81 FR 14489 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change Regarding Monthly Distributions, Excess Returns, and Share Index Factors of Certain AccuShares® Trust I Funds

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 52 (March 17, 2016)

Page Range		14489-14495
FR Document		2016-05977
Federal Register, Volume 81 Issue 52 (Thursday, March 17, 2016)
[Federal Register Volume 81, Number 52 (Thursday, March 17, 2016)]
[Notices]
[Pages 14489-14495]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-05977]


=======================================================================
-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77353; File No. SR-NASDAQ-2016-034]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing of Proposed Rule Change Regarding Monthly 
Distributions, Excess Returns, and Share Index Factors of Certain 
AccuShares[supreg] Trust I Funds

March 11, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on March 2, 2016, The NASDAQ Stock Market LLC (``NASDAQ'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in in Items I 
and II below, which Items have been prepared by the Exchange. The 
Commission is publishing this notice to solicit comments on the 
proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDAQ proposes to indicate the following:
    (1) That regular distributions (``Regular Distributions'') of the 
following Paired Class Shares issued by AccuShares[supreg] Trust I 
(formerly known as AccuShares Commodities Trust I) (the ``AccuShares 
Trust'' or ``Trust'') \3\ will be made on a monthly basis on behalf of 
each of the following segregated series AccuShares S&P[supreg] 
GSCI[supreg] Industrial Metals Spot Fund, AccuShares S&P GSCI Crude Oil 
Spot Fund, and AccuShares S&P GSCI Brent Oil Spot Fund (each a 
``Distribution Fund'', and collectively the ``Distribution Funds''); 
\4\
---------------------------------------------------------------------------

    \3\ AccuShares[supreg] is a registered trademark of AccuShares 
Holdings LLC. S&P[supreg], S&P GSCI[supreg], S&P 500[supreg] and 
Standard & Poor's[supreg] are registered trademarks of Standard & 
Poor's[supreg] Financial Services LLC. CBOE[supreg], Chicago Board 
Options Exchange[supreg], CBOE Volatility Index[supreg] and 
VIX[supreg] are registered trademarks of Chicago Board Options 
Exchange[supreg], Incorporated (``CBOE''). Dow Jones[supreg] is a 
registered trademark of Dow Jones[supreg] Trademark Holdings LLC.
    \4\ The Paired Class Shares funds discussed in this proposal--
the three Distribution Funds and the AccuShares S&P GSCI Natural Gas 
Spot Fund--and in addition the AccuShares S&P GSCI Spot Fund, the 
AccuShares S&P GSCI Agriculture and Livestock Spot Fund, and the 
AccuShares Spot CBOE[supreg] VIX[supreg] Fund, are approved for 
listing. See Securities Exchange Act Release No. 74299 (February 18, 
2015), 80 FR 9778 (February 24, 2015) (SR-NASDAQ-2014-065) (order 
approving new Rule 5713 and listing seven AccuShares funds) (the 
``AccuShares Order''). The first, and only, AccuShares fund that is 
currently listed and trading on the Exchange is the AccuShares Spot 
CBOE[supreg] VIX[supreg] Fund. See also Securities Exchange Act 
Release No. 72412 (June 17, 2014), 79 FR 35610 (June 23, 2014) (SR-
NASDAQ-2014-065) (notice of filing regarding new Rule 5713 and 
listing seven AccuShares funds) (the ``AccuShares Proposal''). The 
funds approved for listing in the AccuShares Order are together 
called the ``Funds''.
---------------------------------------------------------------------------

    (2) That the following Paired Class Shares issued by the Trust will 
have their indexes changed from the spot variant to the excess return 
variant of such indexes and the funds will be renamed to accurately 
reflect the changes to the indexes--the AccuShares S&P GSCI Crude Oil 
Spot Fund will have its index changed from the S&P GSCI Crude Oil Spot 
Index to the S&P GSCI Crude Oil Excess Return Index and the fund will 
be renamed AccuShares S&P GSCI Crude Oil Excess Return Fund, and the 
AccuShares S&P GSCI Natural Gas Spot Fund will have its index changed 
from S&P GSCI Natural Gas Spot Index to S&P GSCI Natural Gas Excess 
Return Index and the fund will be renamed AccuShares S&P GSCI Natural 
Gas Excess Return Fund; and
    (3) That the Share Index Factors \5\ for the AccuShares Spot CBOE 
VIX Fund would be reset on a weekly basis on each Tuesday (after 
certain distribution dates), and the regular distributions for the 
AccuShares Spot CBOE VIX Fund would be made monthly on the third 
Tuesday rather than monthly on the

[[Page 14490]]

15th so that each monthly distribution date (and the end of each 
monthly measuring period) coincides with a Share Index Factor reset.
---------------------------------------------------------------------------

    \5\ Share Index Factors are discussed below.

The text of the proposed rule change is available at http://nasdaq.cchwallstreet.com/, at NASDAQ's principal office, 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 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The purpose of this proposed rule change is to indicate the 
following:
    (1) That Regular Distributions will be made on a monthly basis on 
behalf of each of the Distribution Funds;
    (2) That the following Paired Class Shares issued by the Trust will 
have their indexes changed from the spot variant to the excess return 
variant of such indexes and the funds will be renamed to accurately 
reflect the changes to the indexes--the AccuShares S&P GSCI Crude Oil 
Spot Fund (``Crude Oil Fund'') will have its index changed from the S&P 
GSCI Crude Oil Spot Index to the S&P GSCI Crude Oil Excess Return Index 
and the fund will be renamed AccuShares S&P GSCI Crude Oil Excess 
Return Fund (``Excess Crude Oil Fund''), and the AccuShares S&P GSCI 
Natural Gas Spot Fund (``Natural Gas Fund'') will have its index 
changed from S&P GSCI Natural Gas Spot Index to S&P GSCI Natural Gas 
Excess Return Index and the fund will be renamed AccuShares S&P GSCI 
Natural Gas Excess Return Fund (``Excess Natural Gas Fund''); \6\ and
---------------------------------------------------------------------------

    \6\ Excess returns, which are discussed below, are generally 
investment returns from a security or portfolio that exceed a 
benchmark or index with a similar level of risk. For the Excess 
Return Crude Oil Fund and the Excess Return Natural Gas Fund, the 
excess return index is calculated from holding a nearest-to-
expiration futures contract, and exchanging such nearest-to-
expiration contract for the contract expiring in the next following 
month in accordance with the monthly S&P GSCI roll schedule. The S&P 
GSCI roll schedule holds the nearest-to-expiration futures contract 
until the fifth trading day of each month, and over the fifth to 
ninth trading day of each month sells the nearest-to-expiration 
contract and purchases the contract expiring in the next following 
month (i.e. rolls the futures contracts) in five equal installments 
of twenty percent each. The excess return is inclusive of two 
things: The gain or loss associated with holding a futures contract 
and the gain or loss associated with the rolling of a futures 
contract to the next following expiration. In contrast, the spot 
variant does not include the gain or loss associated with rolling 
from the nearest-to-expiration contract to the next following 
contract (i.e. the spot variant only captures the return related to 
holding a contract). The excess return is replicated by holding and 
trading futures contracts underlying the index in accordance with 
the S&P GSCI roll schedule. The spot variant, on the other hand, 
cannot be directly hedged with rolling futures contracts, and its 
hedging requires active anticipatory hedging and rolling based on 
the price differentials between forward expiry futures contracts. 
The spot variant has not been used for any index in exchange traded 
products, whereas the excess variant routinely continues to be used 
for these purposes. In the case of the excess return indexes for the 
Excess Return Crude Oil Fund and the Excess Return Natural Gas Fund, 
the changes in the excess return variant may be larger or smaller 
than the changes in the benchmark spot return variant. See also 
http://www.investopedia.com/terms/e/excessreturn.asp.
---------------------------------------------------------------------------

    (3) That the Share Index Factors for the AccuShares Spot CBOE VIX 
Fund (``VIX Fund'') \7\ would be reset on a weekly basis on each 
Tuesday (after certain distribution dates), and the regular 
distributions for the VIX Fund would be made monthly on the third 
Tuesday rather than monthly on the 15th so that each monthly 
distribution date (and the end of each monthly measuring period) 
coincides with a Share Index Factor reset.\8\
---------------------------------------------------------------------------

    \7\ The VIX is a key measure of market expectations of near-term 
volatility conveyed by S&P 500[supreg] stock index option prices.
    \8\ Share Index Factors would continue to reset after any 
Regular Distribution or special distribution. In addition to Regular 
Distributions and special distributions, discussed below, Funds may 
also have corrective distributions and net income distributions. 
Since this filing does not implicate or change any of these other 
types of distributions, they are not discussed herein.
---------------------------------------------------------------------------

Paired Class Shares--A Short Background \9\
---------------------------------------------------------------------------

    \9\ The Exchange will not engage in a detailed discussion of the 
Funds or all aspects of Paired Class Shares. This is done for 
purposes of brevity. This short background description is intended 
only to provide context for discussion of the proposed rule change. 
For additional detail, see the AccuShares Order or AccuShares 
Proposal. See also Rule 5713.
---------------------------------------------------------------------------

    The structure of Paired Class Shares is designed to be a passive 
unmanaged investment vehicle with the objective to provide investors 
with exposure to changes in an Underlying Benchmark as defined below. 
Paired Class Shares are expected to provide retail as well as 
institutional investors with a simple, liquid and cost effective means 
of simulating an investment in an Underlying Benchmark.
    As noted in Rule 5713, Paired Class Shares will be issued by a 
trust on behalf of a segregated series of the Trust,\10\ each of which 
is known as a Fund. Paired Class Shares will have values that are based 
on an index or other numerical variable (``Underlying Benchmark'') 
whose value reflects the value of assets, prices, price volatility or 
other economic interests (``Reference Asset'').\11\ The Trust will 
always issue Paired Class Shares in pairs of shares of opposing classes 
of each Fund. The values of the opposing classes will move in opposite 
directions as the value of the Fund's Underlying Benchmark, such as VIX 
for the VIX Fund, varies from its starting level, where one constituent 
of the pair is positively linked to the Fund's Underlying Benchmark 
(``Up Shares'') and the other constituent is negatively linked to the 
Fund's Underlying Benchmark (``Down Shares''). The rate of linkage or 
leverage of a Fund's Up Shares and Down Shares performance to the 
performance of the Fund's referenced Underlying Benchmark will be one-
to-one. The calculation of the liquidation value of a Fund attributable 
to each of its classes of Paired Class Shares (``Class Value''), and 
each Share of such class' pro rata portion of Class Value (``Class 
Value per Share''), will be determined according to a mathematical 
formula.\12\
---------------------------------------------------------------------------

    \10\ The Trust in the case of AccuShares is a Delaware statutory 
trust that was established into separate AccuShares Funds pursuant 
to the Second Amended and Restated Trust Agreement of the AccuShares 
Trust, by AccuShares Investment Management, LLC, a Delaware limited 
liability company, as sponsor (the ``Sponsor''), and Wilmington 
Trust, N.A., a national banking association, as trustee (the 
``Trustee''), as it may be amended and restated from time to time 
(the ``Trust Agreement''). Under the Trust Agreement, the Sponsor 
has exclusive management and control of all aspects of the business 
of each Fund. Specifically, the Sponsor selects the Funds' service 
providers, negotiates various fees and agreements and performs such 
other services as the Sponsor believes that the AccuShares Trust may 
require from time to time. See 79 FR 35610 at 35615 (AccuShares 
Proposal).
    \11\ Other economic interests would include, for example, 
currencies, interest rates, non-investable economic indices and 
other measures of financial instrument value.
    \12\ The mathematical formula is based on the following factors: 
(1) The value of Fund assets, (2) the allocation of such value based 
on changes in the level of the Fund's Underlying Benchmark which may 
be limited, reduced, capped or otherwise modified according to 
formula or pre-set parameters, and (3) the daily accrual of gain and 
income or loss on the assets of the Fund, less the liabilities of 
the Fund, as such gains, income losses and liabilities are allocated 
to each class of the Fund.
---------------------------------------------------------------------------

    Each Fund will engage in: (1) Scheduled Regular Distributions, (2) 
special distributions that are

[[Page 14491]]

automatically triggered upon the Underlying Benchmark exceeding a fixed 
rate of change since the Fund's prior regular or special distribution 
date or inception date in the case of the first distribution (each a 
``prior distribution date''), and (3) corrective distributions that are 
automatically triggered when the trading price of a Paired Class Share 
deviates by a specified amount from its Class Value per Share for a 
specified period of time. Immediately after each Regular, special and 
corrective distribution, the Fund's Underlying Benchmark participation 
or exposure will be reset and the Fund's Class Value per Share for each 
of its classes will be set to equal the lowest Class Value per Share of 
the two classes of Paired Class Shares. To the extent any class of 
Paired Class Shares of a Fund has a positive net income from income or 
gain on class assets, after deduction of class liabilities, on a 
Regular or special distribution date as measured from the prior 
distribution date, such class of Paired Class Shares will receive a 
distribution in cash equal to such positive net income regardless of 
whether such class is entitled to a Regular or special distribution on 
such date.
    Share Index Factors are used for the determination of Class Value 
and Class Value Per Share of a Fund. On a daily basis the custodian of 
a Fund (``Custodian'') \13\ will determine the Class Value of each 
class of a Fund, which is based on the value of the Fund's Eligible 
Assets (``Eligible Assets'') \14\ attributable to such class, (a) plus 
any accrued income or gains or losses on such assets attributable to 
such class (``Investment Income''), (b) less all fees, expenses and 
taxes attributable to such class not otherwise assumed by the 
Sponsor,\15\ where such income and gains after deduction of such fees, 
expenses and taxes is referred to as the class ``Net Investment 
Income.'' \16\ The Class Value per Share of each Fund's Up Shares will 
have a fixed one-to-one positive linear relationship with such Fund's 
Underlying Benchmark (the ``Up Share Index Factor'') and the Class 
Value per Share of each Fund's Down Shares will have a fixed one-to-one 
inverse linear relationship with such Fund's Underlying Benchmark (the 
``Down Share Index Factor'' and together with the Up Share Index 
Factor, the ``Share Index Factors''). The Down Share Index Factor will 
equal negative one times the Up Share Index Factor. At the inception of 
operations of each Fund, the Sponsor will establish such Fund's Share 
Index Factors. After any regular or special distribution by a Fund, the 
Fund will reset its Share Index Factors--the VIX Fund would have 
additional resets to the Share Index Factors as described below. The 
payment of cash distributions causes Class Values per Share to be equal 
following each such distribution, where the Class Values per Share will 
be equal to the lowest Class Value per Share of either class calculated 
in determining the distribution.
---------------------------------------------------------------------------

    \13\ Each Fund will have a Custodian pursuant to appointment by 
the AccuShares Trust and the terms of a domestic custodian 
agreement. The Custodian will hold each Fund's securities and cash, 
and will perform each Fund's Class Value and Class Value per Share 
calculations.
    \14\ Regarding Eligible Assets, the Funds are designed so that 
the cash proceeds from the creation of Paired Class Shares may be 
held by a Fund only in Eligible Assets designed to preserve capital 
while earning an investment return that is consistent with the 
preservation of capital. See 80 FR 9778 at 9780 (AccuShares Order).
    \15\ The Sponsor has exclusive management and control of all 
aspects of the business of each of the Funds.
    \16\ Such accrued income, gains, losses, fees, expenses and 
taxes will be allocated to each Share class on a daily basis, where 
such allocation is equal to the amount of such accrued income, 
gains, losses, fees, expenses and taxes multiplied by a fraction the 
numerator of which is the closing Class Value per Share of the 
referenced class and the denominator of which is the sum of the 
closing Class Values per Share of both classes of the Fund.
---------------------------------------------------------------------------

    This filing is being made to reflect the change in the Regular 
Distribution interval for the Distribution Funds from quarterly to 
monthly, to reflect the index changes and name changes of two funds, 
and to reflect that the Share Index Factors for the VIX Fund would be 
reset on a weekly basis on each Tuesday and the regular distribution 
dates would be monthly on each third Tuesday to coincide with a Share 
Index Factor reset. Upon operational effectiveness of this proposal, 
each such Distribution Fund would, like the VIX Fund currently, engage 
in monthly Regular Distributions, the two excess return Funds (Excess 
Crude Oil Fund and Excess Natural Gas Fund) would reflect excess 
return, and Share Index Factors for the VIX Fund will be reset on a 
weekly basis on Tuesday with related changes to the regular monthly 
distribution date to the third Tuesday of each month such that 
distribution dates coincide with a Share Index Factor reset all as 
described in more detail below. The Exchange believes that these 
changes will be beneficial to market participants that choose to trade 
the Funds.
Monthly Distribution
    Rule 5713 does not specify the interval for Regular Distributions. 
Rather, Rule 5713 states only that a Fund may engage in ``scheduled 
regular distributions''.\17\ The only mention of an interval for 
Regular Distributions is in footnote 40 in the AccuShares Proposal, 
which states that other than monthly Regular Distributions for VIX Fund 
and the Natural Gas Fund, AccuShares ``will engage in quarterly regular 
distributions.'' \18\ In this proposal the Exchange proposes to 
indicate that the Distribution Funds will have Regular Distributions on 
a monthly basis. Thus, the Exchange proposes that each of the 
Distribution Funds will, like the VIX Fund and the Natural Gas Fund, 
engage in Regular Distributions each calendar month. The Exchange 
believes that this proposed change will serve to add an additional 
measure of consistency to investors and traders that may want to trade 
one or more of the Distribution Funds by themselves or in addition to 
the currently-traded VIX Fund, which has monthly Regular 
Distributions.\19\
---------------------------------------------------------------------------

    \17\ See Rule 5713(d).
    \18\ See 79 FR 35610 at 35619 (AccuShares Proposal).
    \19\ The AccuShares S&P GSCI Spot Fund and the AccuShares S&P 
GSCI Agriculture and Livestock Spot Fund would continue to have 
Regular Distributions on a quarterly basis. In addition, the 
Exchange proposes to change the name of the Crude Oil Fund and the 
Natural Gas Fund so that the new names, namely AccuShares S&P GSCI 
Crude Oil Excess Return Fund and AccuShares S&P GSCI Natural Gas 
Spot Excess Return Fund, more accurately reflect how these funds 
will function. The Exchange also proposes to indicate that the Share 
Index Factors for the VIX Fund would be reset on a weekly basis on 
each Tuesday, and the regular distributions for the VIX Fund would 
be made monthly on the third Tuesday rather than monthly on the 15th 
so that each monthly distribution date (and each end of a monthly 
measuring period) coincides with a Share Index Factor reset. These 
changes are described below.
---------------------------------------------------------------------------

    The Exchange believes that consistency across all Funds (except 
AccuShares S&P GSCI Spot Fund and AccuShares S&P GSCI Agriculture and 
Livestock Spot Fund) vis-a-vis monthly Regular Distributions will be 
helpful to investors and traders. While some may have become aware of 
AccuShares and Paired Class Shares when the Exchange filed the 
AccuShares Proposal, many more have become aware of AccuShares and its 
product offerings with the listing and trading of the first of the 
Paired Class Shares products, namely the VIX Fund.\20\ The VIX Fund (as 
also the Natural Gas Fund, which is not yet listed and traded) is 
currently structured with monthly Regular Distributions. The Exchange 
believes that consistency across all Funds (except AccuShares S&P GSCI 
Spot Fund and AccuShares S&P GSCI Agriculture and Livestock Spot Fund) 
in terms of monthly Regular Distributions would avoid potential 
investor confusion, and, as discussed

[[Page 14492]]

below, could be advantageous to market participants. For example, the 
proposed monthly distributions could allow investors to redeploy gains 
from Up Shares or Down Shares to alternative, non-Fund investments in a 
tax efficient manner more frequently than investors could do with 
quarterly distributions. In addition, monthly distributions would 
better align the changes in the Class Values per Share of both the Up 
Shares and the Down Shares with a more current valuation of the 
underlying index. Moreover, with the commencement of trading of the VIX 
Fund on the Exchange, the Sponsor has received feedback from both 
current and potential investors about preferred distribution frequency. 
In particular, the majority of these market participants have indicated 
to the Sponsor that monthly Regular Distributions would be preferable 
to a longer period and would improve both trading and hedging. Monthly 
distributions can be more frequently redeployed in a tax efficient 
manner into the opposing share class or other positions. Additionally, 
for traders or market makers hedging or arbitraging the fund's shares, 
monthly distributions and concurrent monthly Share Index Factor 
settings will more closely align the funds with the most liquid monthly 
futures contracts and other exchange traded products which also employ 
a monthly index roll similar to the S&P GSCI commodity indexes.
---------------------------------------------------------------------------

    \20\ The VIX Fund began trading on May 19, 2015.
---------------------------------------------------------------------------

    Finally, in each instance of a distribution the Sponsor will 
continue to post a notice of such event and its details on the 
Sponsor's Web site (www.AccuShares.com). The Sponsor has also 
represented to the Exchange that each Fund engaging in a Regular 
Distribution (or, for that matter, a special distribution, corrective 
distribution, or net income distribution) will provide at least three 
business days' advance notice (or longer advance notice as may be 
required by the Exchange) \21\ of such an event.
---------------------------------------------------------------------------

    \21\ The Exchange may determine that longer notice is advisable 
in some circumstances (e.g., an extended market break).
---------------------------------------------------------------------------

Excess Crude Oil Fund and Excess Natural Gas Fund
    The Exchange proposes to change the underlying indexes from their 
spot variant to their excess return variant and to rename the 
AccuShares S&P GSCI Crude Oil Spot Fund to AccuShares S&P GSCI Crude 
Oil Excess Return Fund and the AccuShares S&P GSCI Natural Gas Spot 
Fund to AccuShares S&P GSCI Natural Gas Excess Return Fund. Market 
participants, in particular Authorized Participants \22\ of the 
AccuShares Trust and market participants who are expected to act as 
liquidity providers for excess return Funds (``liquidity providers''), 
have recommended the index change and the related name revision. The 
Authorized Participants and liquidity providers have indicated that 
market making in the spot variant of the indexes (the current indexes 
variant) would require wider bid/offer spreads in comparison to using 
the excess return variant of the indexes.\23\ That is, the current spot 
variant would require anticipatory hedging, rolls, and the management 
of forward contango and backwardation \24\ risk (together ``spot 
requirements''), while in contrast these spot requirements are not 
important with excess return because they are naturally embedded in the 
excess return variant. The excess return variant is an index variant 
that is not novel, but rather is one that has been in use and is thus 
familiar to market makers and other market participants.\25\ Moreover, 
the excess return variant is expected to benefit market participants 
through both narrower bid/offer spreads and an increased ability and 
proclivity for providing liquidity in all market conditions.\26\ As 
such, market participants that choose to trade Pair Class Shares and 
benefit from the efficiency and transparency inherent in the product 
will also be able to benefit from the more easily traded and hedged 
excess return variant.
---------------------------------------------------------------------------

    \22\ Per note 13 of the AccuShares Order, an Authorized 
Participant may place orders to create or redeem one or more 
Creation Units, and must be (1) a registered broker-dealer or other 
securities market participant such as a bank or other financial 
institution which is not required to register as a broker-dealer to 
engage in securities transactions, (2) a direct participant in The 
Depository Trust Company, and (3) a party to an Authorized 
Participant Agreement with the Sponsor setting forth the procedures 
for the creation and redemption of Creation Units in a Fund.
    \23\ Market participants have indicated that their expected 
average holding and reassessment periods would be in the area of two 
to eight weeks, and that funds that offer excess return would be 
less costly because they would offer narrower bid/offer spreads and 
less risk. This would have several positive effects. First, 
investors are expected to buy or sell Fund shares concurrent with 
each reassessment. Second, such buying or selling is expected to be 
cheaper. Third, the narrower bid/offer spreads are expected to 
increase liquidity in the Fund shares, thus reducing the risk of 
buying or selling across a range of market conditions.
    \24\ Contango is normally when a futures price is above the 
expected future spot price. Because the futures price must converge 
on the expected future spot price, contango implies that futures 
prices are falling over time as new information brings them into 
line with the expected future spot price. Backwardation is normally 
when a futures price is below the expected future spot price and 
increases with time. For additional information, see http://www.investopedia.com/articles/07/contango_backwardation.asp.
    \25\ Products that use the excess return variant include DBO, 
OIL, UCO, UGAZ, and DGAZ. The crude oil products (DBO, OIL, and UCO) 
have current assets ranging from $400 to 800 million, and daily 
trading volumes ranging from 1 million to 11 million shares. The 
natural gas products (UGAZ and DGAZ) have current assets ranging 
from $80 million to $300 million, and daily trading volumes ranging 
from 4 million to 11 million shares. Other funds seek to track an 
excess return variant by transacting directly in the related futures 
contracts and some of those funds are larger than those listed.
    \26\ Because the excess return variant can be found in standard 
indexes used in exchange traded products, market makers are already 
accustomed to trading and hedging fund shares based on this variant. 
In addition to promoting narrower spreads and added liquidity, the 
excess return variant is directly hedgeable with conventional 
futures contracts, which contain the cost or benefit of the roll 
forward. Because the excess return variant precisely tracks the 
prices of the futures that a market maker is expected to use to both 
arbitrage and hedge the Fund shares, many more market makers are 
expected to engage in trading and arbitrage activities. With the 
excess return variant, the rolling effect of the index will be 
identical to the rolling performance of a futures hedge; and because 
the excess return variant precisely tracks an actual futures 
holding, a hedge can essentially remain static throughout a month 
and may require rebalancing only on those five days on which the 
excess return variant rolls its hypothetical positions. In contrast, 
the spot variant would require a more complex daily rebalancing of 
the futures hedge. Hedging and arbitraging the spot variant requires 
holding a next following futures contract (rather than the current 
futures contract) and manually rebalancing the next following 
futures contract amount on a daily basis to account for contango or 
backwardation between the futures hedge and the spot variant index.
---------------------------------------------------------------------------

    Both the spot variant and the excess return variant are computed 
from the same underlying futures contracts at the same point in time. 
The difference between the two variants occurs only on 5 trading days: 
The 5th through the 9th trading days of each month (the ``five day 
period''). During the five day period, each S&P GSCI commodity index 
underlying a Fund, whether monthly return or excess return, moves its 
reference from the front-month expiry contract to the next following 
contract (that is, the futures contract for the next consecutive expiry 
month) in five equal installments of twenty percent per day in order to 
capture the cost or the benefit from rolling the nearby front-month 
expiry contract into the next following expiry contract. In the excess 
return variant, the cost or benefit of transacting out of the current 
or front-month expiry contract and into the next or following futures 
contract is added to (or subtracted from) the index value. In contrast, 
in the spot variant this cost or benefit is not added to (or subtracted 
from) the index value,\27\ and

[[Page 14493]]

as such, gives rise to needed anticipatory hedging which, based on 
feedback from Authorized Participants and market makers, is expected to 
result in increased bid/offer spreads.
---------------------------------------------------------------------------

    \27\ The Sponsor expects more market makers to participate in 
the excess return variant because of the reduced market making 
complexity. The potential benefits of additional market maker 
participation include: (i) The ability of market participants to 
transact higher share quantities at tighter bid/offer spreads, and 
(ii) more robust and predictable trading prices in fast moving or 
volatile markets.
---------------------------------------------------------------------------

VIX Fund Share Index Factor and Distribution Date
    The Exchange is proposing a periodic resetting of the Share Index 
Factors for the VIX Fund where the Share Index Factors reset weekly on 
each Tuesday and where the regular distributions for the VIX Fund would 
be made monthly on the third Tuesday of the month so that each monthly 
distribution date (and each end of a monthly measuring period) 
coincides with a Share Index Factor reset.
    Currently, after any Regular Distribution or special distribution 
by a Fund, a Fund will reset its Share Index Factors. Cash 
distributions cause Class Values per Share to be equal following each 
such distribution. The lowest Class Value per Share of either class 
calculated is used for the Share Index Factor.\28\ The Exchange is 
proposing that the resetting of the Share Index Factors for the VIX 
Fund not wait for a distribution but rather that [sic] be done on a 
more frequent, weekly basis on each Tuesday. In a related change, the 
regular distributions for the VIX Fund would be made monthly on the 
third Tuesday rather than monthly on the 15th so that each monthly 
distribution date and end of each monthly measuring period coincides 
with a Share Index Factor reset. The Exchange believes that more 
frequent resets of the Share Index Factors for the VIX Fund will be 
beneficial to market participants that trade the fund because it will 
improve the arbitrage function of the fund's shares by aligning the 
setting of the Share Index Factors with the expiry of each weekly VIX 
futures contract, and because the Share Index Factor will reset with a 
frequency closer to the daily measurements of spot VIX. The weekly VIX 
futures began trading in July 2015--approximately two months after the 
launch of the VIX Fund. The weekly VIX futures are the preferred 
hedging futures contract for spot VIX with both higher correlations to 
spot VIX than the monthly contracts, and more timely responsiveness to 
changes in spot VIX. Changing the Share Index Factors to a weekly 
determination is expected to have two benefits, both of which are 
expected to narrow bid/offer spreads and increase trading volumes. 
First, the fund shares are expected to be more easily hedged with 
shorter duration VIX futures. Aligning the Share Index Factor resets to 
the shorter VIX futures would make the fund shares' responsiveness to 
VIX better aligned with the preferred hedging instrument. The arbitrage 
and hedging of fund shares would be simplified because the settlement 
of the shorter VIX futures will be coincidental with each Share Index 
Factor reset. That is, the preferred hedge is expected to be rolled on 
its expiry cycle by an arbitrageur or hedger, and the expiry cycle will 
coincide with each Share Index Factor reset. Second, the improved 
hedgeability is expected to bring the trading prices in closer 
alignment with fund share class values which are algorithmic and tied 
directly to changes in spot VIX.
---------------------------------------------------------------------------

    \28\ Immediately after each distribution, the fund's exposure 
will be reset, and the fund's Class Value per Share for each of its 
classes will be set to equal the lowest Class Value per Share of the 
two classes of Paired Class Shares. See 80 FR 9778 at 9779 
(AccuShares Order).
---------------------------------------------------------------------------

    As a result of this proposed change, Share Index Factor resetting 
will be taking place more frequently to the benefit of market 
participants.\29\
---------------------------------------------------------------------------

    \29\ Share Index Factors would, as now, continue to reset after 
any Regular Distribution and special distribution.
---------------------------------------------------------------------------

    The Exchange believes that all three of the proposed changes will 
be beneficial to traders and investors, and that they meet the 
requirements of the Act.
    The Exchange notes that this proposal makes three changes, as 
discussed, to the original AccuShares Order and AccuShares Proposal, 
see 80 FR 9778 and 79 FR 35610, and that the representations made in 
the original AccuShares Order and AccuShares Proposal remain unchanged.
2. Statutory Basis
    The Exchange believes the proposed rule change is consistent with 
the Act and the rules and regulations thereunder, including the 
requirements of Section 6(b) of the Act.\30\ In particular, the 
Exchange believes the proposed rule change is consistent with the 
Section 6(b)(5) \31\ requirements that the rules of an exchange be 
designed to promote just and equitable principles of trade, to prevent 
fraudulent and manipulative acts and practices, to foster cooperation 
and coordination with persons engaged in facilitating transactions in 
securities, to remove impediments to and to perfect the mechanism for a 
free and open market and a national market system, and, in general, to 
protect investors and the public interest. The Exchange proposes to 
indicate that Regular Distributions of the Distribution Funds will be 
done on a monthly rather than on a quarterly basis, to rename two Funds 
to reflect excess return rather than spot, and to indicate that Share 
Index Factors for the VIX Fund would be reset on a weekly basis on 
Tuesday and the regular distributions will occur monthly on the third 
Tuesday of each month rather than on the 15th, as discussed. Thus, each 
such monthly distribution Fund (and in fact all of the Funds with the 
exception of AccuShares S&P GSCI Spot Fund and AccuShares S&P GSCI 
Agriculture and Livestock Spot Fund) would engage in monthly Regular 
Distributions, and the excess return Funds would be indexed to their 
excess return variant and re-named AccuShares S&P GSCI Crude Oil Excess 
Return Fund and AccuShares S&P GSCI Natural Gas Excess Return Fund. The 
Exchange believes that these proposed changes will be beneficial to 
market participants that choose to trade the Funds.
---------------------------------------------------------------------------

    \30\ 15 U.S.C. 78f(b).
    \31\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that consistency across all Funds (except 
AccuShares S&P GSCI Spot Fund and AccuShares S&P GSCI Agriculture and 
Livestock Spot Fund) vis-[agrave]-vis monthly Regular Distributions 
will be helpful to investors and traders. While some may have become 
aware of AccuShares and Paired Class Shares when the Exchange filed the 
AccuShares proposal, many more have become aware of AccuShares and its 
product offerings with the listing and trading of the first of the 
Paired Class Shares products, namely the VIX Fund that began trading on 
May 19, 2015. The Exchange believes that consistency across Funds as 
discussed in terms of monthly Regular Distributions would avoid 
potential investor confusion, and, as discussed above, could be 
advantageous to market participants. In addition, the Sponsor has heard 
from current and potential investors about distribution. In particular, 
the majority of these market participants indicated to the Sponsor that 
monthly Regular Distributions would be preferable to a longer period 
because this would tend to have a positive impact on trading activity 
because better alignment with both futures hedges and better alignment 
with other exchange traded products would reduce intraday spreads by 
being more easily hedged and arbitraged, and more widely traded. This 
would help trading price stability and tracking in terms of premiums 
and discounts by both overall increasing trading volumes and making 
intraday and inter-day trading volumes more consistent, all of which is 
expected to contribute to narrower bid/offer spreads and more 
predictable fund performance.

[[Page 14494]]

    The Exchange believes that, as discussed, re-indexing and renaming 
the excess return Funds will be helpful to market participants. The 
excess return change is recommended by market participants. The 
Authorized Participants and liquidity providers have indicated that 
market making in the excess return Funds, as currently reflecting the 
spot variant of the index, would require wider bid/offer spreads in 
comparison to using the excess return variant of the index.\32\ That 
is, the current spot variant would require anticipatory hedging, rolls, 
and the management of the spot requirements (e.g., contango and 
backwardation risk), while in contrast these spot requirements are not 
important with excess return because they are naturally embedded in the 
excess return variant.
---------------------------------------------------------------------------

    \32\ Market participants have indicated that their expected 
average holding and reassessment periods would be in the area of two 
to eight weeks, and that excess return Funds, with narrower bid/
offer spreads--which are advantageous to market participants--would 
be preferred.
---------------------------------------------------------------------------

    The Exchange notes that in each instance of a distribution the 
Sponsor will post a notice of such event and its details on the 
Sponsor's Web site (www.AccuShares.com). The Sponsor has also 
represented to the Exchange that each Fund engaging in a Regular 
Distribution (or, for that matter, a special distribution, corrective 
distribution, or net income distribution) will provide at least three 
business days' advance notice (or longer advance notice as may be 
required by the Exchange) \33\ of such an event.
---------------------------------------------------------------------------

    \33\ The Exchange may determine that longer notice is advisable 
in some circumstances (e.g., an extended market break).
---------------------------------------------------------------------------

    The Exchange believes that, as discussed, more frequent resetting 
of the Share Index Factors will likewise be beneficial to market 
participants. The Exchange is proposing that the resetting of the Share 
Index Factors for the VIX Fund not have to wait for a Regular or 
special distribution but rather be done on a more frequent, weekly 
basis on each Tuesday. More frequent resets of the Share Index Factors 
for the VIX Fund will be beneficial to market participants that trade 
the fund because it will improve the arbitrage function of the fund's 
shares by aligning the setting of the Share Index Factors with the 
expiry of each weekly VIX futures contract, and because the Share Index 
Factor will reset with a frequency closer to the daily measurements of 
spot VIX. The weekly VIX futures are the preferred hedging futures with 
both higher correlations to spot VIX than the monthly contracts, and 
more timely responsiveness to changes in spot VIX. Changing the Share 
Index Factors to a weekly determination is expected to have several 
advantages for market participants: Narrower bid/offer spreads and 
increased trading volumes; fund shares more easily hedged with shorter 
VIX futures; and improved hedgeability that should bring the trading 
prices in closer alignment with fund share class values which are 
algorithmic and tied directly to changes in spot VIX.

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 purposes of the Act. The Exchange does not 
believe that the proposed rule change will have any impact on 
competition. The proposed rule change will achieve better consistency 
for the Funds of the Trust as discussed regarding the timing of Regular 
Distributions. The proposed rule change will have certain indexes 
changed from the spot variant to the excess return variant of such 
indexes, and will rename two of the Funds to reflect that these excess 
return Funds will use the excess return variant of the index underlying 
the Funds rather the current index variant that is based on spot. The 
proposed rule change will increase the frequency of Share Index Factor 
resets for the VIX Fund to occur weekly on each Tuesday, and will make 
a corresponding change to monthly distribution dates to the third 
Tuesday of each month such that a monthly distribution coincides with a 
weekly Share Index Factor reset. The Exchange believes that while these 
changes may not directly impact competition, they will be helpful for 
market participants.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission shall: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be 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-NASDAQ-2016-034 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-NASDAQ-2016-034. 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-NASDAQ-2016-034 and should 
be submitted on or before April 7, 2016.


[[Page 14495]]


    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\34\
---------------------------------------------------------------------------

    \34\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Lynn M. Powalski,
Deputy Secretary.
[FR Doc. 2016-05977 Filed 3-16-16; 8:45 am]
 BILLING CODE 8011-01-P
Document Created: 2016-03-17 00:58:47
Document Modified: 2016-03-17 00:58:47
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		81 FR 14489