INDEX SUPPLEMENT
J.P. Morgan Mozaic II
SM Index
This document contains information solely about the J.P. Morgan Mozaic IISM
Index (the “Index”), which
information has been provided by J.P. Morgan Securities LLC (“JPMS”) solely in its capacity as a licensor of the
Index. The Index and certain relevant “Risk Factors” are described in further detail within the document and are
qualified in their entirety by the index rules (the “Rules”), which are appended hereto. Please read the
information under the section titled “Important Information” below before reading any other material in this
document.
IMPORTANT INFORMATION
The Index has been and may be licensed to one or several licensees (collectively, the “Licensee”) for the
Licensee’s benefit. Neither the Licensee nor any product of the Licensee (the “Product”) is sponsored,
operated, endorsed, sold or promoted by JPMS or any of its affiliates (together and individually,
“J.P. Morgan”). J.P. Morgan makes no representation and no warranty, express or implied, to owners of the
Product (or any person taking exposure to it) or any member of the public in any other circumstances (each a
“Contract Owner”): (a) regarding the advisability of investing in securities or other financial or insurance
products generally or in the Product particularly; or (b) the suitability or appropriateness of an exposure to the
Index in seeking to achieve any particular objective. It is for those taking an exposure to the Product and/or the
Index to satisfy themselves of these matters and such persons should seek appropriate professional advice before
making any investment. J.P. Morgan is not responsible for and does not have any obligation or liability in
connection with the issuance, administration, marketing or trading of the Product. The publication of the Index
and the referencing of any asset, instrument or other factor of any kind in the Index do not constitute any form of
investment recommendation or advice in respect of any such asset, instrument or other factor by J.P. Morgan,
and no person should rely upon it as such. J.P. Morgan does not act as an investment adviser or investment
manager in respect of the Index or the Product and does not accept any fiduciary duties in relation to the
Index, the Licensee, the Product or any Contract Owner.
The Index has been designed and is compiled, calculated, maintained and sponsored by J.P. Morgan
without regard to the Licensee, the Product or any Contract Owner. The ability of the Licensee to make use of
the Index may be terminated on short notice and it is the responsibility of the Licensee to provide for the
consequences of that in the design of the Product. J.P. Morgan does not accept any legal obligation to take
the needs of any person who may invest in a Product into account in designing, compiling, calculating,
maintaining or sponsoring the Index or in any decision to cease doing so.
J.P. Morgan does not give any representation, warranty or undertaking of any type (whether express or
implied, statutory or otherwise) in relation to the Index, as to condition, satisfactory quality, performance or
fitness for purpose or as to the results to be achieved by an investment in the Product or any data included in or
omissions from the Index, or the use of the Index in connection with the Product or the veracity, currency,
completeness or accuracy of the information on which the Index is based (and, without limitation, J.P. Morgan
accepts no liability to any Contract Owner for any errors or omissions in that information or the results of any
interruption to it and J.P. Morgan shall be under no obligation to advise any person of any such error, omission
or interruption). To the extent any such representation, warranty or undertaking could be deemed to have
been given by J.P. Morgan, it is excluded save to the extent that such exclusion is prohibited by law. To the
fullest extent permitted by law, J.P. Morgan shall have no liability or responsibility to any person or entity
(including, without limitation, to any Contract Owner) for any losses, damages, costs, charges, expenses or
other liabilities howsoever arising, including, without limitation, liability for any special, punitive, indirect or
consequential damages (including loss of business or loss of profit, loss of time and loss of goodwill), even if
notified of the possibility of the same, arising in connection with the design, compilation, calculation,
maintenance or sponsoring of the Index or in connection with the Product.
The Index is the exclusive property of J.P. Morgan. J.P. Morgan is under no obligation to continue
compiling, calculating, maintaining or sponsoring the Index and may delegate or transfer to a third party some or
all of its functions in relation to the Index.
J.P. Morgan may independently issue or sponsor other indices or products that are similar to and may
compete with the Index and the Product. J.P. Morgan may also transact in assets or instruments referenced in
the Index (or in financial instruments such as derivatives that reference those assets or instruments). It is possible
that these activities could have an effect (positive or negative) on the value of the Index and the Product.
Each of the above paragraphs is severable. If the contents of any such paragraph is held to be or
becomes invalid or unenforceable in any respect in any jurisdiction, it shall have no effect in that respect, but
without prejudice to the remainder of this notice.
January 6, 2017
TABLE OF CONTENTS
Page
Risk Factors ................................................................................................................................................................... 1 The J.P. Morgan Mozaic II
SM Index ............................................................................................................................ 14
Background Relating to the Basket Constituents of the Index .................................................................................... 43 Background on Futures Contracts ............................................................................................................................... 43 Background on the Bloomberg Commodity Sector Indices ........................................................................................ 45 Background on the DAX
® Index ................................................................................................................................. 55
Background on the FTSE® 100 Index .......................................................................................................................... 63
Background on the NASDAQ-100 Index®
.................................................................................................................. 65 Background on the Russell 2000
® Index ..................................................................................................................... 69
Background on the S&P 500® Index ........................................................................................................................... 77
Background on the TOPIX® Index .............................................................................................................................. 82
Background on the Federal Republic of Germany....................................................................................................... 84 Background on Japan ................................................................................................................................................... 85 Background on the United Kingdom ........................................................................................................................... 86 Annex A: The J.P. Morgan Mozaic II
SM Index Rules ................................................................................................ A-1
A-1
RISK FACTORS
Risks Relating to the Index
J.P. Morgan Securities plc (“JPMS plc”), the Index Sponsor and the Index Calculation Agent, may adjust the
Index in a way that affects its level, and JPMS plc has no obligation to consider any person’s interests.
JPMS plc, an affiliate of JPMorgan Chase & Co., currently acts as the Index Sponsor and the Index Calculation
Agent (each as defined below) and is responsible for calculating and maintaining the Index and developing the
guidelines and policies governing its composition and calculation. The rules governing the Index may be amended
at any time by JPMS plc, in its sole discretion, and the rules permit the use of discretion by JPMS plc in relation to
the Index in specific instances, including but not limited to the determination of the levels to be used in the event of
market disruptions that affect its ability to calculate and publish the levels of the Index and the interpretation of rules
governing the Index. Although JPMS plc acting as the Index Sponsor or the Index Calculation Agent will make all
determinations and take all action in relation to the Index acting in good faith, it should be noted that the policies
and judgments for which JPMS plc is responsible could have an impact, positive or negative, on the level of the
Index and therefore on the value of any investments or instruments linked to the Index. JPMS plc may also amend
the rules governing the Index in certain circumstances.
Although judgments, policies and determinations concerning the Index are made by JPMS plc, JPMorgan Chase
Bank, N.A., as the parent company of JPMS plc, ultimately controls JPMS plc. JPMS plc has no obligation to
consider any person’s interests in taking any actions that might affect the value of any instrument linked to the
Index. Furthermore, the inclusion of the Basket Constituents (as defined below) in the Index is not an investment
recommendation by JPMS or JPMS plc of the Basket Constituents or any of the futures contracts underlying the
Basket Constituents. See “The J.P. Morgan Mozaic IISM
Index.”
The Index may not be successful or outperform any alternative strategy that might be employed in respect of
the Basket Constituents.
The Index follows a notional rules-based proprietary strategy that operates on the basis of pre-determined rules.
No assurance can be given that the investment strategy on which the Index is based will be successful or that the
Index will outperform any alternative strategy that might be employed in respect of the Basket Constituents.
The Index should not be compared to any other index or strategy sponsored by any of JPMorgan Chase &
Co.’s affiliates (each, a “J.P. Morgan Index”) and cannot necessarily be considered a revised, enhanced or
modified version of any other J.P. Morgan Index.
The Index follows a notional rules-based proprietary strategy that may have objectives, features and/or
constituents that are similar to those of other J.P. Morgan Indices. No assurance can be given that these similarities
will form a basis for comparison between the Index and any other J.P. Morgan Index, and no assurance can be given
that the Index would be more successful than or outperform any other J.P. Morgan Index. The Index operates
independently and does not necessarily revise, enhance, modify or seek to outperform any other J.P. Morgan Index.
There are risks associated with the Index’s momentum investment strategy.
The Index is constructed using what is generally known as a momentum investment strategy. Momentum
investing generally seeks to capitalize on positive trends in the returns of financial instruments. As such, the
weights of the Basket Constituents are based on the performance of the Basket Constituents from the immediately
preceding six months. However, there is no guarantee that trends existing in the preceding six months will continue
in the future. A momentum strategy is different from a strategy that seeks long-term exposure to a notional portfolio
consisting of constant components with fixed weights. The Index may fail to realize gains that could occur as a
result of obtaining exposures to financial instruments that have experienced negative returns, but which
subsequently experience a sudden spike in positive returns. As a result, if market conditions do not represent a
continuation of prior observed trends, the level of the Index, which is rebalanced based on prior trends, may decline.
Additionally, even when the values of the Basket Constituents are trending downwards, the Index will not reduce the
number of Basket Constituents it tracks in order to avoid tracking Basket Constituents with negative performance.
Due to the “long-only” construction of the Index, the weight of each Basket Constituent will not fall below zero at
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any time even if the relevant Basket Constituent displayed a negative performance over the relevant six-month
period. No assurance can be given that the investment strategy used to construct the Index will cause the Index to
outperform any alternative index that might be constructed from the Basket Constituents.
The Index may perform poorly during periods characterized by short-term volatility.
The Index’s strategy is based on momentum investing. Momentum investing strategies are effective at
identifying the current market direction in trending markets. However, in non-trending, sideways markets,
momentum investment strategies are subject to “whipsaws.” A whipsaw occurs when the market reverses and does
the opposite of what is indicated by the trend indicator, resulting in a trading loss during the particular period.
Consequently, the Index may perform poorly in non-trending, “choppy” markets characterized by short-term
volatility.
The Index may not approximate its target volatility.
No assurance can be given that the Index will approximate its target volatility. The actual realized volatility of
the Index may be greater or less than its target volatility. The monthly weights of the Basket Constituents tracked by
the Index are based on their historical volatility (and their collective historical volatility as a portfolio) over specified
measurement periods and are subject to maximum aggregate and individual weighting constraints. However, there
is no guarantee that trends existing in the relevant measurement periods will continue in the future. The volatility of
the notional portfolio on any day may change quickly and unexpectedly. Accordingly, the actual realized volatility
of the Index on a daily basis may be greater than or less than the target volatility, which may adversely affect the
level of the Index.
The Index may be subject to increased volatility due to the potential use of significant leverage.
The Index may use leverage to increase the return from any of its Basket Constituents because the sum of the
weights of the Basket Constituents may be greater than 100%, up to a maximum total weight of 300%. In addition,
the weights of some of the Bond Constituents (as defined below) can reflect significant leverage, up to 250%.
Where a Basket Component is leveraged, any price movements in that Basket Constituent will result in greater
changes in its value than if leverage were not used. In particular, the use of leverage will magnify any negative
performance of the relevant Basket Constituents, which, in turn, could adversely affect the level of the Index.
The Index may be partially uninvested or become entirely uninvested, which will result in a portion or all of
the Index reflecting no return.
Because of the method by which the weight of each Basket Constituent selected for inclusion in the Index is
determined, the weight of a selected Basket Constituent generally decreases as its historical volatility and the
correlations between the Basket Constituents over the specified measurement periods increase. If one or more of the
selected Basket Constituents experiences historical volatility over the specified measurement periods greater than
the target volatility of 4.2%, the total weight of the Basket Constituents included in the Index may be less than
100%. A total weight of less than 100% means that the Index is partially uninvested. The Index will reflect no
return with respect to the uninvested portion.
In addition, the exposure flattening feature of the Index described in the immediately following risk factor may
cause the Index to reduce or eliminate its exposure to each Basket Constituent for a short period. During any period
of exposure flattening, the Index may be partially or entirely uninvested. The Index will reflect no return with
respect to the uninvested portion and, if the Index is entirely uninvested, the Index will reflect no return.
The exposure flattening feature of the Index may adversely affect the performance of the Index.
If the level of the Index falls by more than 3% over a one-week period, subject to the conditions described
under “The J.P. Morgan Mozaic IISM
Index—Exposure Flattening” below, the Index will attempt to eliminate its
exposure to each Basket Constituent for a short period by progressively decreasing the exposure of each Basket
Constituent to 0%. This decrease in the exposure of the Basket Constituents is referred to in this index supplement
as “exposure flattening.” After five weekdays, the Index will attempt to restore its exposure to each Basket
3
Constituent by progressively increasing its exposure to each Basket Constituent until that exposure has been fully
restored, subject to the initiation of further exposure flattening.
There can be no assurance that the timing of any exposure flattening will avoid any declines in the values of the
Basket Constituents. Even if the Index has been declining steadily, the Index will begin to restore exposure to the
Basket Constituents on the fifth weekday after exposure flattening has been triggered, and exposure flattening
cannot be triggered again until the following weekday (i.e., the sixth weekday after exposure flattening has been
triggered). In addition, whether exposure flattening is triggered will be based on changes in the level of the Index
and not on changes in the values of the underlying Basket Constituents. As a result, following an occurrence of
exposure flattening, the determination of whether additional exposure flattening will be triggered will be based on a
level of the Index that reflects the effects of exposure flattening.
Furthermore, the exposure flattening feature of the Index may adversely affect the performance of the Index.
For example, if, after the level of the Index falls and exposure flattening is triggered, the values of the Basket
Constituents included in the Index recover during the period in which the Index’s exposure to the Basket
Constituents has been reduced or eliminated, the Index will not participate in the recovery of the Basket
Constituents. As a result, the level of the Index may trail the value of a hypothetical identically constituted notional
portfolio that does not include an exposure flattening feature. In particular, for the period from November 1, 1996
(the Index base date ) to the establishment of the Index on December 28, 2016, the exposure flattening feature has
caused the hypothetical back-tested performance of the Index to trail the performance of a hypothetical identically
constituted notional portfolio that does not include an exposure flattening feature.
The Index may not track any particular Basket Constituent for any period of time.
The level of the Index will be based on the monthly performance of a notional portfolio of the Basket
Constituents selected each month. Except for rebalancing periods during which the Index’s exposure is split
between the prior month’s and the current month’s selected Basket Constituents, the Index will typically provide
exposure to nine Basket Constituents. Accordingly, the Index may not track any particular Basket Constituent for
any period of time.
The exposure of the Index to Bond Constituents may be greater, perhaps significantly greater, than its
exposure to Equity Constituents and Commodity Constituents.
Under the method by which the weight of each Basket Constituent selected for inclusion in the Index is
determined, the weight of a selected Basket Constituent generally increases as its historical volatility over the
specified measurement periods decreases, subject to the maximum weight of that Basket Constituent. The
maximum weight of each Equity Constituent and Commodity Constituent (each as defined below) is 15%, while the
maximum weights of the Bond Constituents range from 45% to 250%. Accordingly, the exposure of the Index to
Bond Constituents may be greater, perhaps significantly greater, than its exposure to Equity Constituents and
Commodity Constituents. If the Index has greater exposure to Bond Constituents than to Equity Constituents and
Commodity Constituents, then a 1% change in the value of those Bond Constituents will have a greater impact on
the Index’s return than a 1% change in the values of those Equity Constituents and Commodity Constituents.
However, the returns of those Bond Constituents may be significantly lower than the returns of those Equity
Constituents and Commodity Constituents, which may adversely affect the level of the Index.
The investment strategy used to construct the Index involves monthly rebalancing and weighting constraints
that are applied to the Basket Constituents.
The Basket Constituents are subject to monthly rebalancing based on historical performance and volatility and
weighting constraints. By contrast, a notional portfolio that does not rebalance monthly and is not subject to any
weighting constraints could see greater compounded gains over time through exposure to a consistently and rapidly
appreciating portfolio consisting of the Basket Constituents. Therefore, the return on an instrument linked to the
Index realized by an investor or by others that may have exposure to the Index may be less than the return that could
be realized on an alternative investment in the Basket Constituents that is not subject to monthly rebalancing or
weighting constraints. No assurance can be given that the investment strategy used to construct the Index will
outperform any alternative investment in the Basket Constituents.
4
The Index is an “excess return” index and not a “total return” index because it does not reflect interest that
could be earned on funds notionally committed to the trading of futures contracts.
The Index is an excess return index and not a total return index. The return from investing in futures contracts
derives from three sources: (a) changes in the price of the relevant futures contracts (which is known as the “price
return”); (b) any profit or loss realized when rolling the relevant futures contracts (which is known as the “roll
return”); and (c) any interest earned on the cash deposited as collateral for the purchase of the relevant futures
contracts (which is known as the “collateral return”).
Some indices, including the Index, that track futures contracts are excess return indices that measure the returns
accrued from investing in uncollateralized futures contracts (i.e., the sum of the price return and the roll return
associated with an investment in futures contracts). By contrast, a total return index, in addition to reflecting those
returns, also reflects interest that could be earned on funds committed to the trading of the underlying futures
contracts (i.e., the collateral return associated with an investment in futures contracts). Investing in instruments
linked to the Index will not generate the same return as would be generated from investing directly in the relevant
futures contracts or in a total return index related to those futures contracts.
If the values of the Basket Constituents change, the level of the Index may not change in the same manner.
Changes in the values of the Basket Constituents may not result in a comparable change in the level of the Index
or the market value of any investment or instrument linked to the Index.
The Index comprises notional assets.
The exposures to the futures contracts underlying the Basket Constituents are purely notional and will exist
solely in the records maintained by or on behalf of the Index Calculation Agent. There is no actual portfolio of
assets to which any person is entitled or in which any person has any ownership interest. Consequently, there is no
claim against any of the reference assets that compose the Index.
The Index has a limited operating history and may perform in unanticipated ways.
The Index was established on December 28, 2016 and therefore has a limited operating history. Past
performance should not be considered indicative of future performance.
The Index is subject to market risks.
The performance of the Index is dependent on the performance of the Basket Constituents. As a consequence,
any investment or instrument linked to the Index is exposed to the performance of the Basket Constituents.
The Basket Constituents composing the Index may be replaced by a substitute upon the occurrence of certain
extraordinary events.
As described under “The J.P. Morgan Mozaic IISM
Index — Succession Events and Extraordinary Events”
below, following the occurrence of certain extraordinary events with respect to a Basket Constituent, the affected
Basket Constituent may be replaced by a substitute position in a futures contract or a substitute index.
These extraordinary events generally include events that could materially interfere with the ability of market
participants to transact in, or events that could materially change the underlying economic exposure of, positions
with respect to the Index, a Basket Constituent or its underlying components, where that material interference or
change is not acceptable to the Index Calculation Agent. See “The J.P. Morgan Mozaic IISM
Index — Succession
Events and Extraordinary Events” below for a list of numerous other events that could trigger an extraordinary event
and cause a Basket Constituent to be replaced by a substitute.
If the Index Calculation Agent determines in its discretion that no suitable substitute is available for an affected
Basket Constituent, then the level of the Basket Constituent will be fixed at a level determined by the Index
Calculation Agent until the next rebalancing of the Index, at which time that Basket Constituent will be removed
from the Index.
5
The changing of a Basket Constituent may affect the performance of the Index, and therefore, the return on any
investment or instrument linked to the Index, as the replacement Basket Constituent may perform significantly better
or worse than the affected Basket Constituent.
Correlation of performances among the Basket Constituents may reduce the performance of the Index.
Performances of the Basket Constituents may become highly correlated from time to time, including, but not
limited to, a period in which there is a substantial decline in the assets represented by one or more of the Basket
Constituents that have a higher weighting in the Index relative to any of the other assets. High correlation during
periods of negative returns among Basket Constituents representing any one or more assets and that have a
substantial percentage weighting in the Index could have an adverse effect on the performance of the Index.
Changes in the value of the Basket Constituents may offset each other.
Because the Index is linked to the performance of the Basket Constituents, which collectively represent futures
contracts on different assets, price movements between the Basket Constituents representing different assets may not
correlate with each other. At a time when the value of a Basket Constituent representing a particular asset increases,
the value of other Basket Constituents representing different assets may not increase as much or may decline.
Therefore, in calculating the level of the Index, increases in the values of some of the Basket Constituents may be
moderated, or more than offset, by lesser increases or declines in the values of other Basket Constituents.
Risks Relating to the Basket Constituents Generally
The Index is subject to significant risks associated with futures contracts.
The Basket Constituents each track the returns of futures contracts. The price of a futures contract depends not
only on the price of the underlying asset referenced by the futures contract, but also on a range of other factors,
including but not limited to changing supply and demand relationships, interest rates, governmental and regulatory
policies and the policies of the exchanges on which the futures contracts trade. In addition, the futures markets are
subject to temporary distortions or other disruptions due to various factors, including the lack of liquidity in the
markets, the participation of speculators and government regulation and intervention. These factors and others can
cause the prices of futures contracts to be volatile and could adversely affect the level of the Index.
Suspension or disruptions of market trading in futures contracts may adversely affect the value of any
instruments linked to the Index.
Futures markets are subject to temporary distortions or other disruptions due to various factors, including lack
of liquidity, the participation of speculators, and government regulation and intervention. In addition, futures
exchanges generally have regulations that limit the amount of futures contract price fluctuations that may occur in a
single day. These limits are generally referred to as “daily price fluctuation limits” and the maximum or minimum
price of a contract on any given day as a result of these limits is referred to as a “limit price.” Once the limit price
has been reached in a particular contract, no trades may be made at a price beyond the limit, or trading may be
limited for a set period of time. Limit prices have the effect of precluding trading in a particular contract or forcing
the liquidation of contracts at potentially disadvantageous times or prices. These circumstances could delay the
publication of the level of the Index and could adversely affect the level of the Index.
An increase in the margin requirements for futures contracts included in the Basket Constituents may
adversely affect the level of the Index.
Futures exchanges require market participants to post collateral in order to open and keep open positions in
futures contracts. If an exchange increases the amount of collateral required to be posted to hold positions in futures
contracts underlying the Basket Constituents, market participants who are unwilling or unable to post additional
collateral may liquidate their positions, which may cause the price of the relevant futures contracts to decline
significantly. As a result, the level of the Index may be adversely affected.
6
The Index may in the future include contracts that are not traded on regulated futures exchanges.
The Index, through its exposure to the Basket Constituents, is currently based solely on futures contracts traded
on regulated futures exchanges (referred to in the United States as “designated contract markets”). If these
exchange-traded futures contracts cease to exist, or if the calculation agent for the Basket Constituents substitutes a
futures contract in certain circumstances, the Index may in the future include futures contracts or over-the-counter
contracts traded on trading facilities that are subject to lesser degrees of regulation or, in some cases, no substantive
regulation. As a result, trading in such contracts, and the manner in which prices and volumes are reported by the
relevant trading facilities, may not be subject to the provisions of, and the protections afforded by, the U.S.
Commodity Exchange Act, or other applicable statutes and related regulations that govern trading on regulated U.S.
futures exchanges or similar statutes and regulations that govern trading on regulated non-U.S. futures exchanges.
In addition, many electronic trading facilities have only recently initiated trading and do not have significant trading
histories. As a result, the trading of contracts on such facilities, and the inclusion of such contracts in the Index,
through its exposure to the Basket Constituents, may be subject to certain risks not presented by futures contracts
traded on regulated futures exchanges, including risks related to the liquidity and price histories of the relevant
contracts.
Negative roll returns associated with the futures contracts constituting the Basket Constituents may adversely
affect the performance of the Basket Constituents.
The Basket Constituents each reference futures contracts. Unlike common equity securities, futures contracts,
by their terms, have stated expirations. As the exchange-traded futures contracts that compose the Basket
Constituents approach expiration, they are replaced by similar contracts that have a later expiration. For example, a
futures contract notionally purchased and held in June may specify a September expiration date. As time passes, the
contract expiring in September is replaced by a contract for delivery in December. This is accomplished by
notionally selling the September contract and notionally purchasing the December contract. This process is referred
to as “rolling.” Excluding other considerations, if prices are higher in the distant delivery months than in the nearer
delivery months, the notional purchase of the December contract would take place at a price that is higher than the
price of the September contract, thereby creating a negative “roll return.” Negative roll returns adversely affect the
returns of the Basket Constituents and, therefore, the level of the Index. Because of the potential effects of negative
roll returns, it is possible for the value of a Basket Constituent to decrease significantly over time, even when the
near-term or spot prices of the underlying assets or instruments are stable or increasing. In addition, interest rates
have been historically low for an extended period and, if interest rates revert to their historical means, the likelihood
that a roll return related to any Basket Constituent will be negative, as well as the adverse effect of negative roll
returns on any Basket Constituent, will increase.
Risks Relating to the Futures Constituents
There are risks associated with non-U.S. securities markets.
The equity securities composing the indices referenced by some of the Underlying Futures Contracts (as defined
below) and the government bonds referenced by other Underlying Futures Contracts (such equity securities and
government bonds, the “underlying securities”) have been issued by non-U.S. companies or governments. There
are, therefore, risks associated with the securities markets in those countries where the non-U.S. underlying
securities are traded, including risks of volatility in those markets, governmental intervention in those markets and
cross shareholdings in companies in certain countries. Also, there is generally less publicly available information
about companies and governments in some of these jurisdictions than about U.S. companies that are subject to the
reporting requirements of the Securities and Exchange Commission (the “SEC”), and generally non-U.S. companies
and governments are subject to accounting, auditing and financial reporting standards and requirements and
securities trading rules different from those applicable to U.S. reporting companies.
The prices of securities in non-U.S. markets may be affected by political, economic, financial and social factors
in those markets, including changes in a country’s government, economic and fiscal policies, currency exchange
laws or other laws or restrictions. Moreover, the economies of these countries may differ favorably or unfavorably
from the economy of the United States in such respects as growth of gross national product, rate of inflation, capital
reinvestment, resources and self-sufficiency. These countries may be subjected to different and, in some cases,
more adverse economic environments.
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Some or all of these factors may influence the value of the relevant Futures Constituents (as defined below), and
therefore, the Index. The impact of any of the factors set forth above may enhance or offset some or all of any
change resulting from another factor or factors. The future performance of a Futures Constituent cannot be
predicted based on its historical performance. The value of any Futures Constituent may decrease.
There are significant risks associated with fixed-income securities, including interest rate-related risks.
Investing in or otherwise obtaining exposure in part to the Bond Constituents, differs significantly from
investing directly in bonds to be held to maturity, as the values of the Bond Constituents change, at times
significantly, during each trading day based upon the current market prices of the government bonds referenced by
the Underlying Futures Contracts of the Bond Constituents (such government bonds, the “underlying bonds”). The
market prices of the underlying bonds are volatile and significantly influenced by a number of factors, particularly
the duration of the underlying bonds, the yields on the underlying bonds as compared to current market interest rates
and the actual or perceived credit quality of the governmental issuers of the underlying bonds.
In general, fixed-income securities are significantly affected by changes in current market interest rates. As
interest rates rise, the prices of fixed-income securities, such as the underlying bonds, are likely to decrease.
Instruments with longer durations tend to be more sensitive to interest rate changes, usually making them more
volatile than securities with shorter durations. As a result, rising interest rates may cause the value of the long-dated
bonds underlying the relevant Bond Constituents to decline, possibly significantly.
Interest rates are subject to volatility due to a variety of factors, including:
sentiment regarding underlying strength or weakness in economies of the governments issuing the
underlying bonds and global economies;
expectations regarding the level of price inflation;
sentiment regarding credit quality of the governments issuing the underlying bonds and global credit
markets;
central bank policies regarding interest rates; and
the performance of global capital markets.
The underlying bonds have traded at implied nominal yields near historical lows for an extended period of time.
If the yields of the underlying bonds revert to their historical means as a result of a general increase in interest rates,
government policies or actions, or perceptions of reduced credit quality of the relevant governments or otherwise,
the value of the underlying bonds will decline.
The markets and economies of the local governments of the issuers of the underlying bonds are subject to
unpredictable changes.
The market prices of the Underlying Futures Contracts of the Bond Constituents generally increase or decrease
in connection with, among other factors, the market’s expectations about increases or decreases in the market price
of the underlying bonds. Accordingly, the level of the Index may be affected by unpredictable changes, or
expectations of changes, in the local markets for the underlying bonds. Changes in the governments issuing the
underlying bonds include changes in:
economic performance, including any financial or economic crises and changes in the gross domestic
product, the principal sectors, inflation, employment and labor, and prevailing prices and wages;
the monetary system, including the monetary policy, the exchange rate policy, the economic and tax
policies, banking regulation, credit allocation and exchange controls;
the external sector, including the amount and types of foreign trade, the geographic distribution of trade, the
balance of payments, and reserves and exchange rates;
public finance, including the budget process, any entry into or termination of any economic or monetary
agreement or union (including the United Kingdom vote to exit the European Union, commonly known as
8
“Brexit”), the prevailing accounting methodology, the measures of fiscal balance, revenues and
expenditures, and any government enterprise or privatization program; and
public debt, including external debt, debt service and the debt record.
These factors interrelate in complex ways, and the effect of one factor on the market value of the underlying
bonds, and therefore on the Underlying Futures Contracts that reference the underlying bonds, may offset or
enhance the effect of another factor, which could have a negative impact on the performance of the Index.
The Bond Constituents may be affected by changes in the perceived creditworthiness of the governments that
issue the underlying bonds.
The prices of each underlying bond and the related Underlying Futures Contracts are significantly influenced by
the creditworthiness of the government that issues that underlying bond. U.S. rating agencies have downgraded the
credit ratings and/or assigned negative outlooks to many governments worldwide, including the United States, the
United Kingdom, Germany and Japan, and may continue to do so in the future. Any perceived decline in the
creditworthiness of the governments that issue the underlying bonds, as a result of a credit rating downgrade or
otherwise, may cause the yield on the relevant underlying bonds to increase and the prices of such underlying bonds
to fall, perhaps significantly, and may cause increased volatility in local or global credit markets. In addition, any
perceived improvement in the creditworthiness of the governments that issue the underlying bonds may result in an
increase in the risk tolerance of market participants, which may cause the yield on the relevant underlying bonds to
increase and the prices of such underlying bonds to fall. Any such decline over the term of any investment or
instrument linked to the Index would adversely impact the prices of the relevant Underlying Futures Contracts and
could have a negative impact on the level of the Index.
Currency exchange risk.
The prices of the Underlying Futures Contracts of some of the Futures Constituents are denominated in non-
U.S. currencies, and the returns, but not the notional values, of those non-U.S. currency-denominated Underlying
Futures Contracts are converted into U.S. dollars for the purposes of calculating the levels of those Futures
Constituents. Accordingly, there is exposure to currency exchange rate risk with respect to the returns of those non-
U.S. currency-denominated Underlying Futures Contracts in each of the relevant currencies. That currency
exchange risk will depend on the extent to which those currencies strengthen or weaken against the U.S. dollar,
together with whether each such non-U.S. currency-denominated Underlying Futures Contract appreciates or
declines in value, as adjusted by the applicable Index weights of the associated Futures Constituents in the Index.
For example, if a non-U.S. currency-denominated Underlying Futures Contract has a positive daily return (as
measured in its local currency), and the U.S. dollar strengthens against that non-U.S. currency-denominated
Underlying Futures Contract’s currency, the associated Futures Constituent’s contribution to the Index’s return
would be less than it would have been had its contribution been based solely on its local currency return. In
addition, if a non-U.S. currency-denominated Underlying Futures Contract has a negative daily return (as measured
in its local currency), and the U.S. dollar weakens against that non-U.S. currency-denominated Underlying Futures
Contract’s currency, the associated Futures Constituent’s negative contribution to the Index’s return would be
greater than it would have been had its contribution been based solely on its local currency return.
Of particular importance to potential currency exchange risk are:
existing and expected rates of inflation;
existing and expected interest rate levels;
the balance of payments;
political, civil or military unrest; and
the extent of governmental surpluses or deficits in the relevant countries and the United States.
9
All of these factors are, in turn, sensitive to the monetary, fiscal and trade policies pursued by the governments
of the relevant countries, the United States and other countries important to international trade and finance.
J.P. Morgan has no control over exchange rates.
Foreign exchange rates can either float or be fixed by sovereign governments. Exchange rates of the currencies
used by most economically developed nations are permitted to fluctuate in value relative to the U.S. dollar and to
each other. However, from time to time governments and, in the case of countries using the euro, the European
Central Bank, may use a variety of techniques, such as intervention by a central bank, the imposition of regulatory
controls or taxes or changes in interest rates to influence the exchange rates of their currencies. Governments may
also issue a new currency to replace an existing currency or alter the exchange rate or relative exchange
characteristics by a devaluation or revaluation of a currency. These governmental actions could change or interfere
with currency valuations and currency fluctuations that would otherwise occur in response to economic forces, as
well as in response to the movement of currencies across borders. As a consequence, these governmental actions
could adversely affect the performance of the Index.
JPMorgan Chase & Co. is currently one of the companies that makes up the S&P 500® Index.
JPMorgan Chase & Co., and the other issuers of the securities included in the indices referenced by the
Underlying Futures Contracts, will have no obligation to consider the interests of a holder of any investments or
instruments linked to the Index in taking any action that might affect the performance of the Index.
JPMS is a primary dealer in connection with purchases and sales of U.S. Treasury securities by the U.S.
Federal Reserve and JPMS’s actions in that capacity may affect the level of the Index.
JPMS is one of the primary dealers through which the U.S. Federal Reserve conducts open-market purchases
and sales of U.S. Treasury and federal agency securities, including U.S. Treasury notes. These activities may affect
the prices and yields on the U.S. Treasury notes, which may in turn affect the level of the Bond Constituents that
reference Underlying Futures Contracts on U.S. Treasury notes and the level of the Index. JPMS has no obligation
to take into consideration any person’s interests as a holder of any instrument linked to the Index when undertaking
these activities.
JPMS and its affiliates cannot provide assurance that the public information provided on the issuer of an
underlying bond is accurate or complete.
All disclosures contained in this index supplement are derived from publicly available documents and other
publicly available information, without independent verification. JPMS has not participated, and will not
participate, in the preparation of such documents or made any due diligence inquiry with respect to the issuer of an
underlying bond. JPMS does not make any representation that such publicly available documents or any other
publicly available information regarding the issuer of an underlying bond is accurate or complete, and is not
responsible for public disclosure of information by the issuer of an underlying bond, whether contained in filings
with the SEC or otherwise. Furthermore, JPMS cannot give any assurance that all events occurring prior to the date
of this index supplement (including events that would affect the accuracy or completeness of the publicly available
documents of the issuer of an underlying bond) that would affect the price of that underlying bond will have been
publicly disclosed. Subsequent disclosure of any of those events or the disclosure of or failure to disclose material
future events concerning the issuer of any underlying bond could adversely affect the Index. Any prospective
purchaser of an instrument linked to the Index should undertake an independent investigation of the issuer of any
underlying bond as in its judgment is appropriate to make an informed decision with respect to such investment.
Risks Relating to the Commodity Constituents
The commodity futures contracts underlying the Commodity Constituents are subject to legal and regulatory
regimes that may change in ways that may have an adverse effect on the level of the Index.
Futures contracts and options on futures contracts markets, including the futures contracts underlying the
Commodity Constituents, are subject to extensive regulation and margin requirements. The Commodity Futures
Trading Commission (the “CFTC”) and the exchanges on which those futures contracts trade are authorized to take
10
extraordinary actions in the event of a market emergency, including, for example, the retroactive implementation of
speculative position limits or higher margin requirements, the establishment of daily limits and the suspension of
trading. Furthermore, certain exchanges have regulations that limit the amount of fluctuation in futures contract
prices that may occur. These limits could adversely affect the market prices of relevant futures contracts and
forward contracts. The regulation of commodity transactions in the United States is subject to ongoing modification
by governmental and judicial action. In addition, various non-U.S. governments have expressed concern regarding
the disruptive effects of speculative trading in the commodity markets and the need to regulate the derivative
markets in general. The effect on the level of the Index of any future regulatory change is impossible to predict but
could be substantial and adverse to the interests of investors in instruments referencing the Index.
Notably, with respect to agricultural and exempt commodities as defined in the Commodity Exchange Act
(generally, physical commodities such as agricultural commodities, energy commodities and metals), the Dodd-
Frank Wall Street Reform and Consumer Protection Act, which was enacted on July 21, 2010, amended the
Commodity Exchange Act to provide the CFTC with additional authority to establish limits on the number of
positions, other than bona fide hedge positions, that may be held by any person in a commodity through futures
contracts, options on futures contracts and other related derivatives, such as swaps, that are economically equivalent
to those contracts. In addition, designated contract markets and swap execution facilities, as defined in the
Commodity Exchange Act, are authorized to establish and enforce position limits or position accountability
requirements on their own markets or facilities, which must be at least as stringent as the CFTC’s where CFTC
limits also apply.
On December 5, 2016, the CFTC proposed rules to establish position limits that will apply to 25 agricultural,
metals and energy futures contracts and futures, options and swaps that are economically equivalent to those futures
contracts. While the Commodity Constituents do not provide exposure to agriculture-based futures contracts, they
do provide exposure to metals- and energy-based futures contracts, and therefore the proposed limits would apply to
a number of commodity futures contracts underlying the Commodity Constituents, such as NYMEX Light Sweet
Crude Oil, NYMEX NY Harbor USLD, NY Harbor Gasoline Blendstock and Henry Hub Natural Gas futures; and
COMEX Gold, Silver and Copper futures and NYMEX Palladium futures. The limits will apply to a person’s
combined position in futures, options and swaps on the same underlying commodity. The rules, if enacted in their
proposed form, may reduce liquidity in the exchange-traded market for those commodity-based futures contracts,
which may, in turn, have an adverse effect on the performance of the Index.
Commodity futures prices may change unpredictably, affecting the values of the Commodity Constituents
and the Index in unforeseeable ways.
Trading in commodity futures contracts underlying the Commodity Constituents is speculative and can be
extremely volatile. A decrease in the price of any of the commodities upon which the futures contracts that compose
the Commodity Constituents are based may have a material adverse effect on the performance of the Index and the
return on an investment or instrument linked to the Index. Market prices of the commodities on which the futures
contracts that compose the Commodity Constituents are based may fluctuate rapidly based on numerous factors,
including: changes in supply and demand relationships, governmental programs and policies, national and
international monetary, trade, political and economic events, wars and acts of terror, changes in interest and
exchange rates, speculation and trading activities in commodities and related contracts, weather, and agricultural,
trade, fiscal and exchange control policies. The price volatility of each commodity also affects the value of the
futures and forward contracts related to that commodity and therefore its price at any particular time. The price of
any one commodity may be correlated to a greater or lesser degree with the prices of any other commodity and
factors affecting the general supply and demand as well as the prices of other commodities may affect the particular
commodity in question. The commodities markets are subject to temporary distortions or other disruptions due to
various factors, including the lack of liquidity in the markets, the participation of speculators and government
regulation and intervention. Many commodities are also highly cyclical. These factors, some of which are specific
to the nature of each such commodity, may affect the value of the different commodities upon which the futures
contracts that compose the Commodity Constituents are based, and may cause the values of the futures contracts
themselves to move in inconsistent directions at inconsistent rates. This, in turn, will affect the values of the
Commodity Constituents and the performance of the Index. It is not possible to predict the aggregate effect of all or
any combination of these factors.
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The Commodity Constituents do not offer direct exposure to commodity spot prices.
The values of the Commodity Constituents are intended to track generally the performance of commodity-
futures contracts on physical commodities, not physical commodities (or their spot prices). The price of a futures
contract reflects the expected value of the commodity upon delivery in the future, whereas the spot price of a
commodity reflects the immediate delivery value of the commodity. A variety of factors can lead to a disparity
between the expected future price of a commodity and the spot price at a given point in time, such as the cost of
storing the commodity for the term of the futures contract, interest charges incurred to finance the purchase of the
commodity and expectations concerning supply and demand for the commodity. The price movements of a futures
contract are typically correlated with the movements of the spot price of the reference commodity, but the
correlation is generally imperfect and price movements in the spot market may not be reflected in the futures market
(and vice versa). Accordingly, investments or instruments linked to the Index may underperform a similar
investment that reflects the return on physical commodities.
The prices of commodities are volatile and are affected by numerous factors, some of which are specific to the
commodity sector for each commodity futures contract underlying the Commodity Constituents.
A change in the price of any of the commodity futures contracts underlying the Commodity Constituents may
have a material adverse effect on the performance of the Index and the return on an investment or instrument linked
to the Index. Commodities futures contracts are subject to the effect of numerous factors, certain of which are
specific to the commodity sector for each commodity futures contract underlying the Commodity Constituents, as
discussed below.
Energy Sector
Global prices of energy commodities, including WTI crude oil, Brent crude oil, RBOB gasoline, heating oil and
natural gas, are primarily affected by the global demand for and supply of these commodities, but they are also
significantly influenced by speculative actions and by currency exchange rates. In addition, prices for energy
commodities are affected by governmental programs and policies, national and international political and economic
events, changes in interest and exchange rates, trading activities in commodities and related contracts, trade, fiscal,
monetary and exchange control policies, and with respect to oil, drought, floods, weather, government intervention,
environmental policies, embargoes and tariffs. Demand for refined petroleum products by consumers, as well as by
the agricultural, manufacturing and transportation industries, affects the price of energy commodities. Sudden
disruptions in the supplies of energy commodities, such as those caused by war, natural events, accidents or acts of
terrorism, may cause prices of energy commodity futures contracts to become extremely volatile and unpredictable.
Also, sudden and dramatic changes in the futures market may occur, for example, upon a cessation of hostilities that
may exist in countries producing energy commodities, the introduction of new or previously withheld supplies into
the market or the introduction of substitute products or commodities. In particular, supplies of crude oil may
increase or decrease depending on, among other factors, production decisions by the Organization of the Oil and
Petroleum Exporting Countries (“OPEC”) and other crude oil producers. Crude oil prices are determined with
significant influence by OPEC, which has the capacity to influence oil prices worldwide because its members
possess a significant portion of the world’s oil supply. Demand for energy commodities such as oil and gasoline is
generally linked to economic activity and will tend to reflect general economic conditions.
Industrial Metals Sector
Global prices of industrial metals commodities, including aluminum, copper and zinc, are primarily affected by
the global demand for and supply of these commodities, but they are also significantly influenced by speculative
actions and by currency exchange rates. Demand for industrial metals is significantly influenced by the level of
global industrial economic activity. Prices for industrial metals commodities are affected by governmental programs
and policies, national and international political and economic events, changes in interest and exchange rates,
trading activities in commodities and related contracts, trade, fiscal, monetary and exchange control policies,
government intervention, embargoes and tariffs. An additional, but highly volatile, component of demand for
industrial metals is adjustments to inventory in response to changes in economic activity and/or pricing levels, which
will influence decisions to invest in new mines and smelters. Sudden disruptions in the supplies of industrial metals,
such as those caused by war, natural events, accidents, acts of terrorism, transportation problems, labor strikes and
shortages of power, may cause prices of industrial metals futures contracts to become extremely volatile and
12
unpredictable. The introduction of new or previously withheld supplies into the market or the introduction of
substitute products or commodities will also affect the prices of industrial metals commodities.
Precious Metals Sector
Global prices of precious metals commodities, including gold and silver, are primarily affected by the global
demand for and supply of those commodities, but they are also significantly influenced by speculative actions and
by currency exchange rates. Demand for precious metals is significantly influenced by the level of global industrial
economic activity. Prices for precious metals are affected by governmental programs and policies, national and
international political and economic events, expectations with respect to the rate of inflation, changes in interest and
exchange rates, trading activities in commodities and related contracts, trade, fiscal, monetary and exchange control
policies, government intervention, embargoes and tariffs. Sudden disruptions in the supplies of precious metals,
such as those caused by war, natural events, accidents, acts of terrorism, transportation problems, labor strikes and
shortages of power, may cause prices of precious metals futures contracts to become extremely volatile and
unpredictable. In addition, prices for precious metals can be affected by numerous other factors, including jewelry
demand and production levels.
JPMS and its affiliates have no affiliation with UBS Securities LLC (“UBS”) or Bloomberg Finance L.P.
(“Bloomberg”) and are not responsible for their public disclosure of information.
JPMS and its affiliates are not affiliated with UBS or Bloomberg in any way (except for arrangements discussed
below in “The Bloomberg Commodity Sector Indices — License Agreement”) and have no ability to control UBS or
Bloomberg, including with respect to any errors in or discontinuation of disclosure regarding their methods or
policies relating to the calculation of the Bloomberg Commodity Indices (as defined under “The Bloomberg
Commodity Sector Indices” in this index supplement). Neither UBS nor Bloomberg is under any obligation to
continue to calculate any of the Bloomberg Commodity Indices nor are they required to calculate any successor
index. If either of UBS or Bloomberg discontinues or suspends the calculation of a relevant index, it may become
difficult to determine the level of the Index.
Bloomberg may be required to replace a contract underlying a Bloomberg Commodity Index if the existing
futures contract is terminated or replaced.
A futures contract known as a “Designated Contract” has been selected as the reference contract for each of the
underlying physical commodities included in each Bloomberg Commodity Index. Data concerning these
Designated Contracts will be used to calculate each Bloomberg Commodity Index. The termination or replacement
of a futures contract on an established exchange occurs infrequently; however, if one or more Designated Contracts
were to be terminated or replaced by an exchange, a comparable futures contract would be selected by Bloomberg to
replace each such Designated Contract. The termination or replacement of any Designated Contract may have an
adverse impact on the level of the relevant Bloomberg Commodity Index. Suspension or disruptions of market
trading in the commodity and related futures markets may adversely affect the performance of the Index.
There may be, in the future, exposure to contracts that are not traded on regulated futures exchanges.
At present, the Bloomberg Commodity Indices are composed exclusively of regulated futures contracts;
however, the Bloomberg Commodity Indices may in the future include over-the-counter contracts (such as swaps
and forward contracts) traded on trading facilities that are subject to lesser degrees of regulation or, in some cases,
no substantive regulation. As a result, trading in such contracts, and the manner in which prices and volumes are
reported by the relevant trading facilities, may not be subject to the same provisions of, and the protections afforded
by, the Commodity Exchange Act, as amended, or other applicable statutes and related regulations that govern
trading on regulated futures exchanges. In addition, many electronic trading facilities have only recently initiated
trading and do not have significant trading histories. As a result, the trading of contracts on such facilities and the
inclusion of such contracts in a Bloomberg Commodity Index may result in exposure to certain risks not presented
by most exchange-traded futures contracts, including risks related to the liquidity and price histories of the relevant
contracts.
13
Risks associated with the Bloomberg Commodity Indices may adversely affect the performance of the Index.
Because the Bloomberg Commodity Indices reflect the return on exchange-traded futures contracts on different
physical commodities, the Bloomberg Commodity Indices may be less diversified than other funds or investment
portfolios investing in a broader range of products and, therefore, could experience greater volatility. Additionally,
the annual composition of the Bloomberg Commodity Indices will be calculated in reliance upon historical price,
liquidity and production data that are subject to potential errors in data sources or errors that may affect the
weighting of components of the Bloomberg Commodity Indices. Any discrepancies that require revision are not
applied retroactively but will be reflected in the weighting calculations of the Bloomberg Commodity Indices for the
following year. However, Bloomberg may not discover every discrepancy. Furthermore, the annual weightings for
the Bloomberg Commodity Indices are determined each year in the third or fourth quarter and announced as
promptly as practicable following the calculation by Bloomberg under the supervision of the Bloomberg
Commodity Index Oversight Committee, which has a significant degree of discretion in exercising its supervisory
duties with respect to the Bloomberg Commodity Indices and has no obligation to take the needs of any parties to
transactions involving the Bloomberg Commodity Indices into consideration when reweighting or making any other
changes to the Bloomberg Commodity Indices. Finally, subject to the minimum/maximum diversification limits
described in “The Bloomberg Commodity Sector Indices — Diversification Rules,” the commodities underlying the
exchange-traded futures contracts included in the Bloomberg Commodity Indices from time to time are concentrated
in a single sector. There are, therefore, risks similar to a concentrated securities investment in a limited number of
sectors.
Trading and other transactions by UBS and its affiliates in the futures contracts constituting the Bloomberg
Commodity Indices and the underlying commodities may affect the level of the Bloomberg Commodity
Indices.
UBS and its affiliates actively trade futures contracts and options on futures contracts on the commodities
underlying the Bloomberg Commodity Indices. UBS and its affiliates also actively enter into or trade market
securities, swaps, options, derivatives, and related instruments that are linked to the performance of the Bloomberg
Commodity Indices, the futures contracts underlying the Bloomberg Commodity Indices or the commodities
underlying these futures contracts. Certain of UBS’s affiliates may underwrite or issue other securities or financial
instruments indexed to the Bloomberg Commodity Indices and related indices, and UBS and certain of its affiliates
may license the Bloomberg Commodity Indices for publication or for use by unaffiliated third parties.
These activities could present conflicts of interest and could affect the levels of the Bloomberg Commodity
Indices. For instance, a market maker in a financial instrument linked to the performance of a Bloomberg
Commodity Index may expect to hedge some or all of its position in that financial instrument. Purchase (or selling)
activity in the underlying components of a Bloomberg Commodity Index in order to hedge the market maker’s
position in the financial instrument may affect the market price of the futures contracts included in such Bloomberg
Commodity Index, which in turn may affect the level of such Bloomberg Commodity Index and the level of the
Index. With respect to any of the activities described above, none of UBS or its respective affiliates has any
obligation to take the needs of any buyers, sellers or holders of any instruments linked in the Index into
consideration at any time.
14
THE J.P. MORGAN MOZAIC IISM
INDEX
General
The J.P. Morgan Mozaic IISM
Index (the “Index”) was developed and is maintained and calculated by
J.P. Morgan Securities plc (“JPMS plc”). The description of the Index and its methodology included in this index
supplement is based on rules formulated by JPMS plc (the “Rules”). The Rules, and not this description, will
govern the calculation and constitution of the Index and other decisions and actions related to its maintenance. The
Rules in effect as of the date of this index supplement are attached as Annex A to this index supplement. The Index
is the intellectual property of JPMS plc, and JPMS plc reserves all rights with respect to its ownership of the Index.
The Index is reported by Bloomberg L.P. under the ticker symbol “JMOZAIC2.”
The Index is a notional dynamic index that tracks the return of a basket consisting typically of nine constituents
selected from a universe of 15 excess return constituents (each, a “Basket Constituent”) while targeting an
annualized volatility of 4.2% (the “Target Volatility”).
The 15 Basket Constituents currently include (a) unfunded rolling positions in U.S., U.K., German or Japanese
equity index futures contracts (each, an “Equity Constituent”), (b) unfunded rolling positions in U.S., U.K.,
German or Japanese government bond futures contracts (each, a “Bond Constituent”) and (c) excess return
commodity sector indices for the energy, industrial metals and precious metals sectors (each, a “Commodity
Constituent”). The Basket Constituents are set forth in Tables 1, 2 and 3 below. Each Equity Constituent and Bond
Constituent is referred to in this index supplement as a “Futures Constituent.” Each futures contract underlying a
Futures Constituent as of a particular time is referred to in this index supplement as an “Underlying Futures
Contract.” The Index is an “excess return” index because it provides notional exposure to futures contract returns
that reflect changes in the price of those futures contracts, as well as their “roll” returns described below. The Index
is not a “total return” index because it does not reflect interest that could be earned on funds notionally committed to
the trading of futures contracts. The excess returns of each Futures Constituent not denominated in U.S. dollars are
converted into U.S. dollars for purposes of calculating the Index.
On the second-to-last weekday of each calendar month (each, a “Monthly Selection Date”), the Index
Calculation Agent identifies the composition of the Index that will be implemented when the Index is rebalanced
during the following calendar month, based on historical performance, volatility and correlation of the Basket
Constituents and subject to a maximum total weight of 300% (the “Maximum Total Weight”) and the maximum
weight for each Basket Constituent as set forth in Tables 1, 2 and 3 below (with respect to each Basket Constituent,
the “Constituent Weight Cap”), as summarized below.
First, the Index Calculation Agent selects for inclusion the nine Basket Constituents with the highest recent
historical performance, subject to the conditions described below.
Second, the Index Calculation Agent identifies the Preliminary Weights (as defined below) of the Basket
Constituents selected for inclusion in the Index based on each Basket Constituent’s recent volatility. Volatility is a
measure of the degree of variation in the returns of an asset over a period of time. The recent volatility of each
Basket Constituent used for this purpose is the highest historical volatility of that Basket Constituent measured over
three periods. Each selected Basket Constituent’s Preliminary Weight is set such that its recent volatility as adjusted
by its Preliminary Weight is equal to the ratio of the Target Volatility of 4.2% to the number of Basket Constituents
selected for inclusion (typically nine). If the recent volatility of a selected Basket Constituent is greater than the
Target Volatility, its Preliminary Weight will be proportionately decreased relative to an equal weighting of the
selected Basket Constituents. Conversely, if the recent volatility of a selected Basket Constituent over those periods
is less than the Target Volatility, its Preliminary Weight will be proportionately increased relative to an equal
weighting of the selected Basket Constituents.
Third, the Index Calculation Agent determines the Monthly Constituent Weights (as defined below) of the
selected Basket Constituents by scaling up or down their Preliminary Weights proportionally so that the recent
volatility of the hypothetical portfolio composed of the Basket Constituents with weights set equal to the Monthly
Constituent Weights equals the Target Volatility, subject to the Maximum Total Weight of 300% and the individual
Constituent Weight Caps. The recent volatility of the hypothetical portfolio used for this purpose is the highest
historical volatility of that hypothetical portfolio measured over three periods. Once the Monthly Constituent
15
Weights for the Basket Constituents have been determined, the Index Calculation Agent determines the number of
units of each Basket Constituent corresponding to that Basket Constituent’s Monthly Constituent Weight.
The composition of the Index is then implemented at the beginning of the following calendar month over a five-
day rebalancing period, determined separately for each Basket Constituent. The Index may provide exposure to
more or fewer than nine Basket Constituents while it is being rebalanced each month.
In addition, if the Index level declines by more than 3% over a one-week period, subject to the conditions
described under “Exposure Flattening” below, the Index will attempt to eliminate its exposure to each Basket
Constituent for a short period by progressively decreasing the exposure of each Basket Constituent to 0%. This
decrease in the exposure of the Basket Constituents is referred to in this index supplement as “exposure flattening.”
On the fifth weekday after exposure flattening has been triggered, the Index will attempt to restore its exposure to
each Basket Constituent by progressively increasing its exposure to each Basket Constituent until that exposure has
been fully restored, subject to the triggering of any further exposure flattening.
The closing level of the Index (the “Index Level”) was set equal to 100 on November 1, 1996 (the “Index Base
Date”). The Index Calculation Agent began calculating the Index on a live basis on December 28, 2016 (the “Index
Live Date”). The Index Level with respect to each weekday following the Index Base Date is calculated by
adjusting the Index Level as of the immediately preceding weekday to reflect the return of the selected Basket
Constituents since that weekday, taking into account any exposure flattening and the weights of the selected Basket
Constituents as of the close on the immediately preceding weekday.
If the combined exposure to the Basket Constituents is less than 100%, whether due to the total weight of
the Basket Constituents being less than 100% or due to exposure flattening, the Index will not be fully
invested. Any uninvested portion will earn no return. In addition, if the combined exposure to the Basket
Constituents is greater than 100%, the Index will be subject to increased volatility. In particular, the use of
leverage will magnify any negative performance of the Basket Constituents, which could adversely affect the
Index Level.
The Index is described as a notional portfolio or basket because there is no actual portfolio of assets to
which any person is entitled or in which any person has any ownership interest. The Index merely references
certain underlying financial instruments, the performance of which will be used as a reference point for
calculating the Index Level.
No assurance can be given that the investment strategy used to construct the Index will be successful or
that the Index will outperform any alternative basket or strategy that might be constructed from the Basket
Constituents. Furthermore, no assurance can be given that the Index will approximate its Target Volatility.
The actual realized volatility of the Index may be greater or less than its Target Volatility.
The Index Sponsor and the Index Calculation Agent
JPMS plc is currently the sponsor of the Index (together with any successor sponsor or assign, the “Index
Sponsor”). The Index Sponsor may appoint a successor sponsor or assign, delegate or transfer any or all of its
rights, obligations or responsibilities in its capacity as Index Sponsor in connection with the Index to one or more
entities (including an unrelated third party) that the Index Sponsor determines is appropriate.
The Index Sponsor is also responsible for the appointment of the calculation agent of the Index (the “Index
Calculation Agent”), which may be the Index Sponsor, an unrelated third party or an affiliate or subsidiary of the
Index Sponsor. JPMS plc is currently the Index Calculation Agent. The Index Sponsor may at any time and for any
reason (i) appoint a successor Index Calculation Agent if the Index Sponsor is at that time the Index Calculation
Agent or (ii) terminate the appointment of the Index Calculation Agent and appoint an alternative entity as a
replacement Index Calculation Agent if the Index Sponsor is not at that time the Index Calculation Agent. The
Index Calculation Agent (unless the Index Calculation Agent is the same entity as the Index Sponsor) must obtain
written permission from the Index Sponsor prior to any delegation or transfer of the Index Calculation Agent’s
responsibilities or obligations in connection with the Index.
16
The Index Calculation Agent is responsible for (i) calculating the Index Level for each weekday in accordance
with the Rules and (ii) determining (among other things and subject to the prior agreement of the Index Sponsor or
at the direction of the Index Sponsor) if a Futures Market Disruption Event or Extraordinary Event (each as defined
below) has occurred and whether any input necessary to perform any calculations under the Rules is not published
or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent, and any
related consequences or adjustments in accordance with the Rules.
The Basket Constituents of the Index
Subject to the occurrence of an Extraordinary Event, Table 1 below sets forth each Equity Constituent, as well
as the following for each Equity Constituent: its Basket Constituent number (designated as “i” in Table 1), its ticker
on the Futures Exchange (as defined below), the index related to its Underlying Futures Contracts (the “Equity
Reference Index”), its current Futures Exchange, the currency in which its Underlying Futures Contracts are
currently denominated (the “Futures Denomination Currency”) and its Constituent Weight Cap.
Table 1
i
Equity Constituent
(Futures Exchange Ticker)
Equity Reference
Index
Futures
Exchange
Futures
Denomination
Currency
Constituent
Weight Cap
1
Rolling equity index futures position
in the E-mini S&P 500 Futures
Contract (ES)
S&P 500® Index Chicago
Mercantile Exchange
U.S. dollars 15%
2
Rolling equity index futures position
in the E-mini NASDAQ 100 Futures
Contract (NQ)
Nasdaq-100
Index®
Chicago
Mercantile Exchange
U.S. dollars 15%
3
Rolling equity index futures position
in the Russell 2000® Index Mini
Futures Contract (TF)*
Russell 2000® Index
ICE Futures U.S. U.S. dollars 15%
4
Rolling equity index futures position
in the DAX® Futures Contract
(FDAX)
DAX® Index Eurex
Deutschland European Union
euros 15%
5
Rolling equity index futures position
in the FTSE 100 Index Futures
Contract (Z)
FTSE® 100 Index ICE Futures
Europe
British pounds
sterling 15%
6 Rolling equity index futures position
in the TOPIX Futures Contract (n/a)
Tokyo Stock Price
Index (TOPIX) Osaka Exchange Japanese yen 15%
* Subject to the occurrence of the U.S. Small Cap Exchange Succession Event as described under “U.S. Small
Cap Exchange Succession Event” below.
17
Subject to the occurrence of an Extraordinary Event, Table 2 below sets forth each Bond Constituent, as well as
the following for each Bond Constituent: its Basket Constituent number (designated as “i” in Table 2), its ticker on
the Futures Exchange, its current Futures Exchange, its Futures Denomination Currency and its Constituent Weight
Cap.
Table 2
i
Bond Constituent
(Futures Exchange Ticker)
Futures
Exchange
Futures
Denomination
Currency
Constituent
Weight Cap
7 Rolling government bond futures position in the Short-Term U.S. Treasury Note Futures (2-Year) Contract (ZT)
Chicago Board of Trade
U.S. dollars 250%
8 Rolling government bond futures position in the Medium-Term U.S. Treasury Note Futures (5-Year) Contract (ZF)
Chicago Board of Trade
U.S. dollars 75%
9
Rolling government bond futures position in the Long-
Term U.S. Treasury Note Futures (6½- to 10-Year)
Contract (ZN)
Chicago Board of Trade
U.S. dollars 45%
10 Rolling government bond futures position in the Euro-Bund Futures Contract (FGBL)
Eurex Deutschland
European Union euros
45%
11 Rolling government bond futures position in the Long Gilt
Futures Contract (R)
ICE Futures
Europe
British pounds
sterling 45%
12 Rolling government bond futures position in the 10-year JGB Futures Contract (n/a)
Osaka Exchange Japanese yen 120%
Subject to the occurrence of an Extraordinary Event, Table 3 below sets forth each Commodity Constituent, as
well as the following for each Commodity Constituent: its Basket Constituent number (designated as “i” in Table 3),
its Bloomberg ticker, the commodities referenced by the futures contracts it tracks and its Constituent Weight Cap.
Table 3
i
Commodity Constituent
(Bloomberg Ticker) Underlying Commodities
Constituent
Weight Cap
13 Bloomberg Energy SubindexSM (BCOMEN)
Crude oil, ULS diesel, natural gas and RBOB gasoline
15%
14 Bloomberg Industrial Metals
SubindexSM (BCOMIN)
Aluminum, copper, lead, nickel, tin and
zinc 15%
15 Bloomberg Precious Metals SubindexSM (BCOMPR)
Gold, platinum and silver 15%
“Futures Exchange” means, in respect of any Futures Constituent, the exchange or quotation system on which
the relevant futures contracts referenced by that Futures Constituent are listed for trading, any successor to that
exchange or quotation system or any substitute exchange or quotation system to which trading has temporarily
relocated (so long as the Index Calculation Agent has determined that there is comparable liquidity relative to the
futures or options contracts relating to that Futures Constituent on that temporary substitute exchange or quotation
system as on the original exchange or quotation system).
Determining the Composition of the Index
On each Monthly Selection Date (i.e., the second-to-last weekday of each calendar month), the Index
Calculation Agent identifies the composition of the Index that will be implemented when the Index is rebalanced
during the following calendar month, based on historical performance, volatility and correlation of the Basket
Constituents, and subject to the Maximum Total Weight of 300% and the individual Constituent Weight Caps, as
described below.
18
Step 1: Select the Basket Constituents to Be Included in the Index
On each Monthly Selection Date, the Index Calculation Agent selects the Basket Constituents that will be
included in the Index following the next Index rebalancing based on their historical performance. For this purpose,
the historical performance of each Basket Constituent (with respect to each Basket Constituent, the “Performance”)
is the six-month excess return of that Basket Constituent calculated as follows:
if that Basket Constituent is a Futures Constituent, the percentage change in the Futures Tracker Level (as
defined below) of that Futures Constituent from the 130th immediately preceding weekday to the relevant
Monthly Selection Date; and
if that Basket Constituent is a Commodity Constituent, the percentage change in the Commodity Closing
Index Current Level (as defined below) of that Commodity Constituent from the 130th immediately
preceding weekday to the relevant Monthly Selection Date.
The Index Calculation Agent then selects for inclusion the nine Basket Constituents with the highest
Performance, provided that, if the Volatility (as defined below) of any of the Basket Constituents selected for
inclusion in the Index upon the next Index rebalancing is zero, that Basket Constituent will be deemed not to be
selected for inclusion, leaving fewer than nine Basket Constituents selected for inclusion. In the event of a tie,
preference will be given to the Basket Constituent(s) with the lowest Basket Constituent number(s) (as set forth in
Tables 1, 2 and 3 above).
Step 2: Determine the Preliminary Weights of the Basket Constituents
On each Monthly Selection Date, the Index Calculation Agent next identifies the Preliminary Weights of the
Basket Constituents selected for inclusion in the Index upon the next Index rebalancing based on their historical
volatility. Volatility is a measure of the degree of variation in the returns of an asset over a period of time. For this
purpose, the historical volatility of each Basket Constituent (with respect to each Basket Constituent, the
“Volatility”) is calculated as the greatest of the annualized realized volatilities of that Basket Constituent determined
over periods of 22, 65 and 130 days in the manner set forth in the Rules. Using the greatest of the annualized
realized volatilities determined over multiple periods causes the historical volatility used to determine the
Preliminary Weight of a Basket Constituent to reflect any recent increase in the volatility of that Basket Constituent
while lessening the impact of any recent decrease in its volatility.
On each Monthly Selection Date, the “Preliminary Weight” of each selected Basket Constituent is set by
allocating an equal weight to each Basket Constituent selected for inclusion in the Index upon the next Index
rebalancing and then multiplying those weights by the ratio of the Target Volatility of 4.2% to the Volatility of the
relevant Basket Constituent as of that Monthly Selection Date. Accordingly, if the Volatility of a selected Basket
Constituent is greater than the Target Volatility, its Preliminary Weight will be proportionately decreased relative to
an equal weighting of the selected Basket Constituents. Conversely, if the Volatility of a selected Basket
Constituent is less than the Target Volatility, its Preliminary Weight will be proportionately increased relative to an
equal weighting of the selected Basket Constituents.
On each Monthly Selection Date, the Preliminary Weight of each Basket Constituent not selected for inclusion
in the Index upon the next Index rebalancing is set equal to zero.
Step 3: Determine the Monthly Constituent Weights of the Basket Constituents
The historical volatility of a portfolio is determined based on the weight and historical volatility of each of its
constituents, as well as the degree of historical correlation between those constituents. Correlation is a measure of
the degree to which the returns of two assets are similar to each other over a given period in terms of timing and
direction. A portfolio with a lower degree of correlation between its constituents will have a lower volatility than a
portfolio with a higher degree of correlation between its constituents, assuming that the volatilities and weights of
the individual constituents are the same. The diversification of a portfolio also increases as the degree of correlation
between its constituents decreases. This is because the returns of constituents with a lower degree of correlation will
offset each other to a greater extent than the returns of constituents with a higher degree of correlation, resulting, all
else being equal, in less variability in portfolio returns for a portfolio composed of constituents with a lower degree
19
of correlation and more variability in portfolio returns for a portfolio composed of constituents with a higher degree
of correlation. Unless all of its constituents are perfectly correlated, the historical volatility of a portfolio will be
lower than the weighted average of the historical volatilities of its constituents.
Accordingly, while the Preliminary Weights of the selected Basket Constituents reflect the Target Volatility,
after taking into account the correlation between the selected Basket Constituents, the historical volatility of a
hypothetical portfolio composed of the Basket Constituents with weights set equal to the Preliminary Weights (the
“Preliminary Portfolio”) would likely be less than the Target Volatility. In addition, the Preliminary Weights do
not take into account the Maximum Total Weight or the Constituent Weight Caps.
Consequently, after determining the Preliminary Weights on each Monthly Selection Date, the Index
Calculation Agent determines the Monthly Constituent Weights of the Basket Constituents by adjusting their
Preliminary Weights to reflect the ratio of the Target Volatility to the historical volatility of the Preliminary
Portfolio as a whole as of that Monthly Selection Date, subject to the Maximum Total Weight of 300% and the
individual Constituent Weight Caps. For this purpose, the historical volatility of the Preliminary Portfolio (with
respect to the Preliminary Portfolio, the “Volatility”) is calculated as the greatest of the annualized realized
volatilities of the Preliminary Portfolio determined over periods of 22, 65 and 130 days in the manner set forth in the
Rules.
On each Monthly Selection Date, the “Monthly Constituent Weight” of each Basket Constituent is equal to
the smallest of the following:
the Preliminary Weight of that Basket Constituent for that Monthly Selection Date multiplied by the ratio
of (i) the Target Volatility of 4.2% to (ii) the Volatility of the Preliminary Portfolio for that Monthly
Selection Date;
the Maximum Total Weight multiplied by the ratio of (i) the Preliminary Weight of that Basket Constituent
for that Monthly Selection Date to (ii) the sum of the Preliminary Weights for that Monthly Selection Date;
and
the Constituent Weight Cap of that Basket Constituent.
On each Monthly Selection Date, the Monthly Constituent Weight of each Basket Constituent not selected for
inclusion in the Index upon the next Index rebalancing will equal zero.
Step 4: Convert the Monthly Constituent Weights of the Basket Constituents into Units
Once the Monthly Constituent Weights for the Basket Constituents have been determined, on each Monthly
Selection Date, the Index Calculation Agent determines the number of units of each Basket Constituent
corresponding to that Basket Constituent’s Monthly Constituent Weight (with respect to a Basket Constituent, the
“Monthly Unit Amount”) based on the Available Index Level for that Monthly Selection Date.
The Monthly Unit Amount of each Basket Constituent on a Monthly Selection Date is calculated as the number
of units of that Basket Constituent to which one could obtain exposure at a price equal to the Futures Tracker Level
(in the case of a Basket Constituent that is a Futures Constituent) or the Commodity Closing Index Current Level (in
the case of a Basket Constituent that is a Commodity Constituent), as applicable, on that Monthly Selection Date
with the portion of the Available Index Level (expressed in U.S. dollars) corresponding to that Basket Constituent’s
Monthly Constituent Weight. Accordingly, the Monthly Unit Amount of each Basket Constituent on a Monthly
Selection Date is calculated as follows:
Monthly Unit Amountki = Monthly Weightk
i ×Available Index Levelk
Constituent Levelki
where:
Monthly Weightki means Monthly Weight of that Basket Constituent on that Monthly Selection Date;
20
Available Index Levelk means the Available Index Level on that Monthly Selection Date; and
Constituent Levelki means the Futures Tracker Level (in the case of a Basket Constituent that is a Futures
Constituent) or the Commodity Closing Index Current Level (in the case of a Basket Constituent that is a
Commodity Constituent), as applicable, of that Basket Constituent on that Monthly Selection Date.
On each Monthly Selection Date, the Monthly Unit Amount of each Basket Constituent not selected for
inclusion in the Index upon the next Index rebalancing will equal zero.
The “Available Index Level” for a weekday means:
if all inputs necessary to perform the calculation of the Index Level in respect of that weekday are
published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation
Agent on that weekday, the Index Level for that weekday; or
if any inputs necessary to perform the calculation of the Index Level in respect of that weekday are not
published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation
Agent on that weekday (without regard to when or whether they are subsequently published or otherwise
made available by the relevant exchange or input sponsor to the Index Calculation Agent), the Index Level
for the immediately preceding weekday with respect to which all inputs necessary to perform the
calculation of the Index Level in respect of that immediately preceding weekday were published or
otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent on that
immediately preceding weekday.
See “Publication of the Index Level” below for additional information.
Monthly Rebalancing of the Index
Each calendar month, the Index is rebalanced to implement the composition of the Index that was determined
on the Monthly Selection Date corresponding to that rebalancing (i.e., the second-to-last weekday of the
immediately preceding calendar month). This rebalancing is accomplished each calendar month for each Basket
Constituent over a period of five Futures Constituent Monthly Rebalancing Days (in the case of a Basket Constituent
that is a Futures Constituent) or over a period of five Commodity Constituent Monthly Rebalancing Days (in the
case of a Basket Constituent that is a Commodity Constituent).
21
Monthly Rebalancing of Futures Constituents
For each Futures Constituent, the “Futures Constituent Monthly Rebalancing Days” of each calendar month
are determined as set forth in the table below:
Futures Constituent Monthly Rebalancing Days
First The earlier to occur in the relevant calendar month of (i) the first Futures Constituent Scheduled Day that is either a
Futures Constituent Valid Day or a Futures Constituent Roll Determination Day (as defined below) and (ii) the ninth Futures Constituent Scheduled Day
Second The earlier to occur in the relevant calendar month of (i) the second Futures Constituent Scheduled Day that is either
a Futures Constituent Valid Day or a Futures Constituent Roll Determination Day and (ii) the tenth Futures Constituent Scheduled Day
Third The earlier to occur in the relevant calendar month of (i) the third Futures Constituent Scheduled Day that is either a
Futures Constituent Valid Day or a Futures Constituent Roll Determination Day and (ii) the eleventh Futures Constituent Scheduled Day
Fourth The earlier to occur in the relevant calendar month of (i) the fourth Futures Constituent Scheduled Day that is either
a Futures Constituent Valid Day or a Futures Constituent Roll Determination Day and (ii) the twelfth Futures Constituent Scheduled Day
Fifth The earlier to occur in the relevant calendar month of (i) the fifth Futures Constituent Scheduled Day that is either a
Futures Constituent Valid Day or a Futures Constituent Roll Determination Day and (ii) the thirteenth Futures Constituent Scheduled Day
A “Futures Constituent Scheduled Day” means, for a Futures Constituent, a weekday on which (a) the
Futures Exchange for that Futures Constituent is scheduled to be open for trading for its regular trading session and
(b) in the case of a Futures Constituent whose Futures Denomination Currency is not U.S. dollars, the FX Rate (as
defined below) relevant to that Futures Constituent is scheduled to be calculated and published by the WM
Company (or any successor, as identified by the Index Calculation Agent).
A “Futures Constituent Valid Day” means a Futures Constituent Scheduled Day on which no Futures Market
Disruption Event (as defined below) occurs or is continuing.
A “Futures Constituent Monthly Rebalancing Determination Day” for a Futures Constituent is a Futures
Constituent Monthly Rebalancing Day that is not a Futures Constituent Valid Day for that Futures Constituent.
A “Futures Constituent Roll Determination Day” means, for a Futures Constituent, as determined as of the
final day of an Actual Roll Period for that Futures Constituent, a Futures Constituent Effective Roll Day (as defined
below) for that Actual Roll Period (i) that is not a Futures Constituent Valid Day and (ii) that occurs in an Actual
Roll Period in which no Futures Constituent Valid Day occurs from and including that Futures Constituent Effective
Roll Day to and including the Futures Contract Cut-off Day for that Actual Roll Period.
Monthly Rebalancing of Commodity Constituents
For each Commodity Constituent, the “Commodity Constituent Monthly Rebalancing Days” of each
calendar month are the first five Commodity Constituent Scheduled Days for that Commodity Constituent in that
calendar month on which each Relevant Commodity Exchange for each of the Relevant Commodity Contracts (as
defined below) referenced by that Commodity Constituent is scheduled to be open for trading in those individual
commodity futures contracts.
A “Commodity Constituent Scheduled Day” means, for a Commodity Constituent, a day on which the
official closing level for that Commodity Constituent is scheduled to be published by the relevant sponsor of that
Commodity Constituent.
“Relevant Commodity Exchange” means, in respect of any Relevant Commodity Contract referenced by a
Commodity Constituent, the applicable commodities futures exchange on which the Relevant Commodity Contracts
for that Commodity Constituent trade, as provided by the index rules or methodology of that Commodity
Constituent.
22
Determining the Current Unit Amounts
On each weekday, the Index Calculation Agent determines the number of units of exposure to be provided by
the Index (subject to “exposure flattening” as described below) for each Basket Constituent (the “Current Unit
Amount” of that Basket Constituent). Following the full implementation of the rebalancing of a Basket Constituent
for a calendar month, the Current Unit Amount of a Basket Constituent will be equal to the Monthly Unit Amount
determined on the Monthly Selection Date corresponding to that rebalancing. That Current Unit Amount will
remain unchanged until the commencement of the next rebalancing of that Basket Constituent in the following
calendar month; however, the exposure provided by the Index to the Basket Constituent may be reduced by
exposure flattening, as described below.
During the implementation of a rebalancing of a Basket Constituent, the Current Unit Amount will be a
weighted average of the Monthly Unit Amount of that Basket Constituent being implemented in that rebalancing
(the “Incoming Monthly Unit Amount”) and the Monthly Unit Amount of that Basket Constituent that was
implemented in the immediately preceding rebalancing (the “Outgoing Monthly Unit Amount”). The weights of
each Monthly Unit Amount used to determine that weighted average on each weekday occurring on or after a
Futures Constituent Monthly Rebalancing Day or Commodity Constituent Monthly Rebalancing Day, as applicable,
will be as set forth in the table below until the next occurring Futures Constituent Monthly Rebalancing Day or
Commodity Constituent Monthly Rebalancing Day, as applicable.
Futures Constituent Monthly Rebalancing Day or
Commodity Constituent Monthly Rebalancing Day
Weight of the
Outgoing Monthly
Unit Amount
Weight of the
Incoming Monthly
Unit Amount
First 80% 20%
Second 60% 40%
Third 40% 60%
Fourth 20% 80%
Fifth 0% 100%
Before the implementation of a rebalancing of a Basket Constituent, the Current Unit Amount will equal 100%
of the Monthly Unit Amount of that Basket Constituent that was implemented in the immediately preceding
rebalancing. After the implementation of a rebalancing of a Basket Constituent, the Current Unit Amount will equal
100% of the Monthly Unit Amount of that Basket Constituent that was implemented in that rebalancing.
Exposure Flattening
The Effective Exposure of a Basket Constituent represents the percentage of that Basket Constituent’s Current
Unit Amount to which the Index will provide exposure. The Effective Exposure will vary from 0% to 100%,
depending on any exposure flattening.
As of each weekday, if the Available Index Level has fallen by more than 3% from the sixth immediately
preceding weekday to the immediately preceding weekday, “exposure flattening” will be deemed to have been
triggered, provided that exposure flattening was not triggered on any of the five immediately preceding weekdays.
Once exposure flattening has been triggered, the Index will attempt to eliminate its exposure to each Basket
Constituent for a short period by progressively decreasing the Effective Exposure of each Basket Constituent to 0%.
On the fifth weekday after exposure flattening has been triggered, the Index will attempt to restore its exposure to
each Basket Constituent by progressively increasing its Effective Exposure to 100%, subject to the triggering of any
further exposure flattening.
The “Effective Exposure” of each Basket Constituent on each weekday is determined as follows:
if that weekday is a Futures Constituent Effective Calculation Day (in the case of a Basket Constituent that
is a Futures Constituent) or a Commodity Constituent Scheduled Day on which each Relevant Commodity
Exchange for each of the individual commodity futures contracts referenced by the relevant Commodity
Constituent is scheduled to be open for trading in those individual commodity futures contracts (in the case
23
of a Basket Constituent that is a Commodity Constituent), the Effective Exposure of that Basket
Constituent will be equal to:
if exposure flattening has been triggered on that weekday or any of the four immediately preceding
weekdays, the Effective Exposure of that Basket Constituent on the immediately preceding weekday
minus 1/3 (or approximately 33.33%), subject to the minimum Effective Exposure of 0%; or
if exposure flattening has not been triggered on that weekday or any of the four immediately preceding
weekdays, the Effective Exposure of that Basket Constituent on the immediately preceding weekday
plus 1/3 (or approximately 33.33%), subject to the maximum Effective Exposure of 100%; or
if that weekday is not a Futures Constituent Effective Calculation Day (in the case of a Basket Constituent
that is a Futures Constituent) or a Commodity Constituent Scheduled Day on which each Relevant
Commodity Exchange for each of the individual commodity futures contracts referenced by the relevant
Commodity Constituent is scheduled to be open for trading in those individual commodity futures contracts
(in the case of a Basket Constituent that is a Commodity Constituent), the Effective Exposure of that
Basket Constituent will be equal to its Effective Exposure on the immediately preceding weekday.
A Futures Constituent Effective Calculation Day for a Futures Constituent generally refers to a weekday on
which the Futures Tracker Level of that Futures Constituent is not subject to disruption or a weekday on which the
Index Calculation Agent has calculated its good faith estimate of that Futures Tracker Level under “— Treatment of
Basket Constituents for Certain Determination Days” below. More specifically, a “Futures Constituent Effective
Calculation Day” for a Futures Constituent means a weekday that is, with respect to that Futures Constituent, any
of (i) a Futures Constituent Valid Day, (ii) a Futures Constituent Roll Determination Day and (iii) a Futures
Constituent Monthly Rebalancing Determination Day.
Publication of the Index Level
The Index Calculation Agent will calculate and publish the Index Level for each weekday. Under the Index
methodology, in cases where any input to be used in the calculation of the Index Level for any weekday is not
scheduled to be published or otherwise made available on that weekday, the value for that input from the
immediately preceding day on which it was scheduled to be published or otherwise made available is used to
calculate the Index Level. However, if any input to be used in the calculation of the Index Level for any weekday
that was scheduled to be published or otherwise made available on or prior to that weekday is unavailable or is
otherwise disrupted or not tradable as determined under the Index methodology, the Index Calculation Agent will
postpone calculation and publication of the Index Level for that weekday until the first following weekday on which
(i) a tradable value for any such input is available to, or calculable by, the Index Calculation Agent or (ii) a good
faith estimate of the value for any such input has been made by the Index Calculation Agent under the circumstances
described below.
For purposes of publication only, the Index Calculation Agent will round all Index Levels to two decimal places
before publishing or otherwise making those levels available in U.S. dollars. The Index Calculation Agent may
calculate the Index to a greater degree of accuracy or specificity and may use any rounding convention it considers
appropriate for any data used or calculations performed (which may include using data with a higher level of
specificity than that which is published on any particular data source) to determine the Index Level.
Calculating the Index Level
The Index Level was set equal to 100 on the Index Base Date. The Index Level for each subsequent weekday is
calculated by adjusting the Index Level as of the immediately preceding weekday to reflect the return of the Basket
Constituents since that weekday, taking into account any exposure flattening (as represented by the Effective
Exposure of each Basket Constituent) and the weights of the Basket Constituents tracked by the Index (as
represented in the Current Unit Amount of each Basket Constituent) as of the close on the immediately preceding
weekday. Accordingly, the Index Level for each subsequent weekday is calculated as follows, where each such
weekday is referred to as the “current weekday”:
24
Indext = Indext−1 + ∑[Effective Exposuret−1i × Current Unit Amountt−1
i × (FTLR(t)i − FTLR(t−1)
i )]
12
i=1
+ ∑ [Effective Exposuret−1i × Current Unit Amountt−1
i × (CLR(t)i − CLR(t−1)
i )]
15
i=13
where:
Indext−1 means the Index Level for the immediately preceding weekday;
Effective Exposuret−1i means the Effective Exposure of the relevant Basket Constituent for the
immediately preceding weekday;
Current Unit Amountt−1i means the Current Unit Amount of the relevant Basket Constituent for the
immediately preceding weekday;
FTLR(t)i means the Futures Tracker Level of the relevant Basket Constituent, which is a Futures
Constituent, for the Relevant Futures Input Day associated with the current weekday;
FTLR(t−1)i means the Futures Tracker Level of the relevant Basket Constituent, which is a Futures
Constituent, for the Relevant Futures Input Day associated with the immediately preceding weekday;
CLR(t)i means the Commodity Level of the relevant Basket Constituent, which is a Commodity Constituent,
for the Relevant Commodity Input Day associated with the current weekday; and
CLR(t−1)i means the Commodity Level of the relevant Basket Constituent, which is a Commodity
Constituent, for the Relevant Commodity Input Day associated with the immediately preceding weekday.
Relevant Input Days
While the Index Calculation Agent will calculate and publish the Index Level for each weekday, the inputs used
to calculate the Index Level for that weekday may be from days occurring before or after that weekday as set forth
below and as described under “Publication of the Index Level” above.
For a Futures Constituent and in respect of a weekday, the “Relevant Futures Input Day” is determined as
follows:
if that weekday is a Futures Constituent Scheduled Day for that Futures Constituent and:
if that weekday is a Futures Constituent Effective Calculation Day for that Futures Constituent, then
the Relevant Futures Input Day associated with that weekday will be that weekday; and
if that weekday is not a Futures Constituent Effective Calculation Day for that Futures Constituent,
then the Relevant Futures Input Day associated with that weekday will be the next Futures Constituent
Scheduled Day for that Futures Constituent following that weekday that is a Futures Constituent
Effective Calculation Day for that Futures Constituent; and
if that weekday is not a Futures Constituent Scheduled Day for that Futures Constituent and:
if the Futures Constituent Scheduled Day immediately preceding that weekday is a Futures Constituent
Effective Calculation Day for that Futures Constituent, then the Relevant Futures Input Day associated
with that weekday will be the Futures Constituent Scheduled Day for that Futures Constituent
immediately preceding that weekday; and
if the Futures Constituent Scheduled Day immediately preceding that weekday is not a Futures
Constituent Effective Calculation Day for that Futures Constituent, then the Relevant Futures Input
25
Day associated with that weekday will be the next Futures Constituent Scheduled Day for that Futures
Constituent following that weekday that is a Futures Constituent Effective Calculation Day for that
Futures Constituent.
For a Commodity Constituent and in respect of a weekday, the “Relevant Commodity Input Day” is
determined as follows:
if a weekday is a Commodity Constituent Scheduled Day for that Commodity Constituent, then the
Relevant Commodity Input Day associated with that weekday will be that weekday; and
if a weekday is not a Commodity Constituent Scheduled Day for that Commodity Constituent, then the
Relevant Commodity Input Day associated with that weekday will be the Commodity Constituent
Scheduled Day immediately preceding that weekday.
If the final settlement prices for any futures referenced by a Commodity Constituent are subject to disruption on a
Relevant Commodity Input Day, the determination of the Commodity Level for that Commodity Constituent may be
postponed as described under “Determining Commodity Levels” below.
Determining Futures Constituent Rolls and Calculating the Futures Tracker Levels
Unlike common equity securities, futures contracts, by their terms, have stated expirations. At a specific point
in time prior to expiration, trading in a futures contract for the current delivery month will cease. As a result, a
market participant wishing to maintain its exposure to a futures contract with the nearest expiration must close out
its position in the expiring contract and establish a new position in the contract for the next delivery month, a
process referred to as “rolling.” For example, a market participant with a long position in a futures contract expiring
in September who wishes to maintain a position in the nearest delivery month will, as the September contract nears
expiration, sell the September contract, which serves to close out the existing long position, and buy a futures
contract expiring in December. This will “roll” the September position into a December position, and, when the
September contract expires, the market participant will still have a long position in the nearest delivery month.
Each Futures Constituent represents a rolling position in futures contracts. Accordingly, on a periodic basis
consistent with the expiries of the relevant underlying futures contracts, the Index Calculation Agent will roll the
exposure of each Futures Constituent from the particular futures contract to which it currently has exposure (such
particular futures contract, the Earlier Expiry Futures Contract, as defined below) to a different particular futures
contract (such particular futures contract, the Later Expiry Futures Contract, as defined below). As of the date of
this index supplement, each Futures Constituent rolls on a quarterly basis.
The formula used to calculate the Futures Tracker Level on any given weekday depends on whether the
applicable Futures Constituent is in the process of rolling from the Earlier Expiry Futures Contract to the Later
Expiry Futures Contract. During this rolling process, the Futures Tracker Level of each Futures Constituent reflects
exposure to both the Earlier Expiry Futures Contract and the Later Expiry Futures Contract. At all other times, the
Futures Tracker Level of each Futures Constituent reflects exposure only to the Earlier Expiry Futures Contract.
Determining Futures Constituent Actual Roll Periods
Each roll of a Futures Constituent is scheduled to begin on the “Scheduled Roll Initiation Day” for that roll:
for a Futures Constituent that represents a rolling equity index futures position in the E-mini S&P 500
Futures Contract, the E-mini NASDAQ 100 Futures Contract or the Russell 2000® Index Mini Futures
Contract, the Scheduled Roll Initiation Day for a roll will be the sixth Futures Constituent Scheduled Day
prior to the Futures Contract Cut-off Day for the relevant contract; and
for each other Futures Constituent, the Scheduled Roll Initiation Day for a roll will be the fifth Futures
Constituent Scheduled Day prior to the Futures Contract Cut-off Day for the relevant contract.
Each roll of a Futures Constituent will be completed on or before the Futures Contract Cut-off Day for that roll.
The “Futures Contract Cut-off Day,” for a particular futures contract, is the earlier of (i) the last scheduled trading
26
day for that futures contract and (ii) the first scheduled notice date for that futures contract, in each case as specified
by the relevant Futures Exchange.
Each roll of a Futures Constituent is completed over a period referred to as the “Actual Roll Period,” which,
for each Futures Constituent, consists of the five Futures Constituent Effective Roll Days associated with that roll,
provided that more than one Futures Constituent Effective Roll Day may occur on the same calendar day. Twenty
percent of the total notional exposure to a Futures Constituent will be rolled on each Futures Constituent Effective
Roll Day. If more than one Futures Constituent Effective Roll Day occurs on the same day, 20% of the total
notional exposure to the relevant Futures Constituent will be rolled on that day with respect to each of those Futures
Constituent Effective Roll Days. As a result, up to 100% of the total notional exposure to the relevant Futures
Constituent could be rolled in a single day.
The “Futures Constituent Effective Roll Days” for a given Actual Roll Period and a Futures Constituent are
determined as set forth in the table below, where the five Futures Constituent Scheduled Days commencing on and
including the Scheduled Roll Initiation Day for that Actual Roll Period are each referred to as a “Scheduled Roll
Day”:
Futures Constituent Effective Roll Days
First The earliest to occur of (i) the first Futures Constituent Valid Day that occurs on or following the first Scheduled
Roll Day, (ii) the first Futures Constituent Monthly Rebalancing Determination Day that occurs on or following the
first Scheduled Roll Day and (iii) the Futures Contract Cut-off Day
Second The earliest to occur of (i) the first Futures Constituent Valid Day that occurs on or following the second Scheduled
Roll Day, (ii) the first Futures Constituent Monthly Rebalancing Determination Day that occurs on or following the second Scheduled Roll Day and (iii) the Futures Contract Cut-off Day
Third The earliest to occur of (i) the first Futures Constituent Valid Day that occurs on or following the third Scheduled
Roll Day, (ii) the first Futures Constituent Monthly Rebalancing Determination Day that occurs on or following the
third Scheduled Roll Day and (iii) the Futures Contract Cut-off Day
Fourth The earliest to occur of (i) the first Futures Constituent Valid Day that occurs on or following the fourth Scheduled
Roll Day, (ii) the first Futures Constituent Monthly Rebalancing Determination Day that occurs on or following the fourth Scheduled Roll Day and (iii) the Futures Contract Cut-off Day
Fifth The earliest to occur of (i) the first Futures Constituent Valid Day that occurs on or following the fifth Scheduled
Roll Day, (ii) the first Futures Constituent Monthly Rebalancing Determination Day that occurs on or following the fifth Scheduled Roll Day and (iii) the Futures Contract Cut-off Day
Determining the Earlier Expiry Futures Contract and the Later Expiry Futures Contract
For a given weekday and a Futures Constituent, the “Earlier Expiry Futures Contract” (within the relevant
underlying futures contract series) will be:
from and including April 10, 1996 (the “Futures Constituent Base Date”) to and including the final
Futures Constituent Effective Roll Day for the first Actual Roll Period following the Futures Constituent
Base Date, the particular futures contract whose Futures Contract Cut-off Day most closely followed the
Futures Constituent Base Date; and
following the final Futures Constituent Effective Roll Day for the first Actual Roll Period following the
Base Date, the particular futures contract that the Index Calculation Agent determined to be the Later
Expiry Futures Contract for the immediately preceding Actual Roll Period.
For a given Actual Roll Period, the Index Calculation Agent will determine the “Later Expiry Futures
Contract” as follows:
for an Equity Constituent (other than as provided under “U.S. Small Cap Exchange Succession Event”
below), the Later Expiry Futures Contract will be the particular futures contract (within the relevant futures
contract series) whose Futures Contract Cut-off Day most closely follows the Futures Contract Cut-off Day
of the Earlier Expiry Futures Contract; and
27
for a Bond Constituent, the Index Calculation Agent will first determine the most recent date prior to but
excluding the Scheduled Roll Initiation Day of that Actual Roll Period for which both of the following are
published or otherwise made available by the Futures Exchange to the Index Calculation Agent (x) the
aggregate open interest calculated by the Futures Exchange for the underlying futures contract series to
which the Earlier Expiry Futures Contract belongs and (y) the open interest calculated by the Futures
Exchange for the Earlier Expiry Futures Contract in particular; the Index Calculation Agent will then
determine an amount equal to the product of (i) 50% and (ii) an amount equal to (a) the aggregate open
interest minus (b) the open interest for the Earlier Expiry Futures Contract (such amount, the “Open
Interest Threshold”), in each case in respect of that most recent date; and:
if the open interest calculated and published or otherwise made available by the Futures Exchange to
the Index Calculation Agent for the particular futures contract (within the underlying futures contract
series) whose Futures Contract Cut-off Day most closely follows the Futures Contract Cut-off Day of
the Earlier Expiry Futures Contract is greater than the Open Interest Threshold, the Later Expiry
Futures Contract will be the particular futures contract (within the relevant futures contract series)
whose Futures Contract Cut-off Day is the closest following the Futures Contract Cut-off Day of the
Earlier Expiry Futures Contract;
if (1) the open interest calculated and published or otherwise made available by the Futures Exchange
to the Index Calculation Agent for the particular futures contract (within the relevant futures contract
series) whose Futures Contract Cut-off Day most closely follows the Futures Contract Cut-off Day of
the Earlier Expiry Futures Contract is less than or equal to the Open Interest Threshold and (2) the
Index Calculation Agent in its sole discretion determines that the particular futures contract (within the
relevant futures contract series) whose Futures Contract Cut-off Day is the second-closest following
the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract could be reasonably expected
to represent 80% or more of the average daily trading volume for the thirty Futures Constituent
Scheduled Days immediately following but excluding the Futures Contract Cut-off Day of the Earlier
Expiry Futures Contract, the Later Expiry Futures Contract will be the particular futures contract
(within the relevant futures contract series) whose Futures Contract Cut-off Day is the second closest
following the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract; and
if (1) the open interest calculated and published or otherwise made available by the Futures Exchange
to the Index Calculation Agent for the particular futures contract (within the relevant futures contract
series) whose Futures Contract Cut-off Day most closely follows the Futures Contract Cut-off Day of
the Earlier Expiry Futures Contract is less than or equal to the Open Interest Threshold and (2) the
Index Calculation Agent in its sole discretion does not determine that the particular futures contract
(within the relevant futures contract series) whose Futures Contract Cut-off Day is the second closest
following the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract could be reasonably
expected to represent 80% or more of the average daily trading volume for the thirty Futures
Constituent Scheduled Days immediately following but excluding the Futures Contract Cut-off Day of
the Earlier Expiry Futures Contract, the Later Expiry Futures Contract will be the particular futures
contract (within the relevant futures contract series) whose Futures Contract Cut-off Day is the closest
following the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract.
Calculating the Futures Tracker Levels
The level of the rolling futures position that represents each Futures Constituent (with respect to a Futures
Constituent, the “Futures Tracker Level”) was set at 1,000 on the Futures Constituent Base Date. Subject to the
provisions of “— Treatment of Basket Constituents for Certain Determination Days” below under which the Futures
Tracker Level may be a good faith estimate determined by the Index Calculation Agent, the Futures Tracker Level
for each Futures Constituent for each subsequent weekday will be determined as follows, where each such weekday
is referred to as the “current weekday”:
if the current weekday is not a Futures Constituent Effective Calculation Day for the relevant Futures
Constituent, the Futures Tracker Level of that Futures Constituent will be equal to the Futures Tracker
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Level of that Futures Constituent for the immediately preceding Futures Constituent Effective Calculation
Day for that Futures Constituent; or
if the current weekday is a Futures Constituent Effective Calculation Day (the “current Futures Constituent
Effective Calculation Day”) for the relevant Futures Constituent that does not fall within an Actual Roll
Period, the Futures Tracker Level of that Futures Constituent will be calculated by adjusting the Futures
Tracker Level of that Futures Constituent as of the immediately preceding Futures Constituent Effective
Calculation Day to reflect the return of the Earlier Expiry Futures Contract since the immediately preceding
Futures Constituent Effective Calculation Day, where that return is expressed in U.S. dollars, as follows:
FTLti = FTLprior
i × [1 + (Earliert
i
Earlierpriori
− 1) ×FXt
i
FXpriori
]
if the current weekday is a Futures Constituent Effective Calculation Day for the relevant Futures
Constituent that falls within an Actual Roll Period, which is referred to as the “current Actual Roll Period,”
the Futures Tracker Level of that Futures Constituent will be calculated by adjusting the Futures Tracker
Level of that Futures Constituent as of the immediately preceding Futures Constituent Effective Calculation
Day to reflect weighted average return of Earlier Expiry Futures Contract and the Later Expiry Futures
Contract since the immediately preceding Futures Constituent Effective Calculation Day, where that return
is expressed in U.S. dollars, as follows:
FTLti = FTLprior
i × [1 + (Weightprior
i × Earlierti + (1 − Weightprior
i ) × Laterti
Weightpriori × Earlierprior
i + (1 − Weightpriori ) × Laterprior
i− 1) ×
FXti
FXpriori
]
where:
FTLpriori means the Futures Tracker Level of the relevant Futures Constituent for the immediately
preceding Futures Constituent Effective Calculation Day;
Earlierti means the Futures Closing Level for the current Futures Constituent Effective Calculation
Day of the current Earlier Expiry Futures Contract for the relevant Futures Constituent;
Earlierpriori means the Futures Closing Level for the immediately preceding Futures Constituent
Effective Calculation Day of the current Earlier Expiry Futures Contract for the relevant Futures
Constituent;
Laterti means the Futures Closing Level for the current Futures Constituent Effective Calculation Day
of the current Later Expiry Futures Contract for the relevant Futures Constituent;
Laterpriori means the Futures Closing Level for the immediately preceding Futures Constituent
Effective Calculation Day of the current Later Expiry Futures Contract for the relevant Futures
Constituent;
FXti means the FX Rate for the relevant Futures Constituent for the current Futures Constituent
Effective Calculation Day;
FXpriori means the FX Rate for the relevant Futures Constituent for the immediately preceding Futures
Constituent Effective Calculation Day; and
Weightpriori means the weight of the current Earlier Expiry Futures Contract for the relevant Futures
Constituent for the immediately preceding Futures Constituent Effective Calculation Day, where the
weight on that immediately preceding Futures Constituent Effective Calculation Day will be:
if that immediately preceding Futures Constituent Effective Calculation Day occurs prior to the
current Actual Roll Period, 100%; or
29
if that immediately preceding Futures Constituent Effective Calculation Day occurs during the
current Actual Roll Period, the weight associated with the first Scheduled Roll Day occurring on
or immediately prior to that Futures Constituent Effective Calculation Day, as set forth in the table
below:
Scheduled Roll Day Weight
First 80%
Second 60%
Third 40%
Fourth 20%
“Futures Closing Level” means, for a Referenced Contract of a Futures Constituent and in respect of a Futures
Constituent Scheduled Day, the official settlement price of that Referenced Contract of that Futures Constituent on
that Futures Constituent Scheduled Day as calculated and published by the Futures Exchange. The Referenced
Contracts (as defined below) of a Futures Constituent generally refer to the Earlier Expiry Futures Contract and the
Later Expiry Futures Contract of that Futures Constituent (during an Actual Roll Period) or the Earlier Expiry
Futures Contract (outside an Actual Roll Period).
“FX Rate” means, for a Futures Constituent and in respect of a weekday:
if the Futures Denomination Currency of the Futures Constituent is U.S. dollars, one;
if the Futures Denomination Currency of the Futures Constituent is European Union euros or Great Britain
pounds, the “mid” exchange rate expressed as the number of U.S. dollars per one unit of that currency; or
if the Futures Denomination Currency of the Futures Constituent is Japanese yen, the “mid” exchange rate
expressed as the number of U.S. dollars per one Japanese yen, calculated as one divided by the number of
Japanese yen per one U.S. dollar,
in the case of the second and third bullet points above, as determined by the Index Calculation Agent by reference to
the official closing spot rate published or otherwise made available to the Index Calculation Agent by or on behalf of
the WM Company (or any successor) on or by means of the relevant page, service or other source (or any successor
or replacement page, service or other authorized source, reasonably determined by the Index Calculation Agent to be
reliable), at or around 4:00 p.m. London, United Kingdom time, or such other time as the WM Company publishes
or otherwise makes available to the Index Calculation Agent the official closing spot rate on the relevant date, or,
only if the WM Company (or its affiliates or assigns) ceases providing that service, such other information service
provider or vendor determined by the Index Calculation Agent, for the purpose of displaying rates or prices
comparable to that rate; provided that if the relevant exchange rate is not published on the relevant weekday, the
relevant closing spot rate in respect of that day will be determined by the Index Calculation Agent in good faith and
in a commercially reasonable manner taking into account all information it deems relevant to that determination.
Determining Commodity Levels
The closing level of each Commodity Constituent on any Commodity Constituent Scheduled Day is calculated
by the sponsor of that Commodity Constituent based on prices for each relevant futures contract, regardless of
whether those futures contracts are subject to disruption on that Commodity Constituent Scheduled Day. Each
Commodity Constituent is associated with a corresponding settlement index (each, a “Settlement Index”). Table 4
below sets forth the Bloomberg ticker of the settlement index associated with each Commodity Constituent.
30
Table 4
Commodity Constituent
(Bloomberg Ticker) Settlement Index Bloomberg Ticker
Bloomberg Energy SubindexSM (BCOMEN) BCOMTEN
Bloomberg Industrial Metals SubindexSM (BCOMIN) BCOMTIN
Bloomberg Precious Metals SubindexSM (BCOMPR) BCOMTPM
The Commodity Settlement Index Level of each Settlement Index on any Commodity Constituent Scheduled
Day is calculated by the sponsor of that Settlement Index based on (i) the final settlement prices for those futures
contracts referenced by the Commodity Constituent for which the Relevant Commodity Exchange is scheduled to be
open for trading in such commodity futures and that are not subject to disruption on that Commodity Constituent
Scheduled Day and (ii) for a futures contract referenced by the Commodity Constituent for which the Relevant
Commodity Exchange is not scheduled to be open for trading in such commodity futures or that is subject to
disruption on that Commodity Constituent Scheduled Day, the final settlement price on the next available day on
which that commodity futures exchange is open for trading in that futures contract on which no disruption occurs or
is continuing for that futures contract. Absent a holiday for or a disruption in the futures contracts referenced by a
Commodity Constituent, the methodology used to calculate the closing level of a Commodity Constituent and the
methodology used to calculate the Commodity Settlement Index Level of the Settlement Index associated with that
Commodity Constituent would be expected to produce the same levels on each Commodity Constituent Scheduled
Day. Bloomberg Finance L.P. is currently the sponsor and calculation agent of each Commodity Constituent and
each associated Settlement Index.
Under the Index methodology, the closing level (referred to in the Rules as the “Commodity Closing Index
Level”) is referenced in this index supplement in the determination of the Commodity Closing Index Current Level
and is used for the purposes of calculating the Index Level, as well as to determine Monthly Constituent Weights
and exposure flattening. The Commodity Settlement Index Level is used solely for the purposes of calculating the
Index Level and is not used for purposes of determining Monthly Constituent Weights or exposure flattening.
The Commodity Level of a Commodity Constituent on a Relevant Commodity Input Day will generally be the
Commodity Closing Index Current Level of that Commodity Constituent for that Relevant Commodity Input Day,
unless the Relevant Commodity Exchange for any futures contract referenced by that Commodity Constituent is not
scheduled to be open for trading in such futures contract on that Relevant Commodity Input Day, or the final
settlement prices for any futures contracts referenced by that Commodity Constituent are subject to disruption on
that Relevant Commodity Input Day. If the final settlement prices for any futures contracts referenced by that
Commodity Constituent are subject to disruption on that Relevant Commodity Input Day, the Commodity Level of
that Commodity Constituent on that Relevant Commodity Input Day will be the Commodity Settlement Index Level
of the Settlement Index associated with that Commodity Constituent for that Relevant Commodity Input Day, unless
that Relevant Commodity Input Day is a Commodity Constituent Monthly Rebalancing Determination Day (as
defined below) or that Commodity Settlement Index Level is not available prior to the immediately following
Commodity Constituent Monthly Rebalancing Determination Day. Under those circumstances, the Commodity
Level of that Commodity Constituent used to calculate the Index Level will be the Index Calculation Agent’s good
faith estimate of the Commodity Settlement Index Level of the Settlement Index associated with that Commodity
Constituent for that Relevant Commodity Input Day as determined on that Commodity Constituent Monthly
Rebalancing Determination Day.
More specifically, the “Commodity Level” of a Commodity Constituent on a Relevant Commodity Input Day
will be:
if the Commodity Settlement Index Level for a Relevant Commodity Input Day (i) is published or
otherwise made available by or on behalf of the index sponsor to the Index Calculation Agent on that
Relevant Commodity Input Day and (ii) is equal to the Commodity Closing Index Current Level for that
Relevant Commodity Input Day, then the Commodity Level will be the Commodity Closing Index Current
Level for that Relevant Commodity Input Day;
31
if (i) the Commodity Settlement Index Level for that Relevant Commodity Input Day is either (a) not
published or otherwise made available by or on behalf of the index sponsor to the Index Calculation Agent
on that Relevant Commodity Input Day, but becomes (or has become) published or otherwise made
available by or on behalf of the index sponsor to the Index Calculation Agent prior to the next occurrence
of a Commodity Constituent Monthly Rebalancing Determination Day, or (b) published or otherwise made
available by or on behalf of the index sponsor to the Index Calculation Agent on that Relevant Commodity
Input Day but is not equal to the Commodity Closing Index Current Level for that Relevant Commodity
Input Day and (ii) that Relevant Commodity Input Day is not a Commodity Constituent Monthly
Rebalancing Determination Day, then the Commodity Level will be the Commodity Settlement Index
Level for that Relevant Commodity Input Day; and
in all cases not covered in the two bullet points above, the Index Calculation Agent’s good faith estimate of
the Commodity Settlement Index Level for that Relevant Commodity Input Day calculated as set forth
under “— Treatment of Basket Constituents for Certain Determination Days — Treatment of a Relevant
Commodity Constituent Determination Input Day for a Commodity Constituent” below. Under these
circumstances, that Relevant Commodity Input Day is referred to as a “Relevant Commodity Constituent
Determination Input Day.”
“Commodity Closing Index Current Level” means, in respect of a Commodity Constituent and a weekday:
if that weekday is a Commodity Constituent Scheduled Day for that Commodity Constituent:
the official closing level of that Commodity Constituent published or otherwise made available to the
Index Calculation Agent by the relevant sponsor of that Commodity Constituent for that Commodity
Constituent Scheduled Day (so long as that official closing level does not, in the determination of the
Index Calculation Agent, reflect manifest error on the part of the relevant sponsor of that Commodity
Constituent);
if the Index Calculation Agent determines that the official closing level of that Commodity Constituent
published or otherwise made available to the Index Calculation Agent by the relevant sponsor of that
Commodity Constituent for that Commodity Constituent Scheduled Day reflects manifest error on the
part of the relevant sponsor of that Commodity Constituent, the closing level of that Commodity
Constituent calculated in good faith and in a commercially reasonable manner based on the formula for
and method of calculating that Commodity Constituent; or
if the relevant sponsor of that Commodity Constituent fails to announce publicly, make available to the
Index Calculation Agent or publish the official closing level of that Commodity Constituent scheduled
to be published or otherwise made available to the Index Calculation Agent by the relevant sponsor of
that Commodity Constituent for that Commodity Constituent Scheduled Day by 8:00 p.m., New York
time on that Commodity Constituent Scheduled Day, the closing level of that Commodity Constituent
as calculated in good faith and in a commercially reasonable manner based on the formula for and
method of calculating that Commodity Constituent; and
if that weekday is not a Commodity Constituent Scheduled Day for that Commodity Constituent, the
Commodity Closing Index Current Level in respect of the immediately preceding Commodity Constituent
Scheduled Day.
“Commodity Settlement Index Level” means, in respect of a Commodity Constituent Scheduled Day and for
the Settlement Index associated with a Commodity Constituent:
the official closing level of that Settlement Index as published or otherwise made available to the Index
Calculation Agent by the relevant sponsor of that Settlement Index for that Commodity Constituent
Scheduled Day (so long as that official closing level does not, in the determination of the Index Calculation
Agent, reflect manifest error on the part of the relevant sponsor of that Settlement Index);
32
if the Index Calculation Agent determines that the official closing level of that Settlement Index published
or otherwise made available to the Index Calculation Agent by the relevant sponsor of that Settlement
Index for that Commodity Constituent Scheduled Day reflects manifest error on the part of the relevant
sponsor of that Settlement Index, the closing level of that Settlement Index calculated in good faith and in a
commercially reasonable manner based on the formula for and method of calculating that Settlement Index;
or
if the relevant sponsor of that Settlement Index postpones the publication of or fails to announce publicly,
make available to the Index Calculation Agent or publish the official closing level of that Settlement Index
scheduled to be published or otherwise made available to the Index Calculation Agent by the relevant
sponsor of that Settlement Index for that Commodity Constituent Scheduled Day by 8:00 p.m., New York
time on the Commodity Constituent Scheduled Day on which that official closing level could have been
published pursuant to the methodology of the Settlement Index, the closing level of that Settlement Index
as calculated in good faith and in a commercially reasonable manner based on the formula for and method
of calculating that Settlement Index.
A “Commodity Constituent Monthly Rebalancing Determination Day” means, for a Commodity
Constituent, a Commodity Constituent Monthly Rebalancing Day for which the Commodity Settlement Index Level
is not published or otherwise made available by the relevant exchange or index sponsor to the Index Calculation
Agent on or prior to the eighth Commodity Constituent Scheduled Day following that Commodity Constituent
Monthly Rebalancing Day.
Treatment of Basket Constituents for Certain Determination Days
Treatment of a Futures Constituent Roll Determination Day for a Futures Constituent
In the event of the occurrence of a Futures Constituent Roll Determination Day for a Futures Constituent, the
Index Calculation Agent will calculate its good faith estimate of the Futures Tracker Level for that Futures
Constituent for that Futures Constituent Roll Determination Day, using for (i) the Futures Closing Level of each
Referenced Contract and (ii) the FX Rate, in each case if relevant to the occurrence or continuation of a Futures
Market Disruption Event affecting that Futures Constituent, its good faith estimate of that relevant Futures Closing
Level or FX Rate. Any such estimate may be subject to correction (i) upon or following the subsequent availability
of such an input, (ii) upon or following final settlement by the Futures Exchange of positions in the Earlier Expiry
Futures Contract in respect of that Futures Constituent and that Futures Constituent Roll Determination Day, (iii)
upon or following the discontinuation of that Futures Market Disruption Event and (iv) upon or following the next
Futures Constituent Valid Day for that Futures Constituent.
“Referenced Contract” means, in respect of a weekday and a Futures Constituent:
(i) if that weekday is in an Actual Roll Period for that Futures Constituent, the Earlier Expiry Futures Contract
and the Later Expiry Futures Contract of that Futures Constituent; and
(ii) if that weekday is not in an Actual Roll Period for that Futures Constituent, the Earlier Expiry Futures
Contract.
Treatment of a Futures Constituent Monthly Rebalancing Determination Day for a Futures Constituent
In the event of the occurrence of a Futures Constituent Monthly Rebalancing Determination Day for a Futures
Constituent, the Index Calculation Agent will calculate its good faith estimate of the Futures Tracker Level for that
Futures Constituent for that Futures Constituent Monthly Rebalancing Determination Day, using for (i) the Futures
Closing Level of each Referenced Contract and (ii) the FX Rate, in each case if relevant to the occurrence or
continuation of a Futures Market Disruption Event affecting that Futures Constituent, its good faith estimate of any
such relevant Futures Closing Level or FX Rate. Any such estimate may be subject to correction (i) upon or
following the subsequent availability of such an input, (ii) upon or following the discontinuation of that Futures
Market Disruption Event and (iii) upon or following the next Futures Constituent Valid Day for that Futures
Constituent.
33
Treatment of a Relevant Commodity Constituent Determination Input Day for a Commodity Constituent
In the event of the occurrence of a Relevant Commodity Constituent Determination Input Day for a Commodity
Constituent, the Index Calculation Agent will calculate its good faith estimate of the Commodity Settlement Index
Level for that day by reference to the official settlement prices determined in clauses (i) and (ii) below taking into
account the formula for and method of calculating the Settlement Index last in effect prior to the scheduled date of
determination:
(i) absent market disruption, trading suspension or limitation, or determination of a limit price by the exchange
on which a relevant underlying commodity futures contract (each, a “Relevant Commodity Contract”)
referenced by the Commodity Constituent trades, for any Relevant Commodity Contract for which the
official settlement price of that Relevant Commodity Contract is published or otherwise made available by
or on behalf of the relevant sponsor of that Relevant Commodity Contract to the Index Calculation Agent
on that date of determination, the Commodity Settlement Index Level (or portion of that level based on that
Relevant Commodity Contract) will be determined by reference to that official settlement price on the
scheduled date of determination; and
(ii) in the case of market disruption, trading suspension or determination of a limit price by the exchange on
which a Relevant Commodity Contract trades, or in the case of any Relevant Commodity Contract for
which the official settlement price of that Relevant Commodity Contract is not published or otherwise
made available by or on behalf of the relevant sponsor of that Relevant Commodity Contract to the Index
Calculation Agent on that date of determination, the Commodity Settlement Index Level (or portion of that
level based on that Relevant Commodity Contract) will be determined by reference to the Index Calculation
Agent’s good faith estimate of that official settlement price following the resolution of that market
disruption, trading suspension or limitation, determination of a limit price by the exchange on which a
Relevant Commodity Contract trades, or non-publication of that official settlement price. Any such
estimate may be subject to correction (a) in the case of market disruption, trading suspension or limitation,
determination of a limit price by the exchange on which a Relevant Commodity Contract trades, upon or
following the subsequent availability of the official settlement price of the relevant underlying commodity
futures contract relating to that Relevant Commodity Contract that is not affected by a market disruption,
trading suspension or limitation, determination of a limit price by the exchange on which a Relevant
Commodity Contract trades, (b) in the case of any Relevant Commodity Contract for which the official
settlement price of that Relevant Commodity Contract is not published or otherwise made available by or
on behalf of the Relevant Commodity Exchange for that Relevant Commodity Contract to the Index
Calculation Agent on that date of determination, upon or following the subsequent availability of that
official settlement price of the Relevant Commodity Contract, (c) upon or following the availability of the
Commodity Settlement Index Level for that Commodity Constituent for that Relevant Commodity
Constituent Determination Input Day and (d) upon or following the next Commodity Constituent
Scheduled Day on which the Commodity Settlement Index Level of that Commodity Constituent for that
Commodity Constituent Scheduled Day is published or otherwise made available by or on behalf of the
index sponsor of the Settlement Index associated with that Commodity Constituent to the Index Calculation
Agent on that Commodity Constituent Scheduled Day.
For the avoidance of doubt, the levels estimated above would be used solely for the purposes of calculating the
Index Level and not for purposes of determining Monthly Unit Amounts or whether to implement exposure
flattening for the Index, in each case as described above.
Definitions
“Futures Market Disruption Event” means, for a Futures Constituent, the occurrence or continuation on a
Futures Constituent Scheduled Day, as determined by the Index Calculation Agent in its sole discretion, of:
(i) a failure by the Futures Exchange or its agent to publish the Futures Closing Level of any Referenced
Contract for that Futures Constituent and in respect of that Futures Constituent Scheduled Day on that
Futures Constituent Scheduled Day;
34
(ii) any event that, in the determination of the Index Calculation Agent, disrupts or impairs the ability of market
participants to effect transactions in or obtain levels or market values for (a) any Referenced Contract for
that Futures Constituent and in respect of that Futures Constituent Scheduled Day or (b) any options
contracts or other financial contracts relating to any Referenced Contract for the Futures Constituent and in
respect of that Futures Constituent Scheduled Day;
(iii) the occurrence or existence of a suspension, absence or material limitation of trading in any Referenced
Contract for that Futures Constituent and in respect of that Futures Constituent Scheduled Day, including,
without limitation, a suspension of trading by reason of (a) a price change exceeding limits set by an
exchange or market, (b) an imbalance of orders or (c) a disparity in bid and ask quotes;
(iv) the occurrence or existence of a suspension, absence or material limitation of trading on the Futures
Exchange or primary exchange or market for trading in any Referenced Contract of that Futures
Constituent for more than two hours of trading during, or during the last one-half hour period preceding the
close of, the principal trading session on that applicable Futures Exchange, primary exchange or market;
(v) the occurrence or existence of a suspension, absence or material limitation of trading on the Futures
Exchange or primary exchange or market for trading in any futures contracts that are part of the underlying
futures contract series for a Futures Constituent that, in the aggregate, represents a material proportion of
the liquidity in that relevant underlying futures contract series for more than two hours of trading during, or
during the last one-half hour period preceding the close of, the principal trading session on that applicable
Futures Exchange, primary exchange or market;
(vi) in respect of any Futures Constituent for which the Futures Denomination Currency is not U.S. dollars, any
event that the Index Calculation Agent determines in its sole discretion affects the convertibility of the
Futures Denomination Currency into U.S. dollars in a material way for market participants during the last
one-half hour period preceding or during the first one-half hour period following 4:00 p.m. London, United
Kingdom time, on that Futures Constituent Scheduled Day; or
(vii) in respect of any Equity Constituent, an Equity Index Disruption Event in respect of that Equity
Constituent’s Equity Reference Index,
and the Index Calculation Agent determines in its sole discretion that the applicable event described above could
materially interfere with the ability of market participants to transact in positions with respect to the Index
(including, without limitation, positions with respect to any Futures Constituent or the Equity Reference Index of
any Equity Constituent).
“Equity Index Disruption Event” means, for an Equity Reference Index, in each case as determined by the
Index Calculation Agent in its sole discretion:
(i) the occurrence or existence of a suspension, absence or material limitation of trading of securities then
constituting 20% or more of the level of that Equity Reference Index on the relevant primary exchanges for
those securities for more than two hours of trading during, or during the last one-half hour period preceding
the close of, the principal trading session on those relevant primary exchanges; or
(ii) if applicable, the occurrence or existence of a suspension, absence or material limitation of trading on the
primary exchange or market for trading in futures or options contracts related to that Equity Reference
Index for more than two hours of trading during, or during the last one-half hour period preceding the close
of, the principal trading sessions on that applicable exchange or market.
For the purpose of determining whether an Equity Index Disruption Event in respect of an Equity Reference
Index has occurred:
(i) a limitation on the hours or number of days of trading will not constitute an Equity Index Disruption Event
if it results from an announced change in the regular business hours of the relevant primary exchange or the
primary exchange or market for trading in futures or options contracts related to the relevant securities;
35
(ii) limitations pursuant to the rules of any relevant primary exchange similar to New York Stock Exchange
Rule 80B (or any applicable rule or regulation enacted or promulgated by any other self-regulatory
organization or any government agency of scope similar to New York Stock Exchange Rule 80B as
determined by the Index Calculation Agent) on trading during significant market fluctuations will
constitute a suspension, absence or material limitation of trading;
(iii) a suspension of trading in futures or options contracts on that Equity Reference Index by the primary
exchange or market for trading in those contracts by reason of (a) a price change exceeding limits set by
that exchange or market, (b) an imbalance of orders relating to those contracts or securities or (c) a
disparity in bid and ask quotes relating to those contracts or securities, will constitute a suspension, absence
or material limitation of trading in futures or options contracts related to that Equity Reference Index; and
(iv) a suspension, absence or material limitation of trading on any relevant primary exchange or, if applicable,
on the primary exchange or market on which futures or options contracts related to that Equity Reference
Index are traded will not include any time when that exchange or market is itself closed for trading under
ordinary circumstances.
For the purpose of determining whether an Equity Index Disruption Event with respect to a Futures Constituent
Scheduled Day exists at any time, if trading in a security or component included in the applicable Equity Reference
Index is materially suspended or materially limited at that time, then the relevant percentage contribution of that
security or component to the level of the applicable Equity Reference Index will be based on a comparison of (i) the
portion of the level of the applicable Equity Reference Index attributable to that security or component relative to
(ii) the overall level of the applicable Equity Reference Index, in each case immediately before that suspension or
limitation.
Succession Events and Extraordinary Events
Certain events may have the effect of any one or more of the Basket Constituents being succeeded to, being
subject to a material change in its calculation or being cancelled, as described below.
Succession Events in respect of Basket Constituents
(i) For a Basket Constituent, (a) if any associated currency is (or, in the case of a Futures Constituent, the
Futures Denomination Currency changes or is) lawfully eliminated and replaced, converted, redenominated
or exchanged for any successor currency, (b) yet that replacement or successor currency (or Futures
Denomination Currency) is acceptable to the Index Calculation Agent;
(ii) for a Futures Constituent, (a) if the Futures Closing Levels of its Referenced Contracts are calculated or
announced in the ordinary course, but are not calculated or are not announced by or on behalf of the
Futures Exchange or the relevant agent or information provider that such Futures Exchange designates, (b)
yet those Futures Closing Levels are calculated and announced by or on behalf of a successor exchange
acceptable to the Index Calculation Agent or an agent or information provider (in either case, that such
successor exchange designates) acceptable to the Index Calculation Agent;
(iii) for a Futures Constituent, (a) if the contract specifications of its Referenced Contracts are modified by the
Futures Exchange (including, without limitation, whether quarterly or monthly expiries are contemplated),
(b) yet those modified contract specifications are acceptable to the Index Calculation Agent;
(iv) for a Commodity Constituent and for a Settlement Index associated with a Commodity Constituent, or for
the Equity Reference Index of an Equity Constituent, (a) if the relevant index is replaced by a successor
index, (b) yet that successor index uses, in the determination of the Index Calculation Agent, the same or a
substantially similar formula for and method of calculation as used in the calculation of the relevant index
or that successor index is otherwise acceptable to the Index Calculation Agent; or
(v) for a Commodity Constituent and for a Settlement Index associated with a Commodity Constituent, or for
the Equity Reference Index of an Equity Constituent, (a) if the relevant index sponsor makes a material
change in the formula for or the method of calculating that index or in any other way materially modifies
36
that index (other than a modification prescribed in that formula or method to maintain that index in routine
circumstances), (b) yet that change or modification is acceptable to the Index Calculation Agent,
then, in the case of each of clauses (i) to (v) above (each such clause, a “Successor Provision”), that Basket
Constituent, that currency, that Futures Denomination Currency, that Commodity Constituent, that Settlement Index
associated with a Commodity Constituent, that Equity Reference Index or the Futures Exchange, agent or
information provider will thereafter be deemed to be the successor Basket Constituent, successor currency,
successor Futures Denomination Currency, successor Settlement Index, successor Equity Reference Index or the
successor exchange, agent or information provider described in the relevant clause above, in each case, with effect
from a date determined by the Index Calculation Agent. In each such case, the Index Calculation Agent will, in
good faith, make such adjustments that it determines to be appropriate to any variable, calculation methodology,
valuation terms or any other rule in relation to the Index to account for that change (including, in relation to that
currency or Futures Denomination Currency, to the extent that any such elimination, conversion, redenomination or
exchange results in two (2) or more currencies that were formally associated with the original currency, the Index
Calculation Agent may modify the Rules to account for that elimination, conversion, redenomination or exchange,
for example, by selecting one of the applicable currencies to be a successor currency or amending the formulas for
calculating the Index to account for the new currency or FX Rate, if any).
For the avoidance of doubt, the Index Calculation Agent will not accept a particular successor futures contract,
successor currency or successor index if the Index Calculation Agent determines, in its sole discretion, that doing so
would immediately result in the occurrence of an Extraordinary Event. Upon the acceptance of a successor futures
contract, successor currency or successor index, that successor will take the place of the relevant Referenced
Contract, currency, Commodity Constituent (or associated Settlement Index) or Equity Reference Index of the
corresponding Basket Constituent. Further, where applicable, the prior Performance of that successor futures
contract, successor currency or index will be used in the determination of future Monthly Unit Amounts if the inputs
necessary to calculate the relevant prior Performance of that successor are published or otherwise made available by
the relevant exchange or input sponsor to the Index Calculation Agent; provided that, if the inputs necessary to
calculate some portion of the relevant prior Performance of that successor is not published or otherwise made
available by the relevant exchange or input sponsor to the Index Calculation Agent, the prior Performance of the
replaced futures contract, currency or index will be used (in place of that portion of the relevant prior performance
of that successor for which the necessary inputs are not published or otherwise made available by the relevant
exchange or input sponsor to the Index Calculation Agent) in the determination of future Monthly Unit Amounts
with such adjustments as the Index Calculation Agent determines in good faith are appropriate to account for the use
of prior Performance of both that successor and that replaced futures contract, currency or index.
Extraordinary Events for a Basket Constituent
If an Extraordinary Event occurs in respect of a Basket Constituent (or the Settlement Index associated with a
Commodity Constituent), the Index Calculation Agent, acting in good faith and a commercially reasonable manner,
will select as a substitute for that Basket Constituent a futures contract or an index (such substitute futures contract
or index being referred to herein as a “substitute futures contract” or “substitute index,” respectively) that, in any
case, the Index Calculation Agent determines, in its sole discretion, possesses substantially similar characteristics or
provides a substantially similar exposure (as considered prior to the occurrence of that Extraordinary Event).
If this occurs, the Index Calculation Agent will, in good faith, make such adjustments that it determines to be
appropriate to any variable, calculation methodology, valuation terms or any other rule in relation to the Index to
account for that substitution; provided that, for any Basket Constituent (or the Settlement Index associated with a
Commodity Constituent), if the Index Calculation Agent determines, in its sole discretion, that no such substitute
futures contract or substitute index is available, then the Index Calculation Agent will, in its sole discretion, (a)
determine its good faith estimate of the closing level of that Basket Constituent (or the Settlement Index associated
with a Commodity Constituent) as of a date on or prior to the occurrence of that Extraordinary Event and use that
estimate of the closing price (without modification over time) in respect of that Basket Constituent (or the
Settlement Index associated with a Commodity Constituent) in subsequent calculations of the Index Level of the
Index until the final Futures Constituent Monthly Rebalancing Determination Day or Commodity Constituent
Monthly Rebalancing Determination Day, as applicable, in the immediately following monthly rebalancing period,
(b) remove that Basket Constituent (or that Settlement Index associated with a Commodity Constituent) from the
37
Index and (c) in good faith, make such adjustments that it determines to be appropriate to any variable, calculation
methodology, valuation terms or any other rule in relation to the Index to account for that removal.
The Index Calculation Agent will not select a particular substitute futures contract or index if the Index
Calculation Agent determines, in its sole discretion, that doing so would immediately result in the occurrence of an
Extraordinary Event. Upon the selection of a substitute futures contract or index, that substitute will take the place
of the relevant Basket Constituent (or the Settlement Index associated with a Commodity Constituent). For the
avoidance of doubt, the prior Performance of that substitute futures contract or index will be used in the
determination of future Monthly Unit Amounts if the inputs necessary to calculate the relevant prior Performance of
that substitute are published or otherwise made available by the relevant exchange or input sponsor to the Index
Calculation Agent; provided that, if the inputs necessary to calculate some portion of the relevant prior Performance
of that substitute are not published or otherwise made available by the relevant exchange or input sponsor to the
Index Calculation Agent, the prior Performance of the replaced futures contract or index will be used (in place of
that portion of the relevant prior performance of that substitute for which the necessary inputs are not published or
otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent) in the
determination of future Monthly Unit Amounts, with such adjustments as the Index Calculation Agent determines in
good faith are appropriate to account for the use of prior Performance of both that substitute and that replaced
futures contract or index.
An “Extraordinary Event” occurs if the Index Calculation Agent determines in its sole discretion that (i) on
any weekday in respect of a Basket Constituent one or more of the following events has occurred and (ii) the
applicable event or events described below materially interferes with the ability of market participants to transact in
positions with respect to the Index (including, without limitation, positions with respect to any Basket Constituent,
the Settlement Index associated with a Commodity Constituent or the Equity Reference Index of any Equity
Constituent):
(a) for any Equity Reference Index for an Equity Constituent, for any Commodity Constituent or for the
Settlement Index associated with a Commodity Constituent, the sponsor or issuer of the relevant index
permanently cancels the Equity Reference Index, Commodity Constituent or the Settlement Index, and no
successor exists, or the Equity Reference Index’s, the Commodity Constituent’s or the Settlement Index’s
level is not calculated and is not announced by or on behalf of the relevant sponsor or issuer of that index,
and is not calculated and announced by or on behalf of a successor sponsor or issuer acceptable to the Index
Calculation Agent;
(b) for any Futures Constituent, the Futures Exchange delists a Referenced Contract;
(c) for any Futures Constituent, the Futures Exchange does not list a Later Expiry Futures Contract before the
Scheduled Roll Initiation Day of the Earlier Expiry Futures Contract;
(d) for any relevant Basket Constituent, the event specified in clause (a) of any Successor Provision occurs, but
the relevant event specified in clause (b) of that Successor Provision does not occur;
(e) in respect of any Futures Constituent, a Futures Market Disruption Event occurs for ten consecutive Futures
Constituent Scheduled Days and the Index Calculation Agent determines that that Futures Market
Disruption Event is reasonably likely to continue for a period of an indeterminate duration;
(f) in respect of any Commodity Constituent or any Settlement Index associated with a Commodity
Constituent, a failure by the relevant sponsor to publish the official closing level for that index for ten
consecutive Commodity Constituent Scheduled Days and the Index Calculation Agent determines that such
non-publication is reasonably likely to continue for a period of an indeterminate duration;
(g) in respect of an Equity Constituent that has an Equity Reference Index, a failure by the relevant sponsor to
publish the closing level for that Equity Reference Index for ten consecutive scheduled publication days
and the Index Calculation Agent determines that such non-publication is reasonably likely to continue for a
period of an indeterminate duration;
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(h) in respect of any Basket Constituent, (1) a suspension or limitation on trading in respect of a Relevant
Underlying is announced or imposed for ten consecutive relevant days or for a period of indeterminate
duration that the Index Calculation Agent determines is reasonably likely to include ten consecutive
relevant days or (2) any other event occurs or condition exists that causes trading to cease in respect of a
Relevant Underlying for ten consecutive relevant days;
(i) in respect of any Futures Constituent whose Futures Denomination Currency is not U.S. dollars, an FX
Material Event occurs;
(j) in respect of any Futures Constituent, the exchange or the central counterparty or other legal obligor in
respect of any Relevant Contract becomes, for any reason, subject to voluntary or involuntary termination,
liquidation, bankruptcy, insolvency, dissolution or winding-up or any other analogous proceeding;
(k) in respect of any Futures Constituent, the Aggregate Open Interest declines below an amount equal to 20%
of its Aggregate Open Interest on (1) December 27, 2016, if the futures contract was a Futures Constituent
as of December 27, 2016, or (2) the date on which that futures contract became a Futures Constituent;
(l) in respect of any Futures Constituent, the Average Aggregate Volume declines below an amount equal to
20% of its Average Aggregate Volume on (1) December 27, 2016, if the futures contract was a Futures
Constituent as of December 27, 2016, or (2) the date on which that futures contract became a Futures
Constituent;
(m) in respect of any Equity Constituent that has an Equity Reference Index, the Futures Closing Level of the
Earlier Expiry Futures Contract of a Futures Constituent reflects a premium greater than 20% or a discount
greater than 20% as compared to the closing level of the Equity Reference Index for a period of five
consecutive Futures Constituent Scheduled Days;
(n) in respect of any Basket Constituent and a Monthly Selection Date, the Volatility of that Basket Constituent
is less than 0.05%;
(o) if, at any time, any relevant license or other right or ability of the Index Calculation Agent or the Index
Sponsor (or any of their affiliates) to use any Basket Constituent, underlying reference input or relevant
data or information or to refer to the level, price or other information in respect of any Basket Constituent,
underlying reference input or relevant data or information (or other component or input of the Index or
other matter that could affect the Index) terminates, becomes impaired, ceases or cannot be obtained or will
cease to be available on commercially reasonable terms or the Index Calculation Agent’s right or ability to
use (1) any Basket Constituent for the purposes of the Index or (2) the Index in connection with the grant or
receipt of any other inbound or outbound licensing or sub-licensing rights is otherwise impaired, ceases or
cannot be obtained or will cease to be available on commercially reasonable terms (for any reason); or
(p) the occurrence or continuation of a Change in Law.
An “FX Material Event” means, in each case as determined by the Index Calculation Agent in its sole
discretion:
(i) an event in relation to any currency relevant to the determination of the relevant FX Rate between the
Futures Denomination Currency and U.S. dollars that the Index Calculation Agent determines has the effect
of preventing, restricting or delaying:
(a) the convertibility of the Futures Denomination Currency into U.S. dollars through customary legal
channels;
(b) the convertibility of the Futures Denomination Currency into U.S. dollars at a rate at least as favorable
as the rate for domestic institutions located in the country whose lawful currency is the Futures
Denomination Currency (for the purposes of this definition, the “Relevant Country”);
39
(c) the delivery of the Futures Denomination Currency from accounts inside the Relevant Country to
accounts outside the Relevant Country; or
(d) the delivery of the Futures Denomination Currency between accounts inside the Relevant Country or to
a party that is a non-resident of the Relevant Country;
(ii) the imposition by the Relevant Country (or any political or regulatory authority thereof) of any capital
controls, or the publication of any notice of an intention to do so, that the Index Calculation Agent
determines is likely to have a material effect on the ability of market participants to obtain reliable spot
exchange rates for the Futures Denomination Currency from a recognized financial source;
(iii) the implementation by the Relevant Country (or any political or regulatory authority thereof) or the
publication of any notice of an intention to implement any changes to the laws or regulations relating to
foreign investment in the Relevant Country (including, but not limited to, changes in tax laws or laws
relating to capital markets and corporate ownership), that the Index Calculation Agent determines are likely
to have a material effect on the ability of market participants to obtain reliable spot exchange rates for the
Futures Denomination Currency from a recognized financial information source; or
(iv) any other event that the Index Calculation Agent determines affects the convertibility of the Futures
Denomination Currency into U.S. dollars in a material way for market participants on any date or at any
relevant time.
“Aggregate Open Interest” means, with respect to a Futures Constituent and a Futures Constituent Scheduled
Day, the aggregate open interest in that Futures Constituent at all expiries, as reported by the Futures Exchange.
“Average Aggregate Volume” means, with respect to a Futures Constituent and a Futures Constituent
Scheduled Day, the ratio of (a) the total volume of trading in such Futures Constituent at all expiries from but
excluding the calendar day six months prior to that Futures Constituent Scheduled Day, to and including that Futures
Constituent Scheduled Day, as reported by the Futures Exchange, divided by (b) the total number of Futures
Constituent Scheduled Days from but excluding the calendar day six months prior to such Futures Constituent
Scheduled Day, to and including that Futures Constituent Scheduled Day.
A “Change in Law” occurs when, due to either:
(i) the adoption of, or any change in, any applicable law, regulation or rule (including, without limitation, (a)
any tax law or (b) adoption or promulgation of new regulations authorized or mandated by existing statute);
or
(ii) the promulgation of, or any change in, the announcement or statement of a formal or informal interpretation
by any court, tribunal or regulatory authority (or any representative thereof) with competent jurisdiction of
any applicable law, rule, regulation or order (including, without limitation, as implemented by the U.S.
Commodity Futures Trading Commission, the U.S. Securities and Exchange Commission or any exchange
or trading facility); and
the Index Calculation Agent determines in good faith that (a) it is contrary to that law, rule, regulation or order for
any market participants that are brokers or financial intermediaries (individually or collectively) to hold, acquire or
dispose of (in whole or in part) a position in or a transaction referencing or relating to (1) the Index, (2) any Basket
Constituent, (3) the Settlement Index associated with any Commodity Constituent, (4) a component of a Commodity
Constituent or the Settlement Index associated with any Commodity Constituent, (5) a deliverable bond in respect of
the Relevant Contract for a Bond Constituent, (6) a component of any Equity Reference Index of an Equity
Constituent, (7) U.S. dollars or (8) the Futures Denomination Currency for any Futures Constituent (each such
underlying described in any of the immediately preceding clauses (2), (3), (4), (5), (6), (7), and (8) being a
“Relevant Underlying”) or (b) holding a position in or a transaction referencing or relating to the Index or any
Relevant Underlying is (or, but for the consequent disposal or termination thereof, would otherwise be) in excess of
any allowable position limits applicable to any market participants that are brokers or financial intermediaries
(individually or collectively) under any such law, rule or regulation in relation to the Index or any Relevant
Underlying, including in any case traded on any exchange, market or other trading facility.
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U.S. Small Cap Exchange Succession Event
Based on an announcement by CME Group Inc. and FTSE Russell in August 2015, it is expected that effective
in the third quarter of 2017, FTSE Russell will grant the Chicago Mercantile Exchange (“CME”) the right to create
and list futures contracts on the Russell 2000® Index, which is the Equity Reference Index referenced by the Futures
Constituent that represents a rolling equity index futures position in the Russell 2000® Index Mini Futures Contract
(“U.S. Small Cap Equity Constituent”). This grant is expected to coincide with the expiration of the current
agreement between FTSE Russell and ICE (Intercontinental Exchange), granting ICE the right to create and list
futures contracts on the Russell 2000® Index. As a result, it is expected that, for the purposes of the Rules, the
relevant equity index futures contract series associated with the U.S. Small Cap Equity Constituent as of the Index
Live Date will undergo a one-time transition from the relevant equity index futures contract series whose Equity
Reference Index is the Russell 2000® Index and whose Futures Exchange is the ICE (such series, the “ICE Original
Series”) to a successor equity index futures contract series whose Equity Reference Index is the Russell 2000® Index
and whose Futures Exchange is the CME (each such series, a “CME Successor Series”) that will first be identified
as the Later Expiry Futures Contract for a particular Scheduled Roll Period by the Index Calculation Agent, in
accordance with this “U.S. Small Cap Exchange Succession Event” section. This one-time transition during a single
Scheduled Roll Period from a contract in the ICE Original Series to which the relevant Earlier Expiry Futures
Contract belongs to a contract in a CME Successor Series to which the corresponding Later Expiry Futures Contract
belongs is referred to in this index supplement as the occurrence of the “U.S. Small Cap Exchange Succession
Event.”
Solely in the case of the U.S. Small Cap Equity Constituent for a given Actual Roll Period falling during the
period from and including July 3, 2017 to and including the occurrence of the U.S. Small Cap Exchange Succession
Event, the Index Calculation Agent will determine the Later Expiry Futures Contract as follows:
(i) the Index Calculation Agent will first identify any existing CME Successor Series;
(ii) the Index Calculation Agent will then determine the most recent date (if any) prior to but excluding the
Scheduled Roll Initiation Day of that Actual Roll Period for which both of the following are published
or otherwise made available by the relevant Futures Exchange to the Index Calculation Agent (x) the
aggregate open interest calculated by the ICE for the ICE Original Series to which the Earlier Expiry
Futures Contract belongs and (y) the aggregate open interest calculated by the CME for each CME
Successor Series:
(a) if there is no such date, then the Later Expiry Futures Contract will be the particular futures
contract, within the relevant ICE Original Series, whose Futures Contract Cut-off Day most
closely follows the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract in
accordance with the normal operation of the provisions described under “Determining Futures
Constituent Rolls and Calculating the Futures Tracker Levels — Determining the Earlier Expiry
Futures Contract and the Later Expiry Futures Contract” above;
(b) if there is such a date, and on that date the product of (x) the Multiplier and (y) the aggregate open
interest for the ICE Original Series to which the Earlier Expiry Futures Contract belongs is greater
than or equal to the product of (x) the Multiplier and (y) the aggregate open interest for one of the
CME Successor Series, then the Later Expiry Futures Contract will be the particular futures
contract (within the ICE Original Series to which the Earlier Expiry Futures Contract belongs)
whose Futures Contract Cut-off Day most closely follows the Futures Contract Cut-off Day of the
Earlier Expiry Futures Contract, in accordance with the normal operation of the provisions
described under “Determining Futures Constituent Rolls and Calculating the Futures Tracker
Levels — Determining the Earlier Expiry Futures Contract and the Later Expiry Futures Contract”
above; and
(c) if there is such a date, and on that date the product of (x) the Multiplier and (y) the aggregate open
interest for one of the CME Successor Series is greater than the product of (x) the Multiplier and
(y) the aggregate open interest of the ICE Original Series to which the Earlier Expiry Futures
Contract belongs, then the relevant equity index futures contract series for the U.S. Small Cap
Equity Constituent will become the CME Successor Series with the highest product of (x) its
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Multiplier and (y) its aggregate open interest on such a date among all the existing CME
Successor Series, and the Later Expiry Futures Contract will be the particular futures contract
(within the CME Successor Series identified immediately above in this paragraph (c)) whose
Futures Contract Cut-off Day most closely follows the Futures Contract Cut-off Day of the Earlier
Expiry Futures Contract.
For the avoidance of doubt, during the applicable Actual Roll Period for the transition, if on any weekday either
the Futures Exchange for the Earlier Expiry Futures Contract or the Futures Exchange for the Later Expiry Futures
Contract is not scheduled to be open for trading for its regular trading session in either Relevant Contract, then that
day will not be a Futures Constituent Scheduled Day in respect of the U.S. Small Cap Equity Constituent.
“Multiplier” means, for an Equity Constituent, the multiplier (expressed as a dollar amount) specified by the
relevant Futures Exchange by reference to which each futures contract is valued (by applying that Multiplier to the
Equity Reference Index associated with that Equity Constituent).
In connection with the occurrence of the U.S. Small Cap Exchange Succession Event, the Index Calculation
Agent will, in good faith, make such adjustments that it determines to be appropriate to any variable, calculation
methodology, valuation terms or any other rule in relation to the Index to account for that change.
Corrections
If (i) the Futures Closing Level of any Futures Constituent, the Commodity Closing Index Current Level of a
Commodity Constituent or the Commodity Settlement Index Level of the Settlement Index associated with any
Commodity Constituent, or the FX Rate in respect on any Futures Constituent as of any date that is published or
otherwise made available to the Index Calculation Agent in respect of the relevant Basket Constituent is
subsequently corrected and that correction is published or otherwise made available to the Index Calculation Agent
in respect of that Basket Constituent; or (ii) the Index Calculation Agent identifies an error or omission in any of its
calculations, determinations or interpretations in respect of the Index, then the Index Calculation Agent may, if
practicable and if the Index Calculation Agent determines in good faith that such correction, error or omission (as
the case may be) is material, adjust or correct the relevant calculation, determination or interpretation or the Index
Level as of any weekday to take into account that correction.
Amendment of the Rules; Termination of the Index
The Rules may be supplemented, amended or restated from time to time in the sole discretion of the Index
Sponsor. The Rules will be made available (in a manner determined by the Index Sponsor from time to time)
following such supplementation, amendment or restatement. Copies of the current Rules are available from the
Index Sponsor upon request.
Although the Rules are intended to be comprehensive and accurate, ambiguities may arise and errors or
omissions may have been made. In such circumstances, the Index Sponsor will resolve such ambiguities and, if
necessary, amend the Rules to reflect such resolution. In the case of any inaccuracy, the Index Sponsor may amend
the Rules to address errors or omissions. The Index Sponsor is under no obligation to inform any person of any
amendments to the Index (except as may be required by law).
The Index Sponsor may, in its reasonable discretion, at any time and without notice, terminate the calculation or
publication of the Index. Notwithstanding anything to the contrary herein, the Index Sponsor may, at any time and
without notice, change the frequency of publication of the Index Level, the means or place of publication of the
Index Level or cease the calculation, publication or dissemination of the Index Level, and nothing in this document
will be construed as an agreement by the Index Sponsor or the Index Calculation Agent to continue to calculate,
publish or disseminate the Index Level if the Index Sponsor has elected to cease that calculation, publication or
dissemination.
Index Sponsor and Index Calculation Agent Determinations
The Index Calculation Agent will act in good faith and in a commercially reasonable manner in making
determinations, interpretations and calculations pursuant to the Rules. Subject to the prior agreement of the Index
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Sponsor, the Index Calculation Agent’s determinations and calculations related to the Index and the Index
Calculation Agent’s interpretations of the Rules will be final.
None of the Index Sponsor, the Index Calculation Agent, or any of their respective affiliates or subsidiaries or
any of their respective directors, officers, employees, representatives, delegates or agents (each, a “Relevant
Person”) will have any responsibility to any person (whether as a result of negligence or otherwise) for any
determinations, interpretations or calculations made or anything done (or omitted to be determined or done) in
connection with the Index or any use to which any person may put the Index or the Index Levels (as defined herein).
Subject to the prior agreement of the Index Sponsor, the Index Calculation Agent may make certain
determinations, adjustments, amendments and interpretations related to the Index. All of those determinations,
adjustments, amendments and interpretations (in each case, subject to that prior agreement on the part of the Index
Sponsor) of the Index Calculation Agent related to the Index and all calculations performed by the Index Calculation
Agent related to the Index will be final, conclusive and binding and no person will be entitled to make any claim
against the Index Sponsor, the Index Calculation Agent, or any of the Relevant Persons in respect thereof. Once a
determination, adjustment, amendment or interpretation is made or action is taken by the Index Calculation Agent
(in each case, as agreed in advance by the Index Sponsor) in relation to the Index, or a calculation is performed by
the Index Calculation Agent in relation to the Index, none of the Index Sponsor, the Index Calculation Agent or any
Relevant Person will be under any obligation to revise any such determination, adjustment, amendment,
interpretation or calculation made or anything done (or omitted to be determined, adjusted, amended, interpreted,
calculated or done) for any reason.
The Index Calculation Agent’s exercise of discretion, or failure to exercise discretion, in relation to the Index
may have a detrimental effect on the Index Level and the volatility of the Index. The Index Sponsor or the Index
Calculation Agent may make certain determinations or calculations based on information obtained from publicly
available sources without independently verifying such information.
43
BACKGROUND RELATING TO THE BASKET CONSTITUENTS OF THE INDEX
BACKGROUND ON FUTURES CONTRACTS
Futures contracts are contracts that legally obligate the holder to buy or sell an asset at a predetermined delivery
price during a specified future time period. Each Futures Constituent is an unfunded rolling position in futures
contracts and each Commodity Constituent is an excess return commodity sector index that tracks futures contracts
See “The J.P. Morgan Mozaic IISM
Index” above.
Overview of Futures Markets
Futures contracts are traded on regulated futures exchanges, in the over-the-counter market and on various types
of physical and electronic trading facilities and markets. As of the date of this index supplement, all of the futures
contracts associated with the Basket Constituents are exchange-traded futures contracts. An exchange-traded futures
contract provides for the purchase and sale of a specified type and quantity of an underlying asset or financial
instrument during a stated delivery month for a fixed price. A futures contract provides for a specified settlement
month in which the cash settlement is made or in which the underlying asset or financial instrument is to be
delivered by the seller (whose position is therefore described as “short”) and acquired by the purchaser (whose
position is therefore described as “long”).
A futures contract on a government bond typically permits satisfaction of the delivery obligation by delivery of
any of the bonds referenced by that futures contract that meet the specification identified by the relevant exchange.
The deliverable bonds may feature different coupons and maturities and consequently also different prices. At any
given time, certain deliverable bonds will be more economical to acquire and deliver than others, which are
commonly referred to as the “cheapest to deliver.” The price for futures contract on a government bond on any day
generally tracks the price of the particular bonds that are “cheapest to deliver” on that day.
No purchase price is paid or received on the purchase or sale of a futures contract. Instead, an amount of cash
or cash equivalents must be deposited with the broker as “initial margin.” This amount varies based on the
requirements imposed by the exchange clearing houses, but it may be lower than 5% of the notional value of the
contract. This margin deposit provides collateral for the obligations of the parties to the futures contract.
By depositing margin, which may vary in form depending on the exchange, with the clearing house or broker
involved, a market participant may be able to earn interest on its margin funds, thereby increasing the total return
that it may realize from an investment in futures contracts.
In the United States, futures contracts are traded on organized exchanges, known as “designated contract
markets.” At any time prior to the expiration of a futures contract, a trader may elect to close out its position by
taking an opposite position on the exchange on which the trader obtained the position, subject to the availability of a
liquid secondary market. This operates to terminate the position and fix the trader’s profit or loss. Futures contracts
are cleared through the facilities of a centralized clearing house and a brokerage firm, referred to as a “futures
commission merchant,” which is a member of the clearing house.
Unlike common equity securities, futures contracts, by their terms, have stated expirations. At a specific point
in time prior to expiration, trading in a futures contract for the current delivery month will cease. As a result, a
market participant wishing to maintain its exposure to a futures contract on a particular asset or financial instrument
with the nearest expiration must close out its position in the expiring contract and establish a new position in the
contract for the next delivery month, a process referred to as “rolling.” For example, a market participant with a
long position in a futures contract expiring in November who wishes to maintain a position in the nearest delivery
month will, as the November contract nears expiration, sell the November contract, which serves to close out the
existing long position, and buy a futures contract expiring in December. This will “roll” the November position into
a December position, and, when the November contract expires, the market participant will still have a long position
in the nearest delivery month.
Futures exchanges and clearing houses in the United States are subject to regulation by the Commodity Futures
Trading Commission. Exchanges may adopt rules and take other actions that affect trading, including imposing
speculative position limits, maximum price fluctuations and trading halts and suspensions and requiring liquidation
44
of contracts in certain circumstances. Futures markets outside the United States are generally subject to regulation
by comparable regulatory authorities. The structure and nature of trading on non-U.S. exchanges, however, may
differ from this description.
45
BACKGROUND ON THE BLOOMBERG COMMODITY SECTOR INDICES
All information contained in this index supplement regarding the Bloomberg Commodity IndexSM
and its sector
sub-indices (each, a “Bloomberg Commodity Index” and collectively, the “Bloomberg Commodity Indices”),
including, without limitation, their make-up, methods of calculation and changes in their components, has been
derived from publicly available information, without independent verification. This information reflects the policies
of, and is subject to change by, UBS Securities LLC (“UBS”) and Bloomberg Finance L.P. (“Bloomberg”). UBS
and Bloomberg are not involved in the offering of any instrument linked to the Index in any way and have no
obligation to consider the interests of any investor or any other person in taking any action that might affect the
value of instruments linked to the Index. UBS and Bloomberg have no obligation to continue to publish, and may
discontinue publication of, the Bloomberg Commodity Indices at any time in their sole discretion.
On July 1, 2014, Bloomberg became responsible for the governance, calculation, distribution and licensing of
the Bloomberg Commodity Indices. The Dow Jones-UBS Commodity IndexSM
was renamed to the Bloomberg
Commodity IndexSM
and the ticker changed from “DJUBS” to “BCOM.” UBS has maintained its ownership, but
Bloomberg calculates the Bloomberg Commodity Index on behalf of UBS. Material changes or amendments to the
index methodology are subject to approval by the Bloomberg index oversight committee in consultation, if practical,
with UBS.
Overview
The Bloomberg Commodity IndexSM
was introduced in July of 1998 to provide a unique, diversified,
economically rational and liquid benchmark for commodities as an asset class. The Bloomberg Commodity IndexSM
currently is composed of the prices of twenty-two exchange-traded futures contracts on physical commodities. A
futures contract is a bilateral agreement providing for the purchase and sale of a specified type and quantity of a
commodity or financial instrument during a stated delivery month for a fixed price. For a general description of the
commodity futures markets, please see “Background on Futures Contracts” in this index supplement. The
commodities included in the Bloomberg Commodity IndexSM
for 2017 and 2016 are as follows: aluminum, coffee,
copper, corn, cotton, crude oil (WTI and Brent), gold, ultra-low-sulfur diesel (“ULS diesel”), lean hogs, live cattle,
natural gas, nickel, silver, soybean meal, soybean oil, soybeans, sugar, unleaded gasoline, wheat (soft and hard red
winter) and zinc. The Bloomberg Commodity IndexSM
tracks futures contracts that trade on the Chicago Board of
Trade (“CBOT”), the New York Board of Trade (“NYBOT”), the Commodities Exchange division of the New
York Mercantile Exchange (“COMEX”), the New York Mercantile Exchange (“NYMEX”), the Chicago
Mercantile Exchange (“CME”), the London Metals Exchange (“LME”) and ICE Futures Europe.
The Bloomberg Commodity IndexSM
is composed of exchange-traded futures contracts on physical
commodities and is designed to be a highly liquid and diversified benchmark for commodities as an asset class. Its
component weightings are determined primarily based on liquidity data, which is the relative amount of trading
activity of a particular commodity. The excess return version of the Bloomberg Commodity IndexSM
is published by
Bloomberg L.P. under the ticker symbol “BCOM.”
The sector sub-indices of the Bloomberg Commodity IndexSM
follow the methodology of the Bloomberg
Commodity IndexSM
, except that the calculation of each sector sub-index utilizes the prices of the relevant futures
contracts (listed under “— Designated Contracts for Each Commodity”) and the relevant Commodity Index
Multipliers (determined as described under “— Commodity Index Multipliers”). The excess return versions of the
Bloomberg Energy SubindexSM
, the Bloomberg Industrial Metals SubindexSM
and the Bloomberg Precious Metals
SubindexSM
are published by Bloomberg L.P. under the ticker symbols BCOMEN, BCOMIN and BCOMPR,
respectively.
UBS and its affiliates actively trade futures contracts and options on futures contracts on the commodities that
underlie the Bloomberg Commodity IndexSM
, as well as commodities, including commodities included in the
Bloomberg Commodity IndexSM
. For information about how this trading may affect the value of the Bloomberg
Commodity Indices, see “Risk Factors — Trading and other transactions by UBS and its affiliates in the futures
contracts constituting the Bloomberg Commodity Indices and the underlying commodities may affect the level of
the Bloomberg Commodity Indices” in this index supplement.
46
Benchmark Governance
Bloomberg has established the Benchmark Oversight Committee (“BOC”) in order to monitor, manage and/or
improve the objectivity, reliability, consistency, transparency and management and implementation of the
benchmark rules, including those applicable to the Bloomberg Commodity IndexSM
. The BOC is the uppermost
governance body and consists of senior representatives from various Bloomberg business units. Voting members of
the BOC do not directly participate in the index business.
The BOC meets on a quarterly basis to review matters such as material risks, conflicts of interest, industry
developments, client complaints and material index errors and restatements. To assist in its oversight, the BOC has
constituted the Index Operating Subcommittee (“IOS”). The IOS is composed of senior benchmark and strategy
index managers designed by the BOC. Members include Bloomberg personnel with significant index experience.
The IOS meets at least monthly to address matters such as new index approvals, periodic reviews of existing indices,
index pricing, management of errors and restatements, identification and management of actual and potential
conflicts of interest, approvals of changes to indices and approvals of cessation of indices. The IOS also consults
with the Index Advisory Councils on the matters outlined below. The IOS reports to the BOC at least quarterly on
all matters delegated to it.
Index Advisory Council (“IAC”)
IACs are composed of key market participants and other influential individuals to assist Bloomberg in setting
index priorities, to discuss potential rules changes and to provide ideas for new products. IACs are generally
constituted on an annual basis. While potential benchmark changes are discussed through this process, all feedback
received is non-binding and all final decisions on benchmark index rules are made by the IOS (subject to BOC
review) after the review period has ended.
Internal and External Reviews
Index administration is subject to Bloomberg’s internal compliance function which periodically reviews various
aspects of Bloomberg’s businesses in order to determine whether such businesses are adhering to applicable firm-
wide policies and procedures, and assess whether applicable internal controls are functioning properly.
In addition to the compliance function, Bloomberg may from time to time appoint an independent external
auditor with appropriate experience and capability to periodically review and report on its adherence to the IOSCO
Principles for Financial Benchmarks. The frequency of such external reviews will depend on the size and
complexity of the operations and the breadth and depth of the index use by Stakeholders.
Four Main Principles Guiding the Creation of the Bloomberg Commodity IndexSM
The Bloomberg Commodity IndexSM
was created using the following four main principles:
ECONOMIC SIGNIFICANCE. A commodity index should fairly represent the importance of a
diversified group of commodities to the world economy. To achieve a fair representation, the Bloomberg
Commodity IndexSM
uses both liquidity data and dollar-weighted production data in determining the
relative quantities of included commodities. The Bloomberg Commodity IndexSM
primarily relies on
liquidity data, or the relative amount of trading activity of a particular commodity, as an important
indicator of the value placed on that commodity by financial and physical market participants. The
Bloomberg Commodity IndexSM
also relies on production data as a useful measure of the importance of a
commodity to the world economy. Production data alone, however, may underestimate the economic
significance of storable commodities (e.g., gold) relative to non-storable commodities (e.g., live cattle).
Production data alone also may underestimate the investment value that financial market participants
place on certain commodities, and/or the amount of commercial activity that is centered around various
commodities. Accordingly, production statistics alone do not necessarily provide as accurate a reflection
of economic importance as the markets themselves. The Bloomberg Commodity IndexSM
thus relies on
data that is both endogenous to the futures market (liquidity) and exogenous to the futures market
(production) in determining relative weightings.
47
DIVERSIFICATION. A second major goal of the Bloomberg Commodity IndexSM
is to provide
diversified exposure to commodities as an asset class. Disproportionate weighting of any particular
commodity or sector increases volatility and negates the concept of a broad-based commodity index.
Instead of diversified commodities exposure, the investor is unduly subjected to micro-economic shocks
in one commodity or sector. As described further below, diversification rules have been established and
are applied annually. Additionally, the Bloomberg Commodity IndexSM
is re-balanced annually on a
price-percentage basis in order to maintain diversified commodities exposure over time.
CONTINUITY. The third goal of the Bloomberg Commodity IndexSM
is to be responsive to the
changing nature of commodity markets in a manner that does not completely reshape the character of the
Bloomberg Commodity IndexSM
from year to year. The Bloomberg Commodity IndexSM
is intended to
provide a stable benchmark so that end-users may be reasonably confident that historical performance
data (including such diverse measures as correlation, spot yield, roll yield and volatility) is based on a
structure that bears some resemblance to both the current and future composition of the Bloomberg
Commodity IndexSM
.
LIQUIDITY. Another goal of the Bloomberg Commodity IndexSM
is to provide a highly liquid index.
The explicit inclusion of liquidity as a weighting factor helps to ensure that the Bloomberg Commodity
IndexSM
can accommodate substantial investment flows. The liquidity of an index affects transaction
costs associated with current investments. It also may affect the reliability of historical price
performance data.
These four principles represent goals of the Bloomberg Commodity IndexSM
and its creators, and there can be
no assurance that these goals will be achieved.
Composition of the Bloomberg Commodity IndexSM
— Commodities Available for Inclusion
Commodities have been selected that are believed to be both sufficiently significant to the world economy to
merit consideration for inclusion in the Bloomberg Commodity IndexSM
and tradable through a qualifying related
futures contract. With the exception of several metals contracts (aluminum, lead, tin, nickel and zinc) that trade on
the LME and contracts for Brent crude, which trade on ICE Futures Europe, each of the potential commodities is
currently the subject of at least one futures contract that trades on a U.S. exchange.
The 24 commodities currently available for inclusion in the Bloomberg Commodity IndexSM
are aluminum,
cocoa, coffee, copper, corn, cotton, crude oil (WTI and Brent), gold, ULS diesel, lead, lean hogs, live cattle, natural
gas, nickel, platinum, silver, soybean meal, soybean oil, soybeans, sugar, tin, unleaded gasoline, wheat (soft
(Chicago) and hard red winter (KC HRW)) and zinc.
The 20 commodities included in the Bloomberg Commodity IndexSM
(each, an “Index Commodity” and
collectively, the “Index Commodities”) for 2017 and 2016 are as follows: aluminum, coffee, copper, corn, cotton,
crude oil (WTI and Brent), gold, ULS diesel, lean hogs, live cattle, natural gas, nickel, silver, soybean meal, soybean
oil, soybeans, sugar, unleaded gasoline, wheat (soft and hard red winter) and zinc.
Designated Contracts for Each Commodity
One or more futures contracts known as a “Designated Contract” is selected by Bloomberg for each
commodity available for inclusion in the Bloomberg Commodity IndexSM
. Historically, through and including the
composition of the Bloomberg Commodity IndexSM
for 2017 and 2016, Bloomberg has chosen for each Commodity
one Designated Contract that is traded in North America and denominated in U.S. dollars (with the exception of
several LME contracts, which are traded in London, and with the exception of crude oil, for which two Designated
Contracts have been selected starting in 2012, and wheat, for which two Designated Contracts that are traded in
North America have been selected starting in 2013).
Bloomberg may in the future select more than one Designated Contract for additional commodities or may
select Designated Contracts that are traded outside of the United States or in currencies other than the U.S. dollar.
For example, in the event that changes in regulations concerning position limits materially affect the ability of
48
market participants to replicate the Bloomberg Commodity IndexSM
in the underlying futures markets, it may
become appropriate to include multiple Designated Contracts for more commodities (in addition to crude oil and
wheat) in order to enhance liquidity.
The termination or replacement of a futures contract on an established exchange occurs infrequently; if a
Designated Contract were to be terminated or replaced, a comparable futures contract, if available, would be
selected to replace that Designated Contract. Please see “Risk Factors — Bloomberg may be required to replace a
contract underlying a Bloomberg Commodity Index if the existing futures contract is terminated or replaced” in this
index supplement.
The 2017 and 2016 Designated Contracts for the commodities underlying the Bloomberg Commodity IndexSM
are set forth in the table below:
Commodity Designated Contract Exchange Units Price quote Aluminum High Grade Primary Aluminum LME 25 metric tons USD/metric ton Coffee Coffee “C” NYBOT 37,500 lbs U.S. cents/pound Copper* Copper COMEX 25,000 lbs U.S. cents/pound Corn Corn CBOT 5,000 bushels U.S. cents/bushel Cotton Cotton NYBOT 50,000 lbs U.S. cents/pound Crude (WTI) Light, Sweet Crude Oil NYMEX 1,000 barrels USD/barrel Crude (Brent) Brent Crude Oil ICE Futures
Europe 1,000 barrels USD/barrel
Gold Gold COMEX 100 troy oz. USD/troy oz. Lean Hogs Lean Hogs CME 40,000 lbs U.S. cents/pound Live Cattle Live Cattle CME 40,000 lbs U.S. cents/pound Natural Gas Henry Hub Natural Gas NYMEX 10,000 mmbtu USD/mmbtu Nickel Primary Nickel LME 6 metric tons USD/metric ton Silver Silver COMEX 5,000 troy oz. U.S. cents/troy oz. Soybeans Soybeans CBOT 5,000 bushels U.S. cents/bushel Soybean Meal Soybean Meal CBOT 100 short tons USD/short ton Soybean Oil Soybean Oil CBOT 60,000 lbs U.S. cents/pound Sugar World Sugar No. 11 NYBOT 112,000 lbs U.S. cents/pound ULS diesel ULS diesel NYMEX 42,000 gallons U.S. cents/gallon Unleaded
Gasoline (RBOB) Reformulated Gasoline Blendstock
for Oxygen Blending NYMEX 42,000 gal U.S. cents/gallon
Wheat (Chicago) Soft Wheat CBOT 5,000 bushels U.S. cents/bushel Wheat (KC
HRW) Hard Red Winter Wheat CBOT 5,000 bushels U.S. cents/ bushel
Zinc Special High Grade Zinc LME 25 metric tons USD/metric ton
* The Bloomberg Commodity IndexSM
uses the copper contract traded on the COMEX division of the New
York Mercantile Exchange for copper contract prices and LME volume data in determining the weighting for
the Bloomberg Commodity IndexSM
.
In addition to the commodities set forth in the above table, cocoa, lead, platinum and tin also are considered
annually for inclusion in the Bloomberg Commodity IndexSM
.
Commodity Groups
For purposes of applying the diversification rules discussed above and below, the commodities available for
inclusion in the Bloomberg Commodity IndexSM
are assigned to Commodity Groups. The Commodity Groups, and
the commodities currently included in each Commodity Group, are as follows:
Commodity Group: Commodities: Commodity Group: Commodities:
49
Commodity Group: Commodities: Commodity Group: Commodities:
Energy Crude Oil (WTI and
Brent)
ULS diesel
Natural Gas
Unleaded Gasoline
(RBOB)
Livestock Lean Hogs
Live Cattle
Precious Metals Gold
Silver
Platinum
Grains Corn
Soybeans
Soybean Meal
Soybean Oil
Wheat (Chicago and KC
HRW)
Industrial Metals Aluminum
Copper
Lead
Nickel
Tin
Zinc
Softs Cocoa
Coffee
Cotton
Sugar
The Bloomberg Energy SubindexSM
, the Bloomberg Industrial Metals SubindexSM
and the Bloomberg Precious
Metals SubindexSM
represent the energy, precious metals and industrial metals Commodity Groups of the
Bloomberg Commodity IndexSM
, respectively.
Bloomberg Commodity IndexSM
Breakdown by Commodity Group
The Commodity Group Breakdown set forth below is based on the weightings and composition of the
Bloomberg Commodity IndexSM
set forth under “The Bloomberg Commodity IndexSM
2017 Commodity Index
Target Weights” below.
Energy 30.57%
Precious Metals 15.29%
Industrial Metals 17.39%
Livestock 6.07%
Grains 23.46%
Softs 7.22%
In addition, the Commodity Group Breakdown set forth below is based on the weightings and composition of
the Bloomberg Commodity IndexSM
set forth under “The Bloomberg Commodity IndexSM
2016 Commodity Index
Target Weights” below.
Energy 31.03%
Precious Metals 15.59%
Industrial Metals 17.11%
Livestock 5.63%
Grains 23.22%
50
Softs 7.41%
Annual Reweightings and Rebalancings of The Bloomberg Commodity IndexSM
The Bloomberg Commodity IndexSM
is reweighted and rebalanced each year in January on a price-percentage
basis. The annual weightings for the Bloomberg Commodity IndexSM
are determined each year in the third or fourth
quarter by Bloomberg index managers operating under the supervision of the IOC following advice from the IAC
and are published as promptly as practicable following the calculation. The annual weightings for the next calendar
year are implemented the following January.
For example, the target composition of the Bloomberg Commodity IndexSM
for 2017 was published on October
20, 2016. The January 2017 reweighting and rebalancing will be based on the following percentages:
The Bloomberg Commodity IndexSM
2017 Commodity Index Target Weights
Commodity Weighting
Crude Oil
WTI Crude Oil: 7.1781390%
Brent Crude Oil: 7.8218610%
15.000000%
Gold 11.1715570%
Natural Gas 7.9765050%
Copper 7.5907620%
Corn 7.4103730%
Soybeans 5.8387700%
Aluminum 4.5682530%
Wheat
Chicago: 3.3174200%
KC HRW: 1.1834590%
4.5008790%
Silver 4.1152560%
Sugar 3.3978760%
ULS Diesel* 3.8295210%
Unleaded Gasoline 3.7645450%
Live Cattle 3.9771090%
Soybean Oil 2.8074440%
Soybean Meal 2.9015200%
Zinc 2.6893410%
Coffee 2.3774300%
Nickel 2.5409170%
Lean Hogs 2.0941230%
Cotton 1.4478190%
* CME’s heating oil contract on NYMEX was renamed ULS diesel futures after the April 2013 contract.
51
In addition, the target composition of the Bloomberg Commodity IndexSM
for 2016 was published on October
29, 2015. The January 2016 reweighting and rebalancing was based on the following percentages:
The Bloomberg Commodity IndexSM
2016 Commodity Index Target Weights
Commodity Weighting
Crude Oil
WTI Crude Oil: 7.4697630%
Brent Crude Oil: 7.5302370%
15.000000%
Gold 11.3798610%
Natural Gas 8.4488420%
Copper 7.6272480%
Corn 7.3587030%
Soybeans 5.7038300%
Aluminum 4.5987080%
Wheat
Chicago: 3.3268340%
KC HRW: 1.1531400%
4.4799740%
Silver 4.2131830%
Sugar 3.6272510%
ULS Diesel* 3.8290390%
Unleaded Gasoline 3.7478780%
Live Cattle 3.5666190%
Soybean Oil 2.8375480%
Soybean Meal 2.8446630%
Zinc 2.5276320%
Coffee 2.2943230%
Nickel 2.3593750%
Lean Hogs 2.0621330%
Cotton 1.4931910%
Information concerning the Bloomberg Commodity IndexSM
, including weightings and composition, may be
obtained at the Bloomberg website at www.bloombergindexes.com/bloomberg-commodity-index-family.
Information contained in the Bloomberg website is not incorporated by reference in, and should not be considered
part of, this index supplement.
Determination of Relative Weightings
The relative weightings of the Index Commodities are determined annually according to both liquidity and
dollar-adjusted production data in 2/3 and 1/3 shares, respectively. Each year, for each Designated Contract selected
as a reference contract for a commodity designated for potential inclusion in the Bloomberg Commodity IndexSM
,
liquidity is measured by the Commodity Liquidity Percentage (“CLP”) and production by the Commodity
52
Production Percentage (“CPP”). The CLP for each Designated Contract is determined by taking a five-year average
of the product of trading volume and the historical dollar value of that Designated Contract, and dividing the result
by the sum of such products for all Designated Contracts. The CPP is determined for each commodity by taking a
five-year average of annual world production figures, adjusted by the historical U.S. dollar value of the applicable
Designated Contract, and dividing the result by the sum of such production figures for all the commodities that were
designated for potential inclusion in the Bloomberg Commodity IndexSM
. The CLP and the CPP are then combined
(using a ratio of 2:1) to establish the Commodity Index Percentage (“CIP”) for each commodity. This CIP is then
adjusted in accordance with certain diversification rules to determine the Index Commodities that will be included in
the Bloomberg Commodity IndexSM
and their respective percentage weights.
Diversification Rules
The Bloomberg Commodity IndexSM
is designed to provide diversified exposure to commodities as an asset
class. To ensure that no single commodity or commodity sector dominates the Bloomberg Commodity IndexSM
, the
following diversification rules are applied to the annual reweighting and rebalancing of the Bloomberg Commodity
IndexSM
as of January of each year:
No single commodity (e.g., natural gas or silver) may constitute more than 15% of the Bloomberg
Commodity IndexSM
.
No single commodity sector, together with its derivatives (e.g., WTI crude oil and Brent crude oil,
together with ULS diesel and unleaded gasoline), may constitute more than 25% of the Bloomberg
Commodity IndexSM
.
No related group of commodities designated as a “Commodity Group” (e.g., energy, precious metals,
livestock or grains) may constitute more than 33% of the Bloomberg Commodity IndexSM
.
No single commodity included in the Bloomberg Commodity IndexSM
may constitute less than 2% of the
Bloomberg Commodity IndexSM
, as liquidity allows.
Any single commodity constituting less than 0.4% of the Bloomberg Commodity IndexSM
will be
eliminated.
Adjust gold and silver percentages so that their weights are equal to their CIP without violating the
previous diversification rules.
The ratio of CIP divided by the associated CLP must be less than or equal to 3.5.
Following the annual reweighting and rebalancing of the Bloomberg Commodity IndexSM
in January, the
percentage of any Index Commodity or Commodity Group at any time prior to the next reweighting or rebalancing
will fluctuate and may exceed or be less than the percentages established in January.
Commodity Index Multipliers
Following application of the diversification rules discussed above, CIPs are incorporated into the Bloomberg
Commodity IndexSM
by calculating the new unit weights for each Designated Contract. Near the beginning of each
new calendar year, the CIPs, along with the settlement prices determined on that date for Designated Contracts
included in the Bloomberg Commodity IndexSM
, are used to determine a Commodity Index Multiplier (“CIM”) for
each Designated Contract. This CIM is used to achieve the percentage weightings of the Designated Contracts, in
dollar terms, indicated by their respective CIPs. After the CIMs are calculated, they remain fixed throughout the
year. As a result, the observed price percentage of each Designated Contract will float throughout the year, until the
CIMs are reset the following year based on new CIPs.
53
Calculations
The excess return version of the Bloomberg Commodity IndexSM
is calculated by Bloomberg by applying the
impact of the changes to the futures prices of commodities included in the Bloomberg Commodity IndexSM
(based
on their relative weightings). Once the CIMs are determined as discussed above, the calculation of the excess return
version of the Bloomberg Commodity IndexSM
is a mathematical process whereby the CIMs for the Index
Commodities are multiplied by the prices in U.S. dollars for the applicable Designated Contracts. These products
are then summed. The percentage change in this sum is then applied to the prior Bloomberg Commodity IndexSM
excess return level to calculate the new Bloomberg Commodity IndexSM
excess return level.
The Bloomberg Commodity IndexSM
Is a Rolling Index
The Bloomberg Commodity IndexSM
is composed of futures contracts on physical commodities. Unlike
equities, which typically entitle the holder to a continuing stake in a corporation, commodity futures contracts
normally specify a certain date for the delivery of the underlying commodity. In order to avoid delivering the
underlying physical commodities and to maintain exposure to the underlying physical commodities, periodically
futures contracts on physical commodities specifying delivery on a nearby date must be sold and futures contracts on
physical commodities that have not yet reached the delivery period must be purchased. The rollover for each
contract occurs over a period of five Index Business Days (as defined below) each month according to a
pre-determined schedule. This process is known as “rolling” a futures position. The Bloomberg Commodity
IndexSM
is a “rolling index.”
An “Index Business Day” is a day on which the sum of the Commodity Index Percentages (as defined above in
“Determination of Relative Weightings”) for the Index Commodities that are open for trading is greater than 50%.
For example, based on the weighting of the Index Commodities for 2016, if the CBOT, the NYMEX and the LME
are each closed for trading on the same day, an Index Business Day will not exist.
Bloomberg Commodity IndexSM
Calculation Disruption Events
From time to time, disruptions can occur in trading futures contracts on various commodity exchanges. The
daily calculation of the Bloomberg Commodity IndexSM
will be adjusted in the event that Bloomberg determines
that any of the following index calculation disruption events exists:
(a) the termination or suspension of, or material limitation or disruption in the trading of any futures contract
used in the calculation of the Bloomberg Commodity IndexSM
on that day;
(b) the settlement price of any futures contract used in the calculation of the Bloomberg Commodity IndexSM
reflects the maximum permitted price change from the previous day’s settlement price;
(c) the failure of an exchange to publish official settlement prices for any futures contract used in the
calculation of the Bloomberg Commodity IndexSM
; or
(d) with respect to any futures contract used in the calculation of the Bloomberg Commodity IndexSM
that
trades on the LME, a business day on which the LME is not open for trading.
License Agreement
The Bloomberg Commodity Indices are joint products of UBS and Bloomberg, and have been licensed for use
by JPMorgan Chase & Co. and its affiliates, including JPMorgan Financial, in connection with certain financial
products, including any investment or instrument linked to the Index. “Bloomberg,” “Bloomberg Commodity
IndexSM
” and “BCOM” are service and/or trademarks of Bloomberg.
The instrument, linked to the Index are not sponsored, endorsed, sold or promoted by UBS, Bloomberg or any
of their subsidiaries or affiliates. None of UBS, Bloomberg or any of their subsidiaries or affiliates makes any
representation or warranty, express or implied, to the owners of or counterparts to the instruments linked to the
Index or any member of the public regarding the advisability of investing in financial instruments or commodities
generally or in the instruments linked to the Index. The only relationship of UBS, Bloomberg or any of their
54
subsidiaries or affiliates to the Bank in connection with the instruments linked to the Index is the licensing of certain
trademarks, trade names and service marks and of the Bloomberg Commodity Indices, which are determined,
composed and calculated by Bloomberg in conjunction with UBS Securities without regard to the Index Sponsor or
the instruments linked to the Index. UBS and Bloomberg have no obligation to take the needs of the Index Sponsor
or the owners of instruments linked to the Index into consideration in determining, composing or calculating the
Bloomberg Commodity Indices. None of UBS, Bloomberg or any of their respective subsidiaries or affiliates is
responsible for or has participated in the determination of the timing of, prices at, or quantities of the instruments
linked to the Index to be issued or in the determination or calculation of the equation by which the instruments
linked to the Index are to be converted into cash. None of UBS, Bloomberg or any of their subsidiaries or affiliates
shall have any obligation or liability, including, without limitation, to investors in instruments linked to the Index, in
connection with the administration, marketing or trading of the instruments linked to the Index. Notwithstanding the
foregoing, UBS, Bloomberg and their respective subsidiaries and affiliates may independently issue and/or sponsor
financial products unrelated to the instruments linked to the Index, but which may be similar to and competitive with
the instruments linked to the Index. In addition, UBS, Bloomberg and their subsidiaries and affiliates actively trade
commodities, commodity indices and commodity futures (including the Bloomberg Commodity Indices), as well as
swaps, options and derivatives which are linked to the performance of such commodities, commodity indices and
commodity futures. It is possible that this trading activity will affect the value of the Bloomberg Commodity
Indices and the instruments linked to the Index.
This index supplement relates only to the instruments linked to the Index and does not relate to the
exchange-traded physical commodities underlying any of the Bloomberg Commodity IndexSM
components.
Purchasers of an instrument linked to the Index should not conclude that the inclusion of a futures contract in the
Bloomberg Commodity IndexSM
is any form of investment recommendation of the futures contract or the underlying
exchange-traded physical commodity by UBS, Bloomberg or any of their subsidiaries or affiliates. The information
in this index supplement regarding the Bloomberg Commodity IndexSM
components has been derived solely from
publicly available documents. None of UBS, Bloomberg or any of their subsidiaries or affiliates has made any due
diligence inquiries with respect to the Bloomberg Commodity IndexSM
components in connection with the
instruments linked to the Index. None of UBS, Bloomberg or any of their subsidiaries or affiliates makes any
representation that these publicly available documents or any other publicly available information regarding the
Bloomberg Commodity IndexSM
components, including without limitation a description of factors that affect the
prices of such components, are accurate or complete.
NONE OF UBS, BLOOMBERG OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES
GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE BLOOMBERG
COMMODITY INDICES OR ANY DATA RELATED THERETO AND NONE OF UBS, BLOOMBERG
OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES SHALL HAVE ANY LIABILITY FOR ANY
ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. NONE OF UBS, BLOOMBERG OR ANY OF
THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY THE PRODUCT ISSUER, OWNERS OF INSTRUMENTS LINKED TO
THE INDEX, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG
COMMODITY INDICES OR ANY DATA RELATED THERETO. NONE OF UBS, BLOOMBERG OR
ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY EXPRESS OR IMPLIED
WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE BLOOMBERG
COMMODITY INDICES OR ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL UBS, BLOOMBERG OR ANY OF THEIR SUBSIDIARIES OR
AFFILIATES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL
OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF NOTIFIED OF THE POSSIBILITY
THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR
ARRANGEMENTS AMONG UBS, BLOOMBERG AND THE ISSUER, OTHER THAN UBS AND THE
LICENSORS OF BLOOMBERG.
55
BACKGROUND ON THE DAX® INDEX
All information contained in this index supplement regarding the DAX® Index (Price Return), including,
without limitation, its make-up, method of calculation and changes in its components, has been derived from
publicly available information, without independent verification. This information reflects the policies of, and is
subject to change by, Deutsche Börse AG (“Deutsche Börse”). The DAX® Index (Price Return) is calculated,
maintained and published by Deutsche Börse. Deutsche Börse has no obligation to continue to publish, and may
discontinue publication of, the DAX® Index (Price Return).
The DAX® Index (Price Return) is reported by Bloomberg L.P. under the ticker symbol “DAXK.”
The DAX® Index (Price Return) comprises the 30 largest companies with the highest turnover on the FWB
®
Frankfurt Stock Exchange. These companies are selected from the continuously traded companies in the Prime
Standard segment that meet certain selection criteria. To be listed in the Prime Standard, a company must meet
minimum statutory requirements, which include the regular publication of financial reports, and must satisfy
additional transparency requirements. The reference date of the Index is December 30, 1987.
The Index is capital-weighted, meaning the weight of any individual issue is proportionate to its respective
share in the overall capitalization of all index component issuers. The weight of any single company is capped at
10% of the Index capitalization, measured quarterly. Weighting is based exclusively on the free float portion of the
issued share capital of any class of shares involved. Both the number of shares included in the issued share capital
and the free float factor are updated on one day each quarter (this date, the “chaining date” and the process by which
these updates are made, “chaining”). The Index is a price index, which measures the actual price performance and
is only adjusted for income from subscription rights and special distributions.
Methodology of the Index
The Working Committee for Equity Indices and the Management Board of Deutsche Börse
The Working Committee for Equity Indices (the “Committee”) advises Deutsche Börse on all issues related to
the Index, recommending changes to the composition of the Index on the basis of the various principles and
regulations. The Committee acts as an advisory body based on the basic principles mentioned and the rules of the
guidelines. In this capacity, it can recommend any necessary adjustments to the rulebook.
The Committee consists of Deutsche Börse employees and representatives of leading national and
international financial institutions. The Committee’s meetings usually take place on the respective fifth trading day
in March, June, September and December. Extraordinary meetings may also be convened.
The selection of companies in the DAX® Index (Price Return) is based on the quantitative criteria of order book
volume and free float market capitalization. The reporting date for collecting data is the last trading day of the
month for which the ranking list is created. The ranking list is created and published monthly by Deutsche Börse.
On the basis of the ranking list, the Committee issues a recommendation of whether a company should be replaced
and if so, which company should replace it.
Free Float
Free float refers to the freely tradable shares of a company that are not held in fixed ownership. The following
rules apply to determine the free float:
1. All shareholdings of an owner which, on an accumulated basis, account for at least 5% of a company’s share
capital attributed to a class of shares are considered to be non-free float. Shareholdings of an owner also include
shareholdings:
held by the family of the owner as defined by section §15a of the German Securities Trading Act
(“WpHG”);
for which a pooling has been arranged in which the owner has an interest;
56
managed or kept in safe custody by a third party for account of the owner;
held by a company which the owner controls as defined by section 290(2) of the German Commercial Code
(HGB); and
subject to a statutory or contractual qualifying period of at least six months.
This does not include shareholdings of:
asset managers and trust companies;
funds and pension funds; and
investment companies or foreign investment companies in their respective special fund assets
insofar as they are held as part of short-term investment strategies and the size of a shareholding does not exceed
25% of a company’s share capital. This does not apply to shareholdings held by venture capital companies,
government funds or shareholdings held by their financial agencies, or supranational funds.
In this context, shares for which the acquirer has at the time of purchase clearly and publicly stated that
strategic goals are being pursued and that the intention is to influence the company policies and ongoing business of
the company in the long-term are not considered a short-term investment. In addition, shares having been acquired
through a public purchase offer will not be considered a shortterm investment.
2. Shares of an owner that are subject to a statutory or contractual qualifying period of at least six months with
regard to their disposal and shares held by the issuing company (treasury shares) are — irrespective of the size of a
shareholding — always considered fixed holdings.
3. In the case of an ongoing takeover, shares that are under the control of the overtaking companies via
derivatives will also be considered for the determination of the stock’s free float. The derivatives need to be subject
to registration and correspondingly registered according to legislation in WpHG and the German Securities
Acquisition and Takeover Act (“WpÜG”).
The various criteria in nos. 1 to 3 are also fully applied to classes of shares that are subject to restrictions of
ownership. For the purpose of the determination of the free float as described above, each ISIN under which shares
are traded is considered a separate share class.
If Deutsche Börse determines and publishes a company’s free float within the framework of a scheduled
chaining, this free float factor will only be changed or corrected at the next scheduled chaining date. This is also the
case if Deutsche Börse learns of facts or circumstances following the determination of the free float that would have
resulted in the determination of a different free float factor had they been known at the time of the determination.
Deutsche Börse will, however, provide information on the correction to be made to the free float factor at the next
scheduled chaining date immediately after becoming aware of such facts or circumstances.
Index Composition
Selection Criteria
The basic criteria for including companies in the DAX® Index (Price Return) are:
an existing listing in the Prime Standard segment (i.e. there is no public information on the existence of an
application for revocation pursuant to Section 46 of the Exchange Rules for the FWB® Frankfurt Stock
Exchange (the “FWB Exchange Rules”), which provides for revocation of admission of securities to the
regulated market (General Standard) upon application by the issuer);
continuous trading on Deutsche Börse’s electronic trading system Xetra®;
57
a minimum free float of 10%;
legal headquarters or operating headquarters in Germany; and
a minimum period since first listing of at least 30 trading days
There is expanded criteria for foreign companies, under which foreign companies must:
have a registered office in Germany (other than the registered office this can also be an operating
headquarter); or
have their focus of trading volume on Xetra® and their legal headquarters in the European Union (“EU”) or
in a European Free Trade Association (“EFTA”) country.
A company focuses its trading volume on Xetra® if at least 33% of its total turnover within the EU or the EFTA
has been transacted via the FWB® Frankfurt Stock Exchange over the last 12 months. The total turnover includes
the turnover of all stock listings belonging to a company that arise due to trading on regulated exchanges and
multilateral trading facilities.
Companies that satisfied the prerequisites listed above are selected for inclusion in the DAX® Index (Price
Return) based on the quantitative criteria of order book volume and free float market capitalization. The reporting
date for collecting data is the last trading day of the month for which the ranking list is created. The ranking list is
created and published monthly by Deutsche Börse.
Creating the Ranking List
To create the ranking list, the parameters relevant for the allocation of a rank — order book volume and free
float market capitalization — are recorded and the basis criteria are checked on the recording date (last trading day
of the month).
A volume-weighted average price (“VWAP”) over 20 trading days (20-trading day VWAP) is used to calculate
the free float market capitalization. This is calculated as the average value of daily VWAPs based on Xetra® prices
of the last 20 trading days in a class. The 20-trading day VWAP on the last trading day of a month is used to create
the ranking list.
The order book volume is the sum of the daily turnover of a class over a period of twelve months. The
following special provisions apply:
if the order book volumes of a company are not available for the whole twelve-month period due to the
time of its commencement of trading or its initial listing on one of the transparency standards, the order
book volumes of the first 20 trading days are taken away and the remainder of the relevant data is linearly
projected for twelve months. This procedure, however, is only applicable to companies that have been
traded for at least 30 days as per the reporting date, taking order book volumes of at least ten days into
account for projection purposes;
if the transparency standard is changed (Entry, General and Prime Standard), the order book volumes from
the original transparency standard are taken into account; and
in the case of a merger of two companies, the order book volumes of both companies are aggregated,
provided that both companies were listed on the Frankfurt Stock Exchange prior to the merger. A
requirement for aggregating order book volumes is that the company or companies that no longer exist are
no longer listed separately on one of the transparency standards (Prime, General or Entry Standards) on the
FWB®
Frankfurt Stock Exchange. The order book volumes are aggregated retroactively at this point for the
allocation of a rank.
Inclusion in the Ranking List
58
All of the share classes listed on Prime Standard on Xetra® are listed on the ranking list. A ranking is given to
the share classes that meet the selection criteria outlined above. Classes that do not meet the above criteria given are
listed on the ranking list but do not receive a ranking. Each ISIN under which shares in a company are traded is
considered a separate class in this regard. If a company has several share classes, only the largest or most liquid
share class is given a ranking.
Exclusion from Ranking
1. A company can be removed from the DAX® Index (Price Return) immediately if its index weight based on its
current free float market capitalization exceeds 10 % and its annualized 30-day volatility (annualized volatility of
the share price over the last 30 days) exceeds 250%. The relevant figures are published by Deutsche Börse on a
daily basis. A company that is excluded from the DAX® Index (Price Return) due to a violation of the volatility
criterion will only be considered for a ranking if its 30-day volatility falls below 150% at the time of ranking and on
any of the 14 trading days prior to this date. Re-inclusion in the ranking is also only possible for the company’s
class which was excluded from the Index.
2. If a foreign company does not meet the trading criteria on Xetra® on the monthly ranking list, the company
will not be ranked. A foreign company will only be ranked once it meets the trading criteria on Xetra® again.
3. To ensure the position of the DAX® Index (Price Return) as a leading equity index, Deutsche Börse reserves
the right to exclude certain companies from being ranked on the ranking list after consultation with the Committee.
An appropriate reason for such an exclusion may be, for example, the fact that it is a foreign company with the
holding's headquarters in Germany but the focus of its business activity is abroad.
Adjustments to Index Composition
The index composition of DAX® is reviewed quarterly based on the Fast Exit and Fast Entry rules. The index
composition of DAX® is reviewed every September based on the Regular Exit and Regular Entry rules.
The purpose of the review on the basis of the Fast Exit and Fast Entry rules is to account for significant changes
in rankings. These changes may occur when companies no longer possess the required size (free float market
capitalization) or liquidity (order book volume), which may arise due to large issues (e.g., major changes in the free
float or a steep price drop) and should be taken into consideration promptly in the index.
The selection of companies in the DAX® Index (Price Return) is based on the quantitative criteria of free float
market capitalization and order book volume. The currently valid ranking list always forms the basis for the
application of the rules outlined below. The four rules are applied successively.
Fast Exit: a company is replaced if it has a worse rank than the “candidate rank” in one of the two criteria
of free float market capitalization or order book volume (e.g., greater than 45 in the free float market
capitalization criterion or greater than 45 in the order book volume criterion in the DAX® Index (Price
Return) ranks). It is replaced by the company with the highest free float market capitalization that has the
corresponding ranking positions for both criteria in the “alternate candidate rank.” If there are no
companies that meet these conditions, the successor is determined by relaxing the order book volume
criterion twice gradually, each time by five ranks (e.g., 35/40 then 35/45 in the DAX® Index (Price Return)
ranks). If there is still no company that meets the criteria, the company with the highest free float market
capitalization is determined as the successor.
Fast Entry: a company is included if it has the same or better rank than the “candidate rank” in both the free
float market capitalization and order book volume criteria (e.g., smaller than or equal to rank 25 for the free
float market capitalization criterion and smaller than or equal to rank 25 in the order book volume criterion
in the DAX® Index (Price Return) ranks). The company with the lowest free float market capitalization
that is ranked worse than the “alternate candidate rank” in one of the criteria is excluded (e.g., greater than
35 in one of the two criteria in the DAX® Index (Price Return) ranks). If there are no companies in the
selection index that meet these criteria, the company with the lowest free float market capitalization is
removed from the selection index.
59
Regular Exit: a company may be replaced if it has a worse rank than the “candidate rank” in one of the two
criteria of free float market capitalization or order book volume (for example, greater than 40 in the free
float market capitalization criterion or greater than 40 in the order book volume criterion in the DAX®
Index (Price Return) ranks). It may be replaced by the company with the highest free float market
capitalization that has the corresponding ranking positions for both criteria in the “alternate candidate
rank.” If no successor can be determined, no change takes place.
Regular Entry: a company may be included if it has the same or better rank than the “candidate rank” in
both the free float market capitalization and order book volume criteria (e.g., a smaller than or equal to rank
30 for the free float market capitalization criterion and smaller than or equal to rank 30 in the order book
volume criterion in the DAX®
Index (Price Return) ranks). The company with the lowest free float market
capitalization that is ranked worse than the “alternate candidate rank” in one of the criteria may be excluded
(e.g., greater than 35 in one of the two criteria in the DAX® Index (Price Return) ranks). If no alternate
candidate can be determined, no exchange takes place.
In principle, the following applies to all four rules: If several companies fulfill the criteria, the best/ worst
candidate in terms of free float market capitalization is included/replaced.
In exceptional cases, for example, takeovers announced at short notice or significant changes in the free float,
Deutsche Börse AG may deviate from rules 1-4 mentioned above. The Committee can be consulted as an advisory
council. Furthermore, Deutsche Börse AG may also decide to undertake a market consultation.
Decisions regarding changes to the composition of the Index are published after 10 p.m. CET on the third
trading day in March, June, September and December in a press release and online at http://www.dax-indices.com
Actions in Case of Shortfalls or Surpluses
It may be the case that there is a shortfall in the DAX® Index (Price Return) during the index review. This may
occur when a company no longer meets the basic criteria. An example would be a company publicly announcing
the discontinuation of the Prime Standard listing. Remaining in the DAX® Index (Price Return) is, therefore, no
longer justified, however this will only take effect in the next regular review. In this case, the company would be
removed during the regular review before the application of the four rules above. Consequently there would be a
shortfall in the selection index.
If a shortfall exists in the DAX® Index (Price Return), this shortfall is treated as a Fast Exit. Consequently, the
Fast Exit rule of the DAX® Index (Price Return) is applied. In this case, the company which caused the shortfall is
considered the Fast Exit candidate. A company that, in turn, could be accepted into the DAX® Index (Price Return)
is found using the Fast Exit rule.
The DAX® Index (Price Return) is restored to the fixed number of companies before the four rules are applied
(Fast Exit, Fast Entry, Regular Exit, Regular Entry). The aim of this is to ensure that the DAX® Index (Price
Return) contains the designated number of companies before the review of the DAX® Index (Price Return) is
performed.
Extraordinary Index Review
Notwithstanding the rules on ordinary adjustment, extraordinary changes to the composition must be made if
the events described below take place. A successor is selected based on the currently applicable, i.e., most recently
published ranking list and the rules for an ordinary adjustment. The changes in principle take place after the
announcement with a notice period of two trading days.
Insolvency of Companies
Companies for which insolvency proceedings are not initiated for lack of assets, or which are currently in
liquidation, are immediately removed from the DAX® Index (Price Return).
60
In contrast, companies that have filed an application for the opening of insolvency proceedings are only
removed from the DAX® Index (Price Return) in the course of the next quarterly review of the index
composition. This also holds true once the insolvency proceedings begin.
Breach of the Basis Criteria
Companies no longer meeting the basis criteria necessary in order to remain in the Index (e.g., regarding
the minimum free float, an Entry, General or Prime Standard listing or continuous trading) are removed
from the DAX® Index (Price Return) as Deutsche Börse becomes aware of this. This is done based on the
“fast exit” rule. Deutsche Börse communicates this decision and replaces the relevant company, usually
two full trading days after the announcement. In justified cases (e.g., in the event of the inclusion of the
successor company in the DAX® Index (Price Return)), the replacement can be delayed by up to ten trading
days. Where non-compliance with these rules on a future date is already certain, the relevant company may
be replaced as early as on the next chaining date.
Companies that no longer meet the additional requirements for foreign companies will not be immediately
removed from the DAX® Index (Price Return), but will be reviewed during the next quarterly review.
Breach of the Volatility Criteria
A company can be removed immediately if its DAX® Index (Price Return) weight based on its current free
float market capitalization exceeds 10 % and its annualized 30-day volatility exceeds 250%. The relevant
figures are published by Deutsche Börse on a daily basis.
Conversion of Preferred Shares into Ordinary Shares
If the ordinary shares are already included in the DAX® Index (Price Return), then no chaining is carried
out. The number or shares remains unchanged until the next chaining date.
If preferred shares are already included in the DAX® Index (Price Return), then the ordinary shares are
included in the DAX® Index (Price Return), taking the place of the preferred shares. The number of
ordinary shares and the free float factor are adopted from the class of the preferred shares, and are subject
to adjustment only on the next regular chaining date. If the conversion occurs in the ratio 1:1, no further
amendments will be carried out. In all other cases, the mathematical price difference will be balanced by
the Ci factor described under “Index Calculation” below.
Extraordinary Free Float Adjustments
If the free float factor of a company included in the DAX® Index (Price Return) changes by more than 10
percentage points during the period between two regular chaining dates due to a corporate measure (e.g.,
subscription right or changes in share capital), the free float factor will be updated extraordinarily.
Deutsche Börse will announce the new free float factor at least two trading days before the change becomes
effective.
Free float adjustments resulting from ongoing acquisitions (acquisitions as defined by the WpÜG) will be
made extraordinarily in the DAX® Index (Price Return) after the initial announcement and the final
announcement at the end of the offer period. Index changes will be announced two trading days before the
change becomes effective. Shares held in fixed ownership will remain unchanged until further information,
i.e., according to the WpHG or other official sources, is available.
The extraordinary adjustment in each case will be carried out as described above, with the only difference
that the index composition will not be changed and only the free float factor of the affected company will
be updated.
Adjustments in the Case of Mergers and Acquisitions
Two possible scenarios may occur in this context:
61
If the absorbing or emerging company meets the basis criteria for inclusion in the DAX® Index
(Price Return), then as soon as the free float of the absorbed company falls below 10%, the
company is removed from the DAX® Index (Price Return). The absorbed company is replaced by
the absorbing or emerging company on the same date.
If the absorbing company is already included in the DAX® Index (Price Return) or does not meet
the basis criteria for inclusion in the DAX® Index (Price Return), then as soon as the free float of
the absorbed company falls below 10%, the company is removed from the DAX® Index (Price
Return). On the same date, the absorbed company is replaced by a new company.
Conversion into Tendered Shares
The conversion of tendered shares is subject to the following process during the period between the first offer
and the closing of the transaction:
If the company being taken over is a component in the DAX® Index (Price Return), the company’s
shares in the DAX® Index (Price Return) will be replaced by the tendered shares without chaining
if the acceptance rate is at least 50% (according to section 23 WpUG). The number of shares and
the free float factor are assumed by the replaced shares and modified during the next regular
chaining. A requirement for this replacement is that the tendered shares fulfill the basis criteria to
remain in the DAX® Index (Price Return) and the new or acquiring company is not included in the
DAX® Index (Price Return).
In the event that the transaction is reversed, the tendered shares will be removed from the DAX®
Index (Price Return) and reverted into the company’s original shares in the DAX® Index (Price
Return).
Index Calculation
The Index is weighted by market capitalization; however, only freely available and tradable shares (“free float”)
are taken into account. The Index is a price index, which measures the actual price performance and is only adjusted
for income from subscription rights and special distributions.
The Index Formula
The Index is conceived according to the Laspeyres formula set out below:
𝐼𝑛𝑑𝑒𝑥𝑡 = 𝐾𝑡 ×∑ 𝑝𝑖𝑡 × 𝑓𝑓𝑖𝑇 × 𝑞𝑖𝑇 × 𝑐𝑖𝑡
∑ 𝑝𝑖0 × 𝑞𝑖0
× 𝐵𝑎𝑠𝑒
whereby:
cit = Adjustment factor of company i at time t
ffiT = Free float factor of share class i at time T
n = Number of shares in the Index
pi0 = Closing price of share i on the trading day before the first inclusion in the Index
piT = Price of share i at time t
qi0 = Number of shares of company i on the trading day before the first inclusion in the Index
qiT = Number of shares of company i at time T
62
t = Calculation time of the Index
KT = The Index chaining factor valid as of chaining date T
T = Date of the last chaining
The formula set out below is equivalent in analytic terms, but designed to achieve relative weighting:
Indext = Kt
∑ =1ni p
it(KT
ffiT
qiT
∑ =1 ni q
i0
100 Cit)
∑ =1ni p
i0
qi0
∑ =1 qi0
ni
100 Base =
∑ =1 pit Fi
ni
A Base
whereby: A = ∑ =1n
i pi0 qi0 100
∑ =1ni qi0
and: Fi = Kt ffiT qiT
∑ =1ni qi0
100 cit
The Index calculation can be reproduced in simplified terms by using the expression Fi:
Multiply the current price by the respective Fi weighting factor;
Take the sum of these products; and
Divide this by the base value (A) which remains constant until a modification in the Index composition
occurs.
The Fi factors provide information on the number of shares required from each company to track the underlying
Index portfolio.
Calculation Frequency
Index calculation is performed on every trading day of FWB® Frankfurt Stock Exchange, using prices traded on
Deutsche Börse’s electronic trading system Xetra®, whereby the last determined prices are used. The Index is
calculated once a day, at the close of trading. The Index is distributed as soon as current prices are available for all
companies included in the Index (but no later than 9:06 a.m.). If no opening prices for individual companies are
available, the respective closing prices of the previous day are used instead to calculate the Index.
In the event of a suspension during trading hours, the last price determined before such a suspension is used for
all subsequent computations. If such suspension occurs before the start of trading, the closing price of the previous
day is taken instead. The “official” closing index level is calculated using the respective closing prices (or last
prices) established on Xetra®.
Adjustments and Corrections
The Index is only adjusted for income from subscription rights and special distributions.
The working committee of Deutsche Börse reserves the right to correct any incorrect index values with
immediate effect after becoming aware of such incorrect index values. A historical correction is usually applied as
of the start of the calculation of the current business day. Deutsche Börse will inform the general public of any such
corrections immediately.
63
BACKGROUND ON THE FTSE® 100 INDEX
All information in this index supplement regarding the FTSE® 100 Index, including, without limitation, its
make-up, method of calculation and changes in its components, has been derived from publicly available
information, without independent verification. This information reflects the policies of, and is subject to change by,
FTSE International Limited (“FTSE”). FTSE has no obligation to continue to publish, and may discontinue
publication of, the FTSE® 100 Index.
The FTSE® 100 Index is reported by Bloomberg L.P. under the ticker symbol “UKX.”
The FTSE®100 Index is an index calculated, published and disseminated by FTSE Russell, a company owned
wholly by London Stock Exchange Group plc (the “LSEG”). The FTSE® 100 Index measures the composite price
performance of stocks of the largest 100 companies (determined on the basis of market capitalization) traded on the
London Stock Exchange (the “LSE”). Publication of the FTSE® 100 Index began in January 1984.
Composition of the FTSE® 100 Index
The 100 stocks included in the FTSE® 100 Index (the “FTSE Underlying Stocks”) were selected from a
reference group of stocks trading on the LSE that were selected by excluding certain stocks that have low liquidity
based on public float, accuracy and reliability of prices, size and number of trading days. The FTSE Underlying
Stocks were selected from this reference group by selecting 100 stocks with the largest market value. Where there
are multiple lines of equity capital in a company, all are included and priced separately, provided that the secondary
line’s full market capitalization (i.e. before the application of any investability weightings), is greater than 25% of
the full market capitalization of the company’s principal line and the secondary line satisfies the eligibility rules and
screens in its own right in all respects. A list of the issuers of the FTSE Underlying Stocks is available from FTSE
Russell.
The FTSE® 100 Index is overseen and reviewed quarterly by the FTSE Russell Europe, Middle East & Africa
Regional Equity Advisory Committee (the “Index Steering Committee”) in order to maintain continuity in the
level. The Index Steering Committee undertakes the reviews of the FTSE® 100 Index and ensures that constituent
changes and index calculations are made in accordance with the ground rules of the FTSE® 100 Index. The
meetings to review the constituents are held on the Wednesday before the first Friday in March, June, September
and December. Each review is based on data from the close of business on the Tuesday before the first Friday of the
review month. Any constituent changes are implemented after the close of business on the third Friday of the
review month (i.e. effective Monday), following the expiry of the ICE Futures Europe futures and options contracts.
The FTSE Underlying Stocks may be replaced, if necessary, in accordance with deletion/addition rules that
provide generally for the removal and replacement of a stock from the FTSE® 100 Index if such stock is delisted or
its issuer is subject to a takeover offer that has been declared unconditional or it has ceased, in the opinion of the
Index Steering Committee, to be a viable component of the FTSE® 100 Index. To maintain continuity, a stock will
be added at the quarterly review if it has risen to 90th place or above and a stock will be deleted if at the quarterly
review it has fallen to 111th place or below, in each case ranked on the basis of market capitalization. A constant
number of constituents will be maintained for the FTSE® 100 Index. Where a greater number of companies qualify
to be inserted in the index than those qualifying to be deleted, the lowest ranking constituents presently included in
the index will be deleted to ensure that an equal number of companies are inserted and deleted at the periodic
review. Likewise, where a greater number of companies qualify to be deleted than those qualifying to be inserted,
the securities of the highest ranking companies which are presently not included in the index will be inserted to
match the number of companies being deleted at the periodic review.
Companies that are large enough to be constituents of the FTSE® 100 Index but do not pass the liquidity test are
excluded. At the next annual review, the companies are re-tested against all eligibility screens.
Calculation of the FTSE® 100 Index
The FTSE® 100 Index is calculated by (i) multiplying the per share price of each stock included in the FTSE
®
100 Index by the number of outstanding shares, (ii) calculating the sum of all these products (such sum being
hereinafter the “FTSE Aggregate Market Value”) as of the starting date of the FTSE® 100 Index, (iii) dividing the
64
FTSE Aggregate Market Value by a divisor which represents the FTSE Aggregate Market Value on the base date of
the FTSE® 100 Index and which can be adjusted to allow changes in the issued share capital of individual
underlying stocks including the deletion and addition of stocks, the substitution of stocks, stock dividends and stock
splits to be made without distorting the FTSE® 100 Index and (iv) multiplying the result by 1,000. Because of such
capitalization weighting, movements in share prices of companies with relatively larger market capitalization will
have a greater effect on the level of the entire FTSE® 100 Index than will movements in share prices of companies
with relatively smaller market capitalization.
65
BACKGROUND ON THE NASDAQ-100 INDEX®
All information contained in this index supplement regarding the Nasdaq-100 Index®, including, without
limitation, its make-up, method of calculation and changes in its components, has been derived from publicly
available information, without independent verification. This information reflects the policies of, and is subject to
change by, The Nasdaq Stock Market, Inc. (“Nasdaq”). The Nasdaq-100 Index®
was developed by Nasdaq and is
calculated, maintained and published by The NASDAQ OMX Group, Inc. (“NASDAQ OMX”). Neither Nasdaq
nor NASDAQ OMX has any obligation to continue to publish, and may discontinue publication of, the Nasdaq-100
Index®.
The Nasdaq-100 Index® is reported by Bloomberg L.P. under the ticker symbol “NDX.”
The Nasdaq-100 Index®
is a modified market capitalization-weighted index of stocks of the 100 largest non-
financial companies listed on The NASDAQ Stock Market. The Nasdaq-100 Index®, which includes companies
across a variety of major industry groups, was launched on January 31, 1985, with a base index value of 125.00, as
adjusted. Current information regarding the market value of the Nasdaq-100 Index®
is available from Nasdaq as
well as numerous market information services.
The Nasdaq-100 Index®
share weights of the component securities of the Nasdaq-100 Index®
at any time are
based upon the total shares outstanding in each of those securities and are additionally subject, in certain cases, to
rebalancing. Accordingly, each underlying stock’s influence on the level of the Nasdaq- 100 Index®
is directly
proportional to the value of its Nasdaq-100 Index®
share weight.
Calculation of the Nasdaq-100 Index®
At any moment in time, the value of the Nasdaq-100 Index®
equals the aggregate value of the then-current
Nasdaq-100 Index®
share weights of each of the Nasdaq-100 Index®
component securities, which are based on the
total shares outstanding of each such Nasdaq-100 Index®
component security, multiplied by each such security’s
respective last sale price on The NASDAQ Stock Market (which may be the official closing price published by The
NASDAQ Stock Market), and divided by a scaling factor (the “divisor”), which becomes the basis for the reported
Nasdaq-100 Index®
value. The divisor serves the purpose of scaling such aggregate value to a lower order of
magnitude which is more desirable for Nasdaq-100 Index®
reporting purposes.
Underlying Stock Eligibility Criteria
Initial Eligibility Criteria
To be eligible for initial inclusion in the Nasdaq-100 Index®, a security must meet the following criteria:
the issuer of the security’s U.S. listing must be exclusively on the NASDAQ Global Select Market or
the NASDAQ Global Market (unless the security was dually listed on another U.S. market prior to
January 1, 2004 and has continuously maintained such listing);
a security must be issued by a non-financial company;
a security may not be issued by an issuer currently in bankruptcy proceedings;
a security must have an average daily trading volume of at least 200,000 shares (measured annually
during the ranking review process described below);
if the issuer of the security is organized under the laws of a jurisdiction outside the United States, then
that security must have listed options on a recognized options market in the United States or be eligible
for listed-options trading on a recognized options market in the United States (measured annually
during the ranking review process);
the issuer of the security may not have entered into a definitive agreement or other arrangement which
would likely result in the security no longer being Nasdaq-100 Index® eligible;
66
the issuer of the security may not have annual financial statements with an audit opinion that is
currently withdrawn; and
the security must have “seasoned” on the NASDAQ, NYSE or NYSE MKT. Generally, a company is
considered to be seasoned if it has been listed on a market for at least three full months (excluding the
first month of initial listing).
Continued Eligibility Criteria
In addition, to be eligible for continued inclusion in the Nasdaq-100 Index®, the security must meet the
following criteria:
the issuer of the security’s primary U.S. listing must be exclusively listed on the NASDAQ Global
Select Market or the NASDAQ Global Market;
the security must be issued by a non-financial company;
the security may not be issued by an issuer currently in bankruptcy proceedings;
the security must have an average daily trading volume of at least 200,000 shares in the previous three
month trading period (measured annually during the ranking review process);
if the issuer of the security is organized under the laws of a jurisdiction outside the United States, then
that security must have listed options on a recognized options market in the United States or be eligible
for listed-options trading on a recognized options market in the United States;
the issuer must have an adjusted market capitalization equal to or exceeding 0.10% of the aggregate
adjusted market capitalization of the Nasdaq-100 Index®
at each month-end. In the event a company
does not meet this criterion for two consecutive month-ends, it will be removed from the Nasdaq-100
Index®
effective after the close of trading on the third Friday of the following month; and
the issuer of the security may not have annual financial statements with an audit opinion that is
currently withdrawn.
For the purposes of Nasdaq-100 Index®
eligibility criteria, if the security is a depositary receipt representing a
security of a non-U.S. issuer, then references to the “issuer” are references to the issuer of the underlying security.
These Nasdaq-100 Index®
eligibility criteria may be revised from time to time by Nasdaq without regard to
instruments linked to the Index.
Annual Ranking Review
The composition of the Nasdaq-100 Index®
is evaluated on an annual basis, except under extraordinary
circumstances that may result in an interim evaluation, as follows (this evaluation is referred to herein as the
“Ranking Review”). Securities listed on The NASDAQ Stock Market that meet the applicable eligibility criteria
are ranked by market value. Nasdaq-100 Index®
-eligible securities that are already in the Nasdaq-100 Index®
and
whose issuer is ranked in the top 100 eligible companies (based on market capitalization) are retained in the Nasdaq-
100 Index®. A Nasdaq-100
® Index issuer that is ranked 101 to 125 is also retained, provided that such issuer was
ranked in the top 100 eligible issuers as of the previous Ranking Review or was added to the Nasdaq-100 Index®
subsequent to the previous Ranking Review. Nasdaq-100 Index® issuers not meeting such criteria are replaced. The
replacement securities chosen are those Nasdaq-100 Index®
-eligible securities not currently in the Nasdaq-100
Index® whose issuers have the largest market capitalization. The data used in the ranking includes end of October
market data and is updated for total shares outstanding submitted in a publicly filed SEC document via EDGAR
through the end of November.
Generally, the list of annual additions and deletions as a result of the annual evaluation is publicly announced
via a press release in the early part of December. Replacements are made effective after the close of trading on the
67
third Friday in December. Moreover, if at any time during the year other than the Ranking Review, a Nasdaq-100
Index®
issuer no longer meets the continued eligibility criteria or is otherwise determined by Nasdaq to become
ineligible for continued inclusion in the Nasdaq-100 Index®, the issuer security will be replaced with the largest
market capitalization security not currently in the Nasdaq-100 Index®
and meeting the Nasdaq-100 Index®
initial
eligibility criteria listed above. Ordinarily, a security will be removed from the Nasdaq-100 Index® at its last sale
price. If, however, at the time of its removal the security is halted from trading on its primary listing market and an
official closing price cannot readily be determined, the security may, in Nasdaq’s discretion, be removed at a zero
price. The zero price will be applied to the security after the close of the market but prior to the time the official
closing value of the Nasdaq-100 Index® is disseminated, which is ordinarily 5:16:00 p.m. EST.
Index Maintenance
Changes in the price and/or the aggregate value of the then-current Nasdaq-100 Index® share weights of each of
the Nasdaq-100 Index® component securities driven by corporate events such as stock dividends, stock splits and
certain spin-offs and rights issuances are adjusted on the ex-date. If the change in total shares outstanding arising
from other corporate actions is greater than or equal to 10.0%, the change will be made to the Nasdaq-100 Index®
as
soon as practicable. Otherwise, if the change in total shares outstanding is less than 10.0%, then all such changes
are accumulated and made effective at one time on a quarterly basis after the close of trading on the third Friday in
each of March, June, September and December. The Nasdaq-100 Index®
share weights for those underlying stocks
are derived from each security’s total shares outstanding. The Nasdaq-100 Index®
share weights for those
underlying stocks are adjusted by the same percentage amount by which the total shares outstanding have changed
in those Nasdaq-100 Index® securities.
The price of the component security is adjusted for the amount of the special cash dividend. A dividend is
considered special if the information provided by the listing exchange in their announcement of the ex-date indicates
that the dividend is special. A special dividend may also be referred to as extra, extraordinary, non-recurring, one-
time, unusual, etc.
Index Rebalancing
On a quarterly basis coinciding with the quarterly scheduled Index Share adjustment procedures, the Nasdaq-
100 Index®
will be rebalanced if it is determined that: (1) the current weight of the single largest market
capitalization component security is greater than 24.0% and (2) the “collective weight” of those component
securities whose individual current weights are in excess of 4.5%, when added together, exceed 48.0% of the
Nasdaq-100 Index®. In addition, a special rebalancing of the Nasdaq-100 Index
® may be conducted at any time if it
is determined necessary to maintain the integrity of the Nasdaq-100 Index®.
If either one or both of these weight distribution requirements are met upon quarterly review or it is determined
that a special rebalancing is required, a weight rebalancing will be performed.
First, relating to weight distribution requirement (1) above, if the current weight of the single largest
component security exceeds 24.0%, then the weights of all Large Stocks (those greater than 1%) will be scaled
down proportionately towards 1.0% by enough for the adjusted weight of the single largest component security to be
set to 20.0%.
Second, relating to weight distribution requirement (2) above, for those component securities whose individual
current weights or adjusted weights in accordance with the preceding step are in excess of 4.5%, if their “collective
weight” exceeds 48.0%, then the weights of all Large Stocks will be scaled down proportionately towards 1.0% by
just enough for the “collective weight,” so adjusted, to be set to 40.0%.
The aggregate weight reduction among the Large Stocks resulting from either or both of the above rescaling
will then be redistributed to the Small Stocks (those stocks less than or equal to 1%) in the following iterative
manner.
In the first iteration, the weight of the largest Small Stock will be scaled upwards by a factor which sets it equal
to the average Index weight of 1.0%. The weights of each of the smaller remaining Small Stocks will be scaled up
by the same factor reduced in relation to each stock’s relative ranking among the Small Stocks such that the smaller
68
the component security in the ranking, the less the scale-up of its weight. This is intended to reduce the market
impact of the weight rebalancing on the smallest component securities in the Nasdaq-100 Index®.
In the second iteration, the weight of the second largest Small Stock, already adjusted in the first iteration, will
be scaled upwards by a factor which sets it equal to the average index weight of 1.0%. The weights of each of the
smaller remaining Small Stocks will be scaled up by this same factor reduced in relation to each stock’s relative
ranking among the Small Stocks such that, once again, the smaller the stock in the ranking, the less the scale-up of
its weight.
Additional iterations will be performed until the accumulated increase in weight among the Small Stocks
exactly equals the aggregate weight reduction among the Large Stocks from rebalancing in accordance with weight
distribution requirement (1) and/or weight distribution requirement (2).
Then, to complete the rebalancing procedure, once the final percent weights of each of the component securities
are set, the Nasdaq-100 Index® share weights will be determined anew based upon the last sale prices and aggregate
capitalization of the Nasdaq-100 Index® at the close of trading on the last day in February, May, August and
November. Changes to the Nasdaq-100 Index® share weights will be made effective after the close of trading on the
third Friday in March, June, September and December and an adjustment to the Nasdaq-100 Index® divisor will be
made to ensure continuity of the Nasdaq-100 Index®.
Ordinarily, new rebalanced weights will be determined by applying the above procedures to the current Nasdaq-
100 Index® share weights. However, NASDAQ OMX may from time to time determine rebalanced weights, if
necessary, by applying the above procedure to the actual current market capitalization of the component securities.
In such instances, NASDAQ OMX would announce the different basis for rebalancing prior to its implementation.
During at the quarterly rebalancing, data is cutoff as of the previous month-end and no changes are made to the
Nasdaq-100 Index® from that cutoff until the quarterly share change effective date with the single exception for
corporate actions with an ex-date. NASDAQ OMX may, from time to time, exercise reasonable discretion as it
deems appropriate in order to ensure the integrity of the Nasdaq-100 Index®.
69
BACKGROUND ON THE RUSSELL 2000® INDEX
All information contained in this index supplement regarding the Russell 2000® Index (a “Russell Index”),
including, without limitation, its make-up, method of calculation and changes in its components, has been derived
from publicly available information, without independent verification. This information reflects the policies of, and
is subject to change by, FTSE Russell, a company wholly owned by London Stock Exchange Group plc (the
“LSEG”). The Russell Indices were developed by Russell Investment Group and are calculated, maintained and
published by FTSE Russell. FTSE Russell has no obligation to publish, and may discontinue the publication of, the
Russell Indices.
The Russell 2000® Index measures the capitalization-weighted price performance of the small-capitalization
stocks included in the Russell 2000® Index (the “Component Stocks”) and is designed to track the performance of
the small-capitalization segment of the U.S. equity market. All stocks included in the Russell 2000® Index are
traded on an eligible U.S. exchange, as described above. The companies included in the Russell 2000® Index are the
middle 2,000 of the companies that form the Russell 3000E™ Index, which is composed of the 4,000 largest U.S.
companies as determined by total market capitalization and represents approximately 99% of the U.S. equity market.
The Russell 2000® Index is reported by Bloomberg L.P. under the ticker symbol “RTY.”
Selection of Stocks Underlying the Russell Indices
The Russell Indices are sub-indices of the Russell 3000E™ Index. To be eligible for inclusion in the Russell
3000E™ Index and, consequently, a Russell Index, a company’s stock must be listed on the last trading day in May
of a given year, and FTSE Russell must have access to documentation on that date verifying the company’s
eligibility for inclusion. Eligible initial public offerings (“IPOs”) are added to Russell Indices at the end of each
calendar quarter, based on total market capitalization rankings within the market-adjusted capitalization breaks
established during the most recent reconstitution. To be added to any Russell Index during a quarter outside of
reconstitution, IPOs must meet all eligibility criteria, and as of the most recent reconstitution, must (i) be priced and
traded and (ii) rank larger in total market capitalization than the market-adjusted smallest company in the Russell
3000E™ Index as of the latest June reconstitution. A one-month window will be used to ensure that companies
submitting the requisite filings just outside of the quarter are not excluded from eligibility.
U.S. companies are eligible for inclusion in the Russell 3000E™ Index and, consequently, any Russell Index.
FTSE Russell uses the following method for determining whether a company is a U.S. company. If a company
incorporates in, has a stated headquarters location in and also trades in the same country (ADRs and ADSs are not
eligible), the company is assigned to its country of incorporation. If any of the three do not match, FTSE Russell
then defines three Home Country Indicators (“HCIs”). The HCIs are as follows:
country of incorporation;
country of headquarters; and
country of the most liquid exchange as defined by two-year average daily dollar trading volume from all
exchanges within a country.
After the HCIs are defined, the next step in the country assignment involves an analysis of assets by location.
FTSE Russell cross-compares the primary location of the company’s assets with the three HCIs. If the primary
location of assets matches any of the HCIs, then the company is assigned to its primary asset location.
If there is not enough information to determine a company’s primary country of assets, FTSE Russell uses the
primary location of the company’s revenue for the same cross-comparison and assigns the company to the
appropriate country in a similar fashion. FTSE Russell uses an average of two years of assets or revenue data for
analysis to reduce potential turnover.
If conclusive country details cannot be derived from assets or revenue, FTSE Russell assigns the company to
the country where its headquarters are located unless the country is a Benefit Driven Incorporation (“BDI”) country.
If the country in which its headquarters are located is a BDI country, the company is assigned to the country of its
most liquid stock exchange. The BDI countries are Anguilla, Antigua and Barbuda, Aruba, Bahamas, Barbados,
70
Belize, Bermuda, Bonaire, British Virgin Islands, Cayman Islands, Channel Islands, Cook Islands, Curacao, Faroe
Islands, Gibraltar, Guernsey, Isle of Man, Jersey, Liberia, Marshall Islands, Panama, Saba, Sint Eustatius, Sint
Maarten and Turks and Caicos Islands.
The following securities are specifically excluded from the Russell Indices: (i) stocks that are not traded on an
eligible U.S. exchange (Bulletin Board, Pink Sheet and over-the-counter (“OTC”) securities are not eligible,
including securities for which prices are displayed on the FINRA Alternative Display Facility); (ii) preferred stock,
convertible preferred stock, redeemable shares, participating preferred stock, warrants, rights, installment receipts
and trust receipts; and (iii) securities issued by royalty trusts, limited liability companies, closed-end investment
companies (due to SEC treatment of reporting, business development companies are no longer eligible as of the June
2014 annual reconstitution), blank-check companies, special purpose acquisition companies, limited partnerships,
exchange-traded funds and mutual funds.
The primary criterion used to determine the initial list of securities eligible for the Russell 3000E™ Index and,
consequently, any Russell Index, is total market capitalization, which is defined as the total number of outstanding
shares times the closing price of the shares as of the last trading day in May for those securities being considered at
annual reconstitution. An IPO’s eligibility is determined each quarter. Common stock, non-restricted exchangeable
shares and partnership units/membership interests (in certain cases) are used to calculate a company’s total market
capitalization. Exchangeable shares are shares that may be exchanged at any time, at the holder’s option, on a one-
for-one basis for common stock. Partnership units/membership interests represent an economic interest in a limited
partnership or limited liability company. FTSE Russell includes partnership units/membership interests as part of
total market capitalization when the company in question is a holding company whose sole asset is its partnership
units/membership interests in an underlying entity. In these cases, total market capitalization will be calculated
based on 100% of the value of all partnership units/membership interests. Any other form of shares — such as
preferred or convertible preferred stock, redeemable shares, participating preferred stock, warrants and rights or trust
receipts — is excluded from the calculation. If multiple share classes of common stock exist, they are combined. In
cases where the common stock share classes act independently of each other (e.g., tracking stocks), each class is
considered for inclusion separately.
During annual reconstitution, a stock’s closing price on its primary exchange on the last trading day in May
(typically, but a confirmed timetable is announced each spring) is used to determine total market capitalization. If
an eligible company trades under multiple share classes, FTSE Russell will review each share class independently
for inclusion in the Russell 3000E™ Index, and consequently, any Russell Index. Share classes in addition to the
primary share class that meet minimum size, liquidity and float requirements will also be eligible. Those share
classes must have a total market capitalization larger than that of the smallest company currently included in the
Russell 3000E™ Index, must have an average daily dollar trading value in excess of the median average daily dollar
trading value of all stocks eligible for inclusion in the Russell 3000E™ Index and must have greater float than 5% of
shares available in the marketplace. If the additional share class does not meet the requirements, the shares will be
aggregated with the primary share class to maintain a representative index weight for the company. For
reconstitution ranking purposes, all share classes for a company, including unlisted shares, will be aggregated and
total market capitalization will be based on the primary share class’s closing price. Rank will be determined based
on cumulative market capitalization. As of the 2016 annual reconstruction, share classes not qualifying for
eligibility independently will not be aggregated with the primary share class within the available shares calculation.
For companies with multiple share classes, the primary share class will be designated as the share class with the
highest two-year trading volume as of the last trading day in May. In the absence of two years’ worth of data, all
available data will be used in the determination. If the difference between trading volumes for each share class is
less than 20%, the share class with the most available shares outstanding will be used as the primary share class. At
least 100-day trading volume is necessary to consider the class as a primary share class for existing members. New
members will be analyzed on all available data, even if that data is for less than 100 days. If applicable, shares held
across different share classes will be represented on a mathematically equivalent basis. Growth, value, defensive
and dynamic probabilities will be based on that of the primary share class and assigned consistently across all
additional share classes. Shares of an additional share class distributed through mandatory corporation action to a
company’s existing shareholders or made available via initial public offering will be evaluated for separate
membership in the Russell 3000E™ Index, and consequently, any Russell Index. Index membership of additional
share classes that are added due to corporate actions will mirror that of the primary share class, as will style and
stability probabilities.
71
Once the market capitalization for each security is determined by use of total shares and price as described
above, each security is placed in the appropriate Russell market capitalization-based index. The largest 4,000
securities become members of the Russell 3000E™ Index. If eligible securities total less than 4,000, the Russell
3000E™ will include all eligible securities. Market capitalization breakpoints for the Russell 2000® Index are
determined by the break between the companies #1,001 and #3,000 (based on descending total market
capitalization).
After the initial market capitalization breakpoints are determined by the ranges listed above, new members are
assigned on the basis of the breakpoints and existing members are reviewed to determine if they fall within a
cumulative 5% market cap range around these new market capitalization breakpoints. If an existing member’s
market cap falls within this cumulative 5% of the market capitalization breakpoint, it will remain in its current index
rather than be moved to a different market capitalization-based Russell index. Companies that fall on the edge of
market capitalization breakpoints are often still within the manager’s opportunity set, since they have not
significantly grown or declined in market capitalization. As an exception, there will be no percentile banding at the
bottom of the Russell 3000® Index (stock 3,000) or the Russell 3000E™ Index (stock 4,000).
Set forth below are the steps in calculating percentile ranges:
Sort the Russell 3000E™ Index members in descending order by total market capitalization.
Calculate the total market capitalization of the Russell 3000E™ Index by summing all members’ total
market capitalizations.
Calculate percentiles for each company in the Russell 3000E™ Index by dividing the cumulative market
cap associated with each member by the total market cap of the Russell 3000E™ index.
Calculate a range of five percentiles around the newly determined market cap breakpoints, by subtracting,
and then adding, 2.5% from/to the calculated percentile of the market cap breakpoint.
After membership is determined, a security’s shares are adjusted to include only those shares available to the
public (“free float”). The purpose of this adjustment is to exclude from market calculations the capitalization that is
not available for purchase and is not part of the investable opportunity set. Stocks in the Russell Indices are
weighted by their available (also called float-adjusted) market capitalization, which is calculated by multiplying the
primary closing price by the available shares. Adjustments to shares are reviewed at reconstitution and for major
corporate actions such as mergers. For merger and spin-off transactions that are effective between the last trading
day in May and the Friday prior to annual reconstitution in June, the market capitalizations of the impacted
securities are recalculated and membership is reevaluated as of the effective date of the corporate action. For
corporate events that occur during the final week of reconstitution (during which reconstitution is finalized Friday
after U.S. market close), market capitalizations and memberships will not be reevaluated. Non-index members that
have been considered ineligible as of rank day (the last trading day in May) will not be reevaluated in the event of a
subsequent corporate action that occurs between rank day and the reconstitution effective date.
Companies with only a total market capitalization of less than $30 million are not eligible for inclusion in the
Russell 3000E™ Index or, consequently, any Russell Index.
In addition, companies with only 5% or less of their shares available in the marketplace are not eligible for
inclusion in the Russell 3000E™ Index or, consequently, any Russell Index. When unavailable shares are
determined to be 94.5% or greater, this will be rounded to 95%. Also, stocks must have a closing price at or above
$1.00 on their primary exchange on the last trading day in May to be eligible for inclusion in any Russell Index at
annual reconstitution. In order to reduce unnecessary turnover, if an existing Component Stock’s closing price is
less than $1.00 on its primary exchange on the last trading day in May, it will be considered eligible if the average of
the daily closing prices from its primary exchange during the month of May is equal to or greater than $1.00. If an
existing index member does not trade on the last trading day in May, it must price at $1.00 or above on another
eligible U.S. exchange to remain eligible. A stock added during the quarterly IPOs process is considered a new
index addition and therefore must have a close price on its primary exchange at or above $1.00 on the last day of the
IPO eligibility period in order to qualify for index inclusion.
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Companies that produce unrelated business taxable income (“UBTI”) are restricted from ownership for tax-
exempt investors. In recognition of this, FTSE Russell screens all real estate investment trusts and publicly traded
partnerships, removing any security from eligibility that generates or has historically generated UBTI and has not
taken steps to block UBTI to equity holders. The research process is conducted as part of FTSE Russell’s annual
rebalance effort. Additional screening will not be assessed or changed outside of the reconstitution period.
Information used to confirm UBTI impact includes the following publicly available sources: 10-K, SEC Form S-3,
K-1, company annual report, dividend notices and the company website.
The Russell Indices are reconstituted annually to reflect changes in the marketplace. The list of companies is
ranked based on total market capitalization as of the last trading day in May, with the actual reconstitution occurring
on the last Friday in June each year, except that if the last Friday in June of any year is the 29th or 30th,
reconstitution will occur on the preceding Friday. Changes in the Component Stocks are pre-announced and subject
to change if any corporate activity occurs or if any new information is received prior to release. IPOs are considered
for inclusion on a quarterly basis.
Capitalization Adjustments
The following types of shares are removed from total market capitalization to arrive at free float or
available market capitalization. Adjustments are based on information recorded in SEC corporate filings,
including DEF 14, 424B, and 10K filings, or other reliable sources in the event of missing or questionable
data (but not 13F filings).
Officers’ and directors’ holdings — Shares held by officers and directors are considered unavailable and
removed entirely from available shares. FTSE Russell’s float research process allows removal of
options/warrants/convertibles from the officer and director holdings when those shares are provided in a
summed format within the footnotes. However, if FTSE Russell determines that a company is being
excluded from membership in the Russell 3000E™ Index solely on the basis of the minimum float
requirement, FTSE Russell will use best available information found within SEC filings, filed on or before
the rank day in May;
Large private holdings — Shares held privately will be removed from available shares if they exceed 10%
of shares outstanding. Share percentage is determined by those shares held either by an individual or by a
group of individuals acting together. Private equity and venture capital firms are considered large private
holders;
Institutional holdings — Shares held by investment companies, partnerships, insurance companies, mutual
funds and banks will be removed from available shares if their holding is greater than 30%. If a firm has a
direct relationship to the company, such as board representation, they will be considered strategic and will
be excluded regardless of the size of holding per the officers and directors’ exclusion rule;
Publicly listed companies — Shares held by publicly listed companies will be removed from the available
shares of a member of the Russell 3000E™ Index. Institutional holdings will be considered as available
unless the 30% threshold is surpassed, regardless of listing;
ESOP or LESOP shares — Shares held by an Employee Stock Ownership Plan (“ESOP”) or a Leveraged
Employee Stock Ownership Plan (“LESOP”) are considered unavailable and removed entirely from
available shares;
IPO lock-ups — Shares locked up during an IPO are not available to the public and will be excluded from
available shares at the time the IPO enters the Russell 3000E™ Index;
Government Holdings:
Direct government holders — those holdings listed as “government of” or shares held by
government controlled/affiliated entities are considered unavailable and will be removed entirely
from available shares;
73
Indirect government holders — shares held by government investment boards and/or investment
arms will be treated similarly to large private holdings and removed if the holding is greater than
10%; and
Government pensions — any holding by a government pension plan is considered an institutional
holding and will not be removed from available shares unless the holding is greater than 30%.
Corporate Actions Affecting the Russell Indices
FTSE Russell applies corporate actions to its indices on a daily basis, both to reflect the evolution of securities
and to ensure that the indices remain highly representative of the U.S. equity market. A company’s membership in a
Russell Index and its weight in that index can be impacted by these corporate actions. FTSE Russell uses a variety
of reliable public sources to determine when an action is final, including a company’s press releases and regulatory
filings; local exchange notifications; and official updates from other data providers FTSE Russell deems
trustworthy. Prior to the completion of a corporate action, FTSE Russell estimates the effective date on the basis of
the same above sources. As new information becomes available, FTSE Russell may revise the anticipated effective
date and the terms of the corporate action, before ultimately confirming its effective date. Depending upon the time
an action is determined to be final, FTSE Russell either (1) applies the action before the open on the ex-date or (2)
applies the action providing appropriate notice, referred to as a “delayed action” (see specific action types for details
on timing and procedure). FTSE Russell applies the following methodology guidelines when adjusting the
applicable Russell Index in response to corporate actions:
“No Replacement” Rule — Securities that leave the relevant Russell Index for any reason (e.g., mergers,
acquisitions or other similar corporate activity) are not replaced. Thus, the number of securities in the
relevant Russell Index over a year will fluctuate according to corporate activity.
Mergers and Acquisitions — Mergers and acquisitions (“M&A”) activity may result in changes to index
membership as well as to the shares included in the relevant Russell Index. Adjustment due to M&A
activity are applied to the relevant Russell Index after the action is determined to be final, typically after the
close of the last trade date of the target company, with provision of appropriate notice. In the event that a
Russell Index member is being acquired for cash or delisted subsequent to an index review, it will be
removed from the index concurrent with the index review assuming that the event can be considered “final”
and a minimum of two days’ notice can be provided, e.g., the last trade date of a constituent being acquired
is confirmed for the day following the index review. The Russell Index member will be moved from the
index in conjunction with the index review, assuming that two days’ notice can be provided. To avoid
unnecessary delays, FTSE Russell may consider M&A transactions “final” prior to shareholder approval or
prior to a delisting notice. FTSE Russell will consider prevailing shareholder sentiment, board/director
recommendations, exchange notification, expected completion date and stock price versus offer value when
making this decision.
Acquisition of a Russell Index member for cash — The target company is deleted from the
relevant Russell Index at the last traded price. In the event that trading in the target company has
halted at the time of implementation, it will be deleted from the relevant Russell Index using the
cash terms.
Merger between Russell Index members for stock — The target company is deleted from the
relevant Russell Index and the shares of the acquiring stock are increased, according to the offer
terms. FTSE Russell affects the action after it has considered the transaction as final with the
provision of a minimum two days’ notice. In the absence of an active market for the target
company at the time of index implementation, the target company will be deleted from the
relevant Russell Index using a synthetic price based on the offer terms.
Merger between Russell Index members for cash or stock, or a combination thereof — The target
company is deleted from the relevant Russell Index and the shares of the acquiring company are
simultaneously increased per the election results and the announced number of shares being issued
(adjusted to account for FTSE Russell’s current float factor of the target). If the terms are cash
74
and stock (no option); then the shares of the acquirer will be increased per the offer terms. In the
absence of an active market for the target company at the time of implementation, the target
company will be deleted from the relevant Russell Index using a synthetic price based on the
default offer terms (the consideration an investor will receive for non-election).
Acquisition of a Russell Index member by a non-member — Where the target company has been
acquired by a non-member for shares, or a combination of cash and shares, the acquiring company
will be included in the relevant Russell Index provided it is eligible in all other respects. If the
acquiring company has a different nationality assignment, it will be transferred to the appropriate
country index, with suitable noticed after the listing of the new shares. Only the shares received as
a result of the acquisition will be included in the relevant Russell Index on the effective date; any
shares previously attributed to the non-member will be added subsequently in accordance with the
shares in issue update policy (see Section 5.0). The new company will be added to the index on
the effective date using the offer terms (i.e. last close of the target company multiplied by the offer
terms).
Changes to Shares Outstanding — Changes to shares outstanding due to buybacks (including Dutch
auctions), secondary offerings, and other potential corporate activity are updated at the end of each month.
For FTSE Russell to implement a month-end change to available shares outstanding, the cumulative change
to available shares must be greater than 5%. Share changes that are confirmed by FTSE Russell’s vendors
and verified by FTSE Russell by use of an SEC filing at least six days prior to month end are implemented
and communicated to FTSE Russell’s subscribers five trading days prior to month end. The float factor last
determined (either at reconstitution or due to a corporate action implementation) is applied to the new
shares. If the float factor has been updated since reconstitution due to the implementation of a corporate
action, the updated float factor will be used. If any new shares issued are unavailable according to the
filing, that portion will not be added to the relevant Russell Index.
Changes to available shares outstanding due to merger activity between members of the relevant Russell
Index and non-members will be implemented if the availability of the newly issued shares can be
confirmed within the appropriate filings or press releases. When the new shares are partially available,
FTSE Russell will increase shares per the available amount if the cumulative change to available shares
outstanding is greater than 5%. When the availability of new shares cannot be confirmed with an
appropriate source, FTSE Russell will defer any increase to the next reconstitution, allowing for further
information to be announced. This applies to mergers with both publicly listed and privately held non-
members.
November and December month-end share changes will be processed as one event after the close on the
third Friday of each December along with fourth quarter IPO additions. This date is used rather than
December month end due to low liquidity in the financial markets at year end and the proximity of a
separate November month-end process.
Because annual reconstitution occurs in June, month-end share changes are not scheduled for the month of
June. Residual changes to shares outstanding that are not addressed as part of the annual reconstitution
process are rolled into the following July month-end process.
Spin-offs — If a constituent company is split and forms two or more companies by issuing new equity to
existing shareholders, then the resulting companies may be eligible to continue as constituents in the
Russell 2000® Index. FTSE Russell recognizes two distinct scenarios which will be implemented as
follows:
Spin-off of an Eligible Security: When a spin-off results in an eligible security being listed on an
eligible exchange, the spin-off company will remain in the relevant Russell Index on the ex-date of
the distribution. The spin-off company will be retained until the next annual reconstitution, where
it will be re-ranked or deleted, if evaluated for inclusion. Where the spin-off company has not
commenced trading within 20 business days from the ex-date of the distribution and no firm
trading date has been announced, then it will normally be deleted at zero value with two days’
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notice. The ICB/RGS classifications and Free Float of the spun-off company will initially mirror
that of the parent. Any subsequent required When an index constituent spins off an ineligible
security type or the spin-off company is listed on an ineligible exchange only, the security will be
added to the relevant Russell Index on the ex-date change to either the parent or the spun-off
company will be applied with the appropriate notice period. The free float within the Russell
2000® Index will be evaluated at annual reconstitution.
Spin-off of an Ineligible Security: When an index constituent spins off an ineligible security type
or the spin-off company is listed on an ineligible exchange only, the security will be added to the
relevant Russell Index on the ex-date of the distribution. It will remain in the Russell 2000® Index
for two business days and then deleted at market price. If the ineligible security does not trade on
the ex-date it will remain in the Russell 2000® Index until it commences trading and then deleted
after two business days at market price. Where the spin-off entity has not commenced trading
within 20 business days from the ex-date of the distribution and no firm trading date has been
announced, then it will normally be deleted at zero value with T+2 notice. If when-issued trade
exists prior to the ex-date, the spin-off will not be added and a price adjustment only will be
implemented.
Tender Offers — In the case of a cash tender offer, the target company will normally be removed from the
relevant Russell Index with a minimum two days’ notice when (i) offer acceptances reach 90%,
shareholders have validly tendered, the shares have been irrevocably accepted for payment, all pertinent
offer conditions have been reasonably met and the acquirer has not explicitly stated it does not intend to
acquire the remaining shares, (ii) where the offer acceptances are below 90%, there is reason to believe that
the remaining free float is under 5% based on information available at the time or (iii) following
completion of the offer, the acquirer has stated an intent to finalize the acquisition via a short-form merger,
squeeze-out, top-up option or any other compulsory mechanism.
The target company is deleted from the relevant Russell Index at the last traded price. In the event that
trading in the target company has halted at the time of implementation, it will be deleted from the relevant
Russell Index at a price based on the offer terms. In the event where a company has been deleted from the
relevant Russell Index but retains a listing with a float greater than 5%, it will be considered for index
eligibility as a new issue following a period of 12 months.
Where the conditions for deletion are not met, FTSE Russell may implement a free float change based on
the reported acceptance results at the expiration of the initial, subsequent, or final offer period where (i) the
minimum acceptance level as stipulated by the acquirer has been met, (ii) shareholders have validly
tendered and the shares have been irrevocably accepted for payment and (iii) all pertinent offer conditions
have been reasonably met. A minimum two days’ notice period of the change is generally provided. If the
offer includes a stock consideration, the acquiring company’s shares will be increased proportionate to the
free float change of the target company. The target company will then be deleted as a second step, if the
conditions for deletion are achieved at the expiration of a subsequent offer period.
Voluntary Exchange Offers — A publicly traded company may offer to exchange or split off some or all of
its ownership in a separate publicly traded company. Shareholders are given the option to retain their
shares; or to exchange them, in full or in part, for shares of the “split-off” company. Once the offer expires,
FTSE Russell will decrease the available shares in the offering company, and increase the available shares
of the “split-off” company, based on the results of the offering. FTSE Russell will effect this change based
on, but not limited to, preliminary results, company filings, and exchange notices.
Bankruptcy and Voluntary Liquidations — A company that files for a Chapter 7 liquidation bankruptcy or
that files a liquidation plan will be removed from the relevant Russell Index at the time of filing. When
shareholder approval is required to finalize the liquidation plan, FTSE Russell will remove the security
once shareholder approval has been granted. A company that files for a Chapter 11 reorganization
bankruptcy will remain a member of the relevant Russell Index, unless the company’s stock is delisted
from the primary exchange, in which case normal delisting rules apply. If a company files for bankruptcy,
its stock is delisted, and it can be confirmed that the stock will not trade OTC, FTSE Russell may remove
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the stock at a nominal price of $0.0001. If a price of the company on an ineligible market is available, the
company may be removed using this price.
77
BACKGROUND ON THE S&P 500® INDEX
All information contained in this index supplement regarding the S&P 500®
Index, including, without
limitation, its make-up, method of calculation and changes in its components, has been derived from publicly
available information, without independent verification. This information reflects the policies of, and is subject to
change by, S&P Dow Jones Indices LLC (“S&P Dow Jones”). The S&P 500® Index is calculated, maintained and
published by S&P Dow Jones. S&P Dow Jones has no obligation to continue to publish, and may discontinue the
publication of, the S&P 500® Index.
The S&P 500® Index consists of stocks of 500 companies selected to provide a performance benchmark for the
U.S. equity markets. The S&P 500® Index is reported by Bloomberg L.P. under the ticker symbol “SPX.”
Composition of the S&P 500® Index
Changes to the S&P 500® Index are made as needed, with no annual or semi-annual reconstitution. Constituent
changes are typically announced one to five days before they are scheduled to be implemented.
Effective with the September 2015 rebalance, each class of stock for a company with multiple share classes is
separately evaluated for inclusion, and separately weighted, in the S&P 500® Index. It is possible that one listed
share class may be included in the S&P 500® Index while a second listed share class of the same company is
excluded. Unlisted share classes will not be combined with any other listed share classes, but these unlisted share
classes will be included in the company total market capitalization. For companies that issue a second publicly
traded share class to index share class holders, the newly issued share class will be considered for inclusion if the
event is mandatory and the market capitalization of the distributed class is not considered to be de minimis.
Additions to the S&P 500® Index are evaluated based on the following eligibility criteria:
Market Capitalization. The unadjusted company market capitalization should be within a specified range,
which is currently $5.3 billion or more. This range is reviewed from time to time to assure consistency
with market conditions. The market capitalization of a potential addition to the S&P 500® Index is looked
at in the context of its short- and medium-term historical trends, as well as those of its industry. S&P 500®
Index membership eligibility for a company with multiple share classes is based on the total market
capitalization of the company, including all publicly listed and unlisted share classes, if applicable. For
spin-offs, S&P 500® Index membership eligibility is determined using when-issued prices, if available.
Liquidity. Using composite pricing and volume, the ratio of annual dollar value traded to float-adjusted
market capitalization should be 1.00 or greater, and the stock should trade a minimum of 250,000 shares in
each of the six months leading up to the evaluation date. For companies with multiple share classes, each
listed share class is viewed independently to determine if its meets the liquidity criteria.
Domicile. The company should be a U.S. company, meaning a company that has the following
characteristics:
the company should file 10-K annual reports;
the U.S. portion of fixed assets and revenues should constitute a plurality of the total, but need not
exceed 50%. When these factors are in conflict, assets determine plurality. Revenue determines
plurality when there is incomplete asset information. If this criteria is not met or is ambiguous,
S&P Dow Jones may still deem the company to be a U.S. company for index purposes if its
primary listing, headquarters and incorporation are all in the United States and/or “a domicile of
convenience” (Bermuda, Channel Islands, Gibraltar, islands in the Caribbean, Isle of Man,
Luxembourg, Liberia or Panama);
the primary listing of the common stock is the New York Stock Exchange, NYSE Arca , NYSE
MKT, the NASDAQ Global Select Market, the NASDAQ Select Market, the NASDAQ Capital
Market, Bats BZX, Bats BYX, Bats EDGA or Bats EDGX exchanges. ADRs are not eligible for
inclusion; and
78
the company should have a corporate governance structure consistent with U.S. practice.
In situations where the only factor suggesting that a company is not a U.S. company is its tax registration in
a “domicile of convenience” or another location chosen for tax-related reasons, S&P Dow Jones normally
determines that the company is still a U.S. company. The final determination of domicile eligibility is
made by the S&P Dow Jones’s U.S. index committee, which can consider other factors including, but not
limited to, publicly available ownership information and location of management and employees.
Public Float. There should be a public float of at least 50% of the company’s stock. For companies with
multiple share classes, each share class is evaluated separately. Only those share classes with a public float
of at least 50% are considered for inclusion.
Sector Classification. The company is evaluated for its contribution to sector balance maintenance, as
measured by a comparison of each GICS® sector’s weight in the S&P 500
® Index with its weight in the
S&P Total Market Index (which is a market-capitalization weighted index that includes all eligible
securities described below), in the relevant market capitalization range.
Financial Viability. The sum of the most recent four consecutive quarters’ Generally Accepted Accounting
Principles (GAAP) earnings (net income excluding discontinued operations) should be positive as should
the most recent quarter. For equity real estate investment trusts (REITs), financial viability is based on
GAAP earnings and/or Funds From Operations (FFO), if reported.
Treatment of IPOs. Initial public offerings should be seasoned for six to 12 months before being considered
for addition to the S&P 500® Index.
Eligible Securities. Eligible securities are the common stock of U.S. companies with a primary listing on
one of the following U.S. exchanges: the New York Stock Exchange, NYSE Arca , NYSE MKT, the
NASDAQ Global Select Market, the NASDAQ Select Market, the NASDAQ Capital Market, Bats BZX,
Bats BYX, Bats EDGA or Bats EDGX exchanges. Ineligible exchanges include the OBC bulletin board
and pink sheets. Eligible organizational structures and share types are corporations (including equity and
mortgage REITs) and common stock (i.e., shares). Ineligible organizational structures and share types
include business development companies (BDCs), limited partnerships, master limited partnerships, limited
liability companies (LLCs), closed-end funds, ETFs, ETNs, royalty trusts, preferred and convertible
preferred stock, unit trusts, equity warrants, convertible bonds, investment trusts, rights, ADRs and tracking
stocks.
Removals from the S&P 500® Index are evaluated based as follows:
Companies that are involved in mergers, acquisitions, or significant restructuring such that they no longer
meet inclusion criteria. Companies delisted as a result of merger, acquisition or other corporate action are
removed at a time announced by S&P Dow Jones, normally at the close of the last day of trading or
expiration of a tender offer. Constituents that are halted from trading may be kept in the S&P 500® Index
until trading resumes, at the discretion of S&P Dow Jones. If a stock is moved to the pink sheets or the
bulletin board, the stock is removed.
Companies that substantially violate one or more of the addition criteria. S&P Dow Jones believes
turnover in index membership should be avoided when possible. At times a stock may appear to
temporarily violate one or more of the addition criteria. However, the addition criteria are for addition to
an index, not for continued membership. As a result, an index constituent that appears to violate criteria for
addition to that index is not deleted unless ongoing conditions warrant an index change. When a stock is
removed from an index, S&P Dow Jones explains the basis for the removal.
Calculation of the S&P 500® Index
The S&P 500® Index is a float-adjusted market capitalization-weighted index. On any given day, the index
value of the S&P 500® Index is the total float-adjusted market capitalization of the S&P 500
® Index’s constituents
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divided by its divisor. The float-adjusted market capitalization reflects the price of each stock in the S&P 500®
Index multiplied by the number of shares used in the index value calculation.
Float Adjustment. Float adjustment means that the number of shares outstanding is reduced to exclude closely
held shares from the calculation of the index value because such shares are not available to investors. The goal of
float adjustment is to distinguish between strategic (control) shareholders, whose holdings depend on concerns such
as maintaining control rather than the economic fortunes of the company, and those holders whose investments
depend on the stock’s price and their evaluation of a company’s future prospects. Generally, these “control holders”
include officers and directors, private equity, venture capital & special equity firms, other publicly traded companies
that hold shares for control, strategic partners, holders of restricted shares, employee stock ownership plans,
employee and family trusts, foundations associated with the company, holders of unlisted share classes of stock or
government entities at all levels (other than government retirement/pension funds) and any individual person who
controls a 5% or greater stake in a company as reported in regulatory filings. Shares that are not considered
outstanding are also not included in the available float. These generally include treasury stock, stock options, equity
participation units, warrants, preferred stock, convertible stock and rights.
For each component, S&P Dow Jones calculates an Investable Weight Factor (“IWF”), which represents the
portion of the total shares outstanding that are considered part of the public float for purposes of the S&P 500®
Index.
Divisor. Continuity in index values of the S&P 500® Index is maintained by adjusting its divisor for all changes
in its constituents’ share capital after its base date. This includes additions and deletions to the S&P 500® Index,
rights issues, share buybacks and issuances and non-zero price spin-offs. The value of the S&P 500® Index’s divisor
over time is, in effect, a chronological summary of all changes affecting the base capital of the S&P 500® Index.
The divisor of the S&P 500® Index is adjusted such that the index value of the S&P 500
® Index at an instant just
prior to a change in base capital equals the index value of the S&P 500® Index at an instant immediately following
that change.
Maintenance of the S&P 500® Index
Changes in response to corporate actions and market developments can be made at any time. Constituent
changes are typically announced one to five days before they are scheduled to be implemented.
Share Updates. Changes in a company’s shares outstanding due to its acquisition of another public company are
made as soon as reasonably possible. At S&P Dow Jones’ discretion, de minimis merger and acquisition share
changes are accumulated and implemented with the quarterly share rebalancing. All other changes of less than 5%
are accumulated and made quarterly on the third Friday of March, June, September and December.
5% Rule. Changes in a company’s total shares outstanding of 5% or more due to public offerings are made as
soon as reasonably possible. Other changes of 5% or more (for example, due to tender offers, Dutch auctions,
voluntary exchange offers, company stock repurchases, private placements, acquisitions of private companies or
non-index companies that do not trade on a major exchange, redemptions, exercise of options, warrants, conversion
of preferred stock, notes, debt, equity participations, at-the-market stock offerings or other recapitalizations) are
made weekly, and are announced on Fridays for implementation after the close of trading the following Friday (one
week later). If an exchange holiday/closure falls on a Friday, the weekly share change announcement will be made
the day before the exchange holiday/closure and the implementation date will remain after the close of trading the
following Friday (i.e., one week later).
If a 5% or more share change causes a company’s IWF to change by five percentage points or more (for
example from 0.80 to 0.85), the IWF is updated at the same time as the share change. IWF changes resulting from
partial tender offers are considered on a case-by-case basis.
For weekly share reviews involving companies with multiple share classes, the 5% share change threshold is
based on each individual share class rather than total company shares.
Share/IWF Freezes. A share/IWF freeze period is implemented during each quarterly rebalancing. The freeze
period begins after the market close on the Tuesday preceding the second Friday of each rebalancing month (i.e.,
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March, June, September, and December) and ends after the market close on the third Friday of a rebalancing month.
Pro-forma files are normally released after the market close on the second Friday, one week prior to the rebalancing
effective date. In September, preliminary share and float data are released on the first Friday of the month, but the
share freeze period for September will follow the same schedule as the other three quarterly share freeze periods.
During the share/IWF freeze period, shares and IWFs are not changed except for certain corporate action events
(such as merger activity, stock splits and rights offerings). There is no weekly share change announcement on the
second Friday of a rebalance month.
Corporate Actions. Corporate actions (such as stock splits, stock dividends, non-zero price spin-offs and rights
offerings) are applied after the close of trading on the day prior to the ex-date.
Other Adjustments. In cases where there is no achievable market price for a stock being deleted, it can be
removed at a zero or minimal price at the S&P Dow Jones’s U.S. index committee’s discretion, in recognition of the
constraints faced by investors in trading bankrupt or suspended stocks.
The table below summarizes types of index maintenance adjustments and indicates whether or not a divisor
adjustment is required.
Type of
Corporate Action Comments
Divisor
Adjustment
Company added/deleted Net change in market value determines divisor adjustment. Yes
Change in shares
outstanding
Any combination of secondary issuance, share repurchase or
buy back – share counts revised to reflect change.
Yes
Stock split Share count revised to reflect new count. Divisor adjustment
is not required since the share count and price changes are
offsetting.
No
Non-zero price spin-off If the spun-off company is not being added to the index, the
divisor adjustment reflects the decline in index market value
(i.e., the value of the spun-off unit).
Yes
Non-zero price spin-off Spun-off company added to the index, no company removed
from the index.
No
Non-zero price spin-off Spun-off company added to the index, another company
removed to keep number of names fixed. Divisor adjustment
reflects deletion.
Yes
Change in IWF Increasing (decreasing) the IWF increases (decreases) the
total market value of the index. The divisor change reflects
the change in market value caused by the change to an IWF.
Yes
Special dividend When a company pays a special dividend, the share price is
assumed to drop by the amount of the dividend; the divisor
adjustment reflects this drop in index market value.
Yes
Rights offering Each shareholder receives the right to buy a proportional
number of additional shares at a set (often discounted) price.
The calculation assumes that the offering is fully subscribed.
Divisor adjustment reflects increase in market capitalization
measured as the shares issued multiplied by the price paid.
Yes
Stock splits and stock dividends do not affect the divisor, because following a split or dividend, both the stock
price and number of shares outstanding are adjusted by S&P Dow Jones so that there is no change in the market
value of the relevant component. All stock split and dividend adjustments are made after the close of trading on the
day before the ex-date.
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Governance of the S&P 500® Index
The S&P 500® Index is maintained by S&P Dow Jones’s U.S. index committee. All index committee members
are full-time professional members of S&P Dow Jones’ staff. The index committee meets monthly. At each
meeting, the index committee reviews pending corporate actions that may affect index constituents, statistics
comparing the composition of the indices to the market, companies that are being considered as candidates for
addition to an index, and any significant market events. In addition, the index committee may revise index policy
covering rules for selecting companies, treatment of dividends, share counts or other matters.
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BACKGROUND ON THE TOPIX® INDEX
All information contained in this index supplement regarding the Tokyo Stock Price Index, or the TOPIX®
Index, including, without limitation, its make-up, method of calculation and changes in its components, has been
derived from publicly available information, without independent verification. This information reflects the policies
of, and is subject to change by, the Tokyo Stock Exchange (the “TSE”). The TOPIX® Index is calculated,
maintained and published by the TSE. The TSE has no obligation to continue to publish, and may discontinue
publication of, the TOPIX® Index.
The TOPIX® Index is reported by Bloomberg L.P. under the ticker symbol “TPX.”
The component stocks of the TOPIX® Index consist of all Japanese common stocks listed on the First Section of
the TSE. The TOPIX® Index measures changes in the aggregate market value of these stocks. The TOPIX
® Index
was developed by the TSE. Publication of the TOPIX® Index began on July 1, 1969, based on an initial Index value
of 100 at January 4, 1968, which was reset at 1,000 on April 1, 1998. The TOPIX® Index is computed and
published every second via TSE’s Market Information System, and is reported to securities companies across Japan
and available worldwide through computerized information networks.
The TSE Japanese stock market is divided into two sections: the First Section and the Second Section. Listings
of stocks on the TSE are divided between these two sections, with stocks listed on the First Section typically being
limited to larger, longer established and more actively traded issues and the Second Section to smaller and newly
listed companies. The component stocks of the TOPIX® Index are determined based on market capitalization and
liquidity. Review and selection of component stocks is conducted semiannually, based on market data as of the base
date for selection.
The TOPIX® Index is a free-float adjusted market capitalization-weighted index, with the market price of each
component stock multiplied by the number of shares listed (as adjusted by multiplying the free-float weight
(“FFW”) to take into account only the listed shares deemed to be available for trading in the market). The TSE is
responsible for calculating and maintaining the TOPIX® Index, and can add, delete or substitute the stocks
underlying the TOPIX®
Index or make other methodological changes that could change the value of the TOPIX®
Index. The underlying stocks may be removed, if necessary, in accordance with deletion/addition rules which
provide generally for the deletion of a stock from the TOPIX® Index if such stock ceases to meet the criteria for
inclusion. Stocks listed on the Second Section of the TSE may be transferred to the First Section if they satisfy
applicable criteria. Such criteria include numerical minimum values for number of shares listed, number of
shareholders and average monthly trading volume, among others. Similarly, when a First Section stock falls within
the coverage of TSE rules prescribing reassignment thereof to the Second Section, such stock will be removed from
the First Section.
The TOPIX® Index is not expressed in Japanese yen, but is presented in terms of points (as a decimal figure),
rounded to the nearest one-hundredth. The TOPIX® Index is calculated by multiplying 100 by the figure obtained
by dividing the current free-float adjusted market value (the current market price per share at the time of the index
calculation multiplied by the number of free-float adjusted common shares listed on the First Section of the TSE at
the same instance) (as adjusted by multiplying the FFW) (the “Current Market Value”) by the base market value
(i.e., the Current Market Value on the base date) (the “Base Market Value”).
The calculation of the TOPIX® Index can be represented by the following formula:
Index = Current Market Value
× 100 Base Market Value
In order to maintain continuity, the Base Market Value is adjusted from time to time to ensure that it reflects
only price movements resulting from auction market activity, and to eliminate the effects of other factors and
prevent any instantaneous change or discontinuity in the level of the TOPIX® Index. Such factors include, without
limitation: new listings, delistings, new share issues either through public offerings or through rights offerings to
shareholders, issuance of shares as a consequence of exercise of convertible bonds or warrants, and transfer of listed
securities from the First Section to the Second Section of the TSE.
83
The formula for the adjustment is as follows:
Free-float adjusted Market Value on
business day before adjustment date
=
(Free-float adjusted Market Value on business day
before adjustment date ± Adjustment Amount)
Base Market Value before adjustment Base Market Value after adjustment
Where Adjustment Amount is equal to the changes in the number of shares included in the calculation of the
TOPIX® Index multiplied by the price of those shares used for the purposes of the adjustment.
Therefore,
New Base Market
Value =
Old Base Market Value ×
(Free-float adjusted Market Value on business day
before adjustment date ± Adjustment Amount)
Free-float adjusted Market Value on business day
before adjustment date
The Base Market Value remains at the new value until a further adjustment is necessary as a result of another
change. As a result of such change affecting the Current Market Value or any stock underlying the TOPIX® Index,
the Base Market Value is adjusted in such a way that the new value of the TOPIX® Index will equal the level of the
TOPIX® Index immediately prior to such change.
No adjustment is made to the Base Market Value, however, in the case of events such as stock splits or
decreases in capital without compensation, which theoretically do not affect market capitalization.
The Tokyo Stock Exchange
The TSE is one of the world’s largest securities exchanges in terms of market capitalization. Trading hours are
currently from 9:00 a.m. to 11:00 a.m. and from 12:30 p.m. to 3:00 p.m., Tokyo time, Monday through Friday.
Due to the time zone difference, the TSE will close on any normal trading day prior to the opening of business
in New York City on the same calendar day. Therefore, the closing level of the TOPIX® Index
on a trading day will
generally be available in the United States by the opening of business on the same calendar day.
The TSE has adopted certain measures, including daily price floors and ceilings on individual stocks, intended
to prevent any extreme short-term price fluctuations resulting from order imbalances. In general, any stock listed on
the TSE cannot be traded at a price lower than the applicable price floor or higher than the applicable price ceiling.
These price floors and ceilings are expressed in absolute Japanese yen, rather than percentage limits based on the
closing price of the stock on the previous trading day. In addition, when there is a major order imbalance in a listed
stock, the TSE posts a “special bid quote” or a “special asked quote” for that stock at a specified higher or lower
price level than the stock’s last sale price in order to solicit counter-orders and balance supply and demand for the
stock. Prospective investors should also be aware that the TSE may suspend the trading of individual stocks in
certain limited and extraordinary circumstances, including, for example, unusual trading activity in that stock. As a
result, changes in the TOPIX® Index
may be limited by price limitations or special quotes, or by suspension of
trading, on individual stocks that make up the TOPIX® Index, and these limitations, in turn, may adversely affect the
Index.
84
BACKGROUND ON THE FEDERAL REPUBLIC OF GERMANY
Any and all disclosures contained in this index supplement regarding the Federal Republic of Germany
(“Germany”) and German debt securities, including Bund (the “German Bonds”), have been derived from publicly
available documents, without independent verification. In connection with any offering of instruments linked to the
Index, the Bank has not participated in the preparation of those documents or made any due diligence inquiry with
respect to the information provided in those documents. Furthermore, no assurance can be given that all events
occurring prior to the date of this index supplement (including events that would affect the accuracy or completeness
of the publicly available documents) that would affect the performance of Germany or the German Bonds have been
publicly disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material
future events concerning Germany or the German Bonds described in those publicly available documents could
affect the performance of the German Bonds and, therefore, the Index. Neither the Bank nor any of its affiliates
makes any representation as to the performance of Germany or the German Bonds.
Germany
Germany is a foreign sovereign government. Germany, as co-signatory with respect to Landwirtschaftliche
Rentenbank and as guarantor and co-signatory with respect to KfW, has filed financial and other information with
the SEC in registration statements under Schedule B of the Securities Act of 1933. Information filed by Germany
with the SEC can be reviewed, without cost, electronically through a web site maintained by the SEC. The address
of the SEC’s web site is http://www.sec.gov. Information filed with the SEC by Germany can be located by
reference to Landwirtschaftliche Rentenbank’s CIK Code: 0001144797, and KfW’s CIK Code: 0000821533.
In addition, information filed with the SEC can be inspected and copied at the Public Reference Section of the
SEC, 100 F Street, N.E., Room 1580, Washington D.C. 20549. Copies of this material can also be obtained from
the Public Reference Section, at prescribed rates.
Various third-party websites contain detailed information regarding Germany and its government, economy and
fiscal affairs, including (i) http://www.cia.gov (World Factbook); (ii) http://databank.worldbank.org (World
dataBank); and (iii) http://www.imf.org (International Monetary Fund). Information contained in these third-party
websites is not incorporated by reference in, and should not be considered a part of, this index supplement. The
Bank makes no representation or warranty as to the accuracy or completeness of information contained on these
third-party websites.
Germany and its various agencies and affiliates also maintain websites that contain such information, in
English, including (i) http://www.deutsche-finanzagentur.de (Bundesrepublik Deutschland Finanzagentur GmbH);
(ii) http://www.bundesbank.de (Deutsche Bundesbank); and (iii) http://www.destatis.de (Statistisches Bundesamt
Deutschland). Information contained in these German websites is not incorporated by reference in, and should not
be considered a part of, this index supplement. The Bank makes no representation or warranty as to the accuracy or
completeness of information contained on these German websites.
German Bonds
The German Bonds are German-government debt securities issued by the German Finance Agency. The
German Bonds pay a fixed coupon every year until maturity, at which point the holder is entitled to receive the final
coupon payment and the return of the principal. The coupon rate for German Bond issuances varies, with the rate
generally reflecting the market interest rate at the time of the first issue of the relevant German Bonds.
85
BACKGROUND ON JAPAN
Any and all disclosures contained in this index supplement regarding Japan and Japanese government bonds
(“Japanese Bonds”) have been derived from publicly available documents, without independent verification. In
connection with any offering of instruments linked to the Index, the Bank has not participated in the preparation of
those documents or made any due diligence inquiry with respect to the information provided in those documents.
Furthermore, no assurance can be given that all events occurring prior to the date of this index supplement
(including events that would affect the accuracy or completeness of the publicly available documents) that would
affect the performance of Japan or the Japanese Bonds have been publicly disclosed. Subsequent disclosure of any
such events or the disclosure of or failure to disclose material future events concerning Japan or the Japanese Bonds
described in those publicly available documents could affect the performance of the Japanese Bonds and, therefore,
the Index. Neither the Bank nor any of its affiliates makes any representation as to the performance of Japan or the
Japanese Bonds.
Japan
Japan is a foreign sovereign government. Japan, as registrant, has filed financial and other information
specified by the SEC in annual reports pursuant to the Securities Act of 1933. Additionally, Japan, as guarantor
with respect to the Japan Finance Corporation, has filed financial and other information with the SEC in registration
statements under Schedule B of the Securities Act of 1933. Information filed by Japan with the SEC can be
reviewed, without cost, electronically through a web site maintained by the SEC. The address of the SEC’s web site
is http://www.sec.gov. Information filed with the SEC by Japan as registrant can be located by reference to its CIK
Code: 0000837056 and as guarantor by reference to Japan Finance Corporation’s CIK Code: 0001109604.
In addition, information filed with the SEC can be inspected and copied at the Public Reference Section of the
SEC, 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Copies of this material can also be obtained from
the Public Reference Section, at prescribed rates.
Various third party websites contain detailed information regarding Japan and its government, economy and
fiscal affairs, including (i) http://www.cia.gov (World Factbook); (ii) http://databank.worldbank.org (World
dataBank); and (iii) http://www.imf.org (International Monetary Fund). Information contained in these third-party
websites is not incorporated by reference in, and should not be considered a part of, this index supplement. The
Bank makes no representation or warranty as to the accuracy or completeness of information contained on these
third-party websites.
Japan and its various agencies and affiliates also maintain websites that contain such information, in English,
including (i) http://www.mof.go.jp (Ministry of Finance Japan); (ii ) http://www.boj.or.jp (Bank of Japan); and (iii)
http://www.stat.go.jp (Statistics Bureau and Director-General for Policy Planning of Japan). Information contained
in these Japanese websites is not incorporated by reference in, and should not be considered a part of, this index
supplement. The Bank makes no representation or warranty as to the accuracy or completeness of information
contained on these Japanese websites.
Japanese Bonds
Japanese Bonds are Japan-government debt securities issued by the Ministry of Finance Japan. Japanese Bonds
pay a fixed coupon every six months until maturity, at which point the holder is entitled to receive the final coupon
payment and the return of the principal. The coupon rate for Japanese Bond issuances varies, with the rate generally
reflecting the market interest rate at the time of the first issue of the Japanese Bonds.
86
BACKGROUND ON THE UNITED KINGDOM
Any and all disclosures contained in this index supplement regarding the United Kingdom of Great Britain and
Northern Ireland (“United Kingdom”) and conventional gilts (“Gilts”) have been derived from publicly available
documents, without independent verification. In connection with any offering of instruments linked to the Index, the
Bank has not participated in the preparation of those documents or made any due diligence inquiry with respect to
the information provided in those documents. Furthermore, no assurance can be given that all events occurring prior
to the date of this index supplement (including events that would affect the accuracy or completeness of the publicly
available documents) that would affect the performance of the United Kingdom or the Gilts have been publicly
disclosed. Subsequent disclosure of any such events or the disclosure of or failure to disclose material future events
concerning the United Kingdom or the Gilts described in those publicly available documents could affect the
performance of the Gilts and, therefore, the Index. Neither the Bank nor any of its affiliates makes any
representation to you as to the performance of the United Kingdom or the Gilts.
The United Kingdom
The United Kingdom is a foreign sovereign government. Various third-party websites contain detailed
information regarding the United Kingdom and its government, economy and fiscal affairs, including (i)
http://www.cia.gov (World Factbook); (ii) http://databank.worldbank.org (World dataBank); and (iii)
http://www.imf.org (International Monetary Fund). Information contained in these third-party websites is not
incorporated by reference in, and should not be considered a part of, this index supplement. The Bank makes no
representation or warranty as to the accuracy or completeness of information contained on these third-party
websites.
The United Kingdom and its various agencies and affiliates also maintain websites that contain such
information, in English, including (i) http://www.hm-treasury.gov.uk/ (HM Treasury); (ii) http://www.dmo.gov.uk/
(United Kingdom Office of Debt Management); (iii) http://www.bankofengland.co.uk (Bank of England); and (iv)
http://www.ons.gov.uk/ons/index.html (Office for National Statistics). Information contained in these British
websites is not incorporated by reference in, and should not be considered a part of, this index supplement. The
Bank makes no representation or warranty as to the accuracy or completeness of information contained on these
British websites.
Gilts
The Gilts are United Kingdom-government debt securities issued by the United Kingdom Debt Management
Office. Gilts pay a fixed coupon every six months until maturity, at which point the holder is entitled to receive the
final coupon payment and the return of the principal. The coupon rate for Gilt issuances varies, with the rate
generally reflecting the market interest rate at the time of the first issue of the relevant Gilts.
A-1
ANNEX A: THE J.P. MORGAN MOZAIC II INDEX RULES
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The J.P. Morgan Mozaic IISM Index Index Rules
December 28, 2016
© All Rights Reserved
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CONTENTS
1. Introduction ......................................................................................................................................................... 4
2. Index Sponsor and Index Calculation Agent ..................................................................................................... 4
2.1 Identity and responsibilities ........................................................................................................................ 4
2.2 Index Sponsor determinations and Index Calculation Agent determinations ........................................... 5
3. Amendments........................................................................................................................................................ 5
4. General Notes on the Index ................................................................................................................................ 5
5. Publication of Index Levels and rounding ......................................................................................................... 7
6. The Basket Constituents ..................................................................................................................................... 8
7. Futures Tracker Level of each Futures Constituent ....................................................................................... 12
7.1 Scheduled Roll Period for each Futures Constituent ................................................................................ 12
7.2 Actual Roll Period for a Futures Constituent ............................................................................................ 13
7.3 Implementation of the roll ........................................................................................................................ 15
7.4 Futures Tracker Level of a Futures Constituent ....................................................................................... 17
8. Initial composition of the Index ....................................................................................................................... 19
9. Monthly Units for the Basket Constituents ..................................................................................................... 19
9.1 Identifying the Preliminary Weight of each Basket Constituent for a Monthly Selection Date ................. 20
9.2 Identifying the Monthly Constituent Weight of each Basket Constituent for a Monthly Selection Date 25
9.3 Unitizing the Monthly Constituent Weight of each Basket Constituent for a Monthly Selection Date ... 28
10. Monthly Rebalancing ........................................................................................................................................ 29
10.1 Futures Constituent Effective Monthly Rebalancing Days ....................................................................... 29
10.2 Commodity Monthly Effective Rebalancing Days for a Commodity Constituent .................................... 31
10.3 Determination of the Current Units for a Basket Constituent in respect of a Weekday t ....................... 33
10.4 Determination of the Current Units for a Basket Constituent in respect of a Weekday t-1 .................... 34
11. Exposure flattening ........................................................................................................................................... 34
11.1 Calculating the Flattening Signal ............................................................................................................. 34
11.2 Calculating the Effective Exposure for each Futures Constituent............................................................ 36
11.3 Calculating the Effective Exposure for each Commodity Constituent ..................................................... 37
12. Index Levels ....................................................................................................................................................... 38
12.1 Determination of the Relevant Futures Input Day ................................................................................... 39
12.2 Determination of the Relevant Commodity Input Day ............................................................................. 40
12.3 Determination of whether a Relevant Commodity Input Day is a Relevant Commodity Constituent Closing Input Day, a Relevant Commodity Constituent Settlement Input Day or a Relevant Commodity Constituent Determination Input Day .................................................................................................................... 40
12.4 Calculation of the Index Level ................................................................................................................... 41
12.5 Closing level for a Commodity Constituent ............................................................................................... 42
13. Treatment of Basket Constituents for determination days............................................................................ 43
13.1 Treatment of a Futures Constituent Roll Determination Day for a Futures Constituent........................ 43
13.2 Treatment of a Futures Constituent Monthly Rebalancing Determination Day for a Futures Constituent .............................................................................................................................................................. 43
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13.3 Treatment of a Relevant Commodity Constituent Determination Input Day for a Commodity Constituent .............................................................................................................................................................. 44
13.4 Definitions related to determinations ...................................................................................................... 45
14. U.S. Small Cap Exchange Succession Event ..................................................................................................... 46
15. Succession events and Extraordinary Events ................................................................................................. 48
15.1 Succession events for Basket Constituents................................................................................................ 48
15.2 Extraordinary Events for a Basket Constituent ........................................................................................ 49
15.3 Definitions related to an Extraordinary Event ......................................................................................... 50
16. Hypothetical back-tested levels ....................................................................................................................... 52
17. No advice or offer of securities......................................................................................................................... 53
18. Corrections ........................................................................................................................................................ 53
19. Definitions ......................................................................................................................................................... 54
Schedule 1................................................................................................................................................................... 62
Notices, Disclaimers and Conflicts of Interest ......................................................................................................... 63
Index Disclaimers....................................................................................................................................................... 66
-4-
THE J.P. MORGAN MOZAIC IISM INDEX INDEX RULES
1. Introduction
This document comprises the rules (as may be supplemented, amended or restated from time to time, the “Index Rules”) of the J.P. Morgan Mozaic IISM Index (the “Index”), a notional rules-based proprietary index. ALL PERSONS READING THIS DOCUMENT SHOULD REFER TO THE RISK FACTORS AND NOTICES, DISCLAIMERS AND CONFLICTS OF INTEREST SECTIONS BELOW AND CONSIDER THE INFORMATION CONTAINED IN THIS DOCUMENT IN LIGHT OF SUCH RISK FACTORS, NOTICES, DISCLAIMERS AND CONFLICTS OF INTEREST. NOTHING IN THE INDEX RULES CONSTITUTES AN OFFER TO BUY OR SELL ANY FINANCIAL PRODUCT, PARTICIPATE IN ANY TRANSACTION OR ADOPT ANY INVESTMENT STRATEGY. THE INDEX RULES DO NOT CONSTITUTE INVESTMENT, LEGAL, TAX, REGULATORY OR ACCOUNTING ADVICE. This document is published by the Index Sponsor.
2. Index Sponsor and Index Calculation Agent
2.1 Identity and responsibilities
As of the Live Date (as defined and specified in Section 8 (Initial composition of the Index) below), J.P. Morgan Securities plc (“JPMS plc”) is the sponsor of the Index (the “Index Sponsor”, which term shall include any successor or assign of the Index Sponsor). The Index Sponsor may appoint a successor sponsor or assign, delegate or transfer any or all of its rights, obligations or responsibilities in its capacity as Index Sponsor in connection with the Index to one or more entities (including an unrelated third party) that the Index Sponsor determines appropriate. The Index Calculation Agent (unless the Index Calculation Agent is the same entity as the Index Sponsor) must obtain written permission from the Index Sponsor prior to any delegation or transfer of the Index Calculation Agent’s responsibilities or obligations in connection with the Index. The initial Index Sponsor is responsible for, among other things, the creation and design of the Index and the documentation of the Index Rules. The Index Sponsor is responsible for the appointment of the calculation agent of the Index (the “Index Calculation Agent”), which may be the Index Sponsor, an unrelated third party or an affiliate or subsidiary of the Index Sponsor. The Index Calculation Agent will (unless the Index Calculation Agent is the same entity as the Index Sponsor) be an agent of the Index Sponsor. As of the Live Date, the Index Sponsor has appointed JPMS plc to be the initial Index Calculation Agent. The Index Sponsor may at any time and for any reason (i) appoint a successor Index Calculation Agent, if the Index Sponsor is at that time the Index Calculation Agent or (ii) terminate the appointment of the Index Calculation Agent and appoint an alternative entity as a replacement Index Calculation Agent, if the Index Sponsor is not at that time the Index Calculation Agent. The Index Calculation Agent is responsible for (i) calculating the Index Level for each Scheduled Publication Day (each as defined herein) in accordance with the Index Rules and (ii) determining (among other things and subject to the prior agreement of the Index Sponsor or at the direction of the Index Sponsor) if a Futures Market Disruption Event or Extraordinary Event (each as defined herein) has occurred, whether any input necessary to perform any calculations under the Index Rules is not published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent (as further described in Section 5 (Publication of Index Levels and rounding), and any related consequences or adjustments in accordance with the Index Rules. The Index Calculation Agent shall act in good faith and in a commercially reasonable manner in making determinations, interpretations and calculations pursuant to the Index Rules. Subject to the prior agreement of the Index Sponsor, the Index Calculation Agent’s determinations and calculations related to the Index and the Index Calculation Agent’s interpretations of the Index Rules shall be final.
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None of the Index Sponsor, the Index Calculation Agent, or any of their respective affiliates or subsidiaries or any of their respective directors, officers, employees, representatives, delegates or agents (each, a “Relevant Person”) shall have any responsibility to any person (whether as a result of negligence or otherwise) for any determinations, interpretations or calculations made or anything done (or omitted to be determined or done) in connection with the Index or any use to which any person may put the Index or the Index Levels. The Index Sponsor may, in its reasonable discretion, at any time and without notice, terminate the calculation or publication of the Index.
2.2 Index Sponsor determinations and Index Calculation Agent determinations
The Index Calculation Agent’s exercise of discretion, or failure to exercise discretion, in relation to the Index may have a detrimental effect on the Index Level and the volatility of the Index. The Index Sponsor or the Index Calculation Agent may make certain determinations or calculations based on information obtained from publicly available sources without independently verifying such information. Subject to the prior agreement of the Index Sponsor, the Index Calculation Agent may make certain determinations, adjustments, amendments and interpretations related to the Index. All such determinations, adjustments, amendments and interpretations (in each case, subject to such prior agreement on the part of the Index Sponsor) of the Index Calculation Agent related to the Index and all calculations performed by the Index Calculation Agent related to the Index shall be final, conclusive and binding and no person shall be entitled to make any claim against the Index Sponsor, the Index Calculation Agent, or any of the Relevant Persons in respect thereof. Once a determination, adjustment, amendment or interpretation is made or action is taken by the Index Calculation Agent (in each case, as agreed in advance by the Index Sponsor) in relation to the Index, or a calculation is performed by the Index Calculation Agent in relation to the Index, none of the Index Sponsor, the Index Calculation Agent or any Relevant Person shall be under any obligation to revise any such determination, adjustment, amendment, interpretation or calculation made or anything done (or omitted to be determined, adjusted, amended, interpreted, calculated or done) for any reason.
3. Amendments
The Index Rules may be supplemented, amended or restated from time to time in the sole discretion of the Index Sponsor. The Index Rules will be made available (in a manner determined by the Index Sponsor from time to time) following such supplementation, amendment or restatement. Copies of the current Index Rules are available from the Index Sponsor upon request. Although the Index Rules are intended to be comprehensive and accurate, ambiguities may arise and errors or omissions may have been made. In such circumstances, the Index Sponsor will resolve such ambiguities and, if necessary, amend the Index Rules to reflect such resolution. In the case of any inaccuracy, the Index Sponsor may amend the Index Rules to address errors or omissions. The Index Sponsor is under no obligation to inform any person of any amendments to the Index (except as may be required by law).
4. General Notes on the Index
The J.P. Morgan Mozaic IISM Index is a notional dynamic index that tracks the excess return of a basket selected from a possible universe of a total of fifteen (15) constituents (the “Basket Constituents”), consisting of (i) a total of six (6) separate rolling futures positions in equity index futures contracts (each such rolling equity index futures position, an “Equity Constituent”), (ii) a total of six (6) separate rolling futures positions in government bond futures contracts (each such rolling government bond futures position, a “Bond Constituent”) and (iii) a total of three (3) separate excess return commodity sector indices (each, a “Commodity Constituent”). Each Basket Constituent is subject to the provisions of Section 15 (Succession events and Extraordinary Events). The U.S. Small Cap Equity Constituent is additionally subject to the provisions of Section 14 (U.S. Small Cap Exchange Succession Event). Excess return indices track returns from hypothetical exposures to certain futures contracts that take into account changes in the price level of the underlying futures contracts as well as roll yield, but not “total
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returns.” A futures index that reflects “total returns” would reflect the returns from a notional fully collateralized investment in the underlying futures contracts, including any interest that could be earned on funds committed to the margin on the underlying futures contracts. Each Equity Constituent and each Bond Constituent is referred to herein as a “Futures Constituent”. As of a particular time, each futures contract underlying a Futures Constituent is referred to herein as a Referenced Contract (as defined in Section 13.4 (Definitions related to determinations). Each Commodity Constituent has a corresponding excess return commodity sector Settlement Index (as defined in Section 12.5 (Closing level for a Commodity Constituent)) associated with such Commodity Constituent. On a periodic basis, the Index Calculation Agent will effect a synthetic roll in relation to each Futures Constituent in order to calculate an excess return Futures Tracker Level for each such Futures Constituent (as defined and further described in Section 7 (Futures Tracker Level of each Futures Constituent)). The Index Calculation Agent will determine the Futures Tracker Level of each Futures Constituent in U.S. dollar terms by periodically performing a foreign exchange conversion of the excess returns of each non-U.S. dollar denominated Futures Constituent into U.S. dollars. The Index uses a monthly selection process that assigns Monthly Units (as defined in Section 9 (Monthly Units for the Basket Constituents)) to each Basket Constituent. Monthly Units will be determined by reference to the returns and volatilities of each of the Basket Constituents measured over certain performance observation periods, each of which includes and ends on the related Monthly Selection Date (as defined below) and by reference to the Target Volatility (as defined in Section 19 (Definitions)) of four point two percent (4.2%). Those Monthly Unit exposures are then effected by means of a monthly rebalancing over five (5) days for each Basket Constituent, as further described in Section 9. The monthly selection process is designed to select nine (9) Basket Constituents for inclusion in the Index upon the completion of each monthly rebalance, although the number of Basket Constituents to which the Index has exposure at a given time may vary (primarily because during the monthly rebalance, which occurs over a number of days, the Index will likely have exposure to more than nine (9) Basket Constituents. The Index may also have zero (0) exposure to the Basket Constituents following the application of exposure flattening, pursuant to Section 11 (Exposure flattening), as described below). Each of the new Monthly Units (being the Monthly Units to which each Basket Constituent of the Index is rebalancing) with respect to a current monthly rebalancing period will be determined on the second-to-last Weekday (as defined in Section 19 (Definitions)) of the calendar month immediately prior to such period (such date, the “Monthly Selection Date” in respect of such monthly rebalancing period) in accordance with the methodology set forth in Section 9 (Monthly Units for the Basket Constituents). Monthly rebalancing of the Index is described in further detail in Section 10 (Monthly Rebalancing). The Index also includes an exposure flattening feature, which, depending on the recent performance of the Index, may cause the exposure of the Index to all Basket Constituents that have non-zero Current Units within the Index to be decreased to zero (0) for a specified period, as described in Section 11 (Exposure flattening). No assurance can be given that the investment strategy used to construct the Index will be successful or that the Index will outperform any alternative basket or strategy that might be constructed from the Basket Constituents. Furthermore, no assurance can be given that the Index will achieve its Target Volatility (as defined in Section 19 (Definitions)). It should be noted in particular that the Realized Volatility (as defined in Section 9.1 (Identifying the Preliminary Weight of each Basket Constituent for a Monthly Selection Date)) of the Index may be greater or less than the Target Volatility. The Index is described as a notional basket of assets or positions because there is no actual portfolio of assets or positions to which any person is entitled or in which any person has any ownership interest. The Index merely references a basket of certain assets or positions, the performance of which will be used as a reference point for calculating the Index Level.
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5. Publication of Index Levels and rounding
The Index Calculation Agent shall calculate and publish or otherwise make available (in a manner determined by the Index Calculation Agent from time to time) the Index Level for each Scheduled Publication Day in accordance with the methodology herein. Index Levels for each Scheduled Publication Day may be obtained by reference to Bloomberg ticker “JMOZAIC2 Index” or from a successor or alternate source as may be identified by the Index Calculation Agent from time to time. The Index Calculation Agent will calculate and publish the level of the Index (the “Index Level”) for each Scheduled Publication Day for the Index (which shall be each Weekday). Such publication will occur on such Scheduled Publication Day if all inputs necessary to perform such calculation are published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent on such Scheduled Publication Day as further described in Section 12 (Index Levels) below, including, without limitation, inputs necessary to perform the calculations in Section 12, such as inputs necessary to perform the calculations relevant to determining the Futures Tracker Level (as determined in accordance with Section 7 (Futures Tracker Level of each Futures Constituent) below) of the relevant Futures Constituents to which the Index has exposure for each corresponding Relevant Futures Input Day (as defined in Section 12.1 (Determination of the Relevant Futures Input Day) below), inputs necessary to perform the calculations relevant to determining the Commodity Closing Index Level or Commodity Settlement Index Level (each as defined in Section 19 (Definitions) below), as applicable, of the relevant Commodity Constituents to which the Index has exposure for each corresponding Relevant Commodity Input Day (as defined in Section 12. 2 (Determination of the Relevant Commodity Input Day) below) and the Index Level for the immediately preceding Scheduled Publication Day. If, however, any necessary inputs are not published or otherwise made available by the relevant exchange or input sponsor, the Index Calculation Agent will postpone calculation and publication of the Index Level for such Scheduled Publication Day until the first following Weekday on which such inputs (x) are published or otherwise made available by the relevant exchange or input sponsor (whether (i) by means of publication on the relevant source for each relevant input as specified herein or (ii) as otherwise provided to the Index Calculation Agent by or on behalf of the exchange, sponsor, calculation agent or other authorized provider or source of such input as the Index Calculation Agent, in its reasonable determination, considers to be reliable) or (y) are determined by means of a good faith estimate made by the Index Calculation Agent pursuant to Section 13 (Treatment of Basket Constituents for determination days) below. Notwithstanding anything to the contrary herein, the Index Sponsor may, at any time and without notice, change the frequency of publication of the Index Level, the means or place of publication of the Index Level or cease the calculation, publication or dissemination of the Index Level, and nothing in this document shall be construed as an agreement by the Index Sponsor or the Index Calculation Agent to continue to calculate, publish or disseminate the Index Level if the Index Sponsor has elected to cease such calculation, publication or dissemination. For purposes of publication only, the Index Calculation Agent will round all Index Levels to two (2) decimal places before publishing or otherwise making such levels available in U.S. dollars (“USD” or the “Currency of the Index”). The Index Calculation Agent may calculate the Index to a greater degree of accuracy or specificity and may use any rounding convention it considers appropriate for any data used or calculations performed (which may include using data with a higher level of specificity than that which is published on any particular data source) to determine the Index Level. None of the Index Sponsor, the Index Calculation Agent or any other Relevant Person will be liable to any person for publishing or omitting to publish the Index Level at any particular time or on any particular venue or in accordance with any particular methodology.
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6. The Basket Constituents
The Index is a notional dynamic index (the excess returns of each non-U.S. dollar denominated constituent of which are periodically converted into U.S. dollars) that tracks a basket of excess return constituents selected from a possible universe of a total of fifteen (15) Basket Constituents, consisting of:
(i) a total of six (6) separate Equity Constituents, each consisting of a rolling equity index futures position in the underlying series of equity futures contracts specified in Table 1 below,
(ii) a total of six (6) separate Bond Constituents, each consisting of a rolling government bond futures
position in the underlying series of government bond futures contracts specified in Table 2 below, and
(iii) a total of three (3) separate Commodity Constituents, each consisting of an excess return sector sub-
index of the Bloomberg Commodity IndexSM, which itself is an excess return index, specified in Table 3 below.
The excess returns of a Futures Constituent whose underlying futures contract series is not denominated in the Currency of the Index are periodically converted from the currency in which the settlement price of such futures contract series is denominated or expressed (such currency, the “Futures Denomination Currency”) into the Currency of the Index. The Futures Denomination Currency for each Futures Constituent as of the Live Date is specified in Table 1 or Table 2 below. Each Basket Constituent is subject to a separately applied cap on its monthly portfolio weight (such cap, the “Constituent Weight Cap”), which is specified for each Basket Constituent in the tables below. Each Basket Constituent is subject to the provisions of Section 15 (Succession events and Extraordinary Events) below. The U.S. Small Cap Equity Constituent is additionally subject to the provisions of Section 14 (U.S. Small Cap Exchange Succession Event) below.
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Table 1 below sets forth each Equity Constituent, the corresponding series of relevant equity index futures contracts in which such Equity Constituent represents a rolling futures position, the Constituent Weight Cap, the Futures Denomination Currency (and, where applicable, in parentheses after such Futures Denomination Currency, the associated page, service or source as of the Live Date (provided solely for ease of identification) on or by means of which the WM Company (or any successor) publishes or otherwise makes available to the Index Calculation Agent the relevant official FX fixing applicable to conversion of the relevant Futures Denomination Currency into U.S. dollars), the Equity Reference Index, the Futures Exchange (each as defined in Section 19 (Definitions) below) and the Futures Exchange ticker associated with the relevant equity index futures contract series.
Table 1
i Equity Constituent
Relevant equity index futures
contract series Constituent Weight Cap
Futures Denomination Currency (FX fixing page)
Equity Reference
Index Futures
Exchange
Futures Exchange
Ticker 1 rolling equity index futures position
in the E-mini S&P 500 Futures Contract (the “U.S. Large Cap Equity
Constituent”)
E-mini S&P 500 Futures Contracts
15% USD S&P 500® Index
Chicago Mercantile Exchange
ES
2 rolling equity index futures position in the E-mini Nasdaq-100 Futures Contract (the “U.S. Nasdaq Equity
Constituent”)
E-mini Nasdaq-100 Futures Contracts
15% USD Nasdaq-100 Index®
Chicago Mercantile Exchange
NQ
3 rolling equity index futures position in the Russell 2000® Index Mini
Futures Contract (the “U.S. Small Cap Equity Constituent”)
Russell 2000® Index Mini Futures
Contracts
15% USD Russell 2000® Index
ICE Futures U.S.
TF
4 rolling equity index futures position in the DAX® Futures Contract (the
“German Equity Constituent”)
DAX® Futures Contracts
15% EUR (WMRSPOT05)
DAX® Index Eurex Deutschland
FDAX
5 rolling equity index futures position in the FTSE 100 Index Futures
Contract (the “U.K. Equity Constituent”)
FTSE 100 Index Futures Contracts
15% GBP (WMRSPOT07)
FTSE® 100 Index
ICE Futures Europe
Z
6 rolling equity index futures position in the TOPIX Futures Contract (the “Japanese Equity Constituent”)
TOPIX Futures Contracts
15% JPY (WMRSPOT12)
Tokyo Stock Price Index
Osaka Exchange
n/a
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Table 2 below sets forth each Bond Constituent, the corresponding series of relevant bond futures contracts in which such Bond Constituent represents a rolling futures position, the Constituent Weight Cap, the Futures Denomination Currency (and, where applicable, in parentheses after such Futures Denomination Currency, the associated page, service or source as of the Live Date (provided solely for ease of identification) on or by means of which the WM Company (or any successor) publishes or otherwise makes available to the Index Calculation Agent the relevant official FX fixing applicable to conversion of the relevant Futures Denomination Currency into U.S. dollars), the Futures Exchange and the Futures Exchange ticker associated with the relevant bond futures contract series.
Table 2
i Bond Constituent
Relevant bond futures contract
series Constituent Weight Cap
Futures Denomination Currency (FX fixing
page) Futures Exchange
Futures Exchange
Ticker 7 rolling government bond futures position in the
Short-Term U.S. Treasury Note Futures (2-Year) Contract (the “Short-Term U.S. Treasury Note
Constituent”)
Short-Term U.S. Treasury Note
Futures (2-Year) Contracts
250% USD Chicago Board of Trade
ZT
8 rolling government bond futures position in the Medium-Term U.S. Treasury Note Futures (5-
Year) Contract (the “Medium-Term U.S. Treasury Note Constituent”)
Medium-Term U.S. Treasury Note
Futures (5-Year) Contracts
75% USD Chicago Board of Trade
ZF
9 rolling government bond futures position in the Long-Term U.S. Treasury Note Futures (6½ to
10-Year) Contract (the “Long-Term U.S. Treasury Note Constituent”)
Long-Term U.S. Treasury Note
Futures (6½ to 10-Year) Contracts
45% USD Chicago Board of Trade
ZN
10 rolling government bond futures position in the Euro-Bund Futures Contract (the “German
Government Bond Constituent”)
Euro-Bund Futures Contracts
45% EUR (WMRSPOT05)
Eurex Deutschland FGBL
11 rolling government bond futures position in the Long Gilt Futures Contract (the “U.K.
Government Bond Constituent”)
Long Gilt Futures Contracts
45% GBP (WMRSPOT07)
ICE Futures Europe
R
12 rolling government bond futures position in the 10-year JGB Futures Contract (the “Japanese
Government Bond Constituent”)
10-year JGB Futures Contracts
120% JPY (WMRSPOT12)
Osaka Exchange n/a
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Table 3 below sets forth each Commodity Constituent, the Constituent Weight Cap, additional information regarding the Commodity Constituent and its associated Bloomberg ticker (provided solely for ease of identification). As of any date of determination, the individual commodities composing each sector referenced by a Commodity Constituent are those included in the corresponding sector index within the Bloomberg Commodity IndexSM on such date. As of the Live Date, the index sponsor of each Commodity Closing Index is Bloomberg Finance L.P.
Table 3
i Commodity Constituent Constituent Weight Cap Additional information
Bloomberg ticker
13 The Bloomberg Energy SubindexSM (the “Energy Commodities Constituent”), which is a sub-index of the Bloomberg Commodity IndexSM
15% The Bloomberg Energy SubindexSM is designed to be a benchmark for energy-related commodities as an asset class.
BCOMEN
14 The Bloomberg Industrial Metals SubindexSM (the “Industrial Metals Commodities Constituent”), which is a sub-index of the Bloomberg Commodity IndexSM
15% The Bloomberg Industrial Metals SubindexSM is designed to be a benchmark for industrial metals as an asset class.
BCOMIN
15 The Bloomberg Precious Metals SubindexSM (the “Precious Metals Commodities Constituent”), which is a sub-index of the Bloomberg Commodity IndexSM
15% The Bloomberg Precious Metals SubindexSM is designed to be a benchmark for precious metals as an asset class.
BCOMPR
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7. Futures Tracker Level of each Futures Constituent
7.1 Scheduled Roll Period for each Futures Constituent
On a periodic basis consistent with the expiries of the relevant underlying futures contracts within the series specified in Table 1 and Table 2 in Section 6 (The Basket Constituents) above (such periodic basis being quarterly in the case of a series of futures contracts with quarterly expiries, as is the case for each of the Futures Constituents as of the Live Date), the Index Calculation Agent will roll the exposure of each Futures Constituent from the particular futures contract to which it has current exposure (such particular futures contract, the Earlier Expiry Futures Contract, as defined below) to a different particular futures contract, determined pursuant to Section 7.3 (Implementation of the roll) below (such different particular futures contract, the Later Expiry Futures Contract, as defined in Section 7.3 below). Each scheduled roll period for a Futures Constituent i (such period, the “Scheduled Roll Period”) will consist of the five (5) Futures Constituent Scheduled Days (as defined below) commencing on and including the first (1st) day of such Scheduled Roll Period (such first day, the “Scheduled Roll Initiation Day” for such Futures Constituent) as set forth in Table 4 below and ending on and including the final day of such Scheduled Roll Period (such final day, the related “Scheduled Roll Completion Day” for such Futures Constituent) as set forth in Table 4 below (with each of the five (5) Futures Constituent Scheduled Days composing such Scheduled Roll Period referred to herein as a “Scheduled Roll Day”). Twenty percent (20%) of the total notional exposure to a Futures Constituent is scheduled to be rolled as of each Scheduled Roll Day during a Scheduled Roll Period. Each of the Scheduled Roll Initiation Day and the Scheduled Roll Completion Day for a particular futures contract of each Futures Constituent i specified in Table 4 below is identified in relation to the date (such date, the “Futures Contract Cut-off Day” for each applicable particular futures contract) that is the earlier to occur of (i) the last scheduled trading day for such particular futures contract and (ii) the first scheduled notice date for such particular futures contract, in each case as specified by the relevant Futures Exchange.
Table 4
i Futures Constituent Scheduled Roll Initiation Day for
Futures Constituent i Scheduled Roll Completion Day for
Futures Constituent i 1 U.S. Large Cap Equity
Constituent The day that is six (6) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
The day that is two (2) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
2 U.S. Nasdaq Equity Constituent
The day that is six (6) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
The day that is two (2) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
3 U.S. Small Cap Equity Constituent
The day that is six (6) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
The day that is two (2) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
4 German Equity Constituent
The day that is five (5) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
The Futures Constituent Scheduled Day immediately prior to the Futures Contract Cut-off Day.
5 U.K. Equity Constituent
The day that is five (5) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
The Futures Constituent Scheduled Day immediately prior to the Futures Contract Cut-off Day.
6 Japanese Equity Constituent
The day that is five (5) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
The Futures Constituent Scheduled Day immediately prior to the Futures Contract Cut-off Day.
7 Short-Term U.S. Treasury Note Constituent
The day that is five (5) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
The Futures Constituent Scheduled Day immediately prior to the Futures Contract Cut-off Day.
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i Futures Constituent Scheduled Roll Initiation Day for
Futures Constituent i Scheduled Roll Completion Day for
Futures Constituent i 8 Medium-Term U.S.
Treasury Note Constituent
The day that is five (5) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
The Futures Constituent Scheduled Day immediately prior to the Futures Contract Cut-off Day.
9 Long-Term U.S. Treasury Note Constituent
The day that is five (5) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
The Futures Constituent Scheduled Day immediately prior to the Futures Contract Cut-off Day.
10 German Government Bond Constituent
The day that is five (5) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
The Futures Constituent Scheduled Day immediately prior to the Futures Contract Cut-off Day.
11 U.K. Government Bond Constituent
The day that is five (5) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
The Futures Constituent Scheduled Day immediately prior to the Futures Contract Cut-off Day.
12 Japanese Government Bond Constituent
The day that is five (5) Futures Constituent Scheduled Days prior to the Futures Contract Cut-off Day.
The Futures Constituent Scheduled Day immediately prior to the Futures Contract Cut-off Day.
where: “Futures Constituent Scheduled Day” means,
(i) for a Futures Constituent whose Futures Denomination Currency is U.S. dollars, a Weekday on which the Futures Exchange for such Futures Constituent is scheduled to be open for trading for its regular trading session, or
(ii) for a Futures Constituent whose Futures Denomination Currency is not U.S. dollars, a Weekday on
which (a) the FX Rate relevant to such Futures Constituent is scheduled to be calculated and published by the WM Company (or any successor, as identified by the Index Calculation Agent) and (b) the Futures Exchange for such Futures Constituent is scheduled to be open for trading for its regular trading session.
7.2 Actual Roll Period for a Futures Constituent
For each Futures Constituent i and each Scheduled Roll Period, the Index Calculation Agent shall determine, for the portion of the roll scheduled to occur on a Scheduled Roll Day, the Futures Constituent Scheduled Day on which the roll of such portion shall be effected (such Futures Constituent Scheduled Day, a “Futures Constituent Effective Roll Day”), as follows:
(i) The Futures Constituent Effective Roll Day associated with the first (1st) Scheduled Roll Day in a Scheduled Roll Period shall be the earliest to occur of (x) the first (1st) Futures Constituent Valid Day that occurs on or following such first (1st) Scheduled Roll Day, (y) the first (1st) Futures Constituent Monthly Rebalancing Determination Day that occurs on or following such first (1st) Scheduled Roll Day and (z) the Futures Contract Cut-off Day.
(ii) The Futures Constituent Effective Roll Day associated with the second (2nd) Scheduled Roll Day in a
Scheduled Roll Period shall be the earliest to occur of (x) the first (1st) Futures Constituent Valid Day that occurs on or following such second (2nd) Scheduled Roll Day, (y) the first (1st) Futures Constituent Monthly Rebalancing Determination Day that occurs on or following such second (2nd) Scheduled Roll Day and (z) the Futures Contract Cut-off Day.
(iii) The Futures Constituent Effective Roll Day associated with the third (3rd) Scheduled Roll Day in a
Scheduled Roll Period shall be the earliest to occur of (x) the first (1st) Futures Constituent Valid Day that occurs on or following such third (3rd) Scheduled Roll Day, (y) the first (1st) Futures Constituent
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Monthly Rebalancing Determination Day that occurs on or following such third (3rd) Scheduled Roll Day and (z) the Futures Contract Cut-off Day.
(iv) The Futures Constituent Effective Roll Day associated with the fourth (4th) Scheduled Roll Day in a
Scheduled Roll Period shall be the earliest to occur of (x) the first (1st) Futures Constituent Valid Day that occurs on or following such fourth (4th) Scheduled Roll Day, (y) the first (1st) Futures Constituent Monthly Rebalancing Determination Day that occurs on or following such fourth (4th) Scheduled Roll Day and (z) the Futures Contract Cut-off Day.
(v) The Futures Constituent Effective Roll Day associated with the fifth (5th) Scheduled Roll Day in a
Scheduled Roll Period shall be the earliest to occur of (x) the first (1st) Futures Constituent Valid Day that occurs on or following such fifth (5th) Scheduled Roll Day, (y) the first (1st) Futures Constituent Monthly Rebalancing Determination Day that occurs on or following such fifth (5th) Scheduled Roll Day and (z) the Futures Contract Cut-off Day.
The proportion of the total exposure scheduled to be rolled on a Scheduled Roll Day (twenty percent (20%) for each Scheduled Roll Day) during a given Scheduled Roll Period will be rolled on the Futures Constituent Effective Roll Day associated with such Scheduled Roll Day. If two (2) or more consecutive Scheduled Roll Days during the same Scheduled Roll Period are associated with the same Futures Constituent Effective Roll Day, then the proportion of the total exposure for any such Scheduled Roll Days will be rolled on that same Futures Constituent Effective Roll Day. where: “Futures Constituent Valid Day” means a Futures Constituent Scheduled Day on which no Futures Market Disruption Event (as defined in Section 13.4 (Definitions related to determinations) below) occurs or is continuing. “Futures Constituent Monthly Rebalancing Determination Day” has the meaning given to such term in Section 10.1 (Futures Constituent Effective Monthly Rebalancing Days) below. “Futures Constituent Roll Determination Day” means, for a Futures Constituent, as determined as of the Actual Roll Completion Day for an Actual Roll Period for such Futures Constituent, a Futures Constituent Effective Roll Day for such Actual Roll Period (x) that is not a Futures Constituent Valid Day and (y) that occurs in an Actual Roll Period in which no Futures Constituent Valid Day occurs from and including such Futures Constituent Effective Roll Day to and including the Futures Contract Cut-off Day for such Actual Roll Period. The “Actual Roll Period” corresponding to a Scheduled Roll Period for a Futures Constituent i is the period from and including the first (1st) Futures Constituent Effective Roll Day for such Scheduled Roll Period (being the Futures Constituent Effective Roll Day associated with the Scheduled Roll Initiation Day) to and including the last Futures Constituent Effective Roll Day associated with such Scheduled Roll Period (being the Futures Constituent Effective Roll Day associated with the Scheduled Roll Completion Day). The “Actual Roll Completion Day” means, for an Actual Roll Period for a Futures Constituent i, the Futures Constituent Effective Roll Day associated with the Scheduled Roll Completion Day for the associated Scheduled Roll Period.
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7.3 Implementation of the roll
For a given Weekday t and a Futures Constituent i, the “Earlier Expiry Futures Contract” (within the relevant futures contract series) shall be:
(i) From and including April 10, 1996 (the “Base Date”) to and including the Actual Roll Completion Day for the first Actual Roll Period following the Base Date, the particular futures contract whose Futures Contract Cut-off Day most closely followed the Base Date.
(ii) Following the Actual Roll Completion Day for the first (1st) Actual Roll Period following the Base Date,
the particular futures contract that the Index Calculation Agent determined to be the Later Expiry Futures Contract (as defined below) for the immediately preceding Scheduled Roll Period and the associated Actual Roll Period.
For a given Scheduled Roll Period for a Futures Constituent i and the associated Actual Roll Period, the Index Calculation Agent will determine the “Later Expiry Futures Contract” as follows:
(i) For an Equity Constituent (other than as provided in Section 14 (U.S. Small Cap Equity Constituent Exchange Succession Event) below, in the instance where the U.S. Small Cap Equity Constituent Exchange Succession Event is triggered), the Later Expiry Futures Contract shall be the particular futures contract (within the relevant futures contract series) whose Futures Contract Cut-off Day most closely follows the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract.
(ii) For a Bond Constituent, the Index Calculation Agent shall first determine the most recent date prior to but excluding the first (1st) Scheduled Roll Day of such Scheduled Roll Period for which both of the following are published or otherwise made available by the Futures Exchange to the Index Calculation Agent (x) the aggregate open interest calculated by the Futures Exchange for the underlying futures contract series to which the Earlier Expiry Futures Contract belongs and (y) the open interest calculated by the Futures Exchange for the Earlier Expiry Futures Contract in particular; the Index Calculation Agent shall then determine an amount equal to the product of (x) fifty percent (50%) and (y) an amount equal to (1) the aggregate open interest minus (2) the open interest for the Earlier Expiry Futures Contract (such amount, the “Open Interest Threshold”), in each case in respect of such most recent date, and: (a) If the open interest calculated and published or otherwise made available by the Futures
Exchange to the Index Calculation Agent for the particular futures contract (within the underlying futures contract series) whose Futures Contract Cut-off Day most closely follows the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract is greater than the Open Interest Threshold, the Later Expiry Futures Contract shall be the particular futures contract (within the relevant futures contract series) whose Futures Contract Cut-off Day is the closest following the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract.
(b) If (1) the open interest calculated and published or otherwise made available by the Futures
Exchange to the Index Calculation Agent for the particular futures contract (within the relevant futures contract series) whose Futures Contract Cut-off Day most closely follows the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract is less than or equal to the Open Interest Threshold and (2) the Index Calculation Agent in its sole discretion determines that the particular futures contract (within the relevant futures contract series) whose Futures Contract Cut-off Day is the second (2nd) closest following the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract could be reasonably expected to represent eighty percent (80%) or more of the average daily trading volume for the thirty (30) Futures Constituent Scheduled Days immediately following but excluding the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract, the Later Expiry Futures Contract shall be the particular futures contract (within the relevant futures contract series) whose Futures Contract Cut-off Day is the second closest following the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract.
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(c) If (1) the open interest calculated and published or otherwise made available by the Futures
Exchange to the Index Calculation Agent for the particular futures contract (within the relevant futures contract series) whose Futures Contract Cut-off Day most closely follows the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract is less than or equal to the Open Interest Threshold and (2) the Index Calculation Agent in its sole discretion does not determine that the particular futures contract (within the relevant futures contract series) whose Futures Contract Cut-off Day is the second (2nd) closest following the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract could be reasonably expected to represent eighty percent (80%) or more of the average daily trading volume for the thirty (30) Futures Constituent Scheduled Days immediately following but excluding the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract, the Later Expiry Futures Contract shall be the particular futures contract (within the relevant futures contract series) whose Futures Contract Cut-off Day is the closest following the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract.
In order to implement the roll for a Futures Constituent i and in respect of a Weekday t for an Actual Roll Period, the Index Calculation Agent shall calculate the notional exposure of such Futures Constituent i to the Earlier Expiry Futures Contract in respect of such Weekday t, (such weight, the “Earlier Expiry Futures Contract Weight” or “ 𝐖𝐞𝐢𝐠𝐡𝐭𝐭
𝐢 ”), in accordance with the following methodology:
(i) If such Weekday t is a Futures Constituent Effective Roll Day in an Actual Roll Period for such Futures Constituent i, in the case of a Weekday t that is:
(a) the first (1st) Scheduled Roll Day for such Futures Constituent, then the Earlier Expiry
Futures Contract Weight for such Weekday t shall be equal to eighty percent (80%), which can be expressed as Weightt
i = 80%.
(b) the second (2nd) Scheduled Roll Day for such Futures Constituent i, then the Earlier Expiry Futures Contract Weight for such Weekday t shall be equal to sixty percent (60%), which can be expressed as Weightt
i = 60%.
(c) the third (3rd) Scheduled Roll Day for such Futures Constituent i, then the Earlier Expiry Futures Contract Weight for such Weekday t shall be equal to forty percent (40%), which can be expressed as Weightt
i = 40%.
(d) the fourth (4th) Scheduled Roll Day for such Futures Constituent i, then the Earlier Expiry Futures Contract Weight for such Weekday t shall be equal to twenty percent (20%), which can be expressed as Weightt
i = 20%.
(e) a calendar day that occurs on or after the fifth (5th) Scheduled Roll Day for such Futures Constituent i, then the Earlier Expiry Futures Contract Weight for such Weekday t shall be equal to one hundred percent (100%), which can be expressed as Weightt
i = 100%.
(ii) If such Weekday t occurs in an Actual Roll Period but such Weekday t is not a Futures Constituent Effective Roll Day for such Futures Constituent i, in the case in which the Futures Constituent Effective Roll Day immediately preceding such Weekday t is:
(a) the first (1st) Scheduled Roll Day for such Futures Constituent, then the Earlier Expiry Futures Contract Weight for such Weekday t shall be equal to eighty percent (80%), which can be expressed as Weightt
i = 80%.
(b) the second (2nd) Scheduled Roll Day for such Futures Constituent, then the Earlier Expiry Futures Contract Weight for such Weekday t shall be equal to sixty percent (60%), which can be expressed as Weightt
i = 60%.
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(c) the third (3rd) Scheduled Roll Day for such Futures Constituent, then the Earlier Expiry Futures Contract Weight for such Weekday t shall be equal to forty percent (40%), which can be expressed as Weightt
i = 40%.
(d) the fourth (4th) Scheduled Roll Day for such Futures Constituent, then the Earlier Expiry Futures Contract Weight for such Weekday t shall be equal to twenty percent (20%), which can be expressed as Weightt
i = 20%.
(iii) If such Weekday t does not occur in an Actual Roll Period for such Futures Constituent i, then the Earlier Expiry Futures Contract Weight for such Weekday t shall be equal to one hundred percent (100%), which can be expressed as Weightt
i = 100%.
7.4 Futures Tracker Level of a Futures Constituent
As of the Base Date, the “Futures Tracker Level” of each Futures Constituent i was set at one thousand (1,000.00). Subject to Section 13 (Treatment of Basket Constituents for determination days) below, the Futures Tracker Level of a Futures Constituent i (in U.S. dollar terms) in respect of a Weekday t following the Base Date (“FTLt
i ”) shall be determined as follows:
(i) Subject to Section 13.1 (Treatment of a Futures Constituent Roll Determination Day for a Futures Constituent) below, if such Weekday t does not occur during an Actual Roll Period for Futures Constituent i,
(a) in the case in which such Weekday is either (x) a Futures Constituent Valid Day or (y) a
Futures Constituent Monthly Rebalancing Determination Day, then the Futures Tracker Level shall be calculated as follows:
FTLti = FTLprior
i × [1 + (Earliert
i
Earlierpriori
− 1) ×FXt
i
FXpriori
]
(b) in the case in which such Weekday is neither (1) a Futures Constituent Valid Day nor (2) a
Futures Constituent Monthly Rebalancing Determination Day, then the Futures Tracker Level shall be equal to the Futures Tracker Level for the most recent of (x) the Futures Constituent Valid Day immediately preceding such Weekday t, (y) the Futures Constituent Roll Determination Day immediately preceding such Weekday t and (z) the Futures Constituent Monthly Rebalancing Determination Day immediately preceding such Weekday t, which can be expressed as FTLt
i = FTLpriori .
(ii) Subject to Section 13.1 and Section 13.2 (Treatment of a Futures Constituent Monthly Rebalancing
Determination Day for a Futures Constituent) below, if such Weekday t occurs during an Actual Roll Period for Futures Constituent i:
(a) in the case in which such Weekday is any of (x) a Futures Constituent Valid Day, (y) a
Futures Constituent Roll Determination Day, or (z) a Futures Constituent Monthly Rebalancing Determination Day, then the Futures Tracker Level shall be calculated as follows:
FTLti = FTLprior
i × [1 + (Weightprior
i × Earlierti + (1 − Weightprior
i ) × Laterti
Weightpriori × Earlierprior
i + (1 − Weightpriori ) × Laterprior
i− 1) ×
FXti
FXpriori
]
(b) in the case in which such Weekday is not any of (1) a Futures Constituent Valid Day, (2) a
Futures Constituent Roll Determination Day, or (3) a Futures Constituent Monthly
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Rebalancing Determination Day, then the Futures Tracker Level shall be equal to the Futures Tracker Level for the most recent of (x) the Futures Constituent Valid Day immediately preceding such Weekday t, (y) the Futures Constituent Roll Determination Day immediately preceding such Weekday t, and (z) the Futures Constituent Monthly Rebalancing Determination Day immediately preceding such Weekday t, which can be expressed as FTLt
i = FTLpriori .
where:
FTLpriori means, for a Futures Constituent i and in respect of a Weekday t, the Futures Tracker Level
of such Futures Constituent i for the most recent of (x) the Futures Constituent Valid Day for such Futures Constituent i immediately preceding such Weekday t, (y) the Futures Constituent Roll Determination Day for such Futures Constituent i immediately preceding such Weekday t, and (z) the Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i immediately preceding such Weekday t.
Earliert
i means, for a Futures Constituent i and in respect of a Weekday t, the Futures Closing Level for such Weekday t of the Earlier Expiry Futures Contract for such Futures Constituent i for such Weekday t.
Earlierprior
i means, for a Futures Constituent i and in respect of a Weekday t, the Futures Closing Level of
the contract that is the Earlier Expiry Futures Contract for such Futures Constituent i for such Weekday t, which is such Futures Closing Level for the day that is the most recent of (x) the Futures Constituent Valid Day for such Futures Constituent i immediately preceding such Weekday t, (y) the Futures Constituent Roll Determination Day for such Futures Constituent i immediately preceding such Weekday t, and (z) the Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i immediately preceding such Weekday t.
Latert
i means, for a Futures Constituent i and in respect of a Weekday t, the Futures Closing Level for such Weekday t of the Later Expiry Futures Contract for such Futures Constituent i for such Weekday t.
Laterprior
i means, for a Futures Constituent i and in respect of a Weekday t, the Futures Closing Level of
the contract that is the Later Expiry Futures Contract for such Futures Constituent i for such Weekday t, which is such Futures Closing Level for the day that is the most recent of (x) the Futures Constituent Valid Day for such Futures Constituent i immediately preceding such Weekday t, (y) the Futures Constituent Roll Determination Day for such Futures Constituent i immediately preceding such Weekday t, and (z) the Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i immediately preceding such Weekday t.
Futures Closing Level means, for an Earlier Expiry Futures Contract or a Later Expiry Futures Contract that is
a Referenced Contract of a Futures Constituent i and in respect of a Futures Constituent Scheduled Day, the official settlement price of such Referenced Contract of such Futures Constituent on such Futures Constituent Scheduled Day as calculated and published by the Futures Exchange.
FXt
i means, for a Futures Constituent i and in respect of a Weekday t, the FX Rate (as defined below) for such Futures Constituent i for such Weekday t.
FXpriori means, for a Futures Constituent i and in respect of a Weekday t, the FX Rate for such
Futures Constituent for the most recent of (x) the Futures Constituent Valid Day for such Futures Constituent i immediately preceding such Weekday t, (y) the Futures Constituent
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Roll Determination Day for such Futures Constituent i immediately preceding such Weekday t, and (z) the Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i immediately preceding such Weekday t.
FX Rate means, for a Futures Constituent i and in respect of a Weekday t, (i) if the Futures
Denomination Currency of the Futures Constituent is U.S. dollars, one (1), (ii) if the Futures Denomination Currency of the Futures Constituent is European Union euros or Great Britain pounds, the “mid” exchange rate expressed as the number of U.S. dollars per one unit of such currency or (iii) if the Futures Denomination Currency of the Futures Constituent is Japanese yen, the “mid” exchange rate expressed as the number of U.S. dollars per one Japanese yen, calculated as one divided by the number of Japanese yen per one U.S. dollar, in the case of clause (ii) or clause (iii), as determined by the Index Calculation Agent by reference to the official closing spot rate published or otherwise made available to the Index Calculation Agent by or on behalf of the WM Company (or any successor) on or by means of the relevant page, service or other source (or any successor or replacement page, service or other authorized source, reasonably determined by the Index Calculation Agent to be reliable), at or around the Fixing Time (as defined in Section 19 (Definitions) below) or such other time as the WM Company publishes or otherwise makes available to the Index Calculation Agent the official closing spot rate on the relevant date, or, only if the WM Company (or its affiliates or assigns) ceases providing such service, such other information service provider or vendor determined by the Index Calculation Agent, for the purpose of displaying rates or prices comparable to that rate; provided that if the relevant exchange rate is not published on the relevant Weekday, the relevant closing spot rate in respect of such day shall be determined by the Index Calculation Agent in good faith and in a commercially reasonable manner taking into account all information it deems relevant to such determination. For informational purposes only, as of the Live Date, the relevant FX fixing page for each such rate is specified in Table 1 or Table 2 in Section 6 (The Basket Constituents) above.
Weightpriori means, for a Futures Constituent i and in respect of a Weekday t, the Earlier Expiry Futures
Contract Weight of such Futures Constituent i for the most recent of (x) the Futures Constituent Valid Day immediately preceding such Weekday t, (y) the Futures Constituent Roll Determination Day immediately preceding such Weekday t, and (z) the Futures Constituent Monthly Rebalancing Determination Day immediately preceding such Weekday t.
8. Initial composition of the Index
As of November 1, 1996 (the “Start Date”), the Index is deemed to have been entirely composed of notional exposures determined as of the Monthly Selection Date immediately prior to the Start Date, which is deemed to have been October 30, 1996 (the “Starting Selection Date”). Following the Start Date, the composition of the Index will be adjusted in accordance with the methodology described in these Index Rules, and the first Monthly Re-weighting Period is deemed to have occurred in the month immediately following the Start Date, which was the month of December 1996. As of December 28, 2016 (the “Live Date”), the Index Calculation Agent began calculating the Index on a live basis. Any Index Level prior to the Live Date is a hypothetical, back-tested level (as further described in Section 16 (Hypothetical back-tested levels)).
9. Monthly Units for the Basket Constituents
As of the Starting Selection Date for the initial monthly rebalancing period and thereafter on a monthly basis as of each subsequent Monthly Selection Date for a monthly rebalancing period, the Index Calculation Agent will determine the unitized amount of each Basket Constituent i (the “Monthly Units”) within the Index, whether zero (0) or a positive number, in accordance with the methodology described below in this Section 9. The monthly selection process is designed to select up to nine (9) Basket Constituents for inclusion in the Index as implemented by means of a monthly rebalancing, although the number of constituents to which the Index has exposure at a given time may vary from this number.
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9.1 Identifying the Preliminary Weight of each Basket Constituent for a Monthly Selection Date
With respect to a Monthly Selection Date, the Index Calculation Agent will:
(a) Calculate Performanceki , the performance of Basket Constituent i (“Performance”) as follows:
(i) in the case of a Basket Constituent i that is a Futures Constituent:
Performanceki =
FTLki
FTLk−130i
− 1
(ii) in the case of a Basket Constituent i that is a Commodity Constituent:
Performanceki =
CCILR(k)i
CCILR(k−130)i
− 1
where:
FTLki means, for a Futures Constituent i and in respect of a Monthly Selection Date k, the Futures
Tracker Level of such Futures Constituent i in respect of such Monthly Selection Date k. FTLk−130
i means, for a Futures Constituent i and in respect of a Monthly Selection Date k, the Futures Tracker Level of such Futures Constituent for the Weekday that is one hundred thirty (130) Weekdays prior to such Monthly Selection Date k.
CCILR(k)i means, for a Commodity Constituent i and in respect of a Monthly Selection Date k, the
Commodity Closing Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to such Monthly Selection Date k.
CCILR(k−130)i means, for a Commodity Constituent i and in respect of a Monthly Selection Date k, the
Commodity Closing Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to such Weekday that is one hundred thirty (130) Weekdays prior to such Monthly Selection Date.
(b) Rank each Basket Constituent i from the Basket Constituent with the highest Performance to the
Basket Constituent with the lowest Performance assigning each such Basket Constituent i a Rank (the “Rank”) in respect of Monthly Selection Date k in accordance with the following formula: one (1) plus the number of Basket Constituents whose Performance is greater than, but not equal to, the Performance of such Basket Constituent i, plus the number of Basket Constituents whose Performance is equal to the Performance of such Basket Constituent i and whose constituent designation integer i (as set forth in Table 1, Table 2 and Table 3 of Section 6 (The Basket Constituents) above) is less than, but not equal to, the constituent designation integer i of such Basket Constituent i.
(c) Calculate 22D Volatilityki , the volatility of the daily returns of each Basket Constituent i for the
twenty-two (22) Weekdays immediately prior to and including such Monthly Selection Date k (the “Constituent 22D Volatility”), in accordance with the following formula:
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(i) in the case of a Basket Constituent i that is a Futures Constituent:
22D Volatilityki =
√260 ×
∑ [ln (FTLt
i
FTLt−1i ) −
122
× ∑ ln (FTLs
i
FTLs−1i )k
s=k−21 ]
2
kt=k−21
21
(ii) in the case of a Basket Constituent i that is a Commodity Constituent:
22D Volatilityki =
√260 ×
∑ [ln (CCILR(t)
i
CCILR(t−1)i ) −
122
× ∑ ln (CCILR(s)
i
CCILR(s−1)i )k
s=k−21 ]
2
kt=k−21
21
where: FTLt
i means, for a Futures Constituent and in respect of a Monthly Selection Date k, the Futures Tracker Level of such Futures Constituent i for each Weekday t, from and including the Weekday that is twenty-one (21) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
FTLt−1
i means, for a Futures Constituent and in respect of a Weekday t, the Futures Tracker Level of such Futures Constituent i for the Weekday immediately prior to that Weekday t.
FTLs
i means, for a Futures Constituent and in respect of a Monthly Selection Date k, the Futures Tracker Level of such Futures Constituent i for each Weekday s, from and including the Weekday that is twenty-one (21) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
FTLs−1
i means, for a Futures Constituent and in respect of a Weekday s, the Futures Tracker Level of such Futures Constituent i for the Weekday immediately prior to that Weekday s.
CCILR(t)i means, for a Commodity Constituent and in respect of a Monthly Selection Date k, the
Commodity Closing Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to each Weekday t, from and including the Weekday that is twenty-one (21) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
CCILR(t−1)i means, for a Commodity Constituent and in respect of a Weekday t, the Commodity Closing
Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to the Weekday immediately prior to that Weekday t.
CCILR(s)i means, for a Commodity Constituent and in respect of a Monthly Selection Date k, the
Commodity Closing Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to each Weekday s, from and including the Weekday that is twenty-one (21) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
CCILR(s−1)i means, for a Commodity Constituent and in respect of a Weekday s, the Commodity
Closing Index Level of such Commodity Constituent i for the most recent Commodity
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Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to the Weekday immediately prior to that Weekday s.
ln( ) means the natural logarithm function.
(d) Calculate 65D Volatilityk
i , the volatility of the daily returns of each Basket Constituent i for the sixty-five (65) Weekdays immediately prior to and including such Monthly Selection Date k (the “Constituent 65D Volatility”), in accordance with the following formula:
(i) in the case of a Basket Constituent i that is a Futures Constituent:
65D Volatilityki =
√260 ×
∑ [ln (FTLt
i
FTLt−1i ) −
165
× ∑ ln (FTLs
i
FTLs−1i )k
s=k−64 ]
2
kt=k−64
64
(ii) in the case of a Basket Constituent i that is a Commodity Constituent:
65D Volatilityki =
√260 ×
∑ [ln (CCILR(t)
i
CCILR(t−1)i ) −
165
× ∑ ln (CCILR(s)
i
CCILR(s−1)i )k
s=k−64 ]
2
kt=k−64
64
where: FTLt
i means, for a Futures Constituent and in respect of a Monthly Selection Date k, the Futures Tracker Level of such Futures Constituent i for each Weekday t, from and including the Weekday that is sixty-four (64) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
FTLt−1
i means, for a Futures Constituent and in respect of a Weekday t, the Futures Tracker Level of such Futures Constituent i for the Weekday immediately prior to that Weekday t.
FTLs
i means, for a Futures Constituent and in respect of a Monthly Selection Date k, the Futures Tracker Level of such Futures Constituent i for each Weekday s, from and including the Weekday that is sixty-four (64) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
FTLs−1
i means, for a Futures Constituent and in respect of a Weekday s, the Futures Tracker Level of such Futures Constituent i for the Weekday immediately prior to that Weekday s.
CCILR(t)i means, for a Commodity Constituent and in respect of a Monthly Selection Date k, the
Commodity Closing Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to each Weekday t, from and including the Weekday that is sixty-four (64) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
CCILR(t−1)i means, for a Commodity Constituent and in respect of a Weekday t, the Commodity Closing
Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to the Weekday immediately prior to that Weekday t.
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CCILR(s)i means, for a Commodity Constituent and in respect of a Monthly Selection Date k, the
Commodity Closing Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to each Weekday s, from and including the Weekday that is sixty-four (64) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
CCILR(s−1)i means, for a Commodity Constituent and in respect of a Weekday s, the Commodity
Closing Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to the Weekday immediately prior to that Weekday s.
(e) Calculate 130D Volatilityk
i , the volatility of the daily returns of each Basket Constituent i for the one hundred thirty (130) Weekdays immediately prior to and including such Monthly Selection Date k (the “Constituent 130D Volatility”), in accordance with the following formula:
(i) in the case of a Basket Constituent i that is a Futures Constituent:
130D Volatilityki =
√260 ×
∑ [ln (FTLt
i
FTLt−1i ) −
1130
× ∑ ln (FTLs
i
FTLs−1i )k
s=k−129 ]
2
kt=k−129
129
(ii) in the case of a Basket Constituent i that is a Commodity Constituent:
130D Volatilityki =
√260 ×
∑ [ln (CCILR(t)
i
CCILR(t−1)i ) −
1130
× ∑ ln (CCILR(s)
i
CCILR(s−1)i )k
s=k−129 ]
2
kt=k−129
129
where: FTLt
i means, for a Futures Constituent and in respect of a Monthly Selection Date k, the Futures Tracker Level of such Futures Constituent i for each Weekday t, from and including the Weekday that is one hundred twenty-nine (129) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
FTLt−1
i means, for a Futures Constituent and in respect of a Weekday t, the Futures Tracker Level of such Futures Constituent i for the Weekday immediately prior to that Weekday t.
FTLs
i means, for a Futures Constituent and in respect of a Monthly Selection Date k, the Futures Tracker Level of such Futures Constituent i for each Weekday s, from and including the Weekday that is one hundred twenty-nine (129) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
FTLs−1
i means, for a Futures Constituent and in respect of a Weekday s, the Futures Tracker Level of such Futures Constituent i for the Weekday immediately prior to that Weekday s.
CCILR(t)i means, for a Commodity Constituent and in respect of a Monthly Selection Date k, the
Commodity Closing Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to each Weekday t, from and including the Weekday that is one hundred twenty-nine (129) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
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CCILR(t−1)i means, for a Commodity Constituent and in respect of a Weekday t, the Commodity Closing
Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to the Weekday immediately prior to that Weekday t.
CCILR(s)i means, for a Commodity Constituent and in respect of a Monthly Selection Date k, the
Commodity Closing Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to each Weekday s, from and including the Weekday that is one hundred twenty-nine (129) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
CCILR(s−1)i means, for a Commodity Constituent and in respect of a Weekday s, the Commodity
Closing Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to the Weekday immediately prior to that Weekday s.
(f) Calculate Realized Volatilityki , in respect of a Monthly Selection Date k and a Basket Constituent i,
which shall equal the greatest value among (i) the Constituent 22D Volatility, (ii) the Constituent 65D Volatility and (iii) the Constituent 130D Volatility (such greatest value, the “Realized Volatility” for such Basket Constituent i for such Monthly Selection Date k), which can be expressed as:
Realized Volatilityki = max(22D Volatilityk
i , 65D Volatilityki , 130D Volatilityk
i )
where: max( ) means the maximum function.
(g) Calculate Prelim Wtk
i , the preliminary weight of each Basket Constituent i within the Preliminary Portfolio in respect of Monthly Selection Date k (the “Preliminary Weight”) in accordance with the following: If:
(i) the Rank of Basket Constituent i and in respect of Monthly Selection Date k (as calculated in accordance with paragraph (b) above) is less than or equal to nine (9); and
(ii) the Realized Volatility of Basket Constituent i and in respect of a Monthly Selection Date k (as calculated in accordance with paragraph (f) above) is not equal to zero (0);
then the Preliminary Weight of such Basket Constituent i shall be calculated as follows:
Prelim Wtki =
1
N×
Target Volatility
Realized Volatilityki
where: N means the number of Basket Constituents that satisfy conditions (i) and (ii) above. Target Volatility means Target Volatility, which has the meaning given to such term in Section 19
(Definitions) below.
Realized Volatilityki means, in respect of a Basket Constituent i and a Monthly Selection Date k, the
Realized Volatility of such Basket Constituent i for such Monthly Selection Date k, calculated in accordance with paragraph (f) above.
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If a Basket Constituent i does not satisfy both conditions (i) and (ii) above, then the Preliminary Weight of Basket Constituent i and in respect of Monthly Selection Date k shall be equal to zero (0).
9.2 Identifying the Monthly Constituent Weight of each Basket Constituent for a Monthly Selection Date
With respect to a Monthly Selection Date, the Index Calculation Agent will: (a) Calculate Qt, the daily logarithmic return of the Preliminary Portfolio (the “Preliminary Portfolio
Return”) in accordance with the following formula:
Qt = ln (1 + ∑ [Prelim Wtki ×
FTLti − FTLt−1
i
FTLki
]
12
i=1
+ ∑ [Prelim Wtki ×
CCILR(t)i − CCILR(t−1)
i
CCILR(k)i
]
15
i=13
)
where:
Prelim Wtki means the Preliminary Weight of Basket Constituent i and in respect of Monthly Selection
Date k, calculated in accordance with 9.1 (Identifying the Preliminary Weight of each Basket Constituent for a Monthly Selection Date).
FTLt
i means, for a Futures Constituent and in respect of a Monthly Selection Date k, the Futures Tracker Level of such Futures Constituent i for each Weekday t, from and including the Weekday that is one hundred twenty-nine (129) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
FTLt−1
i means, for a Futures Constituent and in respect of a Weekday t, the Futures Tracker Level of such Futures Constituent i for the Weekday immediately prior to that Weekday t.
FTLki means, for a Futures Constituent and in respect of a Monthly Selection Date k, the Futures
Tracker Level of such Futures Constituent i for such Monthly Selection Date k.
CCILR(t)i means, for a Commodity Constituent and in respect of a Monthly Selection Date k, the
Commodity Closing Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to each Weekday t, from and including the Weekday that is one hundred twenty-nine (129) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
CCILR(t−1)i means, for a Commodity Constituent and in respect of a Weekday t, the Commodity Closing
Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to the Weekday immediately prior to that Weekday t.
CCILR(k)i means, for a Commodity Constituent and in respect of a Monthly Selection Date k, the
Commodity Closing Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to such Monthly Selection Date k.
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(b) Calculate 22D Volatilitykp
, the volatility of the Preliminary Portfolio Returns for the twenty-two (22)
Weekdays immediately prior to and including such Monthly Selection Date k (the “Portfolio 22D Volatility”), in accordance with the following formula:
22D Volatilitykp
=√
260 ×∑ [Qt − ∑
Qs
22ks=k−21 ]
2kt=k−21
21
where: Qt means, in respect of a Monthly Selection Date k, the Preliminary Portfolio Return for each
Weekday t, from and including the Weekday that is twenty one (21) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
Qs means, in respect of a Monthly Selection Date k, the Preliminary Portfolio Return for each
Weekday s, from and including the Weekday that is twenty one (21) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
(c) Calculate 65D Volatilityk
p, the volatility of the Preliminary Portfolio Returns for the sixty-five (65)
Weekdays immediately prior to and including such Monthly Selection Date k (the “Portfolio 65D Volatility”), in accordance with the following formula:
65D Volatilitykp
=√
260 ×∑ [Qt − ∑
Qs
65ks=k−64 ]
2kt=k−64
64
where: Qt means, in respect of a Monthly Selection Date k, the Preliminary Portfolio Return for each
Weekday t, from and including the Weekday that is sixty four (64) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
Qs means, in respect of a Monthly Selection Date k, the Preliminary Portfolio Return for each
Weekday s, from and including the Weekday that is sixty four (64) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
(d) Calculate 130D Volatilityk
p, the volatility of the Preliminary Portfolio Returns for the one hundred
thirty (130) Weekdays immediately prior to and including such Monthly Selection Date k (the “Portfolio 130D Volatility”), in accordance with the following formula:
130D Volatilitykp
=√
260 ×∑ [Qt − ∑
Qs
130ks=k−129 ]
2kt=k−129
129
where: Qt means, in respect of a Monthly Selection Date k, the Preliminary Portfolio Return for each
Weekday t, from and including the Weekday that is one hundred twenty nine (129) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
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Qs means, in respect of a Monthly Selection Date k, the Preliminary Portfolio Return for each Weekday s, from and including the Weekday that is one hundred twenty nine (129) Weekdays immediately prior to such Monthly Selection Date k to and including such Monthly Selection Date k.
(e) Calculate Realized Volatilityk
p, the greatest value among (i) the Portfolio 22D Volatility, (ii) the
Portfolio 65D Volatility and (iii) the Portfolio 130D Volatility, in each case in respect of the applicable Monthly Selection Date k (such greatest value, the “Preliminary Portfolio Volatility”), which can be expressed as:
Realized Volatilitykp
= max(22D Volatilitykp
, 65D Volatilitykp
, 130D Volatilitykp
)
(f) Calculate Monthly Wtki , the Monthly Weight of each Basket Constituent i and in respect of Monthly
Selection Date k, in accordance with the following:
(i) If the Preliminary Weight of Basket Constituent i and in respect of Monthly Selection Date k (as calculated in accordance with Section 9.1 (Identifying the Preliminary Weight of each Basket Constituent for a Monthly Selection Date) above) is zero (0), then the Monthly Weight of such Basket Constituent i and in respect of Monthly Selection Date k shall be zero (0).
(ii) If the Preliminary Weight of Basket Constituent i and in respect of Monthly Selection Date k
(as calculated in accordance with Section 9.1 above) is not equal to zero (0), then the Monthly Weight of such Basket Constituent i and in respect of Monthly Selection Date k shall be calculated in accordance with the following formula:
Monthly Wtki = Prelim Wtk
i × min (Target Volatility
Realized Volatilitykp ,
Max Total Wt
∑ (Prelim Wtk
j)15
j=1
,Wt Capi
Prelim Wtki
)
where:
Prelim Wtki means the Preliminary Weight of Basket Constituent i and in respect of Monthly Selection
Date k as determined in accordance with Section 9.1 above. Realized Volatilityk
p means the Preliminary Portfolio Volatility in respect of Monthly Selection Date k
as determined in accordance with paragraph (e) above. Target Volatility means Target Volatility, which has the meaning given to such term in Section 19
(Definitions) below. Max Total Wt means the Maximum Total Weight, which has the meaning given to such term in
Section 19 (Definitions) below.
Prelim Wtkj
means the Preliminary Weight of each Basket Constituent j in respect of Monthly
Selection Date k as determined in accordance with Section 9.1 above. Wt Capi means the Constituent Weight Cap of Basket Constituent i defined in Section 6 (The Basket
Constituents) above. min( ) means the minimum function.
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9.3 Unitizing the Monthly Constituent Weight of each Basket Constituent for a Monthly Selection Date
With respect to a Monthly Selection Date k, the Index Calculation Agent will calculate Monthly Unitski , the
Monthly Units for each Basket Constituent i, which shall be equal to the Monthly Constituent Weight “unitized” (i.e., converted into a fixed number of units or reference underlyings to trade) as follows:
(i) in the case of a Basket Constituent i that is a Futures Constituent:
Monthly Unitski = Monthly Wtk
i ×Available Levelk
FTLki
(ii) in the case of a Basket Constituent i that is a Commodity Constituent:
Monthly Unitski = Monthly Wtk
i ×Available Levelk
CCILR(k)i
where: Monthly Wtk
i means the Monthly Constituent Weight of Basket Constituent i and in respect of Monthly Selection Date k as determined in accordance with Section 9.2 (Identifying the Monthly Constituent Weight of each Basket Constituent for a Monthly Selection Date) above.
Available Levelk means (i) if all inputs necessary to perform the calculation of the Index Level in respect of
Monthly Selection Date k are published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent on such Monthly Selection Date k (including, without limitation, inputs necessary to perform the calculations in Section 12 (Index Levels) below, such as inputs necessary to perform the calculations relevant to determining the Futures Tracker Level of the relevant Futures Constituents to which the Index has exposure for each corresponding Relevant Futures Input Day, inputs necessary to perform the calculations relevant to determining the Commodity Closing Index Level or Commodity Settlement Index Level, as applicable, of the relevant Commodity Constituents to which the Index has exposure for each corresponding Relevant Commodity Input Day and the Index Level for the immediately preceding Scheduled Publication Day), the Index Level for such Monthly Selection Date k or (ii) if any inputs necessary to perform the calculation of the Index Level in respect of Monthly Selection Date k are not published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent on such Monthly Selection Date k (without regard to when or whether they are subsequently published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent), the Index Level for the most recent Scheduled Publication Day prior to such Monthly Selection Date k with respect to which all inputs necessary to perform the calculation of the Index Level in respect of such Scheduled Publication Day were published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent on such Scheduled Publication Day (including, without limitation, inputs necessary to perform the calculations in Section 12 below, such as inputs necessary to perform the calculations relevant to determining the Futures Tracker Level of the relevant Futures Constituents to which the Index has exposure for each corresponding Relevant Futures Input Day, inputs necessary to perform the calculations relevant to determining the Commodity Closing Index Level or Commodity Settlement Index Level, as applicable, of the relevant Commodity Constituents to which the Index has exposure for each corresponding Relevant Commodity Input Day and the Index Level for the immediately preceding Scheduled Publication Day) (without regard to whether such inputs were published or otherwise made available to the Index Calculation Agent between such Scheduled Publication Day and such Monthly Selection Date k).
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FTLki means, for a Futures Constituent and in respect of a Monthly Selection Date k, the Futures
Tracker Level of such Futures Constituent i for such Monthly Selection Date k.
CCILR(k)i means, for a Commodity Constituent and in respect of a Monthly Selection Date k, the
Commodity Closing Index Level of such Commodity Constituent i for the most recent Commodity Constituent Scheduled Day for such Commodity Constituent i that occurs on or prior to such Monthly Selection Date k.
10. Monthly Rebalancing
The Index Calculation Agent will rebalance the exposure of each Basket Constituent (i) to the Monthly Units for a given calendar month, calculated as of the Monthly Selection Date for such calendar month (such exposure, the “Next Monthly Units”) and (ii) from the relevant Monthly Units for the immediately preceding calendar month, calculated as of the Monthly Selection Date for the immediately preceding calendar month (such exposure, the “Prior Monthly Units”). Such monthly rebalancing will be implemented over the first five (5) Futures Constituent Effective Monthly Rebalancing Days (as defined below) of the relevant calendar month in the case of a Futures Constituent and will be implemented over the first five (5) Commodity Constituent Effective Monthly Rebalancing Days of the relevant calendar month in the case of a Commodity Constituent.
10.1 Futures Constituent Effective Monthly Rebalancing Days
For each Futures Constituent i, the Index Calculation Agent shall determine the period consisting of each of the first five (5) Futures Constituent Scheduled Days for the relevant calendar month for such Futures Constituent (each such day, a “Futures Constituent Scheduled Monthly Rebalancing Day” for the relevant calendar month for such Futures Constituent). Each Futures Constituent Scheduled Monthly Rebalancing Day shall have an associated Futures Constituent Effective Monthly Rebalancing Day. As a result, the proportion of the Monthly Units scheduled to be rebalanced (twenty percent (20%) for each Futures Constituent Scheduled Monthly Rebalancing Day in a given monthly rebalancing period) shall be rebalanced as of a Futures Constituent Scheduled Day determined as follows (such Futures Constituent Scheduled Day, the “Futures Constituent Effective Monthly Rebalancing Day” associated with such Futures Scheduled Monthly Rebalancing Day):
(i) The Futures Constituent Effective Monthly Rebalancing Day associated with the first (1st) Futures Constituent Scheduled Monthly Rebalancing Day shall be the earlier to occur in the relevant calendar month of (x) the first (1st) Futures Constituent Scheduled Day that is either a Futures Constituent Valid Day or a Futures Constituent Roll Determination Day and (y) the ninth (9th) Futures Constituent Scheduled Day.
(ii) The Futures Constituent Effective Monthly Rebalancing Day associated with the second (2nd) Futures
Constituent Scheduled Monthly Rebalancing Day shall be the earlier to occur in the relevant calendar month of (x) the second (2nd) Futures Constituent Scheduled Day that is either a Futures Constituent Valid Day or a Futures Constituent Roll Determination Day and (y) the tenth (10th) Futures Constituent Scheduled Day.
(iii) The Futures Constituent Effective Monthly Rebalancing Day associated with the third (3rd) Futures
Constituent Scheduled Monthly Rebalancing Day shall be the earlier to occur in the relevant calendar month of (x) the third (3rd) Futures Constituent Scheduled Day that is either a Futures Constituent Valid Day or a Futures Constituent Roll Determination Day and (y) the eleventh (11th) Futures Constituent Scheduled Day.
(iv) The Futures Constituent Effective Monthly Rebalancing Day associated with the fourth (4th) Futures
Constituent Scheduled Monthly Rebalancing Day shall be the earlier to occur in the relevant calendar
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month of (x) the fourth (4th) Futures Constituent Scheduled Day that is either a Futures Constituent Valid Day or a Futures Constituent Roll Determination Day and (y) the twelfth (12th) Futures Constituent Scheduled Day.
(v) The Futures Constituent Effective Monthly Rebalancing Day associated with the fifth (5th) Futures
Constituent Scheduled Monthly Rebalancing Day shall be the earlier to occur in the relevant calendar month of (x) the fifth (5th) Futures Constituent Scheduled Day that is either a Futures Constituent Valid Day or a Futures Constituent Roll Determination Day and (y) the thirteenth (13th) Futures Constituent Scheduled Day.
Only a single Scheduled Monthly Rebalancing Day during a given monthly rebalancing period can be associated with a particular Futures Constituent Effective Monthly Rebalancing Day. A “Futures Constituent Monthly Rebalancing Determination Day” for a Futures Constituent is a Futures Constituent Effective Monthly Rebalancing Day that is not a Futures Constituent Valid Day for such Futures Constituent. In order to implement the monthly rebalancing for a Futures Constituent i and in respect of a Weekday t, the Index Calculation Agent shall determine the notional exposure of such Futures Constituent to the Next Monthly Units in respect of such Weekday (such exposure, the “Rebalanced Exposure” or “Rebalanced Expt
i ” for such Futures Constituent i) in accordance with the following methodology:
(i) If such Weekday t is a Futures Constituent Effective Monthly Rebalancing Day for such Futures Constituent i in a given calendar month: (a) in the case of the first (1st) Futures Constituent Effective Monthly Rebalancing Day in the relevant
calendar month for such Futures Constituent, then the Rebalanced Exposure shall be equal to twenty percent (20%), which can be expressed as Rebalanced Expt
i = 20%.
(b) in the case of the second (2nd) Futures Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Futures Constituent, then the Rebalanced Exposure shall be equal to forty percent (40%), which can be expressed as Rebalanced Expt
i = 40%.
(c) in the case of the third (3rd) Futures Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Futures Constituent, then the Rebalanced Exposure shall be equal to sixty percent (60%), which can be expressed as Rebalanced Expt
i = 60%.
(d) in the case of the fourth (4th) Futures Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Futures Constituent, then the Rebalanced Exposure shall be equal to eighty percent (80%), which can be expressed as Rebalanced Expt
i = 80%. (e) in the case of the fifth (5th) Futures Constituent Effective Monthly Rebalancing Day in the
relevant calendar month for such Futures Constituent, then the Rebalanced Exposure shall be equal to one hundred percent (100%), which can be expressed as Rebalanced Expt
i = 100%.
(ii) If such Weekday t is not a Futures Constituent Effective Monthly Rebalancing Day for such Futures Constituent i,
(a) in the case in which there is no Futures Constituent Effective Monthly Rebalancing Day in the
relevant calendar month preceding such Weekday t, then the Rebalanced Exposure for Weekday t shall be equal to zero percent (0%), which can be expressed as Rebalanced Expt
i = 0%.
(b) in the case in which the Futures Constituent Effective Monthly Rebalancing Day immediately preceding such Weekday t in the relevant calendar month is the first (1st) Futures Constituent
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Effective Monthly Rebalancing Day in the relevant calendar month for such Futures Constituent, the Rebalanced Exposure for Weekday t shall be equal to twenty percent (20%), which can be expressed as Rebalanced Expt
i = 20%.
(c) in the case in which the Futures Constituent Effective Monthly Rebalancing Day immediately preceding such Weekday t in the relevant calendar month is the second (2nd) Futures Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Futures Constituent, the Rebalanced Exposure for Weekday t shall be equal to forty percent (40%), which can be expressed as Rebalanced Expt
i = 40%.
(d) in the case in which the Futures Constituent Effective Monthly Rebalancing Day immediately preceding such Weekday t in the relevant calendar month is the third (3rd) Futures Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Futures Constituent, the Rebalanced Exposure for Weekday t shall be equal to sixty percent (60%), which can be expressed as Rebalanced Expt
i = 60%.
(e) in the case in which the Futures Constituent Effective Monthly Rebalancing Day immediately preceding such Weekday t in the relevant calendar month is the fourth (4th) Futures Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Futures Constituent, the Rebalanced Exposure for Weekday t shall be equal to eighty percent (80%), which can be expressed as Rebalanced Expt
i = 80%. (f) in the case in which the Futures Constituent Effective Monthly Rebalancing Day immediately
preceding such Weekday t in the relevant calendar month is the fifth (5th) Futures Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Futures Constituent, the Rebalanced Exposure for Weekday t shall be equal to one hundred percent (100%), which can be expressed as Rebalanced Expt
i = 100%.
10.2 Commodity Monthly Effective Rebalancing Days for a Commodity Constituent
For each Commodity Constituent i, the Index Calculation Agent shall determine the period consisting of each of the first five (5) Commodity Constituent Scheduled Days for the relevant calendar month for such Commodity Constituent on which each Relevant Commodity Exchange for each of the individual commodity futures contracts referenced by such Commodity Constituent is scheduled to be open for trading in such individual commodity futures contracts (each such day, a “Commodity Constituent Scheduled Monthly Rebalancing Day” for the relevant calendar month for such Commodity Constituent). Each Commodity Constituent Scheduled Monthly Rebalancing Day shall have an associated Commodity Constituent Effective Monthly Rebalancing Day. As such, the proportion of the Monthly Units scheduled to be rebalanced (twenty percent (20%) for each Commodity Constituent Scheduled Monthly Rebalancing Day in a given monthly rebalancing period) shall be rebalanced as of such Commodity Constituent Scheduled Monthly Rebalancing Day (such Commodity Constituent Scheduled Monthly Rebalancing Day, also known as the “Commodity Constituent Effective Monthly Rebalancing Day” associated with such Commodity Constituent Scheduled Monthly Rebalancing Day).
(i) The Commodity Constituent Effective Monthly Rebalancing Day associated with the first (1st) Commodity Constituent Scheduled Monthly Rebalancing Day shall be such first (1st) Commodity Constituent Scheduled Monthly Rebalancing Day.
(ii) The Commodity Constituent Effective Monthly Rebalancing Day associated with the second (2nd)
Commodity Constituent Scheduled Monthly Rebalancing Day shall be such second (2nd) Commodity Constituent Scheduled Monthly Rebalancing Day.
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(iii) The Commodity Constituent Effective Monthly Rebalancing Day associated with the third (3rd) Commodity Constituent Scheduled Monthly Rebalancing Day shall be such third (3rd) Commodity Constituent Scheduled Monthly Rebalancing Day.
(iv) The Commodity Constituent Effective Monthly Rebalancing Day associated with the fourth (4th)
Commodity Constituent Scheduled Monthly Rebalancing Day shall be such fourth (4th) Commodity Constituent Scheduled Monthly Rebalancing Day.
(v) The Commodity Constituent Effective Monthly Rebalancing Day associated with the fifth (5th)
Commodity Constituent Scheduled Monthly Rebalancing Day shall be such fifth (5th) Commodity Constituent Scheduled Monthly Rebalancing Day.
Only a single Commodity Constituent Scheduled Monthly Rebalancing Day during a given monthly rebalancing period can be associated with a particular Commodity Constituent Effective Monthly Rebalancing Day. “Commodity Constituent Monthly Rebalancing Determination Day” means, for a Commodity Constituent i, a Commodity Constituent Effective Monthly Rebalancing Day for which the Commodity Settlement Index Level is not published or otherwise made available by the relevant exchange or index sponsor to the Index Calculation Agent on or prior to the eighth (8th) Commodity Constituent Scheduled Day following such Commodity Constituent Effective Monthly Rebalancing Day. In order to implement the monthly rebalancing for a Commodity Constituent i in respect of a Weekday t, the Index Calculation Agent shall calculate the notional exposure of such Commodity Constituent to the Next Monthly Units in respect of such Weekday (such exposure, the “Rebalanced Exposure” or "𝐑𝐞𝐛𝐚𝐥𝐚𝐧𝐜𝐞𝐝 𝐄𝐱𝐩𝐭
𝐢" for such Commodity Constituent i) in accordance with the following methodology:
(i) If such Weekday t is a Commodity Constituent Effective Monthly Rebalancing Day for such Commodity Constituent i in a given calendar month: (a) in the case of the first (1st) Commodity Constituent Effective Monthly Rebalancing Day in the
relevant calendar month for such Commodity Constituent, then the Rebalanced Exposure shall be equal to twenty percent (20%), which can be expressed as Rebalanced Expt
i = 20%.
(b) in the case of the second (2nd) Commodity Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Commodity Constituent, then the Rebalanced Exposure shall be equal to forty percent (40%), which can be expressed as Rebalanced Expt
i = 40%.
(c) in the case of the third (3rd) Commodity Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Commodity Constituent, then the Rebalanced Exposure shall be equal to sixty percent (60%), which can be expressed as Rebalanced Expt
i = 60%.
(d) in the case of the fourth (4th) Commodity Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Commodity Constituent, then the Rebalanced Exposure shall be equal to eighty percent (80%), which can be expressed as Rebalanced Expt
i = 80%. (e) in the case of the fifth (5th) Commodity Constituent Effective Monthly Rebalancing Day in the
relevant calendar month for such Commodity Constituent, then the Rebalanced Exposure shall be equal to one hundred percent (100%), which can be expressed as Rebalanced Expt
i = 100%.
(ii) If such Weekday t is not a Commodity Constituent Effective Monthly Rebalancing Day for such Commodity Constituent i:
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(a) in the case in which there is no Commodity Constituent Effective Monthly Rebalancing Day in the relevant calendar month preceding such Weekday t, then the Rebalanced Exposure shall be equal to zero percent (0%), which can be expressed as Rebalanced Expt
i = 0%.
(b) in the case in which the Commodity Constituent Effective Monthly Rebalancing Day immediately preceding such Weekday t in the relevant calendar month is the first (1st) Commodity Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Commodity Constituent, then the Rebalanced Exposure shall be equal to twenty percent (20%), which can be expressed as Rebalanced Expt
i = 20%.
(c) in the case in which the Commodity Constituent Effective Monthly Rebalancing Day immediately preceding such Weekday t in the relevant calendar month is the second (2nd) Commodity Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Commodity Constituent, then the Rebalanced Exposure shall be equal to forty percent (40%), which can be expressed as Rebalanced Expt
i = 40%.
(d) in the case in which the Commodity Constituent Effective Monthly Rebalancing Day immediately preceding such Weekday t in the relevant calendar month is the third (3rd) Commodity Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Commodity Constituent, then the Rebalanced Exposure shall be equal to sixty percent (60%), which can be expressed as Rebalanced Expt
i = 60%.
(e) in the case in which the Commodity Constituent Effective Monthly Rebalancing Day immediately preceding such Weekday t in the relevant calendar month is the fourth (4th) Commodity Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Commodity Constituent, then the Rebalanced Exposure shall be equal to eighty percent (80%), which can be expressed as Rebalanced Expt
i = 80%. (f) in the case in which the Commodity Constituent Effective Monthly Rebalancing Day immediately
preceding such Weekday t in the relevant calendar month is the fifth (5th) Commodity Constituent Effective Monthly Rebalancing Day in the relevant calendar month for such Commodity Constituent, then the Rebalanced Exposure shall be equal to one hundred percent (100%), which can be expressed as Rebalanced Expt
i = 100%.
10.3 Determination of the Current Units for a Basket Constituent in respect of a Weekday t
The Index Calculation Agent will calculate, for each Basket Constituent i and in respect of each Weekday t, such Basket Constituent’s current weighted-average units (the “Current Units” or “Current Unitst
i”), pursuant to the following formula:
Current Unitsti = (1 − Rebalanced Expt
i ) × Prior Monthly Unitsti + Rebalanced Expt
i × Next Monthly Unitsti
where: Rebalanced Expt
i means, for a Basket Constituent i and in respect of a Weekday t, the Rebalanced Exposure determined for Weekday t in accordance with Section 10.1 (Futures Constituent Effective Monthly Rebalancing Days) for a Futures Constituent or in accordance with Section 10.2 (Commodity Monthly Effective Rebalancing Days for a Commodity Constituent) for a Commodity Constituent.
Next Monthly Unitst
i means, for a Basket Constituent i and in respect of a Weekday t, the Next Monthly Units of Basket Constituent i determined for Weekday t.
Prior Monthly Unitst
i means, for a Basket Constituent i and in respect of a Weekday t, the Prior Monthly Units of Basket Constituent i determined for Weekday t.
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10.4 Determination of the Current Units for a Basket Constituent in respect of a Weekday t-1
The Index Calculation Agent will also calculate, for each Basket Constituent i and in respect of each Weekday t, such Basket Constituent’s current weighted-average units in respect of the Weekday immediately prior to Weekday t (the “Current Units” or “Current Unitst−1
i ”), pursuant to the following formula:
Current Unitst−1i = (1 − Rebalanced Expt−1
i ) × Prior Monthly Unitst−1i + Rebalanced Expt−1
i × Next Monthly Unitst−1i
where: Rebalanced Expt−1
i means, for a Basket Constituent i and in respect of a Weekday t, the Rebalanced Exposure determined for the Weekday immediately preceding Weekday t.
Next Monthly Unitst−1
i means, for a Basket Constituent i and in respect of a Weekday t, the Next Monthly Units of Basket Constituent i determined for the Weekday immediately preceding Weekday t.
Prior Monthly Unitst−1i means, for a Basket Constituent i and in respect of a Weekday t, the Prior Monthly
Units of Basket Constituent i determined for the Weekday immediately preceding Weekday t.
11. Exposure flattening
In respect of each Weekday t, the Index Calculation Agent will determine whether the exposure of the Index to the Basket Constituents that have non-zero Current Units in the Index, determined in respect of such Weekday, shall be flattened towards zero (0) (or re-initiated in the case of Basket Constituents that would have non-zero Current Units in the Index, determined in respect of such Weekday, but for previously triggered exposure flattening), by reference to a Flattening Signal (as defined in Section 11.1 below). If the Flattening Signal calculated in respect of a Weekday t is reduced from one (1) to zero (0), the Index will flatten its exposures (a) for each Futures Constituent that has non-zero Current Units in the Index, determined in respect of each of the first (1st) three (3) Weekdays that are any of (x) a Futures Constituent Valid Day for such Futures Constituent i, (y) a Futures Constituent Roll Determination Day for such Futures Constituent i, or (z) a Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i and (b) for each Commodity Constituent that has non-zero Current Units in the Index, determined in respect of each of the first (1st) three (3) Commodity Constituent Scheduled Days on which each Relevant Commodity Exchange for each of the individual commodity futures contracts referenced by such Commodity Constituent is scheduled to be open for trading in such individual commodity futures contracts, as further detailed in Section 11.1 and Section 11.2 below. If the Flattening Signal calculated in respect of a Weekday t is increased from zero (0) to one (1), the Index Calculation Agent will re-initiate the exposure for each Basket Constituent that has non-zero Current Units in the Index, determined in respect of each of the first (1st) three (3) Weekdays that are any of (x) a Futures Constituent Valid Day for such Futures Constituent i, (y) a Futures Constituent Roll Determination Day for such Futures Constituent i, or (z) a Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i and (b) for each Commodity Constituent that has non-zero Current Units in the Index, determined in respect of each of the first (1st) three (3) Commodity Constituent Scheduled Days on which each Relevant Commodity Exchange for each of the individual commodity futures contracts referenced by such Commodity Constituent is scheduled to be open for trading in such individual commodity futures contracts, as further detailed in Section 11.1 and Section 11.2 below.
11.1 Calculating the Flattening Signal
As of the Start Date for the Index, the Flattening Signal was one (1). In respect of each Weekday t following the Start Date, the Index Calculation Agent shall calculate the Flattening Signal for such Weekday t (the “Flattening Signal” or Flattening Signalt) as follows:
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(i) In respect of a Weekday t, if the Flattening Signalt−1 = 1, then:
(a) If Available Level t−1
Available Level t−6− 1 < Exposure Flattening Threshold, then the Flattening Signal shall be zero
(0), which can be expressed as Flattening Signalt = 0.
(b) If Available Level t−1
Available Level t−6− 1 ≥ Exposure Flattening Threshold, then the Flattening Signal shall be one
(1), which can be expressed as Flattening Signalt = 1.
(ii) In respect of a Weekday t, if the Flattening Signal calculated for the Weekday immediately prior to such Weekday t is zero (0) and:
(a) If the Flattening Signal is also zero (0) in respect of each of the four (4) Weekdays from and
including the Weekday that is five (5) Weekdays prior to Weekday t, to but excluding such immediately prior Weekday, then the Flattening Signal shall be one (1), which can be expressed as Flattening Signalt = 1.
(b) If the Flattening Signal is one (1) in respect of any of the four (4) Weekdays from and including
the Weekday that is five (5) Weekdays prior to Weekday t, to but excluding such immediately prior Weekday, then the Flattening Signal shall be zero (0), which can be expressed as Flattening Signalt = 0.
where: Available Level t−1 means, in respect of a Weekday t, (i) if all inputs necessary to perform the calculation of
the Index Level in respect of the Scheduled Publication Day immediately prior to such Weekday t (the “Relevant Scheduled Publication Day”) are published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent on such Relevant Scheduled Publication Day (including, without limitation, inputs necessary to perform the calculations in Section 12 (Index Levels) below, such as inputs necessary to perform the calculations relevant to determining the Futures Tracker Level of the relevant Futures Constituents to which the Index has exposure for each corresponding Relevant Futures Input Day, inputs necessary to perform the calculations relevant to determining the Commodity Closing Index Level or Commodity Settlement Index Level, as applicable, of the relevant Commodity Constituents to which the Index has exposure for each corresponding Relevant Commodity Input Day and the Index Level for the Scheduled Publication Day immediately preceding such Relevant Scheduled Publication Day), the Index Level for such Relevant Scheduled Publication Day or (ii) if any inputs necessary to perform the calculation of the Index Level in respect of such Relevant Scheduled Publication Day are not published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent on such Relevant Scheduled Publication Day (without regard to when or whether they are subsequently published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent), the Index Level for the most recent Scheduled Publication Day (the “Prior Scheduled Publication Day”) prior to such Relevant Scheduled Publication Day with respect to which all inputs necessary to perform the calculation of the Index Level in respect of such Prior Scheduled Publication Day were published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent on such Prior Scheduled Publication Day (including, without limitation, inputs necessary to perform the calculations in Section 12 below, such as inputs necessary to perform the calculations relevant to determining the Futures Tracker Level of the relevant Futures Constituents to which the Index has exposure for each corresponding Relevant Futures Input Day, inputs necessary to perform the calculations relevant to determining the Commodity Closing Index Level or Commodity Settlement Index Level, as applicable, of the relevant Commodity Constituents to which the Index has exposure for each
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corresponding Relevant Commodity Input Day and the Index Level for the Scheduled Publication Day immediately preceding such Prior Scheduled Publication Day) (without regard to whether such inputs were published or otherwise made available to the Index Calculation Agent between such Prior Scheduled Publication Day and such Weekday t).
Available Level t−6 means, in respect of a Weekday t, (i) if all inputs necessary to perform the calculation of
the Index Level for the Scheduled Publication Day (the “Relevant Scheduled Day”) that is six (6) Weekdays prior to such Weekday t are published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent on such Relevant Scheduled Day (including, without limitation, inputs necessary to perform the calculations in Section 12 below, such as inputs necessary to perform the calculations relevant to determining the Futures Tracker Level of the relevant Futures Constituents to which the Index has exposure for each corresponding Relevant Futures Input Day, inputs necessary to perform the calculations relevant to determining the Commodity Closing Index Level or Commodity Settlement Index Level, as applicable, of the relevant Commodity Constituents to which the Index has exposure for each corresponding Relevant Commodity Input Day and the Index Level for the Scheduled Publication Day immediately preceding such Relevant Scheduled Day), the Index Level for such Relevant Scheduled Day or (ii) if any inputs necessary to perform the calculation of the Index Level in respect of such Relevant Scheduled Day are not published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent on such Relevant Scheduled Day (without regard to when or whether they are subsequently published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent), the Index Level for the most recent Scheduled Publication Day (the “Prior Scheduled Day”) prior to the Relevant Scheduled Day with respect to which all inputs necessary to perform the calculation of the Index Level in respect of such Prior Scheduled Day were published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent on such Prior Scheduled Day (including, without limitation, inputs necessary to perform the calculations in Section 12 below, such as inputs necessary to perform the calculations relevant to determining the Futures Tracker Level of the relevant Futures Constituents to which the Index has exposure for each corresponding Relevant Futures Input Day, inputs necessary to perform the calculations relevant to determining the Commodity Closing Index Level or Commodity Settlement Index Level, as applicable, of the relevant Commodity Constituents to which the Index has exposure for each corresponding Relevant Commodity Input Day and the Index Level for the Scheduled Publication Day immediately preceding such Prior Scheduled Day) (without regard to whether such inputs were published or otherwise made available to the Index Calculation Agent between such Prior Scheduled Day and such Weekday t).
Exposure Flattening Threshold is minus three percent (-3.00%), being the “Exposure Flattening
Threshold”.
11.2 Calculating the Effective Exposure for each Futures Constituent
As of the Start Date for the Index, the Effective Exposure (as defined below) for each Futures Constituent was one (1). For each Futures Constituent i and in respect of each Weekday t, the Index Calculation Agent shall calculate Effective Expt
i (the “Effective Exposure”) as follows:
(i) In the case of a Weekday t that is any of (x) a Futures Constituent Valid Day for such Futures Constituent i, (y) a Futures Constituent Roll Determination Day for such Futures Constituent i, or (z) a Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i, the Effective Exposure of such Futures Constituent i in respect of such Weekday t is calculated as follows: (a) If the Flattening Signal for such Futures Constituent i and in respect of such Weekday t is equal to
the Effective Exposure for the Weekday immediately prior to such Weekday t, then the Effective
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Exposure in respect of such Weekday t shall be equal to the Effective Exposure for such immediately prior Weekday, which can be expressed as Effective Expt
i = Effective Expt−1i .
(b) If the Flattening Signal for such Futures Constituent i and in respect of such Weekday t is greater
than the Effective Exposure for the Weekday immediately prior to such Weekday t, then the Effective Exposure in respect of such Weekday t shall be equal to the Effective Exposure for such immediately prior Weekday plus one third (1/3), which can be expressed as Effective Expt
i =
Effective Expt−1i + 1
3⁄ .
(c) If the Flattening Signal for such Futures Constituent i and in respect of such Weekday t is less
than the Effective Exposure for the Weekday immediately prior to such Weekday t, then the Effective Exposure in respect of such Weekday t shall be equal to the Effective Exposure for such immediately prior Weekday minus one third (1/3), which can be expressed as Effective Expt
i =
Effective Expt−1i − 1
3⁄ .
where: Flattening Signalt means, in respect of a Weekday t, the Flattening Signal for such Weekday t. Effective Expt−1
i means, for a Futures Constituent i and in respect of a Weekday t, the Effective Exposure of such Futures Constituent i for the Weekday immediately prior to such Weekday t.
(ii) In the case of a Weekday t that is not any of (x) a Futures Constituent Valid Day for such Futures
Constituent i, (y) a Futures Constituent Roll Determination Day for such Futures Constituent i, or (z) a Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i, the Effective Exposure for such Futures Constituent i and in respect of such Weekday t shall be equal to the Effective Exposure for such Futures Constituent i for the most recent of (x) the Futures Constituent Valid Day for such Futures Constituent i immediately preceding such Weekday t, (y) the Futures Constituent Roll Determination Day for such Futures Constituent i immediately preceding such Weekday t or (z) the Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i immediately preceding such Weekday t
11.3 Calculating the Effective Exposure for each Commodity Constituent
As of the Start Date for the Index, the Effective Exposure (as defined below) for each Commodity Constituent was one (1). For each Commodity Constituent i and in respect of each Weekday t, the Index Calculation Agent shall calculate Effective Expt
i (the “Effective Exposure”) as follows:
(i) In the case of a Weekday t that is a Commodity Constituent Scheduled Day on which each Relevant Commodity Exchange for each of the individual commodity futures contracts referenced by such Commodity Constituent is scheduled to be open for trading in such individual commodity futures contracts, then the Effective Exposure for such Commodity Constituent i and in respect of such Weekday t is calculated as follows: (a) If the Flattening Signal for such Commodity Constituent i and in respect of such Weekday t is
equal to the Effective Exposure for the Weekday immediately prior to such Weekday t, then the Effective Exposure in respect of such Weekday t shall be equal to the Effective Exposure for such
immediately preceding Weekday, which can be expressed as Effective Expti = Effective Exp
t−1i .
(b) If the Flattening Signal for such Commodity Constituent i and in respect of such Weekday t is
greater than the Effective Exposure for the Weekday immediately prior to such Weekday t, then the Effective Exposure in respect of such Weekday t shall be equal to the Effective Exposure for
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such immediately preceding Weekday plus one third (1/3), which can be expressed as
Effective Expti = Effective Expt−1
i + 13⁄ .
(c) If the Flattening Signal for such Commodity Constituent i and in respect of Weekday t is less than
the Effective Exposure for the Weekday immediately prior to such Weekday t, then the Effective Exposure for such Weekday t shall be equal to the Effective Exposure for such immediately preceding Weekday minus one third (1/3), which can be expressed as
Effective Expti = Effective Expt−1
i − 13⁄ .
where: Flattening Signalt means, in respect of a Weekday t, the Flattening Signal calculated in respect of such
Weekday t. Effective Expt−1
i means, for a Commodity Constituent i and in respect of a Weekday t, the Effective Exposure of Commodity Constituent i calculated for the Weekday immediately prior to such Weekday t.
(ii) In the case of a Weekday t that is not a Commodity Constituent Scheduled Day on which each
Relevant Commodity Exchange for each of the individual commodity futures contracts referenced by such Commodity Constituent is scheduled to be open for trading in such individual commodity futures contracts, then the Effective Exposure shall be equal to the Effective Exposure for the most recent Commodity Constituent Scheduled Day immediately preceding such Weekday t.
12. Index Levels
The following general description of the methodology by which the Index Calculation Agent calculates the Index Level in respect of a given Scheduled Publication Day (subject to the provisions of Section 13 (Treatment of Basket Constituents for determination days) below) is intended to constitute a summary of the operative provisions contained in Section 12.1, Section 12.2, Section 12.3, Section 12.4 and Section 12.5 below. This general description is provided solely for informational purposes and is not intended to be an operative provision of these Index Rules. The actual methodology by which the Index Level is calculated (subject to the provisions of Section 13 below) in respect of a particular Scheduled Publication Day is set forth in greater detail in the operative provisions of this Section 12 identified above. In respect of each Scheduled Publication Day following the Start Date, the Index Calculation Agent will calculate the Index Level (subject to the provisions of Section 13 below) in accordance with Section 12.4 below, by reference to the following inputs:
(i) the Index Level in respect of the immediately preceding Scheduled Publication Day; (ii) the Current Units in the Index of each Basket Constituent determined for the immediately preceding
Scheduled Publication Day, (iii) the change from the immediately preceding Scheduled Publication Day in the Futures Tracker Level
for each Futures Constituent that has non-zero Current Units in the Index determined for the immediately preceding Scheduled Publication Day,
(iv) the change from the immediately preceding Scheduled Publication Day in the Commodity Closing Index Level for each Commodity Constituent that has non-zero Current Units in the Index determined for of the immediately preceding Scheduled Publication Day, and
(v) the Effective Exposure of each Basket Constituent determined for the immediately preceding Scheduled Publication Day.
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On certain days, however, the calculation of the Index Level may be affected by certain events including, without limitation, market disruption or an exchange holiday. In such circumstances, the Index Calculation will calculate the Index Level in respect of such Scheduled Publication Day by applying what is sometimes referred to as a “value what you can when you can” approach, in accordance with the following:
(i) For each Futures Constituent, the Index Calculation Agent will identify a Futures Constituent Scheduled Day in respect of which a market participant could obtain a tradable level (such day, a Relevant Futures Input Day as defined in Section 12.1 below), and shall use the Futures Tracker Level for such Futures Constituent in respect of such Relevant Futures Input Day to calculate the Index Level;
(ii) For each Commodity Constituent, the Index Calculation Agent will identify a Commodity Constituent
Scheduled Day in respect of which a market participant could obtain a tradable level (such day, a Relevant Commodity Input Day as defined in Section 12.2 below), and shall use such level for such Commodity Constituent in respect of such Relevant Commodity Input Day to calculate the Index Level; and
(iii) For each Commodity Constituent and its associated Relevant Commodity Input Day, the Index
Calculation Agent will identify a source of a tradable level in accordance with Section 12.3 below:
(a) If such Relevant Commodity Input Day is a Relevant Commodity Constituent Closing Input Day (as defined in Section 12.3 below), then the Index Calculation Agent shall use the Commodity Closing Index Level for such Commodity Constituent in respect of such Relevant Commodity Input Day to calculate the Index Level.
(b) If such Relevant Commodity Input Day is a Relevant Commodity Constituent Settlement
Input Day (as defined in Section 12.3 below), then the Index Calculation Agent shall use the Commodity Settlement Index Level for such Commodity Constituent in respect of such Relevant Commodity Input Day to calculate the Index Level.
(c) If such Relevant Commodity Input Day is a Relevant Commodity Constituent Determination
Input Day (as defined in Section 12.3 below), then the Index Calculation Agent shall use a good faith estimate of the Commodity Settlement Index Level for such Commodity Constituent in respect of such Relevant Commodity Input Day to calculate the Index Level.
As described in Section 12.3 below, given that the Commodity Closing Index Level for each Commodity Constituent is used to calculate the Index Level only for days on which such Commodity Closing Index Level equals the corresponding Commodity Settlement Index Level, the level used in such calculation of the Index Level shall always be either equal to, or a good faith estimate of, such Commodity Constituent’s Commodity Settlement Index Level in respect of the Relevant Commodity Input Day. More information is provided regarding the Commodity Settlement Index Level, and its relationship to a Commodity Constituent and its Commodity Closing Index Level, in Section 12.5 below.
12.1 Determination of the Relevant Futures Input Day
For a Futures Constituent i in respect of a Scheduled Publication Day, the “Relevant Futures Input Day” is determined as follows:
(i) If a Scheduled Publication Day is a Futures Constituent Scheduled Day for such Futures Constituent i:
(a) in the case in which such Scheduled Publication Day is any of (x) a Futures Constituent Valid Day for such Futures Constituent i, (y) a Futures Constituent Roll Determination Day for such Futures Constituent i, or (z) a Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i, then the Relevant Futures Input Day associated with that Scheduled Publication Day will be that Scheduled Publication Day.
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(b) in the case in which such Scheduled Publication Day is not any of (1) a Futures Constituent Valid
Day for such Futures Constituent i, (2) a Futures Constituent Roll Determination Day for such Futures Constituent i, or (3) a Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i, then the Relevant Futures Input Day associated with that Scheduled Publication Day will be the next Futures Constituent Scheduled Day for such Futures Constituent i following that Scheduled Publication Day that is any of (x) a Futures Constituent Valid Day for such Futures Constituent i, (y) a Futures Constituent Roll Determination Day for such Futures Constituent i, or (z) a Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i.
(ii) If that Scheduled Publication Day is not a Futures Constituent Scheduled Day for such Futures
Constituent i:
(a) in the case in which the Futures Constituent Scheduled Day immediately preceding that Scheduled Publication Day is any of (x) a Futures Constituent Valid Day for such Futures Constituent i, (y) a Futures Constituent Roll Determination Day for such Futures Constituent i, or (z) a Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i, then the Relevant Futures Input Day associated with that Scheduled Publication Day will be the Futures Constituent Scheduled Day immediately preceding that Scheduled Publication Day.
(b) in the case in which the Futures Constituent Scheduled Day immediately preceding that
Scheduled Publication Day is not any of (1) a Futures Constituent Valid Day for such Futures Constituent i, (2) a Futures Constituent Roll Determination Day for such Futures Constituent i, or (3) a Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i, then the Relevant Futures Input Day associated with that Scheduled Publication Day will be the next Futures Constituent Scheduled Day for such Futures Constituent i following that Scheduled Publication Day that is any of (x) a Futures Constituent Valid Day for such Futures Constituent i, (y) a Futures Constituent Roll Determination Day for such Futures Constituent i, or (z) a Futures Constituent Monthly Rebalancing Determination Day for such Futures Constituent i.
12.2 Determination of the Relevant Commodity Input Day
For a Commodity Constituent i and in respect of a Scheduled Publication Day, the “Relevant Commodity Input Day” is determined as follows:
(i) If a Scheduled Publication Day is a Commodity Constituent Scheduled Day for such Commodity Constituent i, then the Relevant Commodity Input Day associated with that Scheduled Publication Day will be that Scheduled Publication Day.
(ii) If a Scheduled Publication Day is not a Commodity Constituent Scheduled Day for such Commodity
Constituent i, then the Relevant Commodity Input Day associated with that Scheduled Publication Day will be the Commodity Constituent Scheduled Day immediately preceding that Scheduled Publication Day.
12.3 Determination of whether a Relevant Commodity Input Day is a Relevant Commodity Constituent Closing Input Day, a Relevant Commodity Constituent Settlement Input Day or a Relevant Commodity Constituent Determination Input Day
(i) If the Commodity Settlement Index Level for a Relevant Commodity Input Day (x) is published or otherwise made available by or on behalf of the index sponsor to the Index Calculation Agent on that Relevant Commodity Input Day and (y) is equal to the Commodity Closing Index Level for that Relevant Commodity Input Day, then that Relevant Commodity Input Day shall be a “Relevant Commodity Constituent Closing Input Day”.
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(ii) If the Commodity Settlement Index Level for that Relevant Commodity Input Day is either (x) not published or otherwise made available by or on behalf of the index sponsor to the Index Calculation Agent on that Relevant Commodity Input Day or (y) published or otherwise made available by or on behalf of the index sponsor to the Index Calculation Agent on that Relevant Commodity Input Day, but is not equal to the Commodity Closing Index Level for that Relevant Commodity Input Day:
(a) in the case in which (1) that Relevant Commodity Input Day is not a Commodity Constituent
Monthly Rebalancing Determination Day and (2) the Commodity Settlement Index Level for that Relevant Commodity Input Day is or has been published or otherwise made available by or on behalf of the index sponsor to the Index Calculation Agent prior to the next occurrence of a Commodity Constituent Monthly Rebalancing Determination Day, then that Relevant Commodity Input Day shall be a “Relevant Commodity Constituent Settlement Input Day”.
(b) in the case in which (1) that Relevant Commodity Input Day is not a Commodity Constituent
Monthly Rebalancing Determination Day and (2) the Commodity Settlement Index Level for that Relevant Commodity Input Day for that Relevant Commodity Input Day is not published or otherwise made available by or on behalf of the index sponsor to the Index Calculation Agent prior to the next occurrence of a Commodity Constituent Monthly Rebalancing Determination Day, then that Relevant Commodity Input Day shall be a “Relevant Commodity Constituent Determination Input Day”.
(c) in the case in which that Relevant Commodity Input Day is a Commodity Constituent Monthly
Rebalancing Determination Day, then that Relevant Commodity Input Day shall be a “Relevant Commodity Constituent Determination Input Day”.
12.4 Calculation of the Index Level
As of the Start Date (as specified in Section 8 (Initial composition of the Index) above), the Index Level is set at 100.00. In respect of each Scheduled Publication Day t thereafter, Indext (the “Index Level”) is calculated as follows:
Indext = Indext−1 + ∑[Effective Expt−1i × Current Unitst−1
i × (FTLR(t)i − FTLR(t−1)
i )]
12
i=1
+ ∑ [Effective Expt−1i × Current Unitst−1
i × (CSILR(t)i − CSILR(t−1)
i )]
15
i=13
where: Indext−1 means, in respect of a Scheduled Publication Day t, the Index Level for the Scheduled
Publication Day immediately prior to such Scheduled Publication Day t. Effective Expt−1
i means, for a Basket Constituent i and in respect of a Scheduled Publication Day t, the Effective Exposure (as determined in accordance with Section 11 (Exposure flattening) above) of such Basket Constituent i in respect of the Scheduled Publication Day immediately prior to such Scheduled Publication Day t.
Current Unitst−1
i means, for a Basket Constituent i and in respect of a Scheduled Publication Day t, the Current Units (as determined in accordance with Section 10.4 (Determination of the Current Units for a Basket Constituent in respect of a Weekday t-1) above) of such Basket Constituent i in respect of the Scheduled Publication Day immediately prior to such Scheduled Publication Day t.
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FTLR(t)i means, for a Futures Constituent i and in respect of a Scheduled Publication Day t, the
Futures Tracker Level of such Futures Constituent i in respect of the Relevant Futures Input Day associated with such Scheduled Publication Day t.
FTLR(t−1)i means, for a Futures Constituent i and in respect of a Scheduled Publication Day t, the
Futures Tracker Level of such Futures Constituent i in respect of the Relevant Futures Input Day associated with the Scheduled Publication Day immediately prior to such Scheduled Publication Day t.
CSILR(t)i means, for a Commodity Constituent i and in respect of a Scheduled Publication Day t, if the
Relevant Commodity Input Day associated with such Scheduled Publication Day t is: (i) a Relevant Commodity Constituent Closing Input Day, then the Commodity Closing Index
Level of such Commodity Constituent i in respect of that Relevant Commodity Constituent Closing Input Day;
(ii) a Relevant Commodity Constituent Settlement Input Day, then the Commodity Settlement Index Level of such Commodity Constituent i in respect of that Relevant Commodity Constituent Settlement Input Day; or
(iii) a Relevant Commodity Constituent Determination Input Day, then the good faith estimate of the Commodity Settlement Index Level determined for such Commodity Constituent i pursuant to Section 13.3 (Treatment of a Relevant Commodity Constituent Determination Input Day for a Commodity Constituent) below in respect of that Relevant Commodity Constituent Determination Input Day.
CSILR(t−1)i means, for a Commodity Constituent i and in respect of a Scheduled Publication Day t, if the
Relevant Commodity Input Day associated with the Scheduled Publication Day immediately prior to such Scheduled Publication Day t is: (i) a Relevant Commodity Constituent Closing Input Day, the Commodity Closing Index
Level of such Commodity Constituent i in respect of that Relevant Commodity Constituent Closing Input Day;
(ii) a Relevant Commodity Constituent Settlement Input Day, the Commodity Settlement Index Level of such Commodity Constituent i in respect of that Relevant Commodity Constituent Settlement Input Day; or
(iii) a Relevant Commodity Constituent Determination Input Day, the good faith estimate of the Commodity Settlement Index Level determined for such Commodity Constituent i pursuant to Section 13.3 below in respect of that Relevant Commodity Constituent Determination Input Day.
12.5 Closing level for a Commodity Constituent
The Commodity Closing Index Level (as defined in Section 19 (Definitions) below) of a Commodity Constituent set forth in Table 3 above is scheduled to be determined and published on each Commodity Constituent Scheduled Day by or on behalf of the sponsor of such Commodity Constituent, in accordance with the methodology for such index, based on prices for each of the futures contracts referenced in that index methodology. For the avoidance of doubt, the Commodity Closing Index Level of a Commodity Constituent is used in calculations relating to monthly rebalancing and exposure flattening. Each Commodity Constituent is associated with a single excess return commodity sector settlement index (for each Commodity Constituent, the corresponding “Settlement Index”). The official closing level of each such Settlement Index is published or otherwise made available by or on behalf of the index sponsor to the Index Calculation Agent by the relevant sponsor of such Commodity Constituent for each Commodity Constituent Scheduled Day. As of the Live Date, the index sponsor of each Commodity Closing Index and each corresponding Settlement Index is Bloomberg Finance L.P. The single Settlement Index associated with a particular Commodity Constituent is designed and calculated by the sponsor of such index to track, in the event of a disruption affecting a futures contract referenced in the index methodology for that Commodity
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Constituent for any date of determination, the expected settlement value of a notional swap referencing such Commodity Constituent in respect of such date (assuming market standard terms under the swap). As a result, the daily official closing level of a Settlement Index on any date of determination is calculated by the index sponsor or on behalf of the index sponsor to reflect the settlement level of a Commodity Constituent by reference to the prevailing practice for pricing of over-the-counter derivatives, such as swaps, using: (i) final settlement prices for those futures referenced by the Commodity Constituent that are not subject to disruption for such day and (ii) for a futures contract referenced by the Commodity Constituent that is subject to disruption for such date of determination, the final settlement price for the next available day for which such disruption is no longer continuing for such futures contract (referred to as a “value what you can when you can” approach for the futures contracts referenced by the Commodity Constituent). Absent a disruption in the futures contracts referenced by a Commodity Constituent, the methodology used to calculate the official closing level of a Commodity Constituent and the methodology used to calculate the official closing level of the Settlement Index associated with that same Commodity Constituent would be expected to produce identical official closing levels for the Commodity Constituent and the associated Settlement Index, so that the Commodity Closing Index Level and the Commodity Settlement Index Level would be expected to be identical for any non-disrupted date of determination. As of the Live Date, Bloomberg Finance L.P. is the index sponsor and calculation agent for each Commodity Constituent and each associated Settlement Index. As of the Live Date, the Bloomberg ticker used by Bloomberg Finance L.P. (provided herein solely for ease of identification) to disseminate the levels of the Commodity Settlement Index Level associated with:
(i) the Energy Commodities Constituent (Bloomberg ticker BCOMEN) is BCOMTEN,
(ii) the Industrial Metals Commodities Constituent (Bloomberg ticker BCOMIN) is BCOMTIN and
(iii) the Precious Metals Commodities Constituent (Bloomberg ticker BCOMPR) is BCOMTPM.
13. Treatment of Basket Constituents for determination days
13.1 Treatment of a Futures Constituent Roll Determination Day for a Futures Constituent
In the event of the occurrence of a Futures Constituent Roll Determination Day for a Futures Constituent, the Index Calculation Agent will calculate its good faith estimate of the Futures Tracker Level for such Futures Constituent for such Futures Constituent Roll Determination Day, using for (x) the Futures Closing Level of each Referenced Contract and (y) the FX Rate, in each case if relevant to the occurrence or continuation of a Futures Market Disruption Event affecting such Futures Constituent, its good faith estimate of any such relevant Futures Closing Level or FX Rate. Any such estimate may be subject to correction (i) upon or following the subsequent availability of such an input, (ii) upon or following final settlement by the Futures Exchange of positions in the Earlier Expiry Futures Contract in respect of such Futures Constituent and such Futures Constituent Roll Determination Day, (iii) upon or following the discontinuation of such Futures Market Disruption Event and (iv) upon or following the next Futures Constituent Valid Day for such Futures Constituent.
13.2 Treatment of a Futures Constituent Monthly Rebalancing Determination Day for a Futures Constituent
In the event of the occurrence of a Futures Constituent Monthly Rebalancing Determination Day for a Futures Constituent, the Index Calculation Agent will calculate its good faith estimate of the Futures Tracker Level for such Futures Constituent for such Futures Constituent Monthly Rebalancing Determination Day, using for (x) the Futures Closing Level of each Referenced Contract and (y) the FX Rate, in each case if relevant to the occurrence or continuation of a Futures Market Disruption Event affecting such Futures Constituent, its good faith estimate of any such relevant Futures Closing Level or FX Rate. Any such estimate may be subject to correction (i) upon or following the subsequent availability of such an input, (ii) upon or following the discontinuation of such Futures Market Disruption Event and (iii) upon or following the next Futures Constituent Valid Day for such Futures Constituent.
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13.3 Treatment of a Relevant Commodity Constituent Determination Input Day for a Commodity Constituent
In the event of the occurrence of a Relevant Commodity Constituent Determination Input Day for a Commodity Constituent, the Index Calculation Agent will calculate its good faith estimate of the Commodity Settlement Index Level for such day by reference to the official settlement prices determined in clauses (i) and (ii) below, taking into account the formula for and method of calculating the Settlement Index last in effect prior to the scheduled date of determination:
(i) absent market disruption, trading suspension or limitation, or determination of a limit price by the exchange on which a relevant underlying commodity futures contract (each, a “Relevant Commodity Contract”) referenced by the Commodity Constituent trades, for any Relevant Commodity Contract for which the official settlement price of such Relevant Commodity Contract is published or otherwise made available by or on behalf of the relevant sponsor of such Relevant Commodity Contract to the Index Calculation Agent on such date of determination, the Commodity Settlement Index Level (or portion of such level based on such Relevant Commodity Contract) will be determined by reference to such official settlement price on the scheduled date of determination.
(ii) in the case of market disruption, trading suspension or limitation, determination of a limit price by
the exchange on which a Relevant Commodity Contract trades, or in the case of any Relevant Commodity Contract for which the official settlement price of such Relevant Commodity Contract is not published or otherwise made available by or on behalf of the relevant sponsor of such Relevant Commodity Contract to the Index Calculation Agent on such date of determination, the Commodity Settlement Index Level (or portion of such level based on such Relevant Commodity Contract) will be determined by reference to the Index Calculation Agent’s good faith estimate of such official settlement price following the resolution of such market disruption, trading suspension or limitation, determination of a limit price by the exchange on which a Relevant Commodity Contract trades, or non-publication of such official settlement price. Any such estimate may be subject to correction (w) in the case of market disruption, trading suspension or limitation, determination of a limit price by the exchange on which a Relevant Commodity Contract trades, upon or following the subsequent availability of the official settlement price of the relevant underlying commodity futures contract relating to such Relevant Commodity Contract that is not affected by a market disruption, trading suspension or limitation, determination of a limit price by the exchange on which a Relevant Commodity Contract trades, (x) in the case of any Relevant Commodity Contract for which the official settlement price of such Relevant Commodity Contract is not published or otherwise made available by or on behalf of the Relevant Commodity Exchange for such Relevant Commodity Contract to the Index Calculation Agent on such date of determination, upon or following the subsequent availability of the official settlement price of the Relevant Commodity Contract or (y) upon or following the availability of the Commodity Settlement Index Level for such Commodity Constituent for such Relevant Commodity Constituent Determination Input Day and (z) upon or following the next Commodity Constituent Scheduled Day on which the Commodity Settlement Index Level of such Commodity Constituent for such Commodity Constituent Scheduled Day is published or otherwise made available by or on behalf of the index sponsor of the Settlement Index associated with such Commodity Constituent to the Index Calculation Agent on such Commodity Constituent Scheduled Day.
For the avoidance of doubt, the levels estimated above would solely be used for the purposes of calculating the Index Level pursuant to Section 12 (Index Levels) above, and would not be used in the calculation of subsequent Monthly Units pursuant to Section 9 (Monthly Units for the Basket Constituents) above or in determining whether to implement exposure flattening for the Index pursuant to Section 11.1 (Calculating the Flattening Signal) above.
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13.4 Definitions related to determinations
“Futures Market Disruption Event” means, for a Futures Constituent, the occurrence or continuation on a Futures Constituent Scheduled Day, as determined by the Index Calculation Agent in its sole discretion, of: (i) a failure by the Futures Exchange or its agent to publish the Futures Closing Level of any
Referenced Contract for such Futures Constituent and in respect of such Futures Constituent Scheduled Day on such Futures Constituent Scheduled Day;
(ii) any event that, in the determination of the Index Calculation Agent, disrupts or impairs the ability of market participants to effect transactions in or obtain levels or market values for (a) any Referenced Contract for such Futures Constituent and in respect of such Futures Constituent Scheduled Day or (b) any options contracts or other financial contracts relating to any Referenced Contract for the Futures Constituent and in respect of such Futures Constituent Scheduled Day;
(iii) the occurrence or existence of a suspension, absence or material limitation of trading in any Referenced Contract for such Futures Constituent and in respect of such Futures Constituent Scheduled Day, including, without limitation, a suspension of trading by reason of (a) a price change exceeding limits set by an exchange or market, (b) an imbalance of orders or (c) a disparity in bid and ask quotes;
(iv) the occurrence or existence of a suspension, absence or material limitation of trading on the Futures Exchange or primary exchange or market for trading in any Referenced Contract of such Futures Constituent for more than two (2) hours of trading during, or during the last one-half (½) hour period preceding the close of, the principal trading session on such applicable Futures Exchange, primary exchange or market;
(v) the occurrence or existence of a suspension, absence or material limitation of trading on the Futures Exchange or primary exchange or market for trading in any futures contracts that are part of the underlying futures contract series for a Futures Constituent that, in the aggregate, represents a material proportion of the liquidity in such relevant underlying futures contract series for more than two (2) hours of trading during, or during the last one-half (½) hour period preceding the close of, the principal trading session on such applicable Futures Exchange, primary exchange or market;
(vi) in respect of any Futures Constituent for which the Futures Denomination Currency is not the same as the Currency of the Index, any event that the Index Calculation Agent determines in its sole discretion affects the convertibility of the Futures Denomination Currency into the Currency of the Index in a material way for market participants during the last one-half (½) hour period preceding or during the first one-half (½) hour period following the Fixing Time (as defined in Section 19 (Definitions) below) on such Futures Constituent Scheduled Day; or
(vii) in respect of any Equity Constituent, an Equity Index Disruption Event in respect of such Equity Constituent’s Equity Reference Index;
and the Index Calculation Agent determines in its sole discretion that the applicable event described above could materially interfere with the ability of market participants to transact in positions with respect to the Index (including, without limitation, positions with respect to any Futures Constituent or the Equity Reference Index of any Equity Constituent).
“Referenced Contract” means, in respect of a Weekday and a Futures Constituent:
(i) if such Weekday is in an Actual Roll Period for such Futures Constituent, the Earlier Expiry Futures Contract and the Later Expiry Futures Contract of such Futures Constituent; and
(ii) if such Weekday is not in an Actual Roll Period for such Futures Constituent, the Earlier Expiry Futures Contract.
“Equity Index Disruption Event” means, for an Equity Reference Index, in each case as determined by the
Index Calculation Agent in its sole discretion: (i) the occurrence or existence of a suspension, absence or material limitation of trading of
securities then constituting twenty percent (20%) or more of the level of such Equity Reference Index on the relevant primary exchanges for such securities for more than two (2) hours of
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trading during, or during the last one-half (½) hour period preceding the close of, the principal trading session on such relevant primary exchanges; or
(ii) if applicable, the occurrence or existence of a suspension, absence or material limitation of trading on the primary exchange or market for trading in futures or options contracts related to such Equity Reference Index for more than two (2) hours of trading during, or during the last one-half (½) hour period preceding the close of, the principal trading sessions on such applicable exchange or market.
For the purpose of determining whether an Equity Index Disruption Event in respect of an Equity Reference Index has occurred: (i) a limitation on the hours or number of days of trading will not constitute an Equity Index
Disruption Event if it results from an announced change in the regular business hours of the relevant primary exchange or the primary exchange or market for trading in futures or options contracts related to the relevant securities;
(ii) limitations pursuant to the rules of any relevant primary exchange similar to New York Stock Exchange Rule 80B (or any applicable rule or regulation enacted or promulgated by any other self-regulatory organization or any government agency of scope similar to New York Stock Exchange Rule 80B as determined by the Index Calculation Agent) on trading during significant market fluctuations will constitute a suspension, absence or material limitation of trading;
(iii) a suspension of trading in futures or options contracts on the such Equity Reference Index by the primary exchange or market for trading in such contracts by reason of (a) a price change exceeding limits set by such exchange or market, (b) an imbalance of orders relating to such contracts or securities or (c) a disparity in bid and ask quotes relating to such contracts or securities, will constitute a suspension, absence or material limitation of trading in futures or options contracts related to such Equity Reference Index; and
(iv) a suspension, absence or material limitation of trading on any relevant primary exchange or, if applicable, on the primary exchange or market on which futures or options contracts related to such Equity Reference Index are traded will not include any time when such exchange or market is itself closed for trading under ordinary circumstances.
For the purpose of determining whether an Equity Index Disruption Event with respect to a Futures Constituent Scheduled Day exists at any time, if trading in a security or component included in the applicable Equity Reference Index is materially suspended or materially limited at that time, then the relevant percentage contribution of that security or component to the level of the applicable Equity Reference Index will be based on a comparison of (x) the portion of the level of the applicable Equity Reference Index attributable to that security or component relative to (y) the overall level of the applicable Equity Reference Index, in each case immediately before that suspension or limitation.
14. U.S. Small Cap Exchange Succession Event
Based on an announcement by CME Group and FTSE Russell on August 3, 2015, it is expected that effective in the third quarter of 2017, FTSE Russell will grant the Chicago Mercantile Exchange (“CME”) the right to create and list futures contracts on the Russell 2000® Index, which is the Equity Reference Index referenced by the U.S. Small Cap Equity Constituent. This grant is expected to coincide with the expiration of the current agreement between FTSE Russell and ICE (Intercontinental Exchange), granting ICE the right to create and list futures contracts on the Russell 2000® Index. As a result, it is expected that, for the purposes of these Index Rules, the relevant equity index futures contract series associated with the U.S. Small Cap Equity Constituent as of the Live Date will undergo a one-time transition from such relevant equity index futures contract series whose Equity Reference Index is the Russell 2000® Index and whose Futures Exchange is the ICE (such series, the “ICE Original Series”) to a successor equity index futures contract series whose Equity Reference Index is the Russell 2000® Index and whose Futures Exchange is the CME (each such series, a “CME Successor Series”) that will first be identified as the Later Expiry Futures Contract for a particular Scheduled Roll Period by the Index Calculation Agent, in accordance with this Section 14. This one-time transition during a single Scheduled Roll Period from a contract in the ICE Original Series to which the relevant Earlier Expiry Futures Contract belongs to a contract in a CME Successor Series to which the corresponding Later
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Expiry Futures Contract belongs is referred to herein as the occurrence of the “U.S. Small Cap Exchange Succession Event”. Solely in the case of the U.S. Small Cap Equity Constituent for a given Scheduled Roll Period and the associated Actual Roll Period falling during the period from and including July 3, 2017 to and including the occurrence of the U.S. Small Cap Exchange Succession Event, the Index Calculation Agent will determine the Later Expiry Futures Contract as follows:
(i) the Index Calculation Agent shall first identify any existing CME Successor Series;
(ii) the Index Calculation Agent shall then determine the most recent date (if any) prior to but excluding the first (1st) Scheduled Roll Day of such Scheduled Roll Period for which both of the following are published or otherwise made available by the relevant Futures Exchange to the Index Calculation Agent (x) the aggregate open interest calculated by the ICE for the ICE Original Series to which the Earlier Expiry Futures Contract belongs and (y) the aggregate open interest calculated by the CME for each CME Successor Series:
(a) If there is no such date, then the Later Expiry Futures Contract shall be the particular futures
contract, within the relevant ICE Original Series, whose Futures Contract Cut-off Day most closely follows the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract, in accordance with the normal operation of Section 7.3 (Implementation of the roll) above.
(b) If there is such a date, and on such date the product of (x) the Multiplier (as defined below) and
(y) the aggregate open interest for the ICE Original Series to which the Earlier Expiry Futures Contract belongs is greater than or equal to the product of (x) the Multiplier and (y) the aggregate open interest for one of the CME Successor Series, then the Later Expiry Futures Contract shall be the particular futures contract (within the ICE Original Series to which the Earlier Expiry Futures Contract belongs) whose Futures Contract Cut-off Day most closely follows the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract, in accordance with the normal operation of Section 7.3 above.
(c) If there is such a date, and on such a date the product of (x) the Multiplier and (y) the aggregate
open interest for one of the CME Successor Series is greater than the product of (x) the Multiplier and (y) the aggregate open interest of the ICE Original Series to which the Earlier Expiry Futures Contract belongs, then the relevant equity index futures contract series for the U.S. Small Cap Equity Constituent shall become the CME Successor Series with the highest product of (x) its Multiplier and (y) its aggregate open interest on such a date among all the existing CME Successor Series, and the Later Expiry Futures Contract shall be the particular futures contract (within the CME Successor Series identified immediately above in this paragraph (c)) whose Futures Contract Cut-off Day most closely follows the Futures Contract Cut-off Day of the Earlier Expiry Futures Contract.
For the avoidance of doubt, during the applicable Actual Roll Period for the transition, if on any Weekday either the Futures Exchange for the Earlier Expiry Futures Contract or the Futures Exchange for the Later Expiry Futures Contract is not scheduled to be open for trading for its regular trading session in either Relevant Contract, then such day shall not be a Futures Constituent Scheduled Day in respect of the U.S. Small Cap Equity Constituent. “Multiplier” means, for an Equity Constituent, the multiplier (expressed as a dollar amount) specified by the relevant Futures Exchange by reference to which each futures contract is valued (by applying such Multiplier to the Equity Reference Index associated with such Equity Constituent. In connection with the occurrence of the U.S. Small Cap Exchange Succession Event, the Index Calculation Agent shall, in good faith, make such adjustments that it determines to be appropriate to any variable,
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calculation methodology, valuation terms or any other rule in relation to the Index to account for such change.
15. Succession events and Extraordinary Events
15.1 Succession events for Basket Constituents
(a) For a Basket Constituent, (x) if any associated currency is (or, in the case of a Futures Constituent, the Futures Denomination Currency changes or is) lawfully eliminated and replaced, converted, redenominated or exchanged for any successor currency, (y) yet such replacement or successor currency (or Futures Denomination Currency) is acceptable to the Index Calculation Agent;
(b) for a Futures Constituent, (x) if the Futures Closing Levels of its Referenced Contracts are calculated or announced in the ordinary course, but are not calculated or are not announced by or on behalf of the Futures Exchange or the relevant agent or information provider that such Futures Exchange designates, (y) yet such Closing Levels are calculated and announced by or on behalf of a successor exchange acceptable to the Index Calculation Agent or an agent or information provider (in either case, that such successor exchange designates) acceptable to the Index Calculation Agent;
(c) for a Futures Constituent, (x) if the contract specifications of its Referenced Contracts are modified by the Futures Exchange (including, without limitation, whether quarterly or monthly expiries are contemplated), (y) yet such modified contract specifications are acceptable to the Index Calculation Agent;
(d) for a Commodity Constituent and for a Settlement Index associated with a Commodity Constituent, or
for the Equity Reference Index of an Equity Constituent, (x) if the relevant index is replaced by a successor index, (y) yet such successor index uses, in the determination of the Index Calculation Agent, the same or a substantially similar formula for and method of calculation as used in the calculation of the relevant index or such successor index is otherwise acceptable to the Index Calculation Agent; or
(e) for a Commodity Constituent and for a Settlement Index associated with a Commodity Constituent, or
for the Equity Reference Index of an Equity Constituent, (x) if the relevant index sponsor makes a material change in the formula for or the method of calculating that index or in any other way materially modifies that index (other than a modification prescribed in that formula or method to maintain that index in routine circumstances), (y) yet such change or modification is acceptable to the Index Calculation Agent,
then, in each case, that Basket Constituent, that currency, that Futures Denomination Currency, that Commodity Constituent, that Settlement Index associated with a Commodity Constituent, that Equity Reference Index or the Futures Exchange, agent or information provider will thereafter be deemed to be the successor Basket Constituent, successor currency, successor Futures Denomination Currency, successor Settlement Index, successor Equity Reference Index or the successor exchange, agent or information provider described in the relevant clause above, in each case, with effect from a date determined by the Index Calculation Agent. In each such case, the Index Calculation Agent shall, in good faith, make such adjustments that it determines to be appropriate to any variable, calculation methodology, valuation terms or any other rule in relation to the Index to account for such change (including, in relation to such currency or Futures Denomination Currency, to the extent that any such elimination, conversion, redenomination or exchange results in two (2) or more currencies that were formally associated with the original currency, the Index Calculation Agent may modify these Index Rules to account for such elimination, conversion, redenomination or exchange, for example, by selecting one of the applicable currencies to be a successor currency or amending the formulas for calculating the Index to account for the new currency or FX Rate, if any). For the avoidance of doubt, the Index Calculation Agent shall not accept a particular successor futures contract, successor currency or successor index if the Index Calculation Agent determines, in its sole
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discretion, that doing so would immediately result in the occurrence of an Extraordinary Event. Upon the acceptance of a successor futures contract, successor currency or successor index, such successor shall take the place of the relevant Referenced Contract, currency, Commodity Constituent (or associated Settlement Index) or Equity Reference Index of the corresponding Basket Constituent. Further, where applicable, the prior Performance of such successor futures contract, successor currency or index shall be used in the determination of future Monthly Units if the inputs necessary to calculate the relevant prior Performance of such successor are published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent; provided that, if the inputs necessary to calculate some portion of the relevant prior Performance of such successor is not published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent, the prior Performance of the replaced futures contract, currency or index shall be used (in place of such portion of the relevant prior performance of such successor for which the necessary inputs are not published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent) in the determination of future Monthly Units with such adjustments as the Index Calculation Agent determines in good faith are appropriate to account for the use of prior Performance of both such successor and such replaced futures contract, currency or index.
15.2 Extraordinary Events for a Basket Constituent
If an Extraordinary Event occurs in respect of a Basket Constituent (or the Settlement Index associated with a Commodity Constituent), the Index Calculation Agent, acting in good faith and a commercially reasonable manner, shall select as a substitute for such Basket Constituent a futures contract or an index (such substitute futures contract or index being referred to herein as a “substitute futures contract” or “substitute index,” respectively) that, in any case, the Index Calculation Agent determines, in its sole discretion, possesses substantially similar characteristics or provides a substantially similar exposure (as considered prior to the occurrence of such Extraordinary Event). In such a case, the Index Calculation Agent shall, in good faith, make such adjustments that it determines to be appropriate to any variable, calculation methodology, valuation terms or any other rule in relation to the Index to account for such substitution; provided that, for any Basket Constituent (or the Settlement Index associated with a Commodity Constituent), if the Index Calculation Agent determines, in its sole discretion, that no such substitute futures contract or substitute index is available, then the Index Calculation Agent will, in its sole discretion, (x) determine its good faith estimate of the closing level of such Basket Constituent (or the Settlement Index associated with a Commodity Constituent) as of a date on or prior to the occurrence of such Extraordinary Event and use such estimate of the closing price (without modification over time) in respect of such Basket Constituent (or the Settlement Index associated with a Commodity Constituent) in subsequent calculations of the Index Level of the Index until the final Futures Constituent Monthly Rebalancing Determination Day or Commodity Constituent Monthly Rebalancing Determination Day, as applicable, in the immediately following monthly rebalancing period, (y) remove such Basket Constituent (or such Settlement Index associated with a Commodity Constituent) from the Index and (z) in good faith, make such adjustments that it determines to be appropriate to any variable, calculation methodology, valuation terms or any other rule in relation to the Index to account for such removal. The Index Calculation Agent shall not select a particular substitute futures contract or index if the Index Calculation Agent determines, in its sole discretion, that doing so would immediately result in the occurrence of an Extraordinary Event. Upon the selection of a substitute futures contract or index, such substitute shall take the place of the relevant Basket Constituent (or the Settlement Index associated with a Commodity Constituent). For the avoidance of doubt, the prior Performance of such substitute futures contract or index shall be used in the determination of future Monthly Units if the inputs necessary to calculate the relevant prior Performance of such substitute are published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent; provided that, if the inputs necessary to calculate some portion of the relevant prior Performance of such substitute is not published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent the prior Performance of the replaced futures contract or index shall be used (in place of such portion of the relevant prior performance of such substitute for which the necessary inputs are not published or otherwise made available by the relevant exchange or input sponsor to the Index Calculation Agent) in the determination of future Monthly Units with
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such adjustments as the Index Calculation Agent determines in good faith are appropriate to account for the use of prior Performance of both such substitute and such replaced futures contract or index.
15.3 Definitions related to an Extraordinary Event
An “Extraordinary Event” occurs if the Index Calculation Agent determines in its sole discretion that (i) on any Weekday in respect of a Basket Constituent, one or more of the following events has occurred and (ii) the applicable event or events described below materially interferes with the ability of market participants to transact in positions with respect to the Index (including, without limitation, positions with respect to any Basket Constituent, the Settlement Index associated with a Commodity Constituent or the Equity Reference Index of any Equity Constituent):
(a) for any Equity Reference Index for an Equity Constituent, for any Commodity Constituent, or for the Settlement Index associated with a Commodity Constituent, the sponsor or issuer of the relevant index permanently cancels the Equity Reference Index, Commodity Constituent or the Settlement Index, and no successor exists, or the Equity Reference Index’s or the Commodity Constituent’s or the Settlement Index’s level is not calculated and is not announced by or on behalf of the relevant sponsor or issuer of such index, and is not calculated and announced by or on behalf of a successor sponsor or issuer acceptable to the Index Calculation Agent;
(b) for any Futures Constituent, the Futures Exchange delists a Referenced Contract;
(c) for any Futures Constituent, the Futures Exchange does not list a Later Expiry Futures Contract
before the Scheduled Roll Initiation Day of the Earlier Expiry Futures Contract;
(d) for any relevant Basket Constituent, the event specified in clause (x) of subsection (a), (b), (c), (d) or (e) of Section 15.1 (Succession events for Basket Constituents) above occurs, but the relevant event specified in clause (y) of such subsection of Section 15.1 does not occur;
(e) in respect of any Futures Constituent, a Futures Market Disruption Event occurs for ten (10)
consecutive Futures Constituent Scheduled Days and the Index Calculation Agent determines that such Futures Market Disruption Event is reasonably likely to continue for a period of an indeterminate duration;
(f) in respect of any Commodity Constituent or any Settlement Index associated with a Commodity
Constituent, a failure by the relevant sponsor to publish the official closing level for such index for ten (10) consecutive Commodity Constituent Scheduled Days and the Index Calculation Agent determines that such non-publication is reasonably likely to continue for a period of an indeterminate duration;
(g) in respect of an Equity Constituent that has an Equity Reference Index, a failure by the relevant
sponsor to publish the closing level for such Equity Reference Index for ten (10) consecutive scheduled publication days and the Index Calculation Agent determines that such non-publication is reasonably likely to continue for a period of an indeterminate duration;
(h) in respect of any Basket Constituent, (x) a suspension or limitation on trading in respect of a Relevant
Underlying is announced or imposed for ten (10) consecutive relevant days or for a period of indeterminate duration that the Index Calculation Agent determines is reasonably likely to include ten (10) consecutive relevant days or (y) any other event occurs or condition exists that causes trading to cease in respect of a Relevant Underlying for ten (10) consecutive relevant days;
(i) in respect of any Futures Constituent whose Futures Denomination Currency is not U.S. dollars, an FX
Material Event occurs;
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(j) in respect of any Futures Constituent, the exchange or the central counterparty or other legal obligor in respect of any Relevant Contract becomes, for any reason, subject to voluntary or involuntary termination, liquidation, bankruptcy, insolvency, dissolution or winding-up or any other analogous proceeding;
(k) in respect of any Futures Constituent, the Aggregate Open Interest declines below an amount equal to
twenty percent (20%) of its Aggregate Open Interest on (i) December 27, 2016 if the futures contract was a Futures Constituent as of the December 27, 2016 or (ii) the date on which such futures contract became a Futures Constituent;
(l) in respect of any Futures Constituent, the Average Aggregate Volume declines below an amount
equal to twenty percent (20%) of its Average Aggregate Volume on (i) December 27, 2016 if the futures contract was a Futures Constituent as of December 27, 2016 or (ii) the date on which such futures contract became a Futures Constituent;
(m) in respect of any Equity Constituent that has an Equity Reference Index, the Futures Closing Level of
the Earlier Expiry Futures Contract of a Futures Constituent reflects a premium greater than twenty percent (20%) or a discount greater than twenty percent (20%) as compared to the closing level of the Equity Reference Index for a period of five (5) consecutive Futures Constituent Scheduled Days;
(n) in respect of any Basket Constituent and a Monthly Selection Date, the Realized Volatility of such
Basket Constituent is less than five basis points (0.05%);
(o) if, at any time, any relevant license or other right or ability of the Index Calculation Agent or the Index Sponsor (or any of their affiliates) to use any Basket Constituent, underlying reference input or relevant data or information or to refer to the level or price or other information in respect of any Basket Constituent, underlying reference input or relevant data or information (or other component or input of the Index or other matter that could affect the Index) terminates, becomes impaired, ceases or cannot be obtained or will cease to be available on commercially reasonable terms or the Index Calculation Agent’s right or ability to use (i) any Basket Constituent for the purposes of the Index or (ii) the Index in connection with the grant or receipt of any other inbound or outbound licensing or sub-licensing rights is otherwise impaired, ceases or cannot be obtained or will cease to be available on commercially reasonable terms (for any reason); or
(p) the occurrence or continuation of a Change in Law.
An “FX Material Event” means, in each case as determined by the Index Calculation Agent in its sole discretion:
(i) an event in relation to any currency relevant to the determination of the relevant FX Rate between the Futures Denomination Currency and the Currency of the Index that the Index Calculation Agent determines has the effect of preventing, restricting or delaying:
(a) the convertibility of the Futures Denomination Currency into the Currency of the Index through
customary legal channels;
(b) the convertibility of the Futures Denomination Currency into the Currency of the Index at a rate at least as favorable as the rate for domestic institutions located in the country whose lawful currency is the Futures Denomination Currency (for the purposes of this definition, the “Relevant Country”);
(c) the delivery of the Futures Denomination Currency from accounts inside the Relevant Country to
accounts outside the Relevant Country; or
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(d) the delivery of the Futures Denomination Currency between accounts inside the Relevant Country or to a party that is a non-resident of the Relevant Country;
(ii) the imposition by the Relevant Country (or any political or regulatory authority thereof) of any
capital controls, or the publication of any notice of an intention to do so, that the Index Calculation Agent determines is likely to have a material effect on the ability of market participants to obtain reliable spot exchange rates for the Futures Denomination Currency from a recognized financial source;
(iii) the implementation by the Relevant Country (or any political or regulatory authority thereof) or the
publication of any notice of an intention to implement any changes to the laws or regulations relating to foreign investment in the Relevant Country (including, but not limited to, changes in tax laws or laws relating to capital markets and corporate ownership), that the Index Calculation Agent determines are likely to have a material effect on the ability of market participants to obtain reliable spot exchange rates for the Futures Denomination Currency from a recognized financial information source; or
(iv) any other event that the Index Calculation Agent determines affects the convertibility of the Futures
Denomination Currency into the Currency of the Index in a material way for market participants on any date or at any relevant time.
A “Change in Law” occurs when, due to either:
(i) the adoption of, or any change in, any applicable law, regulation or rule (including, without limitation, (x) any tax law or (y) adoption or promulgation of new regulations authorized or mandated by existing statute); or
(ii) the promulgation of, or any change in, the announcement or statement of a formal or informal
interpretation by any court, tribunal or regulatory authority (or any representative thereof) with competent jurisdiction of any applicable law, rule, regulation or order (including, without limitation, as implemented by the U.S. Commodity Futures Trading Commission, the U.S. Securities and Exchange Commission or any exchange or trading facility), and
the Index Calculation Agent determines in good faith that (x) it is contrary to such law, rule, regulation or order for any market participants that are brokers or financial intermediaries (individually or collectively) to hold, acquire or dispose of (in whole or in part) a position in or a transaction referencing or relating to (1) the Index, (2) any Basket Constituent, (3) the Settlement Index associated with any Commodity Constituent, (4) a component of a Commodity Constituent or the Settlement Index associated with any Commodity Constituent, (5) a deliverable bond in respect of the Relevant Contract for a Bond Constituent, (6) a component of any Equity Reference Index of an Equity Constituent, (7) the Currency of the Index or (8) the Futures Denomination Currency for any Futures Constituent (each such underlying described in any of the immediately preceding clauses (2), (3), (4), (5), (6), (7) and (8) being a “Relevant Underlying”) or (y) holding a position in or a transaction referencing or relating to the Index or any Relevant Underlying is (or, but for the consequent disposal or termination thereof, would otherwise be) in excess of any allowable position limits applicable to any market participants that are brokers or financial intermediaries (individually or collectively) under any such law, rule or regulation in relation to the Index or any Relevant Underlying, including in any case traded on any exchange,, market or other trading facility.
16. Hypothetical back-tested levels
Any Index Level prior to the Live Date is a hypothetical, back-tested level. Such levels should not be taken as an indication of future performance, and no assurance can be given as to the levels or performance of the Index on a future date. Back-tested results are achieved by means of a retroactive application of a back-tested methodology designed with the benefit of hindsight. The Index Calculation Agent, in calculating hypothetical back-tested index levels, may have applied the disruption provisions set out in these Index Rules differently
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than it otherwise would have applied such provisions in a “live” calculation scenario. Additionally, the precision and rounding of the levels of the Index or any reference input may differ from the methodology applied on a going-forward basis. In calculating the hypothetical back-tested levels, the Index Calculation Agent may have made certain assumptions in respect of the timing surrounding the publication of certain indicators and reference input levels. These assumptions may have a material impact on the hypothetical back-tested levels. No representation is made that any investment that references the Index will or is likely to achieve returns similar to any hypothetical back-tested returns. Alternative methodologies or assumptions might provide different results. Finally, hypothetical back-tested results of past performance are neither an indicator nor a guarantee of future performance or returns. Actual results and performance may vary compared to such hypothetical back-tested levels.
17. No advice or offer of securities
By developing the methodology for the Index and publishing these Index Rules, none of the Index Sponsor, the Index Calculation Agent or any other Relevant Person: (a) has rendered or is rendering legal, regulatory, investment, tax, accounting or other advice to an investor in relation to any product or investment that is linked to or references the Index; and (b) is, subject to any regulatory obligations of the Index Sponsor, Index Calculation Agent or other Relevant Person, a fiduciary or accepts any duty of care under applicable law governing such product or investment or in the jurisdiction in which any investor purchases a product or investment that is linked to or references the Index or in the jurisdiction of the Index Sponsor, Index Calculation Agent or other Relevant Person. Each investor in a product or investment that is linked to or references the Index should make its own investment decision based on its own judgment and on its own examination of the Index and the applicable product or investment, and each investor should consult its own legal, regulatory, investment, tax, accounting and other professional advisers as it deems necessary in connection with the relevant product or investment. The Index Rules do not constitute investment, taxation, legal, accounting or other advice, whether advice within the meaning of Article 53 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 or investment advice within the meaning of Article 4(4) of the Markets in Financial Instruments Directive 2004/39/EC or otherwise. These Index Rules do not constitute an offer to purchase or sell securities in whatever form in respect of any product or investment that may be linked to the Index.
18. Corrections
If (i) the Futures Closing Level of any Futures Constituent, the Commodity Closing Index Level of a Commodity Constituent or the Commodity Settlement Index Level of the Settlement Index associated with any Commodity Constituent, or the FX Rate in respect on any Futures Constituent as of any date that is published or otherwise made available to the Index Calculation Agent in respect of the relevant Basket Constituent is subsequently corrected and such correction is published or otherwise made available to the Index Calculation Agent in respect of such Basket Constituent; or (ii) the Index Calculation Agent identifies an error or omission in any of its calculations, determinations or interpretations in respect of the Index, then the Index Calculation Agent may, if practicable and if the Index Calculation Agent determines in good faith that such correction, error or omission (as the case may be) is material, adjust or correct the relevant calculation, determination or interpretation or the Index Level as of any Scheduled Publication Day to take into account any such correction.
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19. Definitions
Terms not otherwise defined herein, shall have the following meanings: “Actual Roll Completion Day” has the meaning given to such term in Section 7.2 (Actual Roll Period for a
Futures Constituent). “Actual Roll Period” has the meaning given to such term in Section 7.2 (Actual Roll Period for a
Futures Constituent). “Aggregate Open Interest” means, with respect to a Futures Constituent and a Futures Constituent
Scheduled Day, the aggregate open interest in such Futures Constituent at all expiries, as reported by the Futures Exchange. The Aggregate Open Interest for each Futures Constituent on December 27, 2016 is provided in Schedule 1 to these Index Rules.
“Average Aggregate Volume” means, with respect to a Futures Constituent and a Futures Constituent
Scheduled Day, the ratio of (i) the total volume of trading in such Futures Constituent at all expiries from but excluding the calendar day six (6) months prior to such Futures Constituent Scheduled Day, to and including such Futures Constituent Scheduled Day, as reported by the Futures Exchange, divided by (ii) the total number of Futures Constituent Scheduled Days from but excluding the calendar day six (6) months prior to such Futures Constituent Scheduled Day, to and including such Futures Constituent Scheduled Day. The Average Aggregate Volume for each Futures Constituent on December 27, 2016 is provided in Schedule 1 to these Index Rules.
“Base Date” means, in respect of the Futures Constituents, the date specified in Section
7.3 (Implementation of the roll). “Basket Constituent” has the meaning given to such term in Section 4 (General Notes on the
Index), subject to the provisions of Section 15 (Succession events and Extraordinary Events) and, in the case of the U.S. Small Cap Equity Constituent, subject to the provisions of Section 14 (U.S. Small Cap Exchange Succession Event).
“Bond Constituent” has the meaning given to such term in Section 4 (General Notes on the
Index), subject to the provisions of Section 15 (Succession events and Extraordinary Events).
“Change in Law” has the meaning given to such term in Section 15.3 (Definitions related to an
Extraordinary Event). “CME” has the meaning given to such term in Section 14 (U.S. Small Cap Exchange
Succession Event). “CME Successor Series” has the meaning given to such term in Section 14 (U.S. Small Cap Equity
Constituent Exchange Succession Event). “Commodity Closing Index Level” means, in respect of a Commodity Constituent Scheduled Day and for a
Commodity Constituent, (a) the official closing level of such Commodity Constituent published or otherwise made available to the Index Calculation Agent by the relevant sponsor of such Commodity Constituent for such
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Commodity Constituent Scheduled Day (so long as such official closing level does not, in the determination of the Index Calculation Agent, reflect manifest error on the part of the relevant sponsor of such Commodity Constituent), (b) if the Index Calculation Agent determines that the official closing level of such Commodity Constituent published or otherwise made available to the Index Calculation Agent by the relevant sponsor of such Commodity Constituent for such Commodity Constituent Scheduled Day reflects manifest error on the part of the relevant sponsor of such Commodity Constituent, the closing level of such Commodity Constituent as calculated in good faith and in a commercially reasonable manner based on the formula for and method of calculating such Commodity Constituent, or (c) if the relevant sponsor of such Commodity Constituent fails to announce publicly, make available to the Index Calculation Agent or publish the official closing level of such Commodity Constituent scheduled to be published or otherwise made available to the Index Calculation Agent by the relevant sponsor of such Commodity Constituent for such Commodity Constituent Scheduled Day by 8:00 PM, New York time on such Commodity Constituent Scheduled Day, the closing level of such Commodity Constituent as calculated in good faith and in a commercially reasonable manner based on the formula for and method of calculating such Commodity Constituent.
“Commodity Constituent” has the meaning given to such term in Section 4 (General Notes on the
Index), subject to the provisions of Section 15 (Succession events and Extraordinary Events).
“Commodity Constituent Effective Monthly Rebalancing Day” has the meaning given to such term in
Section 10.2 (Commodity Monthly Effective Rebalancing Days for a Commodity Constituent).
“Commodity Constituent Monthly Rebalancing Determination Day” has the meaning given to such term
in Section 10.2 (Commodity Monthly Effective Rebalancing Days for a Commodity Constituent).
“Commodity Constituent Scheduled Day” means, for a Commodity Constituent, a day on which the
Commodity Closing Index Level for that Commodity Constituent is scheduled to be published by the relevant sponsor of such Commodity Constituent.
“Commodity Constituent Scheduled Monthly Rebalancing Day” has the meaning given to such term in
Section 10.2 (Commodity Monthly Effective Rebalancing Days for a Commodity Constituent).
“Commodity Settlement Index Level” means, in respect of a Commodity Constituent Scheduled Day and for
the Settlement Index associated with a Commodity Constituent, (a) the official closing level of such Settlement Index as published or otherwise made available to the Index Calculation Agent by the relevant sponsor of such Settlement Index for such Commodity Constituent Scheduled Day (so long as such official closing level does not, in the determination of the Index Calculation Agent, reflect manifest error on the part of the relevant sponsor of such Settlement Index), (b) if the Index Calculation Agent determines that the official closing level of such Settlement Index published or otherwise made available to the Index Calculation Agent by the relevant sponsor of such Settlement Index for such Commodity Constituent Scheduled Day reflects manifest error on the part of the relevant sponsor of such Settlement Index, the closing level of such Settlement Index as
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calculated in good faith and in a commercially reasonable manner based on the formula for and method of calculating such Settlement Index, or (c) if the relevant sponsor of such Settlement Index postpones the publication of or fails to announce publicly, make available to the Index Calculation Agent or publish the official closing level of such Settlement Index scheduled to be published or otherwise made available to the Index Calculation Agent by the relevant sponsor of such Settlement Index for such Commodity Constituent Scheduled Day by 8:00 PM, New York time on the Commodity Constituent Scheduled Day on which such official closing level could have been published pursuant to the methodology of the Settlement Index, the closing level of such Settlement Index as calculated in good faith and in a commercially reasonable manner based on the formula for and method of calculating such Settlement Index.
“Constituent Weight Cap” in respect of each Basket Constituent, has the meaning given to such term in
Section 6 (The Basket Constituents). “Currency of the Index” has the meaning given to such term in Section 5 (Publication of Index Levels
and rounding). “Current Units” has the meaning given to such term in Section 10.3 (Determination of the
Current Units for a Basket Constituent in respect of a Weekday t), or Section 10.4 (Determination of the Current Units for a Basket Constituent in respect of a Weekday t-1), as applicable.
“Earlier Expiry Futures Contract” has the meaning given to such term in Section 7.2 (Actual Roll Period for a
Futures Constituent). “Earlier Expiry Futures Contract Weight” has the meaning given to such term in Section 7.3
(Implementation of the roll). “Effective Exposure” has the meaning given to such term in Section 11.2 (Calculating the Effective
Exposure for each Futures Constituent) or Section 11.3 (Calculating the Effective Exposure for each Commodity Constituent), as applicable.
“Energy Commodities Constituent” has the meaning given to such term in Section 4 (General Notes on the
Index), subject to the provisions of Section 15 (Succession events and Extraordinary Events).
“Equity Constituent” has the meaning given to such term in Section 6 (The Basket Constituents),
subject to the provisions of Section 15 (Succession events and Extraordinary Events) and, in the case of the U.S. Small Cap Equity Constituent, subject to the provisions of Section 14 (U.S. Small Cap Exchange Succession Event).
“Equity Index Disruption Event” has the meaning given to such term in Section 13.4 (Definitions related to
determinations). “Equity Reference Index” means, for an Equity Constituent, the index to which such Equity
Constituent’s final cash settlement value is related. The Equity Reference Index for each Equity Constituent is provided in Section 6 (The Basket Constituents).
“EUR” means the euro, which is the lawful currency of the European Union, subject
to the terms set forth in Section 15.1 (Succession events for Basket Constituents).
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“Exposure Flattening Threshold” has the meaning given to such term in Section 11.1 (Calculating the
Flattening Signal). “Extraordinary Event” has the meaning given to such term in Section 15.3 (Definitions related to an
Extraordinary Event). “Fixing Time” means approximately 4:00 PM London, United Kingdom time. “Flattening Signal” has the meaning given to such term in Section 11.1 (Calculating the
Flattening Signal). “Futures Closing Level” has the meaning given to such term in Section 7.4 (Futures Tracker Level of
a Futures Constituent). “Futures Constituent” has the meaning given to such term in Section 4 (General Notes on the
Index). “Futures Constituent Effective Monthly Rebalancing Day” has the meaning given to such term in Section
10.1 (Futures Constituent Effective Monthly Rebalancing Days). “Futures Constituent Monthly Rebalancing Determination Day” has the meaning given to such term in
Section 10.1 (Futures Constituent Effective Monthly Rebalancing Days). “Futures Constituent Effective Roll Day” has the meaning given to such term in Section 7.2 (Actual Roll
Period for a Futures Constituent). “Futures Constituent Roll Determination Day” has the meaning given to such term in Section 7.2 (Actual
Roll Period for a Futures Constituent). “Futures Constituent Scheduled Day” has the meaning given to such term in Section 7.1 (Scheduled Roll
Period for each Futures Constituent). “Futures Constituent Scheduled Monthly Rebalancing Day” has the meaning given to such term in Section
10.1 (Futures Constituent Effective Monthly Rebalancing Days). “Futures Constituent Valid Day” has the meaning given to such term in Section 7.2 (Actual Roll Period for a
Futures Constituent). “Futures Contract Cut-off Day” has the meaning given to such term in Section 7.1 (Scheduled Roll Period for
each Futures Constituent). “Futures Denomination Currency” has the meaning given to such term in Section 6 (The Basket
Constituents). “Futures Exchange” means, in respect of any Futures Constituent, the exchange or quotation
system on which the relevant futures contracts referenced by such Futures Constituent are listed for trading, any successor to such exchange or quotation system or any substitute exchange or quotation system to which trading has temporarily relocated (so long as the Index Calculation Agent has determined that there is comparable liquidity relative to the futures or options contracts relating to the Futures Constituent on such temporary substitute exchange or quotation system as on the original exchange or quotation system).
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“Futures Market Disruption Event” has the meaning given to such term in Section 13.4 (Definitions related to determinations).
“FX Rate” has the meaning given to such term in Section 7.4 (Futures Tracker Levels of
the Futures Constituents). “FX Material Event” has the meaning given to such term in Section 15.3 (Definitions related to an
Extraordinary Event). “GBP” means the Great Britain pound, which is the lawful currency of the United
Kingdom, subject to the terms set forth in Section 15.1 (Succession events for Basket Constituents).
“German Equity Constituent” has the meaning given to such term in Section 6 (The Basket Constituents). “German Government Bond Constituent” has the meaning given to such term in Section 6 (The Basket
Constituents). “ICE Original Series” has the meaning given to such term in Section 14 (U.S. Small Cap Equity Constituent
Exchange Succession Event). “Index” means the J.P. Morgan Mozaic IISM Index. “Index Calculation Agent” has the meaning given to such term in Section 2 (Index Sponsor and Index
Calculation Agent). “Index Level” has the meaning given to such term in Section 5 (Publication of Index Levels
and rounding). “Index Rules” has the meaning given to such term in Section 1 (Introduction). “Index Sponsor” has the meaning given to such term in Section 2 (Index Sponsor and Index
Calculation Agent). “Industrial Metals Commodities Constituent” has the meaning given to such term in Section 4 (General
Notes on the Index), subject to the provisions of Section 15 (Succession events and Extraordinary Events).
“JPMS plc” means J.P. Morgan Securities plc. “Japanese Equity Constituent” has the meaning given to such term in Section 6 (The Basket Constituents). “Japanese Government Bond Constituent” has the meaning given to such term in Section 6 (The Basket
Constituents). “JPY” means the Japanese yen, which is the lawful currency of Japan, subject to
the terms set forth in Section 15.1 (Succession events for Basket Constituents).
“Later Expiry Futures Contract” has the meaning given to such term in Section 7.3 (Implementation of the
roll), subject to the provisions of Section 14 (U.S. Small Cap Equity Constituent Exchange Succession Event).
“Live Date” has the meaning given to such term in Section 8 (Initial composition of the
Index).
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“Long-Term U.S. Treasury Note Constituent” has the meaning given to such term in Section 6 (The Basket
Constituents). “Maximum Total Weight” means three hundred percent (300%). “Medium-Term U.S. Treasury Note Constituent” has the meaning given to such term in Section 6 (The
Basket Constituents). “Monthly Selection Date” has the meaning given to such term in Section 4 (General Notes on the
Index). “Monthly Units” has the meaning given to such term in Section 9 (Monthly Units for the
Basket Constituents). “Multiplier” has the meaning given to such term in Section 14 (U.S. Small Cap Exchange
Succession Event). “Next Monthly Units” has the meaning given to such term in Section 10 (Monthly Rebalancing). “Open Interest Threshold” has the meaning given to such term in Section 7.3 (Implementation of the
roll). “Performance” means, in respect of a Basket Constituent, the performance determined by
the Index Calculation Agent in accordance with Section 9.1 (Identifying the Preliminary Weight of each Basket Constituent for a Monthly Selection Date).
“Precious Metals Commodities Constituent” has the meaning given to such term in Section 4 (General
Notes on the Index), subject to the provisions of Section 15 (Succession events and Extraordinary Events).
“Preliminary Portfolio” means a notional basket composed of notional exposures to the Basket
Constituents equal to the Preliminary Weights. “Preliminary Portfolio Return” has the meaning given to such term in Section 9.2 (Identifying the Monthly
Constituent Weight of each Basket Constituent for a Monthly Selection Date). “Preliminary Portfolio Volatility” has the meaning given to such term in Section 9.2 (Identifying the Monthly
Constituent Weight of each Basket Constituent for a Monthly Selection Date). “Preliminary Weight” has the meaning given to such term in Section 9.1 (Identifying the
Preliminary Weight of each Basket Constituent for a Monthly Selection Date). “Prior Monthly Units” has the meaning given to such term in Section 10 (Monthly Rebalancing). “Prior Scheduled Day” has the meaning given to such term in Section 11.1 (Calculating the
Flattening Signal). “Prior Scheduled Publication Day” has the meaning given to such term in Section 11.1 (Calculating the
Flattening Signal). “Rank” has the meaning given to such term in Section 9.1 (Identifying the
Preliminary Weight of each Basket Constituent for a Monthly Selection Date).
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“Realized Volatility” has the meaning given to such term in Section 9.1 (Identifying the Preliminary Weight of each Basket Constituent for a Monthly Selection Date).
“Rebalanced Exposure” has the meaning given to such term in Section 10.1 (Futures Constituent
Effective Monthly Rebalancing Days). “Referenced Contract” has the meaning given to such term in Section 13.4 (Definitions related to
determinations). “Relevant Commodity” has the meaning given to such term in Section 13.3 (Treatment of a Relevant
Commodity Constituent Determination Input Day for a Commodity Constituent).
“Relevant Commodity Constituent Closing Input Day” has the meaning given to such term in Section
12.2 (Determination of the Relevant Commodity Input Day). “Relevant Commodity Constituent Determination Input Day” has the meaning given to such term in
Section 12.2 (Determination of the Relevant Commodity Input Day). “Relevant Commodity Constituent Settlement Input Day” has the meaning given to such term in Section
12.2 (Determination of the Relevant Commodity Input Day). “Relevant Commodity Contract” has the meaning given to such term in Section 13.3 (Treatment of a
Relevant Commodity Constituent Determination Input Day for a Commodity Constituent).
“Relevant Commodity Exchange” means, in respect of any Relevant Commodity Contract referenced by a
Commodity Constituent, the applicable commodities futures exchange on which such Relevant Commodity Contract for that Commodity Constituent trade.
“Relevant Commodity Input Day” has the meaning given to such term in Section 12.2 (Determination of the
Relevant Commodity Input Day). “Relevant Country” has the meaning given to such term in Section 15.3 (Definitions related to an
Extraordinary Event). “Relevant Futures Input Day” has the meaning given to such term in Section 12.1 (Determination of the
Relevant Futures Input Day). “Relevant Person” has the meaning given to such term in Section 2 (Index Sponsor and Index
Calculation Agent). “Relevant Scheduled Day” has the meaning given to such term in Section 11.1 (Calculating the
Flattening Signal). “Relevant Scheduled Publication Day” has the meaning given to such term in Section 11.1 (Calculating the
Flattening Signal). “Relevant Underlying” has the meaning given to such term in Section 15.3 (Definitions related to an
Extraordinary Event). “Scheduled Roll Completion Day with respect to a Futures Constituent i and a Scheduled Roll Period, is as
set forth in Table 4 in Section 7.1 (Scheduled Roll Period for each Futures Constituent).
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“Scheduled Roll Day” has the meaning given to such term in Section 7.1 (Scheduled Roll Period for
each Futures Constituent). “Scheduled Roll Initiation Day” with respect to a Futures Constituent i and a Scheduled Roll Period, is as set
forth in Table 4 in Section 7.1 (Scheduled Roll Period for each Futures Constituent).
“Scheduled Publication Day” means a Weekday. “Scheduled Roll Period” has the meaning given to such term in Section 7.1 (Scheduled Roll Period for
each Futures Constituent). “Settlement Index” has the meaning given to such term in Section 12.5 (Closing level for a
Commodity Constituent). “Short-Term U.S. Treasury Note Constituent” has the meaning given to such term in Section 6 (The Basket
Constituents). “Start Date” for the Index, has the meaning given to such term in Section 8 (Initial
composition of the Index). “Starting Selection Date” has the meaning given to such term in Section 8 (Initial composition of the
Index). “Target Volatility” means the target volatility of the Index, of four point two percent (4.2%). “U.K. Equity Constituent” has the meaning given to such term in Section 6 (The Basket Constituents). “U.K. Government Bond Constituent” has the meaning given to such term in Section 6 (The Basket
Constituents). “Underlying Futures Contract” has the meaning given to such term in Section 4 (General Notes on the
Index). “USD” means the U.S. dollar, which is the lawful currency of the United States of
America subject to the terms set forth in Section 15.1 (Succession events for Basket Constituents).
“U.S. Large Cap Equity Constituent” has the meaning given to such term in Section 6 (The Basket
Constituents). “U.S. Nasdaq Equity Constituent” has the meaning given to such term in Section 6 (The Basket Constituents). “U.S. Small Cap Equity Constituent” has the meaning given to such term in Section 6 (The Basket
Constituents), subject to the provisions of Section 14 (U.S. Small Cap Exchange Succession Event).
“U.S. Small Cap Equity Constituent Exchange Succession Event” has the meaning given to such term in
Section 14 (U.S. Small Cap Equity Constituent Exchange Succession Event). “Weekday” means a calendar day that is a Monday, Tuesday, Wednesday, Thursday or
Friday.
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Schedule 1
i Futures Constituent Aggregate Open Interest on
December 27, 2016 Average Aggregate Volume on
December 27, 2016*
1 U.S. Large Cap Equity Constituent
2,754,179 1,769,352
2 U.S. Nasdaq Equity Constituent
224,401 231,297
3 U.S. Small Cap Equity Constituent
676,871 106,855
4 German Equity Constituent
137,165 96,604
5 U.K. Equity Constituent
758,095 148,423
6 Japanese Equity Constituent
543,355 70,834
7 Short-Term U.S. Treasury Note Constituent
1,136,039 332,049
8 Medium-Term U.S. Treasury Note Constituent
2,966,451 808,785
9 Long-Term U.S. Treasury Note Constituent
3,029,608 1,389,124
10 German Government Bond Constituent
1,552,446 731,183
11 U.K. Government Bond Constituent
588,004 208,381
12 Japanese Government Bond Constituent
82,235 26,725
* Rounded to an integer number of contracts.
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Notices, Disclaimers and Conflicts of Interest
The Index Rules have been prepared solely for informational purposes and nothing in the Index Rules constitutes (i) an offer to buy or sell any securities, participate in any transaction or adopt any investment linked to the Index or (ii) legal, tax, regulatory, financial or accounting advice. The Index Rules may change at any time without prior notice. None of the Relevant Persons makes any representation or warranty, whatsoever, express or implied, as to the results that may be obtained through the use of this document or the Index. Each Relevant Person hereby expressly disclaims, to the fullest extent permitted by law, all warranties of accuracy, completeness, merchantability, or fitness for a particular purpose with respect to any information contained in this document. No Relevant Person shall have any liability or responsibility to any person or entity (including, without limitation, any investor in any product or investment referencing the Index) for any loss, damages, costs, charges, expenses or other liabilities howsoever arising, including, without limitation, liability for any special, punitive, indirect, consequential or other damages (including loss of business or loss of profit, loss of time and loss of goodwill), even if notified of the possibility of any such damages. No Relevant Person is under any obligation to continue the calculation, publication and dissemination of the Index or the Index Level. The Index Sponsor may at any time and without notice terminate the calculation, publication or dissemination of the Index. The Index Sponsor may delegate or transfer to a third party some or all of its functions in relation to the Index. Potential conflicts of interest may exist between the structure and operation of the Index, roles and responsibilities of the Index Sponsor and Index Calculation Agent and the normal business activities of the Index Sponsor, the Index Calculation Agent or any other Relevant Person. During the course of their normal business, the Index Sponsor or any of the other Relevant Persons may (i) enter into or promote, offer or sell transactions or investments (structured or otherwise) linked to the Index or any of the Basket Constituents or (ii) act as an investment manager, investment advisor, administrator, custodian, prime broker or other service provider to any of the Basket Constituent. In addition, any Relevant Person may have, or may have had, interests or positions, or may buy, sell or otherwise trade positions in or relating to the Index or any of the Basket Constituents, or may invest or engage in transactions with other persons, or on behalf of such persons relating to any of these items. Such activity may or may not have an impact on the Index Level but all persons reading this document should be aware that a conflict of interest could arise where anyone is acting in more than one capacity, and such conflict may have an impact, positive or negative, on the Index Level. Neither the Index Calculation Agent nor any other Relevant Person has any duty to consider the circumstances of any person when participating in such transactions or to conduct themselves in a manner that is favorable to anyone with exposure to the Index. Furthermore, neither the Index Sponsor nor any other Relevant Person has any obligation or liability in connection with the administration, marketing or trading of any instrument or investment that references the Index and is not obliged to enter into or promote any such instrument or investment. The Index Rules have been developed with the possibility of the Index Sponsor or any of the other Relevant Persons entering into or promoting, offering or selling transactions or investments (structured or otherwise) linked to the Index and hedging such transactions or investments in any manner that they see fit. Accordingly it should be assumed that the Index Rules have and will be analyzed from this point of view. The Index Sponsor or the Index Calculation Agent may make certain calculations based on information obtained from publicly available sources without independently verifying such information and accepts no responsibility or liability in respect of such calculations or information. As mentioned above, the Index is described as a notional basket because there is no actual portfolio of assets to which any person is entitled or in which any person has any ownership interest. The Index merely identifies certain reference assets, the performance of which will be used as a reference point for calculating the Index Level.
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Notwithstanding anything to the contrary herein, nothing in these Index Rules should be construed to be investment advice or a recommendation to purchase a specific instrument or make a specific investment. Nothing in these Index Rules or any other communication between you and J.P. Morgan Chase & Co. (together with its affiliates, “J.P. Morgan”) should be deemed to or be construed as creating a “fiduciary relationship”. J.P. Morgan and its subsidiaries, officers, directors, employees and agents, are not your fiduciary. You should make your own investment decision based on your own judgment and on your own examination of the specific product that you are purchasing or investment that you are entering into, and you should consult your own legal, regulatory, investment, tax, accounting and other professional advisers as you deem necessary in connection with any purchase of a financial product or undertaking any investment. The Index is the exclusive property of the Index Sponsor and the Index Sponsor retains all proprietary rights in the Index. The Index is protected by copyright and trade secret rights and is and will always remain the sole property of J.P. Morgan, all rights, title and full ownership in and to the Index are expressly reserved to and will remain with J.P. Morgan, the Index was developed, compiled, prepared and arranged by J.P. Morgan through the expenditure of substantial time, effort and money and constitutes valuable intellectual property and trade secrets of J.P. Morgan and all proprietary and intellectual property rights of any nature, including patents, copyrights, trademarks and trade secrets regarding the Index and the Index Rules, and any and all copies, modifications, enhancements and derivative works thereof are owned by and will remain the property of J.P. Morgan.
Third parties shall not use the Index Sponsor’s intellectual property without the prior written consent of the Index Sponsor (including in situations where a third party performs certain functions in relation to the Index) and may not (directly or indirectly) (a) share, reproduce, distribute or otherwise disseminate the Index, Index Rules or any related data in any form without the express prior written consent of J.P. Morgan (b) alter, remove or conceal any copyright, trademark or other proprietary notice or disclaimer regarding the Index, (c) modify, copy, translate, distribute, recompile, decompile, disassemble or reverse engineer the Index; (d) make or distribute any other form of or any derivative work from, the Index or (e) grant any rights in, permit or provide access to the Index or the Index Rules in a manner that could infringe the intellectual property rights of J.P. Morgan or any third party or violate any applicable laws, tariffs, rules or regulations.
Any third party who enters into a transaction or investment or purchases a product that references the Index is thereby deemed to acknowledge that (i) THE INDEX, INDEX RULES AND RELATED DATA ARE PROVIDED “AS IS” WITH ALL FAULTS, (ii) ALL WARRANTIES AND REPRESENTATIONS OF ANY KIND WITH REGARD TO THE INDEX ARE DISCLAIMED BY J.P. MORGAN, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, QUALITY, ACCURACY, FITNESS FOR A PARTICULAR PURPOSE OR AGAINST INFRINGEMENT AND WARRANTIES AS TO ANY RESULTS TO BE OBTAINED BY OR FROM THE USE OF THE INDEX, (iii) J.P. MORGAN DOES NOT GUARANTEE THE AVAILABILITY, SEQUENCE, TIMELINESS, ACCURACY OR COMPLETENESS OF THE INDEX, (iv) J.P. MORGAN MAY DISCONTINUE CALCULATION OF THE INDEX AT ANY TIME WITHOUT PRIOR NOTICE AND, (v) TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, J.P. MORGAN WILL NOT BE LIABLE (IN CONTRACT, TORT OR OTHERWISE) FOR ANY ORDINARY, DIRECT, INDIRECT, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES IN CONNECTION WITH ANY USE OF THE INDEX, THE INDEX RULES OR ANY ASSOCIATED DATA, EVEN IF J.P. MORGAN HAS BEEN APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING, and agrees to release, indemnify, defend and hold J.P. Morgan harmless from and against any claim, liability, loss, injury, damage, cost, or expense of any kind (including reasonable attorney’s fees), as incurred, relating to or arising out of such third party’s use of the Index, the Index Rules or any associated data. No one may reproduce or disseminate the information contained in this document or the Index Level of the Index without the prior written consent of the Index Sponsor. This document is not intended for distribution to, or use by any person in, a jurisdiction where such distribution is prohibited by law or regulation. The Index Rules shall be governed by and construed in accordance with the laws of New York.
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Copyright JPMorgan Chase & Co. 2016. All rights reserved. J.P. Morgan is the marketing name for JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide. J.P. Morgan Securities plc is authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority and is a member of the London Stock Exchange. The Index Sponsor owns all intellectual property rights in: (i) the development of and methodology for producing the Index, (ii) the Index Levels and (iii) these Index Rules. Third parties shall not use the Index Sponsor’s intellectual property without the prior written consent of the Index Sponsor (including in situations where a third party performs certain functions in relation to the Index).
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Index Disclaimers
“Bloomberg®” and “Bloomberg Commodity IndexSM” are service marks of Bloomberg Finance L.P. and its affiliates (collectively, “Bloomberg”) and have been licensed for use for certain purposes by J.P. Morgan. The Index is not sponsored, endorsed, sold or promoted by Bloomberg, UBS AG, UBS Securities LLC (“UBS Securities”) or any of their subsidiaries or affiliates. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates makes any representation or warranty, express or implied, to the owners of products linked to the Index or counterparties to the Index or any member of the public regarding the advisability of investing in securities or commodities generally or in the Index particularly. The only relationship of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates to the Licensee is the licensing of certain trademarks, trade names and service marks and of the Bloomberg Commodity IndexSM, which is determined, composed and calculated by Bloomberg in conjunction with UBS Securities without regard to J.P. Morgan or the Index. Bloomberg and UBS Securities have no obligation to take the needs of J.P. Morgan or the owners of any product linked to the Index into consideration in determining, composing or calculating Bloomberg Commodity IndexSM. None of Bloomberg, UBS AG, UBS Securities or any of their respective subsidiaries or affiliates is responsible for or has participated in the determination of the timing of, prices at, or quantities of products linked to the Index to be issued or in the determination or calculation of the equation by which a product linked to the Index is to be converted into cash. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates shall have any obligation or liability, including, without limitation, to holders of products linked to the Index, in connection with the administration, marketing or trading of the Index. Notwithstanding the foregoing, UBS AG, UBS Securities and their respective subsidiaries and affiliates may independently issue or sponsor financial products unrelated to the Index currently being issued by Licensee, but which may be similar to and competitive with the Index. In addition, UBS AG, UBS Securities and their subsidiaries and affiliates actively trade commodities, commodity indexes and commodity futures (including the Bloomberg Commodity IndexSM and Bloomberg Commodity Index Total ReturnSM), as well as swaps, options and derivatives which are linked to the performance of such commodities, commodity indexes and commodity futures. It is possible that this trading activity will affect the value of the Bloomberg Commodity IndexSM and the Index. The Index Rules relate only to the Index and do not relate to the exchange-traded physical commodities underlying any of the Bloomberg Commodity IndexSM components. Purchasers of products linked to the Index should not conclude that the inclusion of a futures contract in the Bloomberg Commodity IndexSM is any form of investment recommendation of the futures contract or the underlying exchange-traded physical commodity by Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates. The information in the Index Rules regarding the Bloomberg Commodity IndexSM components has been derived solely from publicly available documents. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates has made any due diligence inquiries with respect to the Bloomberg Commodity IndexSM components in connection with the Index. None of Bloomberg, UBS AG, UBS Securities or any of their subsidiaries or affiliates makes any representation that these publicly available documents or any other publicly available information regarding the Bloomberg Commodity IndexSM components, including without limitation a description of factors that affect the prices of such components, are accurate or complete. NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES GUARANTEES THE ACCURACY AND/OR THE COMPLETENESS OF THE BLOOMBERG COMMODITY INDEXSM OR ANY DATA RELATED THERETO AND NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES SHALL HAVE ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS THEREIN. NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY J.P. MORGAN, OWNERS OF PRODUCTS LINKED TO THE INDEX OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG COMMODITY INDEXSM OR ANY DATA RELATED THERETO. NONE OF BLOOMBERG, UBS AG, UBS SECURITIES OR ANY OF THEIR SUBSIDIARIES OR AFFILIATES MAKES ANY EXPRESS OR IMPLIED WARRANTIES AND EXPRESSLY DISCLAIMS ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE BLOOMBERG COMMODITY INDEXSM OR ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, TO THE MAXIMUM EXTENT ALLOWED BY LAW, BLOOMBERG, ITS LICENSORS (INCLUDING UBS), AND ITS AND THEIR RESPECTIVE EMPLOYEES, CONTRACTORS, AGENTS, SUPPLIERS, AND VENDORS SHALL HAVE NO LIABILITY OR RESPONSIBILITY WHATSOEVER FOR ANY LOST PROFITS OR INDIRECT, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE DAMAGES OR LOSSES—ARISING IN CONNECTION WITH THE BLOOMBERG COMMODITY INDEX OR ANY DATA OR VALUES RELATING THERETO—WHETHER ARISING FROM THEIR NEGLIGENCE OR OTHERWISE, EVEN IF NOTIFIED OF THE POSSIBILITY THEREOF. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS AMONG BLOOMBERG, UBS SECURITIES AND J.P. MORGAN, OTHER THAN UBS AG.