NYSE Arca Proposes New Benchmarks for Leveraged Oil ETFs

August 12th | 2020

NYSE Arca recently filed a proposal to change the underlying benchmark for two 200% levered ETFs: the ProShares Ultra Bloomberg Crude Oil ETF (UCO); and ProShares UltraShort Bloomberg Crude Oil ETF (SCO), which are currently listed and traded on the exchange under NYSE Arca Rule 8.200-E.

The current benchmark is the Bloomberg WTI Crude Oil Subindex, which aims to track the price of nearby futures contracts of sweet, light crude oil traded on the New York Mercantile Exchange, Inc. (“NYMEX”); it consists of a single WTI crude oil futures contract selected from the three nearest expiration dates. The current benchmark reflects the cost of rolling the futures contracts without regard to income earned on cash positions.

The new benchmark will be the Bloomberg Commodity Balanced WTI Crude Oil Index, which aims to track the performance of three separate contract schedules for West Texas Intermediate (“WTI”) Crude Oil futures traded on NYMEX. The contract schedules are equally weighted at each semi-annual reset, which will occur in March and September. The new benchmark reflects the cost of rolling the futures contracts included in the new benchmark without regard to income earned on cash positions.

ProShare Capital Management LLC, the commodity pool operator for each ETF, believes the benchmark change will diversify the ETFs’ exposure across futures contracts, thereby potentially reducing volatility. Given COVID-19’s impact on volatility and negative oil prices that ensued, potential lower volatility may make these ETFs more attractive to investors.

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