Investment Company Act of 1940 - Section 7 and 3(a)(1)
MACRO Securities Depositor, LLC
December 1, 2006
RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF INVESTMENT MANAGEMENT
Our Ref. No. 20041021142
MACRO Securities Depositor, LLC
File Nos. 333-116566 & 333-135120
Your letter dated November 29, 2006 requests our assurance that we would not recommend enforcement action to the Securities and Exchange Commission (the "Commission") under section 7 of the Investment Company Act of 1940 (the "1940 Act") against any of the MACRO trusts, as defined below, MACRO Securities Depositor, LLC (the "Depositor"), Investors Bank & Trust Company, in its capacity as trustee for the MACRO trusts (the "Trustee"), Claymore Securities Inc., in its capacity as administrative agent and a marketing agent for the MACRO trusts (the "Administrative Agent" and a "Marketing Agent"), MACRO Financial, LLC (as an additional "Marketing Agent"), and certain persons acting as underwriters (the "Underwriters")1 if the MACRO trusts operate as described in your letter without registration as investment companies under the 1940 Act.
The MACRO trusts include the Claymore MACROshares Oil Up Holding Trust (the "up-MACRO holding trust") and the Claymore MACROshares Oil Down Holding Trust (the "down-MACRO holding trust") (together, the "MACRO holding trusts"), and the Claymore MACROshares Oil Up Tradeable Trust (the "up-MACRO tradeable trust") and the Claymore MACROshares Oil Down Tradeable Trust (the "down-MACRO tradeable trust") (together, the "MACRO tradeable trusts"). You state that the MACRO holding trusts will issue MACRO holding shares and that at least a majority of all outstanding up-MACRO holding shares and the down-MACRO holding shares will be deposited into the up-MACRO tradeable trust and down-MACRO tradeable trust, respectively.2 You state that the sole assets of each MACRO tradeable trust will be the MACRO holding shares. You state that each MACRO tradeable trust will issue MACRO tradeable shares which will be listed for trading on the American Stock Exchange.
You represent that the primary purpose of the MACROs structure is to provide investors with exposure to changes in the applicable reference price of crude oil. You state that each MACRO holding trust will enter into oil-linked settlement contracts and an income distribution agreement (an "IDA" and, together with the oil-linked settlement contracts, the "oil-linked OTC derivative instruments") with its paired MACRO holding trust. You indicate that payments will be made between the MACRO holding trusts under the oil-linked OTC derivative instruments as calculated in accordance with pre-determined formulas that are linked to the applicable reference price of crude oil (the "Formulas"). You state that, in addition to the rights of each MACRO holding trust under the oil-linked OTC derivative instruments, the assets of each MACRO holding trust will consist of bills, notes and bonds issued by the United States Treasury ("Treasuries") and repurchase agreements referencing and collateralized by Treasuries ("Treasury Repos").3 You represent that the primary source of gain and loss for the MACRO trusts will be the oil-linked OTC derivative instruments.
You argue that, for purposes of determining whether the MACRO trusts are investment companies, the oil-linked OTC derivative instruments should not be deemed to be securities under section 2(a)(36) of the 1940 Act. At this time, we take no position regarding whether the oil-linked OTC derivative instruments are securities under section 2(a)(36) of the 1940 Act.
In any event, we believe that the structure of the MACRO trusts, as described in your letter, does not present opportunities for the types of abuses that led to the enactment of the 1940 Act.4 For instance, as described in your letter, the structure of the MACRO trusts generally does not allow for self-dealing or overreaching by insiders such as the Depositor, the Trustee, the Administrative Agent, the Marketing Agents, the Underwriters, or any person acting on behalf of the MACRO trusts. Accordingly, based on the facts and representations contained in your letter, we would not recommend enforcement action to the Commission under section 7 of the 1940 Act against any of the MACRO trusts, the Depositor, the Trustee, the Administrative Agent, the Marketing Agents, or the Underwriters if the MACRO trusts operate as described in your letter without registration as investment companies under the 1940 Act.5 Our position is based in particular on the following facts and representations:
- The only counterparties to the oil-linked OTC derivative instruments are the up-MACRO holding trust and the down-MACRO holding trust. The MACROs structure does not permit the MACRO holding trusts to enter into oil-linked OTC derivative transactions with any other affiliates or with any third parties.
- The Formulas are principal terms of both the IDA and oil-linked settlement contracts. The Formulas may not be amended under any circumstances by any person. They are publicly disclosed and are not subject to manipulation because they are pre-determined and cannot be changed. Their sole unknown variable will be the daily level of the applicable reference price of crude oil. The Formulas set forth in any additional oil-linked settlement contract that is subsequently entered into by the MACRO holding trusts will be identical to the Formulas set forth in the original oil-linked settlement contracts.
- The material terms of the IDA and the oil-linked settlement contracts, including, without limitation, the Formulas, the timing of payments and certain early termination triggers, are all contained in, or incorporated by reference into, the MACRO holding trust agreements and (except for the Formulas which cannot be modified under any circumstances) such material terms may be amended only with the consent of a majority of the MACRO holding trust shareholders if such amendment would change in any manner the shareholders' rights and any such amendment may become effective only if the same amendment is concurrently made to the trust agreement for the paired MACRO holding trust with the consent of the shareholders of such trust.
- The MACRO holding trusts will hold Treasuries and Treasury Repos equal to 100% of their respective potential liability under the oil-linked OTC derivative instruments at all times (unless the MACRO holding trusts have suffered a "loss," as described in your letter, because of their expenses). The MACRO holding trusts will hold identical Treasuries and Treasury Repos so as to ensure that one trust will not be favored over the other by receiving different collateral.
- The obligation of any seller of a Treasury Repo to repurchase Treasuries from a MACRO holding trust will be "collateralized fully," as that term is defined in Rule 5b-3 under the 1940 Act, as if the MACRO holding trust were a registered investment company. The Treasury Repos must have an overnight maturity.
- The MACRO holding trusts will not enter into any Treasury Repo with, or purchase any Treasury from, any person that is an affiliated person of, or a promoter of, or principal underwriter for, either paired MACRO holding trust, or any affiliated person of such a person (unless such transaction complies with the conflict procedures set forth in Attachment A to your letter).
- The Trustee and Administrative Agent will comply with the conflict procedures, set forth in Attachment A to your letter, in connection with (i) any purchase of a Treasury or Treasury Repo by a MACRO holding trust from an Authorized Participant or any affiliated person of an Authorized Participant and (ii) any distribution of a Treasury by a MACRO holding trust in connection with the redemption of MACRO holding trust shares by an Authorized Participant.
- All of the activities of each MACRO trust will be governed by the provisions of the trust agreement pursuant to which it was established, and a MACRO trust or any person acting on its behalf may not engage in any activities other than those specifically permitted by its trust agreement.
- There is very limited discretionary management of the Treasuries and Treasury Repos held by the MACRO holding trusts, and the primary purpose of holding the Treasuries and Treasury Repos by the MACRO holding trusts is to make payments under the oil-linked OTC derivative instruments. The type of Treasuries and Treasury Repos that the Administrative Agent may direct the Trustee to acquire on behalf of the MACRO holding trusts is limited by the Acquisition Guidelines that are specified in each applicable trust agreement, and described in your letter.6
- The Trustee of the MACRO trusts will safeguard the assets of each MACRO trust. The Trustee meets the requirements of section 26(a)(1) of the 1940 Act, is not affiliated with any of the MACRO trusts or with any person involved in the organization or operation of any of the MACRO trusts, and will not provide credit or credit enhancement to any of the MACRO trusts. Under the terms of the trust agreements for the MACRO trusts, under which the Trustee is bound, the Trustee may resign only after the assets of the trusts have been completely liquidated and the proceeds thereof distributed to the shareholders thereof or a successor trustee qualified under section 26(a)(3)(B) of the 1940 Act has been appointed and has accepted such appointment.
- The Administrative Agent and the Trustee will act to prevent the MACRO tradeable trusts from owning less than a majority of all outstanding MACRO holding shares ("non-majority ownership") to the extent that prevention is within their control. If circumstances not within the control of the Administrative Agent and the Trustee cause non-majority ownership, steps will be taken to return to majority ownership within 90 days. Failure to return to majority ownership within 90 days will constitute a termination trigger.
Because our position is based on the facts and representations in your letter, you should note that any different facts or representations may require a different conclusion.7 Moreover, this response expresses our views on enforcement action only and does not express any legal conclusion on the issues presented.
Alison M. Fuller
Assistant Chief Counsel
The Incoming Letter is in Acrobat format.