or Currency
Futures Contract. In such instances, the value of the applicable
Commodity or Currency Futures Contracts, as well as Commodity or
Currency Financial Instruments whose value is derived from the
Commodity or Currency Futures Contracts, held by the Funds would be
static or priced by the Fund at the applicable early cut-off time of
the exchange trading the applicable Commodity or Currency Futures
Contract. Moreover, any cash held by the Funds for collateralization
purposes will be invested in short term treasury vehicles that do
not have market exposure, such that their value would change
throughout the trading day. As such, during such periods, the
disseminated IIV for the affected Fund or Funds will be static.
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    The Commission further 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 times 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, trading in the applicable Commodity or
Currency Futures Contract, or trading in Currency or Commodity
Financial Instruments occurs for a Fund. 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 Commodity or Currency Futures Contracts or
Commodity or Currency Financial Instruments held by the Funds, or if
other unusual conditions or circumstances detrimental to the
maintenance of a fair and orderly market are present.\18\ 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 \19\ acting as registered Market
Makers \20\ in Trust Issued Receipts to facilitate surveillance. The
Exchange is able to obtain information regarding trading in the Shares,
the physical commodities or currencies underlying options, futures or
options on futures through ETP Holders, in connection with such ETP
Holders' proprietary or customer trades which they effect through ETP
Holders on any relevant market. The Exchange can obtain market

surveillance information, including customer identity information, with
respect to transactions (including transactions in cash-settled options
on Commodity or Currency Futures Contracts) occurring on the CME, ICE,
or COMEX (``Futures Exchanges''), which are members of the Intermarket
Surveillance Group (``ISG'').
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    \18\ With respect to trading halts, the Exchange may consider
other relevant factors in exercising its discretion to halt or
suspend trading in the Shares of the Funds. Trading in Shares of the
Funds will be halted if the circuit breaker parameters in NYSE Arca
Equities Rule 7.12 have been reached. 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.
    \19\ See NYSE Arca Equities Rule 1.1(n) (defining ETP Holder).
    \20\ See NYSE Arca Equities Rule 1.1(v) (defining Market Maker).
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    Prior to the commencement of trading, the Exchange will inform its
ETP Holders of the suitability requirements of NYSE Arca Equities Rule
9.2(a) in an Information Bulletin. Specifically, ETP Holders will be
reminded in the Information Bulletin that, in recommending transactions
in the Shares, they must have a reasonable basis to believe that (1)
the recommendation is suitable for a customer given reasonable inquiry
concerning the customer's investment objectives, financial situation,
needs, and any other information known by such ETP Holder, and (2) the
customer can evaluate the special characteristics, and is able to bear
the financial risks, of an investment in the Shares. In connection with
the suitability obligation, the Information Bulletin will also provide
that ETP Holders must make reasonable efforts to obtain the following
information: (1) The customer's financial status; (2) the customer's
tax status; (3) the customer's investment objectives; and (4) such
other information used or considered to be reasonable by such ETP
Holder or registered representative in making recommendations to the
customer.
    In addition, the Exchange states that the Financial Industry
Regulatory Authority (``FINRA'') has implemented increased sales
practice and customer margin requirements for FINRA members applicable
to leveraged exchange-traded funds (which include the Shares) and
options on leveraged exchange-traded funds, as described in FINRA
Regulatory Notices 09-31 (June 2009), 09-53 (August 2009), and 09-65
(November 2009) (collectively, ``FINRA Regulatory Notices''). ETP
Holders that carry customer accounts will be required to follow the
FINRA guidance set forth in these notices. As noted above, each
Leveraged Fund will seek a multiple or inverse multiple (plus or minus
300%) of the return (before fees and expenses) of its target benchmark
commodity or currency on a given day, and each Bear 1X Fund will seek -
100% of the return (before fees and expenses) of its target benchmark
commodity on a given day. Over a period of time in excess of one day,
the cumulative percentage increase or decrease in the NAV of the Shares
of a Fund may diverge significantly from a multiple or inverse multiple
of the cumulative percentage decrease or increase in the relevant
benchmark due to a compounding effect.
    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) The Shares 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 Exchange's surveillance procedures applicable to derivative
products, which include Trust Issued Receipts, 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; (b) except for the Dollar Funds, a static IIV may be
disseminated between the close of trading of all applicable Commodity
or Currency Futures Contracts on Futures Exchanges and the close of the
NYSE Arca Core Trading Session; (c) the procedures for purchases and
redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (d) 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;
(e) how information regarding the IIV is disseminated; (f) 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 (g) trading information. The
Information Bulletin will further advise ETP Holders that FINRA has
implemented increased sales practice and customer margin requirements
for FINRA members applicable to leveraged exchange-traded funds (which
include the Shares) and options on leveraged exchange-traded funds, as
described in the FINRA Regulatory Notices.
    (5) For initial and continued listing, the Funds must be in
compliance with NYSE Arca Equities Rule 5.3 and Rule 10A-3 under the
Exchange Act.\21\
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    \21\ 17 CFR 240.10A-3.
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    (6) To the extent practicable, the Funds will invest in swaps
cleared through the facilities of a centralized clearing house. In
addition, each Fund will enter into swap agreements and other over-the-
counter transactions only with large, established and well capitalized
financial institutions that meet certain credit quality standards and
monitoring policies. Each Fund will use various techniques to minimize
credit risk including early termination or reset and payment, using
different counterparties and limiting the net amount due from any
individual counterparty.
    (7) 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.\22\
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    \22\ The Commission notes that it does not regulate the market
for futures in which the Funds plan to take positions, which is the
responsibility of the Commodity Futures Trading Commission
(``CFTC''). The CFTC has the authority to set limits on the
positions that any person may take in futures. These limits may be
directly set by the CFTC or by the markets on which the futures are
traded. The Commission has no role in establishing position limits
on futures even though such limits could impact an exchange-traded
product that is under the jurisdiction of the Commission.
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    For the foregoing reasons, the Commission finds that the proposed
rule change is consistent with Section 6(b)(5) of the Act \23\ and the
rules and regulations thereunder applicable to a national securities
exchange.
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    \23\ 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,\24\ that the proposed rule change (SR-NYSEArca-2012-102) be, and
it hereby is, approved.
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    \24\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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    \25\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-27550 Filed 11-9-12; 8:45 am]
BILLING CODE 8011-01-P