-1-
INDEX SUPPLEMENT
J.P. MORGAN MOZAIC INDEX (USD)
This document contains information solely about the J.P. Morgan MOZAIC Index
(USD) (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 “Selected
Considerations” 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 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 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
-2-
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
referenced in the Index (or in financial instruments such as derivatives that reference those assets).
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.
-3-
SELECTED CONSIDERATIONS
The Index Calculation Agent and the Index Sponsor have discretion over the Index, and neither
the Index Calculation Agent nor the Index Sponsor has an obligation to consider the interests
of investors and others that may have exposure to Products linked to the Index.
J.P. Morgan Securities plc (“JPMS plc”), an affiliate of JPMorgan Chase & Co., currently
acts as the Index calculation agent (the “Index Calculation Agent”) and is responsible for
calculating the level of the Index and determining the effect of certain developments on the Index.
The Index Calculation Agent is entitled to exercise discretion in relation to the Index, including
but not limited to the calculation of the level of the Index in the event of an Extraordinary Event
or FX Disruption Event as well as the determination of the occurrence of a Market Disruption
Event (each as defined below under “The J.P. Morgan MOZAIC Index (USD)”), and may also
amend the rules governing the Index in certain circumstances. JPMS plc is also the Index Sponsor
and is responsible for, among other things, the documentation of the Rules and the appointment of
the Index Calculation Agent, and the Index Sponsor may also amend the rules governing the Index,
as it deems appropriate. The judgments, policies and decisions for which the Index Calculation
Agent and the Index Sponsor are responsible could have an impact, positive or negative, on the
level of the Index.
In taking any actions that might affect the Index, including the calculation of the Index
level, neither the Index Calculation Agent nor the Index Sponsor has an obligation to consider the
interests of investors or others that may have exposure to Products linked to the Index. JPMorgan
Chase & Co., as the ultimate parent company of JPMS plc, controls the Index Calculation Agent
and the Index Sponsor. Furthermore, the selection of the constituents of the Index (the
“Constituents”) is not an investment recommendation by JPMS plc or any of its affiliates of the
Constituents, or any of the securities, commodities, indices or futures contracts underlying the
Constituents. See “The J.P. Morgan MOZAIC Index (USD).”
The Index methodology may not be successful and may not outperform any alternative strategy
that might be employed in respect of the Constituents.
The Index methodology follows a notional 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 Constituents.
The Constituents may not achieve their target volatility rate.
Each selected Constituent has a Constituent Target Volatility (as defined below), which is
used in determining the weight applied to such Constituent following a rebalancing. In calculating
the level of the Index, the performance of each selected Constituent is scaled by its weight, which
is in turn determined by comparing such Constituent’s recent actual volatility against the target
volatility rate, subject to an upper-bound limit of 1,000% (the “Upper-Bound Limit”). A selected
Constituent whose recent volatility exceeded the target volatility will generally have a weight that
dampens the contribution of such Constituent’s performance in the calculation of the Index level,
while a selected Constituent whose recent volatility was less than the target volatility will generally
-4-
have a weight that magnifies the contribution of such Constituent’s performance. Because weights
are established on the basis of the historical Constituent volatility and subject to the Upper-Bound
Limit and because the realized volatility of a Constituent once its weight is put into effect may
differ significantly from its historical levels and may change rapidly at any time, there can be no
assurance the weighted average performance of any Constituent in the Index will realize an actual
volatility equal to the Constituent Target Volatility. The actual realized volatility of any
Constituent’s weighted performance in the Index could be significantly greater or less than the
target volatility rate.
Furthermore, while it is generally the case that the target volatility rates will sum to a
“round” number if at any time six Constituents are currently referenced by the Index, as described
below under “The J.P. Morgan MOZAIC Index (USD),” under certain circumstances, there may
be more or fewer than six Constituents referenced by the Index, which may create further
differences between the target volatility and actual realized volatility.
If the values of the Constituents change or the market value of the futures contracts underlying
the Constituents changes, the level of the Index may not change in the same manner.
Changes in the values of the Constituents or the futures contracts underlying the
Constituents may not result in a comparable change in the level of the Index. This is due to the
fact that the Constituents are weighted in accordance with the Index’s methodology, as prescribed
by the Rules. Such weights can have the effect of amplifying or dampening the performance of
the Constituents, and the weights are rebalanced, generally on a monthly basis, and may be subject
to “flattening” and other periods in which weights are set to zero. The Index’s changes will not be
comparable to those of an index comprised of static and equally weighted notional exposures to
the Constituents.
The Index is not comprised of actual assets.
The exposures to the 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.
The Index has a limited operating history and may perform in unanticipated ways.
The “Live Date” for the Index was April 17, 2009, and therefore the Index has a limited
operating history. Any back-testing or similar analysis performed by any person with respect to
the Index must be considered illustrative only and may be based on estimates or assumptions not
used by the Index Calculation Agent when determining the level of the Index. Past performance
should not be considered indicative of future performance.
Any future downgrades of the U.S. government’s credit rating by credit rating agencies may
adversely affect the performance of the Index.
In 2011, Standard & Poor’s Ratings Services (“Standard & Poor’s”) downgraded the
U.S. government’s credit rating from AAA to AA+. The downgrade increased volatility in the
global equity, credit and commodities markets, which might have adversely affected the levels of
-5-
the Constituents. Future downgrades by credit ratings agencies may also increase this volatility.
This may in turn have an adverse impact on the 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 price of
assets. As such, the weights of the Constituents in the Index are based on the performance of the
Constituents from a recent historical period of approximately six months. However, there is no
guarantee that trends existing in the preceding period will continue in the future. A momentum
strategy is different from a strategy that seeks long-term exposure to a portfolio consisting of
constant components with fixed weights. The Index may fail to realize gains that could occur as
a result of holding assets that have experienced recent poor performance, but that subsequently
experience a recovery. Conversely, the Index may suffer losses as a result of holding assets that
have experienced recent strong performance, but subsequently suffer a reversal. 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 or fail to appreciate. In particular, while
momentum investing strategies are effective at identifying the market direction in trending
markets, 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.
Additionally, due to the “long-only” construction of the Index, the weight of each
Constituent will not be negative in respect of any rebalancing even if the relevant 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
outperform any alternative index that might be constructed from the Constituents.
The investment strategy used to construct the Index involves monthly rebalancing that is applied
to the Constituents
The Constituents are subject to monthly rebalancing. By contrast, a synthetic portfolio that
does not rebalance monthly could see greater compounded gains over time through exposure to a
consistently and rapidly appreciating portfolio consisting of the Constituents. Therefore, your
return on Products linked to the Index may be less than the return you could realize on an
alternative investment that is not subject to rebalancing.
Rebalancings and exposure flattenings are not effected or, in certain instances, may be effected
on a delayed or modified basis, with respect to Constituents in respect of which a relevant
weekday is not a Scheduled Trading Day, in respect of which such weekday is a Disrupted Day
or in certain other circumstances.
Although Index rebalancings are generally scheduled to occur as of the first weekday of
each month and exposure flattenings can be triggered as of any weekday based on recent declines
in the Index level, in the event the relevant weekday (or in certain circumstances with respect to
-6-
the GSCI IM Index, the next weekday) is not a Scheduled Trading Day or is a Disrupted Day with
respect to a Constituent (except with respect to certain types of Disrupted Days affecting the GSCI
AG Index, which can cause a postponement in such Constituent’s rebalancing, as further described
below) or in certain other circumstances, that Constituent will, in the case of rebalancing, not be
rebalanced that month, and, in the case of the exposure flattening mechanism, will not be subject
to the initiation of an exposure flattening period and hence will not have its weight adjusted to zero
(if it is positive at that time). With respect to the GSCI AG Index, a rebalancing may be postponed
rather than canceled if an Agricultural Commodities Postponement Event occurs on the relevant
Scheduled Trading Day (although the rebalancing would be canceled if an earlier Agricultural
Commodities Postponement Resolution Period (as defined below) were continuing or had only
recently been resolved), and in such case, modifications would be made to the calculations of the
GSCI AG Index returns and of the Index level (including the use of settlement pricing) upon the
resolution of the applicable Agricultural Commodities Postponement Resolution Period. In
addition, an Agricultural Commodities Postponement Event occurring (a) at the onset of an
exposure flattening period or (b) during an exposure flattening period for the GSCI AG Index can
cause a delay in the (aa) onset or (bb) termination of such exposure flattening period and
modifications to the calculations of the GSCI AG Index returns and of the Index level (including
the use of settlement pricing) upon the commencement or conclusion of such exposure flattening
period. Such occurrences may yield positive weights for more or fewer than six Constituents in a
given month, may cause continued Index declines during what would otherwise be an exposure
flattening period for the affected Constituents and may have other consequences that may
adversely impact the Index. For more information on the Index’s monthly rebalancing and its
exposure flattening mechanism, including with respect to the GSCI IM Index and GSCI AG Index,
see “The J.P. Morgan MOZAIC Index (USD).”
The Index’s exposure flattening mechanism may not be successful in preventing the Index level
from declining, and may in fact cause the Index to have worse performance.
The Index’s exposure flattening mechanism is only triggered following recent historical
declines of the Index level of more than 3.00% over a five-weekday period, and then only after a
lag. In addition, in the event that a weekday on which an exposure flattening period would have
been triggered in respect of one or more Constituents is not a Scheduled Trading Day or, other
than with respect to the GSCI AG Index, is a Disrupted Day in respect of those Constituents (and
in certain other circumstances with respect to the GSCI IM Index and the GSCI AG Index), the
exposure flattening mechanism will not alter the weights of those Constituents, and hence those
Constituents may continue to cause declines in the Index level notwithstanding prior declines in
the Index level that were sufficient to trigger an exposure flattening period.
In measuring the Index level changes during an historical five-weekday observation period,
the exposure flattening mechanism takes into account the effect of any exposure flattening period
that overlapped with such observation period, and hence the exposure flattening mechanism may
not take into account the full extent of the negative performance of the normally weighted
Constituents. This in turn may result in an exposure flattening period not being triggered even
though negative performance of the normally weighted Constituents would otherwise justify it.
For the foregoing reasons, the exposure flattening mechanism cannot be considered a
safeguard against declines in the Index level. Furthermore, if Constituents subject to the exposure
-7-
flattening mechanism recover their losses during the relevant exposure flattening period, the Index
will not capture such recovery, resulting in lower performance. For more information on the
exposure flattening mechanism, see “The J.P. Morgan MOZAIC Index (USD).”
Constituent weights are subject to a high upper-bound limit and hence can increase exposure
to Constituents in a way that effectively exposes the Index to leverage, potentially causing
increased volatility in the Index level.
For each selected Constituent, the rebalancing mechanism sets the weight of such
Constituent to a level that would have caused the weighted historical performance of such
Constituent over a recent 125-weekday observation period (approximately six months) (the
“Lookback Period,” as defined in greater detail below under “The J.P. Morgan MOZAIC Index
(USD)”) to have a volatility equal to the Constituent Target Volatility, subject to the Upper-Bound
Limit. In connection with a rebalancing, a selected Constituent whose volatility over the Lookback
Period was less than the Constituent Target Volatility will generally have a new weight that
magnifies the contribution of such Constituent’s performance in the calculation of the Index level,
producing results similar to leverage. When weights magnify Constituent performance, any
movements in the prices or levels of the Constituents may result in greater changes in the levels of
the Index than if leverage were not used. In particular, leverage will magnify any negative
performance of the Constituents.
The Index tracks daily weighted percentage changes in Constituent prices and levels, and hence
the daily contribution of changes in Constituent prices and levels to changes in the Index level
is not path dependent.
The Index does not track a hypothetical fixed level of investment in the Constituents, but
rather the weighted percentage changes in the prices and levels of the Constituents. Prior period
changes in a Constituent’s price or level does not impact the contribution of changes in the price
or level of such Constituent in the current measurement period to changes in the Index level, except
to the extent that such changes are reflected in the methodology for monthly rebalancing and with
respect to the application of the Constituent flattening mechanism. For example, a significant
downward change in the price or level of a Constituent immediately prior to the current
measurement period will not – except in the context of monthly rebalancings and the application
of the Constituent flattening mechanism – dampen the contribution of current or future changes in
such Constituent’s price or level to changes in the Index level. As such, the daily contribution of
changes in Constituent prices and levels to changes in the Index level is not price dependent.
Lower weights of Constituents will dampen the impact of their returns on the Index level.
A selected Constituent whose volatility over the Lookback Period exceeded the Constituent
Target Volatility will generally have a weight that dampens the contribution of such Constituent’s
performance in the calculation of the Index level. As a result, any positive performance of
Constituents subject to such weight to the Index level will not be fully reflected in the Index level.
The Index may be notionally uninvested.
A number of circumstances – including recent poor performance of some or all of the
Constituents resulting in zero weights in the rebalancing process or through the imposition of
-8-
exposure flattening periods – may result in the Index being partially or completely “uninvested”
on a notional basis. To the extent the sum of all Constituent weights is less than 100%, a portion
of the Index may be considered notionally “uninvested” and the returns in respect of such portion
will be zero. If the sum of all Constituent weights is equal to zero, the Index value will remain
unchanged, reflecting zero returns for each day such sum is equal to zero.
The Index is subject to significant risks associated with futures contracts.
The Constituents are comprised of futures contracts and indices that track 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 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 lack of liquidity in the
markets, participation of speculators, and government regulation and intervention. These factors
and others can cause the prices of futures contracts to be volatile and unpredictable.
The settlement price of the futures contracts may not be readily available.
The official settlement price of the relevant futures contracts are used to calculate the level
of the Index. Any disruption in trading of the relevant futures contracts could delay the release or
availability of the official settlement price. This may delay or prevent the calculation of the Index.
Some of the Constituents are excess return commodity indices, which carry risks associated with
notional investments in such indices.
The commodity-linked Constituents are excess return indices within the S&P GSCITM
commodity index group. The policies of the sponsor of these indices concerning methodology and
calculation, including decisions regarding additions, deletions or substitutions of the assets
underlying the indices, could affect the level of these Constituents.
The excess return indices constituting the commodity-linked Constituents track returns
from hypothetical exposures to certain commodity futures contracts that take into account changes
in the price level of the underlying futures contracts as well as roll yield, but not “total returns.”
A commodity 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.
The Index may be affected by significant volatility in the Constituents, each of which is subject
to the volatility associated with futures contracts.
Prices are subject to sudden changes and can move dramatically over short periods of time,
even when they have been relatively stable for an extended period of time leading up to the change.
As a result, the levels of the Constituents and, therefore, the Index may decline dramatically before
the resulting increased volatility will be reflected in the Lookback Periods used to measure
historical volatility in the Index’s rebalancing mechanism. Consequently, the Index may
experience sharp declines over short periods of time, notwithstanding the target volatility feature.
This risk may be magnified by the risks associated with futures contracts.
-9-
Suspensions or disruptions of market trading in futures contracts may adversely affect the
Index.
Futures markets are subject to temporary suspensions, distortions or other disruptions due
to various factors, including lack of liquidity, participation of speculators, and government
regulation and intervention. In addition, U.S. and other futures exchanges have regulations that
limit the magnitude of futures contract price changes that may occur in a single day. These limits
may be 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 may be 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 (although trades can continue within 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
affect the level of the Index.
The performance of foreign currency denominated Constituents is not adjusted for exchange
rate movements when determining relative performance and weights for a monthly rebalancing.
In the monthly rebalancing process, the six highest Constituent return levels are assessed
based on the cumulative returns of each Constituent in local currency terms, without adjusting for
currency differences, over the Lookback Period. As a result, Constituents that, on a dollar-adjusted
basis, had relatively weaker or even negative performance, may nevertheless be ranked high
enough to receive a positive weight in the upcoming period. This will have the consequence of
producing notional allocations that may differ from those that would have obtained had they been
based on performance measured on a dollar-parity basis. And, as indicated below, even though
currency adjustment is not made when determining weights, the Index level itself does take into
account currency fluctuation against the U.S. dollar.
The Index level will be subject to currency exchange risk.
Because the returns on Constituents that are futures contracts on foreign equity indices or
government-issued fixed income securities are converted into U.S. dollars for the purposes of
calculating the returns of the Index, the Index level will reflect currency exchange rate risk with
respect to each of the relevant foreign currencies. The returns of the Index, however, will not
reflect the changes in the notional value of the non-U.S. Constituents due solely to changes in the
value of those currencies against the U.S. dollar. Such currency exchange risk, therefore, will
depend on the extent to which those currencies strengthen or weaken against the U.S. dollar
together with whether each non-U.S. Constituent appreciates or declines in value, as adjusted by
the applicable weights of such non-U.S. Constituent in the Index. For example, if a non-U.S.
Constituent has a positive daily return (as measured in its local currency), and the U.S. dollar
strengthens against such non-U.S. Constituent’s currency, such non-U.S. Constituent’s
contribution to the Index’s return shall be less than it would have been had its contribution been
based solely on its local currency return. Furthermore, if a non-U.S. Constituent has a negative
daily return (as measured in its local currency), and the U.S. dollar weakens against such non-U.S.
Constituent’s currency, such non-U.S. Constituent’s negative contribution to the Index’s return
shall be greater than it would have been had its contribution been based solely on its local currency
return.
-10-
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.
All of these factors are, in turn, sensitive to the monetary, fiscal and trade policies pursued
by the governments of various countries, including the United States and other countries important
to international trade and finance.
The Constituents comprising the Index may be replaced by substitutes in certain events.
Following the occurrence of certain events with respect to a Constituent as described under
“The J.P. Morgan MOZAIC Index (USD),” the affected Constituent may be replaced by a
substitute futures contract, index or other asset, index or measure. The changing of a Constituent
may affect the performance of the Index, as the replacement Constituent may perform significantly
worse than the affected Constituent on either a standalone basis or as measured by its contribution
to the Index’s return.
The Index is subject to market risks.
The performance of the Index is dependent on the performance of the Constituents.
Certain Constituents are subject to significant risks associated with government-issued fixed-
income securities and may be volatile.
The fixed income-linked Constituents are futures contracts for U.S., German and Japanese
government-issued debt securities. The market prices of the underlying debt securities may be
volatile and significantly influenced by a number of factors, particularly the yields on these
instruments as compared to current market interest rates and the actual or perceived credit quality
of the governments issuing the underlying debt securities.
In general, fixed-income securities are significantly affected by changes in current market
interest rates. As interest rates rise, the price of fixed-income securities, such as the government-
issued debt securities underlying certain Constituents, may decrease, and as interest rates decrease,
the price of fixed-income securities, such as these underlying debt securities, may increase.
Interest rates are subject to volatility due to a variety of factors, including:
sentiment regarding underlying strength or weakness in the economies of the
governments issuing the underlying debt securities and global economies;
-11-
expectations regarding the level of price inflation;
sentiment regarding credit quality in the governments issuing the underlying debt
securities and global credit markets;
central bank policies regarding interest rates; and
the performance of global capital markets.
Fluctuations in interest rates could affect the levels of the Constituents and the Index.
U.S. rating agencies have recently downgraded the credit ratings and/or assigned negative
outlooks to many governments worldwide, including the United States, Germany and Japan, and
may continue to do so in the future. Any perceived decline in the creditworthiness of a government
that issues securities underlying a fixed income-linked Constituent as a result of a credit rating
downgrade or otherwise, may cause the yield on the relevant securities to increase and the prices
of such securities to fall, perhaps significantly, and may cause increased volatility in local or global
credit markets. Any such decline over the term of a Product linked to the Index would adversely
impact the prices of the futures contracts underlying the relevant fixed income-linked Constituent
and could have a negative impact on the level of the Index and the value of such Product.
The Constituents may be affected in unexpected ways by the recent sovereign debt crisis in
Europe and related global economic conditions.
The recent European debt crisis and related European financial restructuring efforts have
contributed to instability in global markets. If global economic and market conditions, or
economic conditions in Europe, the United States or other key markets, remain uncertain or
deteriorate further, the Constituents may be affected in unexpected ways. If a sovereign
government were to default on its debt obligations, or if the market perceives that a default has
become more likely, yields on the government-issued debt securities underlying the fixed income-
linked Constituents may change rapidly and dramatically, and such changes may adversely affect
the level of the Index.
Commodity prices are characterized by high and unpredictable volatility, which could lead to
high and unpredictable volatility in prices and levels of the commodity-linked Constituents and
hence in the Index.
Market prices of the commodities and commodity futures contracts underlying the
commodity-linked Constituents tend to be highly volatile and 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, changes in
interest rates and exchange rates, speculation and trading in commodities and related contracts,
weather, and agricultural, trade, fiscal and exchange control policies. Many commodities are also
highly cyclical. These factors may affect the levels of the indices that comprise the commodity-
linked Constituents in varying ways, and different factors may cause the value of different
commodities included in the commodity-linked Constituents, and the prices of their futures
-12-
contracts, to move in inconsistent directions at inconsistent rates. This, in turn, may adversely
affect the Index.
The Index provides only one means for exposure to commodities. The high volatility and
cyclical nature of commodity markets may render these investments inappropriate as the focus of
an investment portfolio.
Certain Constituents or their underlying futures contracts are foreign futures contracts, and in
some cases such futures contracts are linked to foreign securities.
Certain fixed income- and equity-linked Constituents are foreign futures contracts linked
to foreign securities, and certain futures contracts underlying the indices that constitute the
commodity-linked Constituents are foreign commodity futures contracts. With respect to such
Constituents, the performance of the underlying foreign futures contracts depends on conditions
on foreign futures markets, which may differ substantially from conditions in U.S. markets. And
in the case of fixed income- and equity-linked Constituents that constitute foreign futures
contracts, the futures contracts are in turn linked to securities issued by non-U.S. companies and
non-U.S. governments. As a result, the values of these futures contracts, and ultimately of the
related Constituents, will also be affected by political, economic, financial and social factors in the
relevant countries, including changes in a relevant country’s government, economic and fiscal
policies, currency exchange laws and other foreign laws or restrictions. The economies of these
countries may differ unfavorably from the economy of the United States in such respects as growth
of gross national product, rate of inflation, market volatility, capital reinvestment, resources and
self-sufficiency. These countries may be subjected to different and, in some cases, more adverse
economic environments. Some or all of these factors may adversely impact the value of the
affected Constituents and hence of the Index and may exacerbate negative changes or offset
positive changes resulting from other factors.
The Index may in the future include contracts that are not traded on regulated futures
exchanges.
The Index, through its exposure to the 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 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
Commodity Exchange Act, 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 the Index, through its exposure to the
Constituents, may be subject to certain risks not presented by regulated exchange-traded futures
contracts, including risks related to the liquidity and price histories of the relevant contracts.
-13-
An increase in the margin requirements for commodity futures contracts included in the Non-
Securities-based Constituents may adversely affect the level of the Index.
Futures exchanges require market participants to post collateral in order to open and to
keep open positions in futures contracts. If an exchange increases the amount of collateral required
to be posted to hold positions in commodity futures contracts underlying the Non-Securities-based
Constituents, market participants who are unwilling or unable to post additional collateral may
liquidate their positions, which may cause the price of the relevant commodity futures contracts to
decline significantly. As a result, the level of the Index and the value of the CDs may be adversely
affected.
JPMS is a primary dealer in connection with purchases and sales of U.S. Treasury securities by
the 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 Federal Reserve conducts open-
market purchases and sales of U.S. Treasury and federal agency securities, including 2-Year
Treasury Notes, 5-Year Treasury Notes and 10-Year Treasury Notes. Such activities may affect
the prices and yields on the U.S. Treasury securities underlying the Constituents linked to
U.S. government-issued debt securities and hence the level of the Index. JPMS has no obligation
to take into consideration the Index when undertaking these activities.
Correlation of performances among the Constituents may reduce the performance of the Index.
Performances of the Constituents may become highly correlated from time to time,
including, but not limited to, a period in which there is a substantial decline in a particular sector
or asset type represented by the Constituents and which has a higher weight in the Index relative
to any of the other sectors or asset types, as determined by the Index’s strategy. High correlation
during periods of negative returns among Constituents representing any one sector or asset type
could have an adverse effect on the Index.
Changes in the value of the Constituents may offset each other.
At a time when the value of a Constituent representing a particular asset class or geographic
region increases, the value of other Constituents representing a different asset class or geographic
region may not increase as much or may decline. Therefore, in calculating the level of the Index,
increases in the values of some of the Constituents may be moderated, or more than offset, by
lesser increases or declines in the values of other Constituents.
Any Products linked to the Index will not be regulated by the Commodity Futures Trading
Commission.
An investment in any Products linked to the Index neither constitutes an investment in
futures contracts, options on futures contracts nor a collective investment vehicle that trades in
these futures contracts (i.e., the Products will not constitute a direct or indirect investment by a
Contract Owner in the futures contracts), and a Contract Owner would not benefit from the
regulatory protections of the Commodity Futures Trading Commission, commonly referred to as
the “CFTC.” Among other things, this means that J.P. Morgan is not registered with the CFTC as
a futures commission merchant and a Contract Owner would not benefit from the CFTC’s or any
-14-
other non-U.S. regulatory authority’s regulatory protections afforded to persons who trade in
futures contracts on a regulated futures exchange through a registered futures commission
merchant. For example, the price a Contract Owner pays to purchase any such Products would be
used by J.P. Morgan for its own purposes and would not be subject to customer funds segregation
requirements provided to customers that trade futures on an exchange regulated by the CFTC.
Unlike an investment in any such Products, an investment in a collective investment
vehicle that invests in futures contracts on behalf of its participants may be subject to regulation
as a commodity pool and its operator may be required to be registered with and regulated by the
CFTC as a commodity pool operator, or qualify for an exemption from the registration
requirement. Because such Products would not be interests in a commodity pool, the Products
would not be regulated by the CFTC as a commodity pool, J.P. Morgan would not be registered
with the CFTC as a commodity pool operator, and a Contract Owner would not benefit from the
CFTC’s or any non-U.S. regulatory authority’s regulatory protections afforded to persons who
invest in regulated commodity pools.
J.P. Morgan has not independently verified disclosures that were derived from publically
available information.
The disclosures contained in this index supplement derived from publicly available sources
have not been independently verified by J.P. Morgan. J.P. Morgan 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 a security on which relevant futures contracts or an index is linked.
J.P. Morgan cannot give any assurance that all events occurring prior to the date of this disclosure
(including events that would affect the accuracy or completeness of the publicly available
documents of the issuer of such security) that would affect the closing price of that security 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 such security could adversely
affect the Index.
J.P. Morgan has no affiliation with the Underlying Index Sponsors
J.P. Morgan is not affiliated with S&P Dow Jones Indices LLC, Deutsche Börse AG or
Nikkei Inc. (the “Underlying Index Sponsors”) in any way (except for arrangements discussed
below in “THE S&P GSCI INDICES — License Agreement”) and have no ability to control the
Underlying Index Sponsors, including any errors in or discontinuation of disclosure regarding their
methods or policies relating to the calculation of the Constituents. The Underlying Index Sponsors
are under no obligation to continue to calculate their respective Constituents nor are they required
to calculate any successor indices. If the Underlying Index Sponsors discontinue or suspend the
calculation of a relevant index, it may become difficult to determine values that are relevant for
calculations related to the Index and any Product linked to the Index.
S&P Dow Jones Indices LLC may be required to replace a contract underlying an S&P GSCI
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 the underlying physical commodity included in the S&P GSCI Index. Data concerning
-15-
this Designated Contract will be used to calculate the S&P GSCI 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 the S&P GSCI Index Committee, as the case may be, if
available, to replace each such Designated Contract. The termination or replacement of any
Designated Contract may have an adverse impact on the value of the individual S&P GSCI Index.
Suspension or disruptions of market trading in the commodity and related futures markets may
adversely affect the value of any Products linked to the Index.
Some of the potential Constituent sub-indices will be subject to pronounced risks of pricing
volatility.
As a general matter, the risk of low liquidity or volatile pricing around the maturity date of
a commodity futures contract is greater than in the case of other futures contracts because (among
other factors) a number of market participants take physical delivery of the underlying
commodities. Many commodities, like those in the energy and industrial metals sectors, have
liquid futures contracts that expire every month. Therefore, these contracts are rolled forward
every month. Contracts based on certain other commodities, most notably agricultural and
livestock products, tend to have only a few contract months each year that trade with substantial
liquidity. Thus, these commodities, with related futures contracts that expire infrequently, roll
forward less frequently than every month, and can have further pronounced pricing volatility
during extended periods of low liquidity. In respect of Constituent sub-indices that represent
energy, it should be noted that due to the significant level of its continuous consumption, limited
reserves, and oil cartel controls, energy commodities are subject to rapid price increases in the
event of perceived or actual shortages.
-16-
THE J.P. MORGAN MOZAIC INDEX (USD)
General
The J.P. Morgan MOZAIC Index (USD) (the “Index”) was developed and is maintained
and calculated by J.P. Morgan Securities plc (“JPMS plc”). The description of the Index and
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 their maintenance. The Rules in effect as of
the date of this index supplement are included as part of the index supplement 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 published to Bloomberg L.P. on the page “JMOZUSD Index.” Live
calculation of the Index commenced on April 17, 2009 (the “Live Date”), with Index levels
calculated on a hypothetical historical basis from January 1, 1999 (the “Index Start Date”). The
initial level of the Index for January 1, 1999 was set at 100.00 (the “Base Level”).
The Index tracks a dynamic, rules-based strategy offering notional exposure to a range of
developed country government bond futures constituents (the “Government Bond Futures
Constituents”) and developed country equity index futures constituents (the “Equity Index
Futures Constituents” and together with the Government Bond Futures Constituents, the
“Securities-based Constituents”) and exposure to certain listed excess return indices within the
S&P GSCITM commodity index group (the “Non-Securities-based Constituents”, and together
with the Securities-based Constituents, the “Constituents”).
The strategy underlying the Index and the Rules:
tracks percentage changes in the daily-weighted prices and levels of selected
Constituents, after adjusting for currency differences and the application of weights
whose levels are determined and rebalanced on a monthly basis;
selects, based on recent past performance, Constituents to be tracked on a monthly basis
(typically six Constituents) from a candidate list of 12 Constituents;
excludes Constituents with recent negative performance, regardless of their
performance relative to others in the candidate list of 12 Constituents;
establishes weights for the selected Constituents based on a “risk parity” framework
that looks to recent historical volatility; and
employs an exposure “flattening” feature to temporarily suspend exposures in the
Constituents in the event recent overall performance has declined beyond a specified
threshold.
To implement the foregoing strategy, the Rules contemplate a monthly rebalancing event,
generally on the first weekday of each month, in respect of the Constituents. In the monthly
rebalancing, the cumulative returns (in local currency terms, without adjusting for currency
-17-
differences or the effect of compounding) of the 12 Constituents are measured over a recent 125-
weekday observation period (approximately six months) (the “Lookback Period,” as defined in
greater detail below). Each Constituent whose cumulative return in the Lookback Period is ranked
in the highest six return levels will have a positive weight for the upcoming month so long as such
Constituent’s cumulative performance over the Lookback Period was positive. The weights for
each of the Constituents that did not have one of the six highest returns or whose returns were
negative during the Lookback Period will be set to zero for the upcoming month.
If a Constituent is selected for the upcoming month, then its weight will be determined,
based on a “risk parity” framework, to be the weight that would have yielded during the Lookback
Period an annualized volatility of 7.75%÷6, or approximately 1.29% (the “Constituent Target
Volatility”), subject to an upper-bound limit of 1,000% (the “Upper-Bound Limit”). The risk
parity framework generally results in higher weights to selected Constituents that had lower
historical volatility in the Lookback Period and lower weights to those that had higher historical
volatility during the Lookback Period.
The first weekday (or in certain circumstances, the next weekday) of a particular month is
generally the Rebalancing Day (as defined below) for each Constituent, unless such weekday is
not a Scheduled Trading Day (as defined below) or is a Disrupted Day (as defined below) with
respect to a particular Constituent, in which case (except with respect to certain types of Disrupted
Days affecting the GSCI AG Index, which can cause a postponement in such Constituent’s
rebalancing, as further described below) that Constituent’s weight for the upcoming month will
remain the same as the prior month’s weight. For a Disrupted Day affecting the GSCI AG Index
that is attributable to an Agricultural Commodities Postponement Event affecting the GSCI AG
Index, rebalancing may be postponed until the resolution of the applicable Agricultural
Commodities Postponement Period, and in this case modifications would be made to the
calculations of the GSCI AG Index returns and of the Index level (including the use of settlement
pricing) upon the resolution of the applicable Agricultural Commodities Postponement Resolution
Period.
In respect of each Constituent, on each Scheduled Trading Day that is not a Disrupted Day
for such Constituent (subject to certain additional conditions with respect to the GSCI IM Index
and modified conditions with respect to the GSCI AG Index), if the Index level declines by more
than 3.00% over the five-weekday period ending on the second weekday immediately preceding
such Scheduled Trading Day, then, notwithstanding its weight at that time, the weight of such
Constituent will be subject to a five-weekday “flattening” period (beginning on the weekday
immediately following such Scheduled Trading Day), during which time its weight will
temporarily be set to zero, unless such Constituent is already then subject to an existing exposure
flattening period. A Constituent that is already then subject to an exposure flattening period will
remain in its original exposure flattening period and cannot be subject to a new exposure flattening
period until the completion of the original period. Constituents in respect of which a given
weekday either is not a Scheduled Trading Day or is a Disrupted Day (and in certain other
circumstances with respect to the GSCI IM Index and the GSCI AG Index) will not be subject to
the commencement of an exposure flattening period on the following weekday. In addition, an
Agricultural Commodities Postponement Event occurring during an exposure flattening period for
the GSCI AG Index can cause a delay in the termination of such exposure flattening period and
-18-
modifications to the calculations of the GSCI AG Index returns and of the Index level upon the
conclusion of such exposure flattening period.
The Index does not track a hypothetical fixed level of investment in the Constituents,
but rather the weighted percentage changes in the prices and levels of the Constituents.
Accordingly, the daily contribution of changes in Constituent prices and levels to changes in
the Index level is not path dependent.
Constituent weights are subject to a high upper-bound limit but are not subject to a
separate leverage charge in the event weights exceed 100%. Individual and total weights of
the Constituents can exceed 100% and each can be as low as zero, but Constituent weights
can never be negative, or synthetically short, either in the aggregate or in respect of any
single Constituent. To the extent the sum of all Constituent weights is less than 100%, a
portion of the Index may be considered notionally “uninvested” and the returns in respect of
such portion will be zero. If the sum of all Constituent weights is equal to zero, the Index
value will remain unchanged, reflecting zero returns for each day such sum is equal to zero.
No assurance can be given that the Index’s strategy will be successful or that the Index
will generate positive returns or will outperform any alternative strategy that might be
constructed from the Constituents. Furthermore, the future volatility of any Constituent
may not be consistent with its historical volatility. The actual realized volatility of any
Constituent may be greater or less than the Constituent Target Volatility.
The Index is described as tracking “notional” or “synthetic” exposures 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 assets, the performance of which
will be used as a reference point for calculating the Index level.
Any Index level prior to the Live Date is a hypothetical historical, or “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 model
designed with the benefit of hindsight. The Index Calculation Agent, in calculating
hypothetical back-tested index levels, may have applied the disruption provisions specified
in the Rules differently 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 a
Constituent (or other calculated values) may differ from the methodology applied on a going
forward basis. In calculating the hypothetical historical levels, the Index Calculation Agent
may have made certain assumptions in respect of the timing surrounding the publication of
certain indicators and Index levels. These assumptions may have a material impact on the
back-tested levels occurring on or before the Live Date. No representation is made that any
investment that references the Index will or is likely to achieve returns similar to any
hypothetical historical returns. Alternative modeling techniques or assumptions might
provide different results. Finally, 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.
-19-
-20-
Index Sponsor; Index Calculation Agent; Amendment of Rules; Limitation of Liability
JPMS plc is the sponsor of the Index (the “Index Sponsor”). The Index Sponsor is
responsible for, among other things, the creation and design of the Index, the documentation of the
Rules, and the appointment of the calculation agent of the Index (the “Index Calculation Agent”),
which may be the Index Sponsor, a non-related third party or an affiliate or subsidiary of the Index
Sponsor. As of the date of this Index Supplement, JPMS plc is also the Index Calculation Agent.
The Index Calculation Agent is responsible for:
calculating the Index level in respect of each weekday in accordance with the Rules;
and
determining (subject to the prior agreement of the Index Sponsor) if a Market
Disruption Event, Disrupted Day or Extraordinary Event (or other similar event) has
occurred and the related consequences and adjustments in accordance with the Rules.
The Index Calculation Agent will act in good faith and in a commercially reasonable
manner with respect to the performance of its obligations and the exercise of its discretion pursuant
to the Rules. The Index Sponsor may at any time and for any reason terminate the appointment of
an Index Calculation Agent and appoint an alternative entity as the replacement Index Calculation
Agent.
While the Rules are intended to be comprehensive, ambiguities may arise. In those
circumstances, the Index Calculation Agent will resolve those ambiguities in a reasonable manner
and, if necessary, amend the Rules to reflect that resolution.
The Index Calculation Agent’s determinations in respect of the Index and interpretations
of the Rules will be final.
The Index Sponsor may delegate and/or transfer any of its obligations or responsibilities in
connection with the Index to one or more entities which it determines are appropriate. The Index
Calculation Agent must obtain written permission from the Index Sponsor prior to any delegation
or transfer of its responsibilities or obligations in connection with the Index to a third party.
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 made or anything done (or omitted to be
determined or done) in respect of the Index or publication of the Index Level (or failure to publish
such level) and any use to which any person may put the Index or the Index Level. No Relevant
Person will take the interests of Contract Owners into account in making any determination in
respect of the Index. All determinations in respect of the Index and the Index Level will be final,
conclusive and binding and no person will be entitled to make any claim against any of the
Relevant Persons in respect thereof. Once a determination or calculation is made or action taken
by the Index Calculation Agent in respect of the Index, neither the Index Calculation Agent nor
any other Relevant Person will be under any obligation to revise any determination or calculation
made or action taken for any reason.
-21-
Constituents of the Index
There are currently 12 Constituents in the Index, of which five are Government Bond
Futures Constituents, three are Equity Index Futures Constituents and four are Non-Securities-
based Constituents. Government Bond Futures Constituents and Equity Index Futures
Constituents are also referred to as Securities-based Constituents.
Government Bond Futures Constituents
The Government Bond Futures Constituents consist of:
the CBOT 2-Year U.S. Treasury Note Futures Contract (Bloomberg ticker: ZT/TU),
which is a series of exchange-traded futures contracts with expiry dates at three month
intervals. As defined by the Relevant Exchange, the underlying unit of each contract
is a single notional note issued by the U.S. Treasury that has a face value at maturity of
$200,000, and Deliverable Grades of instruments eligible for settlement include
U.S. Treasury notes with (a) an original term to maturity of not more than five years
and three months and (b) a remaining term to maturity of not less than one year and
nine months from the first day of the delivery month and not more than two years from
the last day of the delivery month, where the invoice price equals the futures settlement
price times a conversion factor, plus accrued interest, and the conversion factor is the
price of the delivered note ($1 par value) to yield 6% (the “2 Year Note Futures”);
the CBOT 10-Year U.S. Treasury Note Futures Contract (Bloomberg ticker: ZN/TY),
which is a series of exchange-traded futures contracts with expiry dates at three month
intervals. As defined by the Relevant Exchange, the underlying unit of each contract
is a single notional note issued by the U.S. Treasury that has a face value at maturity of
$100,000, and Deliverable Grades of instruments eligible for settlement include
U.S. Treasury notes with a remaining term to maturity of at least six and a half years,
but not more than ten years, from the first day of the delivery month, where the invoice
price equals the futures settlement price times a conversion factor, plus accrued interest,
and the conversion factor is the price of the delivered note ($1 par value) to yield 6%
(the “10 Year Note Futures”);
the EUREX Euro-Schatz Futures Contract (Bloomberg ticker: FGBS/DU), which is a
series of exchange-traded futures contracts, with expiry dates at three month intervals.
As defined by the Relevant Exchange, each contract references certain notional debt
instruments issued by the Federal Republic of Germany that have (a) a face value at
maturity of 100,000 European Union euros, (b) a remaining term on the Delivery Day
of not less than one and three quarter years, and not more than two and a quarter years,
and (c) has a 6% coupon (the “Schatz Futures”);
the EUREX Euro-Bund Futures Contract (Bloomberg ticker: FGBL/RX), which is
series of exchange-traded futures contracts, with expiry dates at three month intervals.
As defined by the Relevant Exchange, each contract references certain notional debt
instruments issued by the Federal Republic of Germany that have (a) a face value at
maturity of 100,000 European Union euros, (b) a remaining term on the Delivery Day
-22-
of not less than eight and a half years, and not more than ten and half years, and (c) has
a 6% coupon (the “Bund Futures”); and
the Osaka 10-Year Japanese Government Bond Futures Contract (Bloomberg ticker:
JGB/JB), which is a series of exchange-traded futures contracts, with expiry dates at
three month intervals. Each contract references a single notional bond issued by the
State of Japan that has (a) a face value at maturity of 100,000,000 Japanese yen, (b) a
remaining term to maturity of not less than seven years, and not more than eleven years,
as of the issued date and delivery date and (c) pays a notional 6% coupon (the “JGB
Futures”).
Equity Index Futures Constituents
The Equity Index Futures Constituents consist of:
the CME Standard and Poor’s 500 Stock Price IndexTM Futures Contract (Bloomberg
ticker: SP/SP), which is a series of exchange-traded futures contracts, with expiry dates
at three month intervals. As defined by the Relevant Exchange, each contract
references the Standard and Poor’s 500 Stock Price Index, which provides a notional
exposure equal to the product of the level of the Standard and Poor’s 500 Stock Price
Index and $250 (the “S&P Futures”);
the EUREX DAX® Index Futures Contract (Bloomberg ticker: FDAX/DX), which is
a series of exchange-traded futures contracts, with expiry dates at three month intervals.
As defined by the Relevant Exchange, each contract references the Deutscher Aktien
Index which provides a notional exposure equal to the product of the level of the DAX
Index and 25 European Union euros (the “DAX Futures”); and
the Osaka Nikkei 225 Index Futures Contract (Bloomberg ticker: NK/NK), which is a
series of exchange-traded futures contracts, with expiry dates at three month intervals.
As defined by the Relevant Exchange, each contract references the Nikkei Stock
Average (Nikkei 225 Index), which provides a notional exposure equal to the product
of the level of the Nikkei 225 Index and 1,000 Japanese yen (the “Nikkei Futures”).
Non-Securities-based Constituents
The Index references the following Non-Securities-based Constituents:
the S&P GSCITM Agriculture Excess Return Index (the “GSCI AG Index”), with the
understanding that:
in the absence of an Agricultural Commodities Postponement Event, the Index
level will be calculated by reference to the level of the S&P GSCITM Agriculture
Excess Return Index that is published daily on Bloomberg Ticker SPGCAGP
Index <go>, and
-23-
in the case of an Agricultural Commodities Postponement Resolution Period,
the Index level in respect of the applicable Agricultural Commodities
Postponement Resolution Day will be calculated by reference to the settlement
level of the S&P GSCITM Agriculture Excess Return Index that is published
periodically on Bloomberg Ticker SPGSAGSP Index <go> (the “Agricultural
Commodities Settlement Index”);
the S&P GSCITM Precious Metals OC Excess Return Index is published daily on
Bloomberg Ticker SPGCPMP Index <go> (the “GSCI PM Index”);
the S&P GSCITM Industrial Metals Excess Return Index is published daily on
Bloomberg Ticker SPGCINP Index <go> (the “GSCI IM Index”); and
the S&P GSCITM Energy Excess Return Index is published daily on Bloomberg Ticker
SPGCENP Index <go> (the “GSCI EN Index”).
-24-
The following table sets forth the 12 current Constituents and also contains the related code
or Bloomberg ticker, “Relevant Exchange” for each Constituent, to the extent applicable, as well
as the local reporting currency of each Constituent’s price or level and (where applicable) the
Reuters page referenced by the FX rate for each applicable Constituent, as the case may be.
No. Government Bond
Futures Constituents Code Relevant Exchange
Reporting
Currency Reuters Page
1 2 Year Note Futures ZT/TU Chicago Board of
Trade or any
successor
U.S. dollars N/A
2 10 Year Note Futures ZN/TY Chicago Board of
Trade or any
successor
U.S. dollars N/A
3 Schatz Futures FGBS/DU EUREX Exchange or
any successor
European Union
euro
WMRSPOT05
4 Bund Futures FGBL/RX EUREX Exchange or
any successor
European Union
euro
WMRSPOT05
5 JGB Futures JGB/JB Osaka Stock
Exchange or any
successor
Japanese yen WMRSPOT12
No. Equity Index Futures
Constituents Code Relevant Exchange
Reporting
Currency Reuters Page
6 S&P Futures SP/SP Chicago Mercantile
Exchange or any
successor
U.S. dollars N/A
7 DAX Futures FDAX/DX EUREX Exchange or
any successor
European Union
euro
WMRSPOT05
8 Nikkei Futures NK/NK Osaka Stock
Exchange or any
successor
Japanese yen WMRSPOT12
No. Non-Securities-based
Constituents Code Relevant Exchange
Reporting
Currency Reuters Page
9 GSCI AG Index SPGCAGP
Index
N/A U.S. dollars N/A
10 GSCI PM Index SPGCPMP
Index
N/A U.S. dollars N/A
11 GSCI IM Index SPGCINP
Index
N/A U.S. dollars N/A
12 GSCI EN Index SPGCENP
Index
N/A U.S. dollars N/A
Monthly Rebalancing
The Index Calculation Agent calculates the Index’s notional exposure to each Constituent
as of its monthly Rebalancing Day (as defined below), and the rebalanced notional exposure to
such Constituent is reflected in the Index beginning as of the weekday immediately following such
Rebalancing Day. Each Constituent’s Rebalancing Day will originally be scheduled to occur on
the first weekday of a calendar month, subject to the following methodology described below (the
-25-
“Monthly Rebalancing Methodology”). The following Monthly Rebalancing Methodology was
modified effective as of March 22, 2018 (the “GSCI IM Index Modification Date”) and as of
October 24, 2019 (the “GSCI AG Index Modification Date”).
Prior to the GSCI IM Index Modification Date, and with respect to a particular Constituent,
a “Rebalancing Day” meant:
if the first weekday of the calendar month is a Scheduled Trading Day for such
Constituent and is not a Disrupted Day for such Constituent, such weekday will be the
Rebalancing Day for such Constituent; or
if the first weekday of the calendar month is not a Scheduled Trading Day or is a
Disrupted Day for such Constituent, there shall be no Rebalancing Day that month for
such Constituent, meaning that the Index Calculation Agent shall not rebalance such
Constituent for the given month and its weight will remain unchanged from the prior
month.
On the GSCI IM Index Modification Date, the Monthly Rebalancing Methodology was
changed solely with respect to the GSCI IM Index so that if (x) the first weekday of the calendar
month is not a day where the relevant commodity exchange is scheduled to be open for trading for
each individual commodity futures contract referenced by the GSCI IM Index, and (y) either
(1) the immediately preceding weekday is not a day where the relevant commodity exchange is
scheduled to be open for trading for each individual commodity futures contract referenced by the
GSCI IM Index or (2) the immediately preceding weekday is a day where the relevant commodity
exchange is scheduled to be open for trading for each individual commodity futures contract
referenced by the GSCI IM Index, but is a day on which a Market Disruption Event did occur or
exist for any of the individual commodity futures contracts referenced by the GSCI IM Index, then:
if the second weekday of such calendar month is a Scheduled Trading Day for such
Constituent and is not a Disrupted Day for such Constituent, such weekday will be the
Rebalancing Day for such Constituent; or
if the second weekday of such calendar month is not a Scheduled Trading Day or is a
Disrupted Day for such Constituent, there shall be no Rebalancing Day that month for
such Constituent, meaning that the Index Calculation Agent shall not rebalance such
Constituent for the given month and its weight will remain unchanged from the prior
month.
On the GSCI AG Index Modification Date, the Monthly Rebalancing Methodology was
changed solely with respect to the GSCI AG Index so that:
if the first weekday of any calendar month (i) is not a day where the relevant commodity
exchange is scheduled to be open for trading for each individual commodity futures
contract referenced by the GSCI AG Index, (ii) is immediately following a weekday
that falls within an Agricultural Commodities Postponement Period or (iii) is or
immediately follows a weekday that is an Agricultural Commodities Postponement
Resolution Day, there shall be no Rebalancing Day that month for such Constituent,
-26-
meaning that the Index Calculation Agent shall not rebalance such Constituent for the
given month and its weight will remain unchanged from the prior month; or
if the first weekday of any calendar month is (i) a Scheduled Trading Day for such
Constituent, (ii) a day where the relevant commodity exchange is scheduled to be open
for trading for each individual commodity futures contract referenced by the GSCI AG
Index and (iii) the Index Calculation Agent determines in its sole discretion (a
“Designated Agricultural Commodities Postponement Determination”) that such
weekday is a Disrupted Day for such Constituent solely due to the occurrence or
continuation of an Agricultural Commodities Postponement Event for one or more of
the individual commodity futures contracts referenced by the GSCI AG Index, then
such weekday shall treated as a Rebalancing Day for such Constituent but the
rebalancing of such Constituent shall be effected on a delayed basis and the calculation
of returns and the Index Level shall be modified as described under “—Calculation of
USD Returns”.
“Agricultural Commodities Postponement Event” means, in respect of the GSCI AG
Index and a particular weekday that is either (i) a scheduled Rebalancing Day or (ii) an Exposure
Flattening Change Day (as defined below), that (a) a Market Disruption Event has occurred or is
continuing in respect of such Constituent and that (b) as a result of the occurrence or continuation
of such Market Disruption Event, the Agricultural Constituent Settlement Price for such weekday
is either (i) not published or otherwise made available by or on behalf of the Constituent Sponsor
to the Index Calculation Agent on such weekday or (ii) published or otherwise made available by
or on behalf of the Constituent Sponsor to the Index Calculation Agent on that weekday, but is not
equal to the Closing Price for such Constituent for that weekday. For further information on
settlement pricing as used in the GSCI AG Index, see “Background on the S&P GSCI Indices—
Calculation of the S&P GSCI Indices—Settlement Pricing.”
“Agricultural Commodities Postponement Resolution Period” means, in the case of the
GSCI AG Index and a weekday in respect of which the Index Calculation Agent has made a
Designated Agricultural Commodities Postponement Determination, the period from and
including the weekday on which such Designated Agricultural Commodities Postponement
Determination has been made to and excluding the applicable Agricultural Commodities
Postponement Resolution Day.
“Agricultural Commodities Postponement Resolution Day” means the first weekday,
following the weekday in respect of which the Index Calculation Agent has made a Designated
Agricultural Commodities Postponement Determination, for which the Agricultural Constituent
Settlement Price for such first following weekday is published or otherwise made available by or
on behalf of the Constituent Sponsor to the Index Calculation Agent and is equal to the Closing
Price for such Constituent for that weekday.
“Exposure Flattening Change Day” means a weekday that is also a Scheduled Trading
Day with respect to the GSCI AG Index and where either such weekday or the immediately
preceding weekday is in an Exposure Flattening Period with respect to the GSCI AG Index when
the other weekday is not in an Exposure Flattening Period.
-27-
“Agricultural Commodities Settlement Price” means, in respect of the GSCI AG Index
and a Scheduled Trading Day and for the Agricultural Commodities Settlement Index (which is
the “settlement index” variation of the GSCI AG Index), (a) the official closing level of such
Agricultural Commodities Settlement Index as published or otherwise made available to the Index
Calculation Agent by the relevant sponsor of such Agricultural Commodities Settlement Index for
such Scheduled Trading 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
Agricultural Commodities Settlement Index or the Constituent Sponsor of such Agricultural
Commodities Settlement Index does not postpone the publication of or fail to timely make
available or publish the official closing level of such Agricultural Commodities Settlement Index
on the Scheduled Trading Day on which such official closing level could have been published
pursuant to the methodology of the Agricultural Commodities Settlement Index), (b) if the Index
Calculation Agent determines that the official closing level of such Agricultural Commodities
Settlement Index published or otherwise made available to the Index Calculation Agent by the
Constituent Sponsor of such Agricultural Commodities Settlement Index for such Scheduled
Trading Day reflects manifest error on the part of the relevant sponsor of such Agricultural
Commodities Settlement Index, the closing level of such Agricultural Commodities Settlement
Index as calculated in good faith and in a commercially reasonable manner by the Index
Calculation Agent based on the most recent publicly available formula for and method of
calculating such Agricultural Commodities Settlement Index or (c) if the Constituent Sponsor of
such Agricultural Commodities 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 Agricultural Commodities Settlement Index scheduled to be published or otherwise made
available to the Index Calculation Agent by the Constituent Sponsor of such Agricultural
Commodities Settlement Index for such Scheduled Trading Day by 8:00 PM, New York time on
the Scheduled Trading Day on which such official closing level is calculable pursuant to the
methodology of the Settlement Index, the closing level of such Agricultural Commodities
Settlement Index as calculated in good faith and in a commercially reasonable manner by the Index
Calculation Agent based on the most recent publicly available formula for and method of
calculating such Agricultural Commodities Settlement Index.
Rebalancing Weights
Beginning as of the weekday immediately following the monthly Rebalancing Day for a
particular Constituent, the weight assigned to such Constituent (the “Monthly Constituent
Weight”) shall be determined as follows:
if the Return Signal (as defined below) for such Constituent for such month is equal to
zero, then that Constituent’s Monthly Constituent Weight shall be zero;
otherwise, such Constituent’s Monthly Constituent Weight shall equal the lesser of
(i) 1,000% (the “Upper-Bound Limit”) and (ii) the Constituent Target Volatility
divided by a measure of such Constituent’s volatility over the Lookback Period (as
defined below) (such Constituent’s “Constituent Historical Volatility”), expressed as
follows:
-28-
Monthly Constituent Weight = Constituent Target Volatility ÷ Constituent
Historical Volatility
In this scenario, the Monthly Constituent Weight is based on a “risk parity”
framework and is essentially the weight that would have yielded during the
Lookback Period an annualized volatility equal to the Constituent Target Volatility
of 7.75%÷6, or approximately 1.29%, subject to the Upper-Bound Limit. The risk
parity framework generally results in higher Monthly Constituent Weights to
selected Constituents that had lower historical volatility in the Lookback Period and
lower Monthly Constituent Weights to those that had higher historical volatility
during the Lookback Period.
Thereafter, the Monthly Constituent Weight for such Constituent shall remain the same for
each weekday until the application of the Monthly Constituent Weight from the next Rebalancing
Day.
Relevant Definitions
The “Lookback Period” for a particular Constituent and a particular Rebalancing Day is
the 125-weekday period ending on the second weekday prior to such Rebalancing Day.
The “Return Signal” (which is referred to as the Trading Signal in the Rules) for a
particular Constituent and a particular Rebalancing Day is either one or zero and is determined as
follows:
the cumulative return (i.e., the sum of the Daily Returns (as defined below) for such
Constituent) of each Constituent over the Lookback Period is determined;
the cumulative returns of all Constituents are ordered, and the six highest returns are
determined;
if the cumulative return of such Constituent over the Lookback Period falls among the
six highest returns and such cumulative return is greater than zero, it will be assigned
a Return Signal of one (1) for the month; and
otherwise, such Constituent will be assigned a Return Signal of zero (0) for the month.
Note that more than six Constituents may meet these criteria if there is a tie for sixth place.
In addition, if one or more Constituents with positive weights from the prior month are not
rebalanced because the first weekday of the month is not a Scheduled Trading Day for such
Constituents, more than six Constituents may have positive weights for a given month.
“Constituent Historical Volatility” for a particular Constituent and a particular
Rebalancing Day is calculated as the volatility of the Daily Returns of such Constituent over the
relevant Lookback Period and is expressed mathematically as follows:
-29-
Where:
σc,t refers to the volatility of the relevant Constituent c as of the weekday t, which in
this case is the second weekday immediately preceding the day originally scheduled
for such Rebalancing Day;
Rc,t refers to the Daily Return of the relevant Constituent c as of the weekday t, which
in this case is the second weekday immediately preceding the day originally
scheduled for such Rebalancing Day;
Rc,k refers to the Daily Return of the relevant Constituent c as of the weekday k (with
k=t referring to the second weekday immediately preceding the relevant
Rebalancing Day, k=t-1 referring to the third weekday immediately preceding the
day originally scheduled for such Rebalancing Day and so forth); and
“Scheduled Trading Day” means:
in respect of a Securities-based Constituent, each day on which the Relevant Exchange
(see the table above under the heading “— Constituents of the Index”) is scheduled to
be open for trading for its regular trading session, or in respect of any such exchange,
any successor exchange therefor (broadly construed as occurring as a result of a merger,
acquisition or otherwise); and
in respect of a Non-Securities-based Constituent, each day in respect of which the
relevant index sponsor is scheduled to publish the Closing Price (as defined below) for
such Constituent.
“Closing Price” means (i) in the case of a Securities-based Constituent, the official
settlement price in respect of such Securities-based Constituent, as calculated and published by the
applicable Constituent Sponsor (as defined below), and (ii) in the case of a Non-Securities-based
Constituent, the official closing level in respect of such Non-Securities-based Constituent, as
calculated and published by the applicable Constituent Sponsor.
“Constituent Sponsor” means, in respect of any Constituent, the Relevant Exchange or
any corporation or other entity that, as determined by the Index Calculation Agent: (a) is
responsible for setting and reviewing the rules and procedures and the method of calculation and
adjustments, if any, related to such Constituent and (b) announces (directly or through an agent)
the level or price of such Constituent on a regular basis in respect of each Scheduled Trading Day.
-30-
“Disrupted Day” means, in respect of any Scheduled Trading Day for any Constituent,
the occurrence or existence of a Market Disruption Event (as defined below).
“Market Disruption Event” means, in respect of any Scheduled Trading Day and a
Constituent:
in the case of a Securities-based Constituent, the failure of by the relevant Constituent
Sponsor to calculate and publish the Closing Price of such Securities-based
Constituent; and
in the case of a Non-Securities-based Constituent, the occurrence of any one or more
of the following circumstances:
o material limitation, suspension, or disruption of trading in one or more of the
futures contracts included in such Non-Securities-based Constituent which
results in a failure by the exchange on which such futures contract is traded to
report a closing price for such futures contract on the day on which such event
occurs or any succeeding day on which it continues;
o the closing price for any futures contract included in such Non-Securities-based
Constituent is a “limit price,” which means that the closing price for such
futures contract for a day has increased or decreased from the previous day’s
closing price by the maximum amount permitted under applicable exchange
rules;
o a failure by the applicable exchange or other price source to announce or publish
the closing price for any futures contract included in such Non-Securities-based
Constituent; or
o the failure of by the relevant Constituent Sponsor to calculate and publish the
Closing Price of such Non-Securities-based Constituent.
Calculation and Publication of the Index Level
The Index Calculation Agent calculates the Index level in respect of each weekday;
provided, however, that if a weekday is a Disrupted Day in respect of a Constituent and such
Constituent’s Monthly Constituent Weight for such weekday is not equal to zero, the Index
Calculation Agent will not publish an Index level for such weekday.
The Index level was established as 100.00 as of January 1, 1999. The Index level in respect
of each subsequent weekday is equal to the sum of the prior weekday’s Index level plus the product
of (i) the prior weekday’s Index level and (ii) the sum of the weighted U.S. dollar-adjusted return,
if any, since the prior weekday for each Constituent (subject to the application of any Exposure
Flattening Period (as defined below) in respect of such Constituent on such new weekday). The
Index level calculation is expressed mathematically as follows:
-31-
Indext = Indext-1 x (1 + USD Returnst)
Where:
t refers in this case to the weekday in respect of which the Index level is
being calculated;
Indext refers to the Index level in respect of weekday t;
Indext-1 refers to the Index level in respect of the weekday immediately preceding
weekday t; and
USD Returnst refers to the sum of the weighted U.S. dollar-adjusted return, if any, since
the prior weekday for each Constituent, except with respect to the GSCI
AG Index when t is an Agricultural Commodities Postponement
Resolution Day, in which case the alternate methodology described below
under “—Calculation of USD Returnst–Special Calculation for the GSCI
AG Index on an Agricultural Commodities Postponement Resolution
Day” shall be employed.
However, if, as a result of the foregoing calculation, the Index level would be zero or less
than zero, the Index level will as of that day and thereafter be set to zero.
The Index is published to Bloomberg L.P. on the page “JMOZUSD Index.” The Index
level will be expressed to at least two decimal places, as determined by the Index Calculation
Agent in a commercially reasonable manner. The Index Calculation Agent may maintain the Index
to a greater degree of specification and may calculate the Index level using such calculated levels.
Neither the Index Sponsor nor the Index Calculation Agent is under any obligation to
continue the calculation, publication and dissemination of the Index.
Calculation of USD Returnst
“USD Returnst” for the Index in respect of weekday t is calculated as the sum of the
weighted U.S. dollar-adjusted return, if any, since the prior weekday for each Constituent (subject
to the application of any Exposure Flattening Period in respect of such Constituent for such new
weekday). Notwithstanding the foregoing, in respect of a weekday t that is an Agricultural
Commodities Postponement Resolution Day, the methodology is adjusted to account for a possible
rebalancing delay in the GSCI AG Index, a possible delay in the onset of an exposure flattening
period for the GSCI AG Index, a possible delay in the termination of an exposure flattening period
applicable to the GSCI AG Index and the use of settlement pricing for the GSCI AG Index during
the applicable Agricultural Commodities Postponement Resolution Period, as further described
below.
In order to calculate the weighted U.S. dollar-adjusted return, if any, of a Constituent, the
unadjusted return for such Constituent for the relevant weekday (the “Daily Return”) must first
be calculated.
-32-
Securities-based Constituents. The Daily Return for a Securities-based Constituent is
calculated with respect to each weekday as follows:
if such weekday is a Scheduled Trading Day for such Constituent and is not a Disrupted
Day for such Constituent, and such weekday occurs in the period from, and including,
the Roll Day (as defined below) in respect of the Second Near Futures Contract for
such Constituent to, but excluding, the Expiry Last Trading Day (as defined below) of
the First Near Futures Contract (as defined below) for such Constituent:
Where:
“Rc,t” means the Daily Return in respect of weekday t for Constituent c;
means, in respect of a Scheduled Trading Day on weekday t for Constituent c
that is not a Disrupted Day for such Constituent, the Closing Price of the
Second Near Futures Contract (as defined below) for such Constituent
published by the Relevant Exchange as of such Scheduled Trading Day; and
means, in respect of a Scheduled Trading Day on weekday t for Constituent c
that is not a Disrupted Day for such Constituent, the Closing Price of the
Second Near Futures Contract for such Constituent published by the Relevant
Exchange in respect of the first immediately preceding Scheduled Trading
Day that was not a Disrupted Day in respect of such Constituent.
if such weekday is a Scheduled Trading Day for such Constituent and is not a Disrupted
Day for such Constituent, and such weekday is prior to the Roll Day in respect of the
Second Near Futures Contract for such Constituent:
Where:
“Rc,t” means the Daily Return on weekday t for Constituent c;
means, in respect of a Scheduled Trading Day on weekday t for Constituent c
that is not a Disrupted Day for such Constituent, the Closing Price of the First
Near Futures Contract for such Constituent published by the Relevant
Exchange as of such Scheduled Trading Day; and
-33-
means, in respect of a Scheduled Trading Day on weekday t for Constituent c
that is not a Disrupted Day for such Constituent, the Closing Price of the First
Near Futures Contract for such Constituent published by the Relevant
Exchange in respect of the first immediately preceding Scheduled Trading
Day that was not a Disrupted Day in respect of such Constituent.
if such weekday is not a Scheduled Trading Day for such Constituent or is a Disrupted
Day for such Constituent, then the Daily Return for such Constituent for such weekday
will be deemed to be zero.
Non-Securities-based Constituents. The Daily Return for a Non-Securities-based
Constituent is calculated with respect each weekday as follows:
if such weekday is a Scheduled Trading Day for such Constituent and is not a Disrupted
Day for such Constituent:
Where:
“Cmdtc,t” means, in respect of a Scheduled Trading Day on weekday t for Constituent c
that is not a Disrupted Day for such Constituent, the Closing Price of such
Constituent as of such Scheduled Trading Day; and
“Cmdtc,t-1” means, in respect of a Scheduled Trading Day on weekday t for Constituent c
that is not a Disrupted Day for such Constituent, the Closing Price of such
Constituent in respect of the first immediately preceding Scheduled Trading
Day that was not a Disrupted Day in respect of such Constituent.
if such weekday is not a Scheduled Trading Day for such Constituent or is a Disrupted
Day for such Constituent, then the Daily Return for such Constituent for such weekday
will be zero.
U.S. Dollar Adjustment to Daily Returns
The next step in calculating the weighted U.S. dollar-adjusted return, if any, of a
Constituent, is to convert the Daily Return of each Constituent that is quoted in a foreign currency
into U.S. dollars, which is in effect a conversion of such Daily Return from a return expressed in
foreign currency terms to a return expressed in U.S. dollar terms. The U.S. dollar-adjusted return
Daily Return for a foreign-currency Constituent in respect of weekday t (“USDRc,t”) is calculated
as follows:
-34-
Where:
“Rc,t” means the Daily Return in respect of weekday t for Constituent c;
means the applicable FX Rate (as defined below) in respect of weekday t for
Constituent c; and
means the applicable FX Rate for the weekday immediately preceding
weekday t for Constituent c.
If any weekday is an FX Disrupted Day (as defined below), the Index Calculation Agent shall
determine the FX Rate in respect of such weekday by taking into consideration all available
information, that it, in good faith, deems relevant.
Adjust the Weight for an Exposure Flattening Period
The next step is to determine the then-applicable Monthly Constituent Weights; provided,
however, that if there is an Exposure Flattening Period then in effect with respect to any
Constituent for such weekday t, such Constituent’s Monthly Constituent Weight for such weekday
t shall be set to zero.
Applying the Weight
The next step in calculating the weighted U.S. dollar-adjusted return, if any, of a
Constituent, is to multiply the weight for such Constituent (as determined above) to the U.S. dollar-
adjusted return for such Constituent (i.e., “USDRc,t” with respect to weekday t).
Special Calculation for the GSCI AG Index on an Agricultural Commodities Postponement
Resolution Day
Notwithstanding the foregoing, when the relevant weekday is an Agricultural Commodities
Postponement Resolution Day, the weighted U.S. dollar-adjusted return for the GSCI AG Index
shall be calculated by adding the following two amounts:
the product of (a) the weighted U.S. dollar-adjusted return, if any, from the first
weekday that is not a Disrupted Day and is a Scheduled Trading Day immediately
preceding such Agricultural Commodities Postponement Resolution Day (i.e.,
immediately preceding the commencement of an Agricultural Commodities
Postponement Resolution Period, “weekday L-1”), using the official Closing Price of
the GSCI AG Index on such weekday, to the first weekday within the Agricultural
Commodities Postponement Resolution Period (but using the Agricultural Constituent
Settlement Price with respect to such weekday, which will only be available on a
-35-
delayed basis on the Agricultural Commodities Postponement Resolution Day) and (b)
the Monthly Constituent Weight for weekday L-1 (which, in the case of a delayed
rebalancing caused by such Agricultural Commodities Postponement Resolution
Period, would be the pre-rebalancing weight), giving effect to any applicable Exposure
Flattening Period for weekday L-1; and
the product of (a) U.S. dollar-adjusted return, if any, from the first weekday within the
Agricultural Commodities Postponement Resolution Period (but using the Agricultural
Constituent Settlement Price with respect to such weekday, which will only be
available on a delayed basis on the Agricultural Commodities Postponement
Resolution Day) to the Agricultural Commodities Postponement Resolution Day (using
the official Closing Price of the GSCI AG Index on such weekday) and (b) the Monthly
Constituent Weight for weekday t (which, in the case of a delayed rebalancing caused
by such Agricultural Commodities Postponement Resolution Period, would be the
rebalanced weight), giving effect to any applicable Exposure Flattening Period for
weekday t.
Final Calculation
Finally, when calculating “USD Returnst” for weekday t, the weighted U.S. dollar-adjusted
return, if any, of each Constituent is added together.
Relevant Definitions
“Expiry Last Trading Day” means, in respect of a quarterly futures contract that is a
Securities-based Constituent, the last Scheduled Trading Day for such contract as specified by the
Relevant Exchange.
“First Near Futures Contract” means, in respect of a Scheduled Trading Day, the
quarterly futures contract with the Expiry Last Trading Day that follows most closely such
Scheduled Trading Day.
“Second Near Futures Contract” means, in respect of a Scheduled Trading Day, the
quarterly futures contract with the Expiry Last Trading Day that follows most closely the Expiry
Last Trading Day of the First Near Futures Contract.
“FX Rate” means, in respect of a particular weekday:
for Constituents whose reporting currency is currently the European Union euro, the
“Mid” exchange rate expressed as a number of U.S. dollars for one European Union
euro, as published on the FX Price Source in respect of the Fixing Time for such
weekday; and
for Constituents whose reporting currency is currently the Japanese yen, the “Mid”
exchange rate expressed as a number of U.S. dollars for one Japanese yen, as derived
from the number of Japanese yen for one U.S. dollar published on the FX Price Source
in respect of the Fixing Time for such weekday.
-36-
“FX Price Source” means, in respect of a particular Constituent, the corresponding
Reuters page, as set forth in the table above under the heading “— Constituents of the Index,” or
if the relevant rate is not published or announced by such FX Price Source at the relevant time, the
successor or an alternative price source or page/publication for the relevant rate as determined by
the Index Calculation Agent, in its sole discretion.
“Fixing Time” means, in respect of a particular day, approximately 4:00 pm London,
England time.
“FX Disrupted Day” means, in respect of a particular day, where:
the FX Rate is not available on the FX Price Source (as defined below) for the Fixing
Time; or
an FX Disruption Event has occurred or is continuing.
“FX Disruption Event” means, in respect of any applicable day, the occurrence or
continuation of any of the following events (as determined by the Index Calculation Agent):
a “Convertibility Event,” which is an event that, in effect, prevents, restricts or delays
a market participant’s ability to:
o convert an FX Currency (as defined below) in an FX Currency Pair (as defined
below) into the other FX Currency in such FX Currency Pair through customary
legal channels; or
o convert an FX Currency in an FX Currency Pair into the other FX Currency in
such FX Currency Pair at a rate at least as favorable as the rate for domestic
institutions located in an FX Currency Jurisdiction (as defined below) in such
FX Currency Pair;
a “Deliverability Event,” which is an event that has the effect of preventing, restricting
or delaying a market participant from delivering an FX Currency from accounts inside
an FX Currency Jurisdiction to accounts outside of such FX Currency Jurisdiction;
a “Liquidity Event,” which is the imposition by an FX Currency Jurisdiction (or any
political subdivision or regulatory authority thereof) of any capital or currency controls
(such as a restriction placed on the holding of assets in or transactions through any
account in an FX Currency Jurisdiction by a non-resident of such FX Currency
Jurisdiction) or the publication of any notice of an intention to do so, which the Index
Calculation Agent determines is likely to materially affect an investment in an FX
Currency Jurisdiction;
a “Taxation Event,” which is the implementation by an FX Currency Jurisdiction or the
publication of any notice of an intention to implement any changes to the laws or
regulations relating to foreign investment in such FX Currency Jurisdiction (including,
but not limited to, changes in tax laws and/or laws relating to capital markets and
-37-
corporate ownership), which the Index Calculation Agent determines are likely to
materially affect an investment in such FX Currency Jurisdiction; or
a “Discontinuity Event” which is the occurrence or continuation of the pegging of one
FX Currency in an FX Currency Pair to the other FX Currency in such FX Currency
Pair, or any other currency or the controlled appreciation or devaluation by an FX
Currency Jurisdiction (or any political subdivision or regulatory authority thereof) of
an FX Currency, or any other currency, as determined by the Index Calculation Agent.
“FX Currency” means U.S. dollars, European Union euros or Japanese yen.
“FX Currency Pair” means:
U.S. dollars and European Union euros; and
U.S. dollars and Japanese yen.
“FX Currency Jurisdiction” means the United States, the European Union or Japan, or
any political subdivision or regulatory authority thereof.
Exposure Flattening Mechanism
In respect of each Constituent and each weekday that is both a Scheduled Trading Day and,
except as noted below with respect to the Modified GSCI AG Index Conditions, not a Disrupted
Day for such Constituent (and subject to Additional GSCI IM Index Conditions described below
with respect to the GSCI IM Index and Modified GSCI AG Index Conditions described below
with respect to the GSCI AG Index), if the Index level declines by more than 3.00% over the five-
weekday period ending on the second weekday immediately preceding such Scheduled Trading
Day, then, notwithstanding its weight at that time, such Constituent will generally be subject to a
five-weekday exposure flattening period (beginning on the weekday immediately following such
Scheduled Trading Day) (an “Exposure Flattening Period”) during which period such
Constituent’s weight in the Index will be temporarily set to zero, unless such Constituent is already
then subject to an existing Exposure Flattening Period. A Constituent that is already then subject
to an Exposure Flattening Period will remain in its original Exposure Flattening Period and cannot
be subject to a new Exposure Flattening Period until the completion of the original Exposure
Flattening Period. Constituents in respect of which a given weekday either is not a Scheduled
Trading Day or is a Disrupted Day will not be subject to the commencement of an Exposure
Flattening Period on the following weekday. Notwithstanding the foregoing, the Exposure
Flattening Period is subject to a possible effective extension if an Agricultural Commodities
Postponement Resolution Period of sufficient duration occurs during such Exposure Flattening
Period. See “Calculation and Publication of the Index Level–Calculation of USD Returnst” above
for further details.
On the GSCI IM Index Modification Date, the methodology was changed to include the
following additional conditions before an Exposure Flattening Period can be triggered solely with
respect the to the GSCI IM Index (the “Additional GSCI IM Index Conditions”): (i) the relevant
Scheduled Trading Day must be a day on which the relevant commodity exchange is scheduled to
-38-
be open for trading for each individual commodity futures contract referenced by the GSCI IM
Index, or (ii) the immediately preceding weekday is a day on which the relevant commodity
exchange is scheduled to be open for trading for each individual commodity futures contract
referenced by the GSCI IM Index and is a day on which a Market Disruption Event did not occur
or exist for any of the individual commodity futures contracts referenced by the GSCI IM Index.
On the GSCI AG Index Modification Date, the methodology was changed to remove the
condition that such weekday not be a Disrupted Day, and include the following additional
condition, before an Exposure Flattening Period can be triggered solely with respect to the GSCI
AG Index (the “Modified GSCI AG Index Conditions”): the weekday immediately preceding
the relevant Scheduled Trading Day must not fall within an Agricultural Commodities
Postponement Resolution Period.
Roll Scheduled for Each Securities-based Constituent
Each Securities-based Constituent rolls over as of its respective roll days as set out below
(each such day, a “Roll Day”). Each such Roll Day shall be considered to be the Roll Day in
respect of the futures contract that the exposure notionally rolls over to on such Roll Day, as set
forth below:
In respect of the 2 Year Note Futures, the exposure notionally rolls over from the
nearest delivery quarterly 2 Year Note Futures to the following 2 Year Note Futures on
the last trading day of the option on the nearest delivery 2 Year Note Futures in the
month before which such nearest delivery quarterly 2 Year Note Futures expires;
In respect of the 10 Year Note Futures, the exposure notionally rolls over from the
nearest delivery quarterly 10 Year Note Futures to the following 10 Year Note Futures
on the last trading day of the option on the nearest delivery 10 Year Note Futures in the
month before which such nearest delivery quarterly 10 Year Note Futures expires;
In respect of the Schatz Futures, (x) prior to and including October 24, 2019 (the
“Schatz Roll Schedule Modification Date”) the exposure notionally rolls over from
the nearest delivery quarterly Schatz Futures to the following Schatz Futures on the
fifth calendar day of the month in which such nearest delivery quarterly Schatz Futures
is due to expire and (y) from and excluding the Schatz Roll Schedule Modification
Date, the exposure notionally rolls over from the nearest delivery quarterly Schatz
Futures to the following Schatz Futures on the second (2nd) exchange day prior to the
Expiry Last Trading Day of such nearest delivery quarterly Schatz Futures as specified
by the Relevant Exchange;
In respect of the Bund Futures, (x) prior to and including October 24, 2019 (the “Bund
Roll Schedule Modification Date”) the exposure notionally rolls over from the nearest
delivery quarterly Bund Futures to the following Bund Futures on the fifth calendar
day of the month in which such nearest delivery quarterly Bund Futures is due to expire
and (y) from and excluding the Bund Roll Schedule Modification Date, the exposure
notionally rolls over from the nearest delivery quarterly Bund Futures to the following
-39-
Bund Futures on the second (2nd) exchange day prior to the Expiry Last Trading Day
of such nearest delivery quarterly Bund Futures as specified by the Relevant Exchange;
In respect of the JGB Futures, the exposure notionally rolls over from the nearest
delivery quarterly JGB Futures to the following JGB Futures on the tenth weekday
prior to delivery of the front JGB Futures in the month in which such nearest delivery
quarterly JGB Futures is due to expire;
In respect of the S&P Futures, the exposure notionally rolls over from the nearest
delivery quarterly S&P Futures to the following S&P Futures on the third weekday
prior to the Expiry Last Trading Day of such nearest delivery quarterly S&P Futures;
In respect of the DAX Futures, the exposure notionally rolls over from the nearest
delivery quarterly DAX Futures to the following DAX Futures on the third weekday
prior to the Expiry Last Trading Day of such nearest delivery quarterly DAX Future;
and
In respect of the Nikkei Futures, the exposure notionally rolls over from the nearest
delivery quarterly Nikkei Futures to the following Nikkei Futures on the second
weekday prior to the Expiry Last Trading Day of such nearest delivery quarterly Nikkei
Futures.
In respect of any scheduled Roll Day for a Securities-based Constituent where the
immediately preceding Scheduled Trading Day (the “Original Scheduled Trading Day”) for such
Constituent was a Disrupted Day for such Constituent (for these purposes, an “Affected
Securities-based Constituent”), then the relevant Roll Day for the Affected Securities-based
Constituent will be deemed to be the first weekday immediately following the first Scheduled
Trading Day that is not a Disrupted Day for the Affected Securities-based Constituent, after the
Original Scheduled Trading Day; provided, however, that if first Scheduled Trading Day that is
not a Disrupted Day in respect of the Affected Securities-based Constituent (the “Affected
Constituent Determination Day”) falls on or after the Expiry Last Trading Day, then the Index
Calculation Agent will determine the Daily Return in respect of the Affected Securities-based
Constituent and the Affected Constituent Determination Day pursuant to the formula set out in the
second bullet point under “—Calculation and Publication of the Index Level – Calculation of USD
Returnst – Securities-based Constituents” above, but using the Index Calculation Agent’s
determination of 𝐹𝑐,𝑡𝑓𝑟𝑜𝑛𝑡
and 𝐹𝑐,𝑡−1𝑓𝑟𝑜𝑛𝑡
in respect of the First Near Futures Contract as such First Near
Futures Contract is determined in respect of the Original Scheduled Trading Day, acting in good
faith and using such information and/or methods as it determines, in its reasonable discretion, are
appropriate; provided further, however, that in the event that each of the 10 Scheduled Trading
Days immediately following the scheduled Expiry Last Trading Day are Disrupted Days in respect
of such Affected Securities-based Constituent, then in such case, that 10th Scheduled Trading Day
shall be deemed to be the applicable Roll Day (notwithstanding that it is a Disrupted Day in respect
of the Affected Securities-based Constituent), and the Index Calculation Agent shall implement a
roll in respect of the Affected Securities-based Constituent acting in good faith using such
information and/or methods as it determines, in its reasonable discretion, are appropriate.
-40-
Amendments
The Index Sponsor may amend the Rules as it deems appropriate. Such amendments may
include (without limitation):
correcting or curing any errors, omission or contradictory provisions; or
modifications to the methodology described in the Rules (including, without limitation,
a change in the frequency of calculation of the Index Level) that are necessary or
desirable in order for the calculation of the Index to continue notwithstanding any
economic, market, regulatory, legal, financial or other circumstances as of the Live
Date of the Index; or
modifications of a formal, minor or technical nature.
The Index Sponsor will notify the Index Calculation Agent (if a different entity than the
Index Sponsor) before making an amendment pursuant to this provision. The Index Sponsor may,
but is not obliged to, take into account the views of the Index Calculation Agent regarding any
proposed amendment.
Following any amendment, the Index Sponsor will make available (as soon as practicable)
the amended version of the Rules and will include the effective date of such amendment in the
new version of the Rules. However, the Index Sponsor is under no obligation to inform any person
about any amendments to the Index (except as required by law).
Extraordinary Events
The events described below under “Successor Constituents or Reference Data,” “—Change
in Law,” “—Material Change” and “—Impairment of License or Other Rights,” “—Successor
Currency or Change to an Underlying Currency” and “—Non-Publication of a Constituent as a
Result of Cancellation of a Constituent” constitute “Extraordinary Events.”
Successor Constituents or Reference Data
If any of the Constituents, or any data or information referenced by a Constituent or the
Index is:
not calculated and announced by the applicable Constituent Sponsor or the sponsor or
provider of such data or information but is calculated and announced by a successor
sponsor or provider acceptable to the Index Calculation Agent; or
replaced by a successor Constituent, successor data or successor information using, in
the determination of the Index Calculation Agent, the same or substantially similar
formula for and method of calculation as used in the calculation or preparation of such
Constituent, data, or information,
then such Constituent, data or information will be deemed to be the constituent, or reference data
so calculated and announced by that successor sponsor or provider as the case may be with effect
-41-
from a date determined by the Index Calculation Agent who may make such adjustments to the
Rules as it determines appropriate to account for such change.
Change in Law
Without prejudice to the ability of the Index Calculation Agent to amend the Rules in
respect of a Change in Law, the Index Calculation Agent may exclude or substitute any Constituent
or other any data or information referenced by a Constituent or the Index:
following the occurrence (and/or continuation) of a Change in Law (as defined below);
or
in circumstances where it considers it reasonably necessary to do so to reflect the
objective of the Index, including (without prejudice to the generality of the foregoing)
any perception among market participants generally that the published value of a
Constituent or any data or information referenced by a Constituent or the Index is
inaccurate (e.g., an exchange fails to correct such value of any affected futures
contract),
and then the Index Calculation Agent may adjust the Rules as it determines in good faith to be
appropriate to account for such exclusion or substitution on such date(s) selected by the Index
Calculation Agent.
“Change in Law” means, on or after the Live Date:
due to:
o the adoption of, or any change in, any applicable law, regulation, order or rule
(including, without limitation, any tax law); or
o 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 and Futures Trading Commission, the U.S. Securities and
Exchange Commission or any exchange or trading facility),
the Index Calculation Agent determines in good faith that
o 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 or interest in or a
transaction referencing or relating to the Index, any Constituent, or any
component of the Index or any Constituent; or
o holding a position or interest in or a transaction referencing or relating to the
Index, any Constituent or any component of the Index or any Constituent is (or,
but for the consequent disposal or termination thereof, would otherwise be) in
-42-
excess of any allowable position limit(s) applicable to any market participants
that are brokers or financial intermediaries (individually or collectively) under
any such law, rule, regulation or order in relation to the Index, any Constituent
or any component of the Index or any Constituent, including in any case traded
on any exchange(s), market or other trading facility (including, without
limitation, any Relevant Exchange); or
the occurrence or existence of any:
o suspension or limitation imposed on trading futures contracts (including,
without limitation, referencing the Non-Securities-based Constituents); or
o any other event that causes trading in futures contracts (including, without
limitation, referencing the Non-Securities-based Constituents) to cease.
Material Change
On any weekday, if any Constituent Sponsor or any non-affiliated third party person that
provides any data or information referenced by a Constituent or the Index makes a material change
in the formula for or the method of calculating or preparation of such Constituent, data or
information, which affects the ability of the Index Calculation Agent to calculate the Index Level,
then the Index Calculation Agent may make such adjustment(s) that it determines to be appropriate
to any variable, calculation, methodology or detail in the Rules to account for such modification.
Such adjustment may occur prior to, on or after the date of such material change, depending on
when such change is announced and when the Index Calculation Agent determines such change
has occurred.
Impairment of License or Other Rights
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 Constituent or relevant data or
information or to refer to the level or price or other information in respect of any Constituent or
relevant data or information (or other component of the Index or another 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) the
Constituent for the purposes of the Index or (ii) the Index in connection with any other license or
sub-license agreement is otherwise impaired, ceases or cannot be obtained or will cease to be
available on commercially reasonable terms (for any reason), then Index Calculation Agent may
remove such Constituent or any other relevant data or information from the Index or substitute a
successor constituent, data or information and may make such adjustment to these Rules as it
determines appropriate to account for such change(s) on such date(s) selected by the Index
Calculation Agent including, without limitation, selecting a replacement constituent, index or
reference asset having similar characteristics to such Constituent and the date such replacement is
effective.
-43-
Changes in Currency or Change to an Underlying Currency
If, at any time, any currency is lawfully eliminated, converted, redenominated or
exchanged for any successor currency, then such currency shall be deemed replaced by such
successor currency.
To the extent that any such elimination, conversion, redenomination or exchange results in
two or more currencies that were formerly associated with the original currency, the Index
Calculation Agent may modify these Rules to account for such elimination, conversion,
redenomination or exchange. For example, the Index Calculation Agent may select one of the
applicable currencies to be a successor currency or amend the formulas for calculating the Index
to account for the new exchange rate, if any.
Non-Publication of a Constituent as a Result of Cancellation of a Constituent
If a Constituent Sponsor or a Relevant Exchange, as the case may be, permanently cancels
a Constituent (including, for the avoidance of doubt, amending the frequency or timing of the
issuance of options or futures contracts, determined by reference to the frequency or timing as of
the Live Date), and no successor index or contract exists that is acceptable to the Index Calculation
Agent, the Index Calculation Agent shall either:
make such adjustment(s) 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 cancellation, including but not limited to excluding or substituting the
affected Constituent; or
cease to calculate and publish the Index Level.
Such adjustment may occur prior to, on or after the date of such cancellation, depending
on when such cancellation is announced and when the Index Calculation Agent becomes aware of
such change.
Corrections in Respect of the Index
If any publicly available financial information (including, but not limited to, interest rates,
spot exchange rates, index levels, futures contract prices and volatility levels) published by the
relevant financial information source selected by the Index Calculation Agent acting in good faith
and used in any calculation or determination with respect to the Index and the Rules is subsequently
corrected, or if the Index Calculation Agent identifies an error or omission in any of its calculations
or determinations in respect of the Index, the Index Calculation Agent may, if the Index
Calculation Agent determines that such error, omission or correction (as the case may be) is
material and it is practicable, adjust or correct the relevant calculation or determination to take into
account such correction as soon as reasonably practicable to do so.
-44-
BACKGROUND ON THE UNDERLYING 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.
Overview of Futures Market
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 Securities-based 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 such futures contracts on any day generally
tracks the price of the particular bonds that are “cheapest to deliver” on such day.
Since equity indices are not tangible items that can be purchased or sold directly, a futures
contract on an equity index provides for the payment and receipt of cash based on the level of such
equity index at settlement or liquidation of the futures contract.
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.
-45-
Unlike equity securities, futures contracts, by their terms, have stated expirations at a
specified point in time prior to expiration. 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 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.
-46-
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 Schatz, Bobl and Bund (the
“German Bonds”), have been derived from publicly available documents, without independent
verification. In connection with any offering of Products linked to this Index, J.P. Morgan 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, J.P. Morgan 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) 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 value of any Products linked to
this Index. J.P. Morgan makes no representation to a Contract Owner 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. J.P. Morgan 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. J.P. Morgan makes no representation or
warranty as to the accuracy or completeness of information contained on these German websites.
-47-
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.
-48-
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 Products linked to this Index,
J.P. Morgan 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, J.P. Morgan
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) 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 value
of any Products linked to this Index. J.P. Morgan makes no representation to a Contract Owner 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. J.P. Morgan 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.
J.P. Morgan makes no representation or warranty as to the accuracy or completeness of
information contained on these Japanese websites.
-49-
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.
-50-
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.
The S&P 500® Index is calculated, maintained and published by S&P Dow Jones Indices LLC.
S&P Dow Jones Indices LLC has no obligation to continue to publish, and may discontinue the
publication of, the S&P 500® Index.
The S&P 500® Index is reported by Bloomberg L.P. under the ticker symbol “SPX.”
In July 2012, The McGraw-Hill Companies, Inc. (“McGraw-Hill”), the owner of the S&P
Indices business, and CME Group Inc. (“CME Group”), the 90% owner of the CME Group and
Dow Jones & Company, Inc. joint venture that owns the Dow Jones Indexes business, formed a
new joint venture, S&P Dow Jones Indices LLC, which owns the S&P Indices business and the
Dow Jones Indexes business, including the S&P 500® Index.
The S&P 500® Index is intended to provide a performance benchmark for the U.S. equity
markets. The calculation of the level of the S&P 500® Index (discussed below in further detail) is
based on the relative value of the aggregate Market Value (as defined below) of the common stocks
of 500 companies (the “S&P Component Stocks”) as of a particular time as compared to the
aggregate average Market Value of the common stocks of 500 similar companies during the base
period of the years 1941 through 1943. Historically, the “Market Value” of any S&P Component
Stock was calculated as the product of the market price per share and the number of the then-
outstanding shares of such S&P Component Stock. As discussed below, on March 21, 2005, S&P
Dow Jones Indices LLC began to use a new methodology to calculate the Market Value of the
S&P Component Stocks and on September 16, 2005, S&P Dow Jones Indices LLC completed its
transition to the new calculation methodology. The 500 companies are not the 500 largest
companies listed on the New York Stock Exchange (the “NYSE”) and not all 500 companies are
listed on such exchange. S&P Dow Jones Indices LLC chooses companies for inclusion in the
S&P 500® Index with the objective of achieving a distribution by broad industry groupings that
approximates the distribution of these groupings in the common stock population of the
U.S. equity market. S&P Dow Jones Indices LLC may from time to time, in its sole discretion,
add companies to, or delete companies from, the S&P 500® Index to achieve the objectives stated
above. Relevant criteria employed by S&P Dow Jones Indices LLC include the viability of the
particular company, the extent to which that company represents the industry group to which it is
assigned, the extent to which the company’s common stock is widely-held and the Market Value
and trading activity of the common stock of that company.
The S&P 500® Index is a float-adjusted index. Under float adjustment, the share counts
used in calculating the S&P 500® Index reflect only those shares that are available to investors,
not all of a company’s outstanding shares. Float adjustment excludes shares that are closely held
by control groups, other publicly traded companies or government agencies.
Beginning September 21, 2012, all share-holdings with a position greater than 5% of a
stock’s outstanding shares, other than holdings by “block owners,” are removed from the float for
-51-
purposes of calculating the S&P 500® Index. 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, ESOPs,
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. Holdings by block owners, such as depositary banks, pension funds, mutual
funds & ETF providers, 401(k) plans of the company, government retirement/pension funds,
investment funds of insurance companies, asset managers and investment funds, independent
foundations and savings and investment plans, are ordinarily considered to be part of the float.
Prior to September 21, 2012, S&P Dow Jones Indices LLC defined three groups of
shareholders whose holdings were subject to float adjustment if the relevant group’s holdings
exceeding 10% of the outstanding shares:
holdings by other publicly traded corporations, venture capital firms, private equity
firms, strategic partners, or leveraged buyout groups;
holdings by government entities, including all levels of government in the United States
or foreign countries; and
holdings by current or former officers and directors of the company, founders of the
company or family trusts of officers, directors or founders, as well as holdings of trusts,
foundations, pension funds, employee stock ownership plans, or other investment
vehicles associated with and controlled by the company.
Under these previous float-adjustment rules, in cases where holdings in a group exceeded
10% of the outstanding shares of a company, the holdings of that group were excluded from the
float-adjusted count of shares to be used in the S&P 500® Index calculation. Mutual funds,
investment advisory firms, pension funds or foundations not associated with the company and
investment funds in insurance companies and shares that trust beneficiaries may buy or sell without
difficulty or significant additional expense beyond typical brokerage fees were part of the float.
Treasury stock, stock options, equity participation units, warrants, preferred stock,
convertible stock and rights are generally not part of the float. However, shares held in a trust to
allow investors in countries outside the country of domicile (e.g., ADRs, CDIs and Canadian
exchangeable shares) are normally part of the float unless those shares form a control block. If a
company has more than one class of stock outstanding, shares in an unlisted or non-traded class
are treated as a control block.
For each stock, an investable weight factor (“IWF”) is calculated by dividing the available
float shares by the total shares outstanding. Beginning September 21, 2012, available float shares
are defined as total shares outstanding less shares held by control holders. Prior to September 21,
2012, available float shares were defined as the total shares outstanding less shares held in one or
more of the three groups listed above where the group holdings exceeded 10% of the outstanding
shares. The S&P 500® Index is calculated by dividing the sum of the IWF multiplied by both the
price and the total shares outstanding for each stock by the Index Divisor.
-52-
As of the date of this index supplement, the S&P 500® Index is calculated using a base-
weighted aggregate methodology: the level of the S&P 500® Index reflects the total Market Value
of all 500 S&P Component Stocks relative to the S&P 500® Index’s base period of 1941–43 (the
“Base Period”).
An indexed number is used to represent the results of this calculation in order to make the
value easier to work with and track over time.
The actual total Market Value of the S&P Component Stocks during the Base Period has
been set equal to an indexed value of 10. This is often indicated by the notation 1941–43=10. In
practice, the daily calculation of the S&P 500® Index is computed by dividing the total Market
Value of the S&P Component Stocks by a number called the Index Divisor. By itself, the Index
Divisor is an arbitrary number. However, in the context of the calculation of the S&P 500® Index,
it is the only link to the original Base Period level of the S&P 500® Index. The Index Divisor
keeps the S&P 500® US-75 Index comparable over time and is the manipulation point for all
adjustments to the S&P 500® Index (“Index Maintenance”).
Index Maintenance includes monitoring and completing the adjustments for company
additions and deletions, share changes, stock splits, stock dividends and stock price adjustments
due to company restructurings or spin-offs. To prevent the level of the S&P 500® Index from
changing due to corporate actions, all corporate actions which affect the total Market Value of the
S&P 500® Index require an Index Divisor adjustment. By adjusting the Index Divisor for the
change in total Market Value, the level of the S&P 500® Index remains constant. This helps
maintain the level of the S&P 500® Index as an accurate barometer of stock market performance
and ensures that the movement of the S&P 500® Index does not reflect the corporate actions of
individual companies in the S&P 500® Index. All Index Divisor adjustments are made after the
close of trading and after the calculation of the closing level of the S&P 500® Index. Some
corporate actions, such as stock splits and stock dividends, require simple changes in the common
shares outstanding and the stock prices of the companies in the S&P 500® Index and do not require
Index Divisor adjustments.
The table below summarizes the types of Index Maintenance adjustments and indicates
whether or not an Index Divisor adjustment is required.
-53-
Type of
Corporate Action Comments
Divisor
Adjustment
Company added/ deleted
divisor adjustment.
Net change in market value determines 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
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
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 due to a
corporate action or a purchase
or sale by an inside holder
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
cap measured as the shares issued multiplied
by the price paid.
Yes
-54-
Stock splits and stock dividends do not affect the Index Divisor, because following a split
or dividend, both the stock price and number of shares outstanding are adjusted by S&P so that
there is no change in the Market value of the S&P Component Stock. All stock split and dividend
adjustments are made after the close of treading on the day before the ex-date.
Each of the corporate events exemplified in the table requiring an adjustment to the Index
Divisor has the effect of altering the Market Value of the S&P Component Stock and consequently
of altering the aggregate Market Value of the S&P Component Stocks (the “Post-Event
Aggregate Market Value”). In order that the level of the S&P 500® Index (the “Pre-Event Index
Value”) not be affected by the altered Market Value (whether increase or decrease) of the affected
Component Stock, a new Index Divisor (“New Divisor”) is derived as follows:
A large part of the Index Maintenance process involves tracking the changes in the number
of shares outstanding of each of the S&P 500® Index companies. Four times a year, on a Friday
close to the end of each calendar quarter, the share totals of companies in the S&P 500® Index are
updated as required by any changes in the number of shares outstanding. After the totals are
updated, the Index Divisor is adjusted to compensate for the net change in the total Market Value
of the S&P 500® Index. In addition, any changes over 5% in the current common shares
outstanding for the S&P 500® Index companies are carefully reviewed on a weekly basis, and
when appropriate, an immediate adjustment is made to the Index Divisor.
-55-
BACKGROUND ON THE DAX® INDEX
All information contained in this index supplement regarding the DAX® 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, Deutsche Börse AG (“Deutsche Börse”). The
DAX® Index 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.
The DAX® Index is reported by Bloomberg L.P. under the ticker symbol “DAX.”
The DAX® Index comprises the 30 largest and most actively traded companies listed on
the 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 DAX® Index is December 30, 1987.
The DAX® 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 DAX® 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 (the “chaining date”). The DAX® Index
is a performance (i.e. total return) index, which reinvests all income from dividend and bonus
payments in the DAX® Index portfolio.
Methodology of the DAX® Index
The Working Committee of 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 DAX® Index, recommending measures that are necessary in order to
ensure the relevance of the DAX® Index range and the correctness and transparency of the DAX®
Index calculation process. In accordance with the various rules, the Committee pronounces
recommendations in respect of the composition of the DAX® Index. However, any decisions on
the composition of and possible modifications to the DAX® Index are exclusively taken by the
Management Board of Deutsche Börse (the “Board”). These decisions are published in a press
release and on Deutsche Börse’s publicly available website at www.deutsche-boerse.com in the
evening after the Committee has concluded its meeting. Information contained in Deutsche
Börse’s website is not incorporated by reference in, and should not be considered a part of, this
pricing supplement. J.P. Morgan has not participated in the preparation of, or independently
verified, any information contained on Deutsche Börse’s website.
The Committee’s meetings usually take place on the third trading day in each of March,
June, September and December. The date for the respective next meeting is announced via a press
release on Deutsche Börse’s website on the evening of the current meeting.
-56-
The so-called “equity index ranking” is published monthly by Deutsche Börse, containing
all relevant data in respect of the key criteria order book turnover and market capitalization. This
publication also serves the Committee as a basis for decision-making at its quarterly meetings. It
is produced at the beginning of each month and published via the Internet.
Free Float
For the determination of the free float portion used to weight a company’s class of shares
in the DAX® Index and for the ranking lists, the following definition applies:
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 §15a of the German Securities Trading
Act (“WpHG”);
for which a pooling has been arranged in which the owner has an interest;
managed or kept in safe custody by a third party for account of the owner; and
held by a company which the owner controls as defined by Section 22(3) of the WpHG.
2. The definition of “non-free float”—irrespective of the size of a shareholding—
covers any shareholding of an owner that is subject to a statutory or contractual qualifying period
of at least six months with regard to its disposal by the owner. This applies only during the
qualifying period. Shareholdings as defined by No. 1 above are counted as shareholdings for the
calculation according to No. 1. Shares held by the issuing company (treasury shares) are always
considered as block holdings and are not part of the free float of the share class.
3. As long as the size of such a shareholding does not exceed 25% of a company’s
share capital, the definition of free float includes all shareholdings held by:
asset managers and trust companies;
investment funds and pension funds; and
capital investment companies or foreign investment companies in their respective
special fund assets with the purpose of pursuing short-term investment strategies. Such
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 actively influence the
company policies and ongoing business of the company, are not considered as such a
short-term investment. In addition, shares having been acquired through a public
purchase offer are not considered as short-term investment. This does not apply to
shareholdings managed or held in safe custody according to No. 1, or to venture capital
companies, or other assets serving similar purposes. The shareholdings as defined by
No. 1 above are not counted as shareholdings for the calculation according to No. 1.
-57-
Index Composition
Selection Criteria
To be included or to remain in the DAX® Index, companies have to satisfy certain
prerequisites. All classes of the company’s shares must:
be listed in the Prime Standard Segment on the Frankfurt Stock Exchange;
be traded continuously on Deutsche Börse’s electronic trading system Xetra®; and
show a free float portion of at least 10%.
If, for any company, more than one class of shares fulfills the above criteria, only the
respective larger or more liquid class can be included in the DAX® Index. Moreover, companies
must either:
have their headquarters (or operating headquarters) in Germany; or
have a major share of the stock exchange turnover at the Frankfurt Stock Exchange and
their juristic headquarters in the European Union (“EU”) or in a European Free Trade
Association (“EFTA”) state.
To preserve the character of the DAX® Index, the Board reserves the right to exclude
certain companies from the DAX® Index in coordination with the Committee. One possible reason
for such an exclusion could be that the applicable company is a foreign holding company with
headquarters in Germany, but a clear focus on business activities abroad.
For companies already part of the DAX® Index, the above paragraph does not apply.
Companies that satisfied the prerequisites listed above are selected for inclusion in the
DAX® Index according exclusively to the following two key criteria:
order book turnover on Xetra® and in Frankfurt floor trading (within the preceding
twelve months); and
free float market capitalization (determined using the average of the volume-weighted
average price (“VWAP”) of the last 20 trading days prior to the last day of the month)
on the last trading day of each month.
Taking these criteria into account, the Committee submits proposals to the Board to leave
the current composition of the DAX® Index unchanged or to effect changes. The final decision as
to whether or not to replace an index component issue is taken by the Board. These decisions will
be directly reflected in the respective rankings.
-58-
Adjustments to Index Composition
Ordinary adjustments to the DAX® Index are made once each year in September, based on
the following criteria:
Regular Exit (40/40 rule): an index component issue is removed from the DAX® Index
if its ranking in either exchange turnover or market capitalization is worse than 40,
provided that there is an advancing issue ranking 35 or better in both criteria
Regular Entry (30/30 rule): a company can be included in the DAX® Index if it ranks
30 or better in both exchange turnover and market capitalization, provided there is an
index component with a ranking worse than 35 in at least one criterion.
Furthermore, under the “fast-entry” and “fast-exit” rules, which are applied in March, June,
September and December:
Fast Exit (45/45 rule): an index component issue is removed from the DAX® Index if
its ranking in either exchange turnover or market capitalization is worse than 45,
provided that an advancing issue ranks 35 or better in both criteria (35/35). If no such
issue exists, the successor is determined by applying the criteria (35/40) and (35/45)
successively. If no suitable issue can be found, no substitution will be carried out.
Fast Entry (25/25 rule): a company can be included in the DAX® Index if it ranks 25
or better in both exchange turnover and market capitalization. In return, the index
component issue with a ranking worse than 35 in one criterion and the lowest market
capitalization is removed. Where no such issue exists, the respective component issue
with the lowest market capitalization is removed from the DAX® Index instead.
In cases where there are several companies meeting the criteria for any of the above rules,
the best and worst candidates according to market capitalization are included or removed from the
DAX® Index, respectively. In exceptional cases, including takeovers announced at short notice or
significant changes in a company’s free float, the Board may—in agreement with the Committee—
deviate from these rules.
Based on the rankings and further criteria involved, the Committee recommends in these
cases if—and if so, against which issuer—such company is to be admitted to the DAX® Index.
Finally, extraordinary adjustments to the index composition have to be performed,
regardless of the “fast-exit” or “fast-entry” rules, upon occurrence of specific events, such as
insolvency. In addition, a company can be removed immediately if its index weight based on the
actual market capitalization exceeds 10% and its annualized 30-day volatility exceeds 250%. The
relevant figures are published by Deutsche Börse on a daily basis. The Board, in agreement with
the Committee, may decide on the removal and may replace the company two full trading days
after the announcement.
Adjustments are also necessary in two scenarios in the mergers and acquisitions context:
-59-
if an absorbing or emerging company meets basis criteria for inclusion in the DAX®
Index, as soon as the free float of the absorbed company falls below 10%, the company
is removed from the DAX® Index under the ordinary or extraordinary adjustments
described above. The absorbed company is replaced by the absorbing or emerging
company on the same date; and
if an absorbing company is already included in the DAX® Index or does not meet the
basis criteria for inclusion in the DAX® Index, as soon as the free float of the absorbed
company falls below 10%, the company is removed from the DAX® Index under the
ordinary or extraordinary adjustments described above. On the same date, the absorbed
company is replaced by a new company determined by the Fast Exit Rule.
The weight of the company represented in the DAX® Index is adjusted to the new number
of shares on the quarterly date after the merger has taken place.
Index Calculation
The DAX® Index is weighted by market capitalization; however, only freely available and
tradable shares (“free float”) are taken into account. The DAX® Index is a performance (i.e. total
return) index, which reinvests all income from dividend and bonus payments in the DAX® Index
portfolio.
The DAX® Index Formula
The DAX® Index is conceived according to the Laspeyres formula set out below:
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 DAX® Index
pi0 = Closing price of share i on the trading day before the first inclusion in the
DAX® 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 DAX® Index
qiT = Number of shares of company i at time T
t = Calculation time of the DAX® Index
KT = The DAX® Index chaining factor valid as of chaining date T
-60-
T = Date of the last chaining
The formula set out below is equivalent in analytic terms, but designed to achieve relative
weighting:
The DAX® 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
DAX® Index composition occurs.
The Fi factors provide information on the number of shares required from each company
to track the underlying DAX® Index portfolio.
Calculation Frequency
Index calculation is performed on every exchange trading day in Frankfurt, using prices
traded on Deutsche Börse’s electronic trading system Xetra®, whereby the last determined prices
are used. The DAX® Index is calculated continuously once a second or once a minute. The DAX®
Index is distributed as soon as current prices are available for all 30 index components included in
the DAX® Index (but no later than 9:03 a.m.). As long as opening prices for individual shares are
not available, the particular closing prices of the previous day are taken instead for calculating the
DAX® 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®.
-61-
Adjustments and Corrections
The DAX® Index is adjusted for exogenous influences (e.g. price-relevant capital changes)
by means of certain correction factors, assuming a reinvestment according to the “opération
blanche.” If the absolute amount of the accumulated distributions (dividends, bonus and special
distributions, spin-offs or subscription rights on other security-classes) between two regular
chaining dates accounts for more than 10% of the market capitalization of the distributing company
on the day before the first distribution, the part of the distribution exceeding the 10% will not be
reinvested in a single stock but in the overall index portfolio per unscheduled chaining date.
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.
-62-
BACKGROUND ON THE NIKKEI 225 INDEX
All information contained in this index supplement regarding the Nikkei 225 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 Nikkei Inc. The Nikkei 225 Index
was developed by Nikkei Inc. and is calculated, maintained and published by Nikkei Inc. Nikkei
Inc. has no obligation to continue to publish, and may discontinue the publication of, the Nikkei
225 Index.
The Nikkei 225 Index is reported by Bloomberg L.P. under the ticker symbol “NKY.”
The Nikkei 225 Index is a stock index that measures the composite price performance of
selected Japanese stocks. The Nikkei 225 Index, as of the date of this index supplement, is based
on 225 underlying stocks (the “Nikkei Underlying Stocks”) trading on the Tokyo Stock Exchange
(“TSE”) representing a broad cross-section of Japanese industries. Non-ordinary shares, such as
shares of ETFs, REITs, preferred stock or other preferred securities or tracking stocks are excluded
from the Nikkei 225 Index.
All 225 Nikkei Underlying Stocks are stocks listed in the First Section of the TSE. Stocks
listed in the First Section of the TSE are among the most actively traded stocks on the TSE. Nikkei
Inc. rules require that the 75 most liquid issues (one-third of the component count of the Nikkei
225 Index) be included in the Nikkei 225 Index. Nikkei Inc. first calculated and published the
Nikkei 225 Index in 1970.
Rules of the Periodic Review
Nikkei Underlying Stocks are reviewed annually (the “periodic review”) in accordance
with the following rules, and results of the review are applied on the first trading day in October.
Results of the review become effective on the first trading day of October, and there is no limit to
the number of Nikkei Underlying Stocks that can be affected. Stocks selected by the procedures
outlined below are presented as candidates to a committee comprised of academics and market
professionals for comment; based on comments from the committee, Nikkei Inc. determines and
announces any changes to the Nikkei Underlying Stocks.
High Liquidity Group
The top 450 most liquid stocks are chosen from the TSE First Section. For purposes of
this selection, liquidity is measured by (i) trading volume in the preceding 5-year period and (ii) the
magnitude of price fluctuation by volume in the preceding 5-year period. These 450 stocks
constitute the “High Liquidity Group” for the review. Those Nikkei Underlying Stocks that are
not in the High Liquidity Group are removed. Those stocks that are not currently Nikkei
Underlying Stocks but that are in the top 75 of the High Liquidity Group are added.
-63-
Sector Balance
The High Liquidity Group is then categorized into the following six sectors: Technology,
Financials, Consumer Goods, Materials, Capital Goods/Others and Transportation and Utilities.
These six sector categories are further divided into 36 industrial classifications as follows:
Technology – Pharmaceuticals, Electrical machinery, Automobiles, Precision
Machinery, Telecommunications;
Financials – Banks, Miscellaneous Finance, Securities, Insurance;
Consumer Goods – Marine Products, Food, Retail, Services;
Materials – Mining, Textiles, Paper and Pulp, Chemicals, Oil, Rubber, Ceramics, Steel,
Nonferrous Metal, Trading House;
Capital Goods/Others – Construction, Machinery, Shipbuilding, Transportation,
Equipment, Miscellaneous Manufacturing, Real Estate; and
Transportation and Utilities – Railroads and Busses, Trucking, Shipping, Airlines,
Warehousing, Electric Power, Gas.
The “appropriate number” of constituents for each sector is defined to be half the number
of stocks in that sector. After the liquidity-based adjustments, discussed above, a rebalancing is
conducted if any of the sectors are over- or under-represented. The degree of representation is
evaluated by comparing the actual number of constituents in the sector against the appropriate
number for that sector.
For over-represented sectors, current constituents in the sector are deleted in the order of
liquidity (lowest liquidity first) to correct the overage. For under-represented sectors, non-
constituent stocks are added from the High Liquidity Group in the order of liquidity (highest
liquidity first) to correct the shortage.
Extraordinary Replacement Rules
Nikkei Underlying Stocks removed from the TSE First Section are deleted from the Nikkei
225 Index. Reasons for removal from the TSE First Section include: designation as a “security to
be delisted” or actual delisting by reason of bankruptcy (including filing under the Corporate
Reorganization Act, Civil Rehabilitation Act or liquidation), delisting due to corporate
restructuring such as merger, share exchange or share transfer, designation as a “security to be
delisted” or actual delisting due to excess debt or transfer to the Second Section. In addition, a
component stock transferred to the “Kanri-Post” (Posts for stocks under supervision) is in principle
a candidate for deletion. However, the decision to delete such candidates will be made by
examining the sustainability and the probability of delisting in the individual case.
When a Nikkei Underlying Stock is deleted from the Nikkei 225 Index as outlined in the
preceding paragraph, a new Nikkei Underlying Stock will be selected and added, in principle, from
the same sector of the High Liquidity Group in order of liquidity. Notwithstanding the foregoing,
-64-
the following rules may apply depending on the timing and circumstances of the deletion: (i) when
such deletion is scheduled close to the periodic review, additional stocks may be selected as part
of the periodic review process and (ii) when multiple deletions are scheduled in a season other
than the periodic review, additions may be selected using the sector balancing rules outlined above.
Procedures to Implement Constituent Changes
As a general rule, for both the periodic review and the extraordinary replacement rules,
additions and deletions are made effective on the same day in order to keep the number of Nikkei
Underlying Stocks 225. However, under the circumstances outlined below, when an addition
cannot be made on the same day as a deletion, the Nikkei 225 Index may be calculated with fewer
than 225 Nikkei Underlying Stocks. In this case, the divisor is adjusted to ensure continuity.
The first instance when the Nikkei 225 Index may be calculated with fewer than 225 Nikkei
Underlying Stocks is when a Nikkei Underlying Stock is delisted by reason of share exchange or
transfer and the succeeding company becomes listed a short period of time later. The second
instance is when a Nikkei Underlying Stock is deleted due to a sudden announcement of
bankruptcy, or is designated as a “security to be delisted” for the same reason, and there is not
sufficient time to add a new Nikkei Underlying Stock in the same day.
Calculation of the Nikkei 225 Index
The Nikkei 225 Index is a modified, price-weighted index (i.e., a Nikkei Underlying
Stock’s weight in the index is based on its price per share rather than the total market capitalization
of the issuer) which is calculated by (i) multiplying the per share price of each Nikkei Underlying
Stock by the corresponding weighting factor for such Nikkei Underlying Stock (a “Weight
Factor”), (ii) calculating the sum of all these products and (iii) dividing such sum by a divisor (the
“Divisor”). The Divisor was initially set at 225 for the date of May 16, 1949 using historical
numbers from May 16, 1949, the date on which the TSE was reopened. The Divisor was 25.473
as of November 4, 2014, and is subject to periodic adjustments as set forth below. Each Weight
Factor is computed by dividing ¥50 by the par value of the relevant Nikkei Underlying Stock, so
that the share price of each Nikkei Underlying Stock when multiplied by its Weight Factor
corresponds to a share price based on a uniform par value of ¥50. The stock prices used in the
calculation of the Nikkei 225 Index are those reported by a primary market for the Nikkei
Underlying Stocks (currently the TSE). The level of the Nikkei 225 Index is calculated once per
minute during TSE trading hours.
In order to maintain continuity in the Nikkei 225 Index in the event of certain changes due
to non-market factors affecting the Nikkei Underlying Stocks, such as the addition or deletion of
stocks, substitution of stocks, stock splits or distributions of assets to stockholders, the Divisor
used in calculating the Nikkei 225 Index is adjusted in a manner designed to prevent any
instantaneous change or discontinuity in the level of the Nikkei 225 Index. Thereafter, the Divisor
remains at the new value until a further adjustment is necessary as the result of another change.
As a result of such change affecting any Nikkei Underlying Stock, the Divisor is adjusted in such
a way that the sum of all share prices immediately after such change multiplied by the applicable
Weight Factor and divided by the new Divisor (i.e., the level of the Nikkei 225 Index immediately
after such change) will equal the level of the Nikkei 225 Index immediately prior to the change.
-65-
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, on any normal trading day the TSE will close prior to the
opening of business in New York City on the same calendar day. Therefore, the closing level of
the Nikkei 225 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 Nikkei 225 Index may be limited by price limitations or special quotes, or by suspension of
trading, on individual stocks that make up the Nikkei 225 Index, and these limitations, in turn, may
adversely affect the value of any Products linked to the Index.
-66-
BACKGROUND ON THE S&P GSCI INDICES
All information contained in this index supplement regarding the S&P GSCI Indices (as
defined below), including, without limitation, their make-up, method 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, S&P Dow Jones
Indices LLC, the publisher of the S&P GSCI Indices. The S&P GSCI Indices are determined,
composed and calculated by S&P Dow Jones Indices LLC, without regard to any Products linked
to the Index. S&P Dow Jones Indices LLC acquired the rights to the S&P GSCI Indices from
Goldman, Sachs & Co. in 2007. Goldman, Sachs & Co. established and began calculating the
S&P GSCITM in May 1991. The former name of the S&P GSCITM was the Goldman Sachs
Commodity Index, or GSCI®. S&P Dow Jones Indices LLC has no obligation to continue to
publish, and may discontinue publication of, any S&P GSCI Index.
In July 2012, McGraw-Hill, the owner of the S&P Indices business, and CME Group, the
90% owner of the CME Group and Dow Jones & Company, Inc. joint venture that owns the Dow
Jones Indexes business, formed a new joint venture, S&P Dow Jones Indices LLC, which owns
the S&P Indices business and the Dow Jones Indexes business, including the S&P GSCI Indices.
Any Products linked to the Index may be linked in whole or in part to the performance of
the S&P GSCITM Index (“S&P GSCITM”), the S&P GSCITM Light Energy Index or certain of the
S&P GSCITM’s commodity sector sub- indices: the S&P GSCITM Agriculture Index, the S&P
GSCITM Energy Index, the S&P GSCITM Industrial Metals Index, the S&P GSCITM Livestock
Index and the S&P GSCITM Precious Metals Index (each a “S&P GSCI Sector Index,” and
together, the “S&P GSCI Sector Indices”), or the S&P GSCITM’s single commodity sub-indices
(each a “S&P GSCI Single Component Index,” and collectively, the “S&P GSCI Single
Component Indices”). The S&P GSCI Single Component Indices and S&P GSCI Sector Indices
are referred to collectively as the “S&P GSCI Component Indices,” and together with the S&P
GSCITM and the S&P GSCITM Light Energy Index, the “S&P GSCI Indices,” and each, a “S&P
GSCI Index.” If any Products linked to the Index are linked to any S&P GSCI Single Component
Index, any relevant disclosure for such S&P GSCI Single Component Index will be provided in
the relevant terms supplement.
S&P Dow Jones Indices LLC publishes excess return and total return versions of each of
the S&P GSCI Indices. The relevant terms supplement will specify whether any Products linked
to the Index are linked to the excess return or total return version of the S&P GSCI Indices. The
excess return versions of the S&P GSCI Indices is based on price levels of the futures contracts
included in that S&P GSCI Index as well as the discount or premium obtained by “rolling”
hypothetical positions in those contracts forward as they approach delivery. The total return
versions of the S&P GSCI Indices incorporate the returns of the excess return versions, except that
the total return versions also reflect interest earned on hypothetical, fully collateralized contract
positions on the included commodities.
The S&P GSCITM is an index on a world production-weighted basket of principal non-
financial commodities (i.e., physical commodities) that satisfy specified criteria. The S&P
GSCITM is designed to be a measure of the performance over time of the markets for these
commodities. The only commodities represented in the S&P GSCITM are those physical
-67-
commodities on which active and liquid contracts are traded on trading facilities in major
industrialized countries. The commodities included in the S&P GSCITM are weighted, on a
production basis, to reflect the relative significance (in the view of S&P, as described below) of
such commodities to the world economy. The fluctuations in the value of the S&P GSCITM are
intended generally to correlate with changes in the prices of such physical commodities in global
markets. The S&P GSCITM has been normalized such that its hypothetical level on January 2,
1970 was 100. Futures contracts on the S&P GSCITM, and options on such futures contracts, are
currently listed for trading on the Chicago Mercantile Exchange.
The S&P GSCITM Light Energy Index is composed of the same commodity futures
contracts as the S&P GSCITM but with those weights for contracts in the energy sector having been
divided by 4. Because the weights of energy-related S&P GSCITM commodities are reduced in the
S&P Light Energy Index relative to the S&P GSCITM, the relative weights of the remaining S&P
GSCITM commodities are necessarily increased. As a result, although the S&P Light Energy Index
contains all of the S&P GSCITM commodities that are included in the S&P GSCITM, they are not
world-production weighted in the same manner as the S&P GSCITM and may not serve as a
benchmark for changes in inflation or other economic factors. In particular, because of the
significance of energy-related commodities to the world economy, a significant reduction in the
weights of these commodities in the S&P GSCITM Light Energy Index will substantially limit the
effect of changes in energy prices on the S&P GSCITM Light Energy Index. Increases in the prices
of energy commodities, therefore, will not increase the level of the S&P GSCITM Light Energy
Index to the same extent as the S&P GSCITM.
The S&P GSCITM Agriculture Index is a world production-weighted index of certain
agricultural commodities in the world economy, including Wheat, Kansas Wheat, Corn, Soybeans,
Cotton, Sugar, Coffee and Cocoa. The S&P GSCITM Energy Index is a world production-weighted
index of certain energy commodities in the world economy, including Crude Oil, Brent Crude Oil,
RBOB Gasoline, Heating Oil, Gasoil and Natural Gas. The S&P GSCITM Industrial Metals Index
is a world production-weighted index of certain industrial metals commodities in the world
economy, including High Grade Primary Aluminum, Copper, Standard Lead, Primary Nickel and
Special High Grade Zinc. The S&P GSCITM Livestock Index is a world production-weighted
index of certain livestock commodities in the world economy, including live cattle, feeder cattle
and lean hogs. The S&P GSCITM Precious Metals Index is a world production-weighted index
consisting of two precious metals commodities in the world economy: Gold and Silver.
Set forth below is a summary of the methodology used to calculate the S&P GSCI Indices.
Because the S&P GSCITM is the base index of the S&P GSCI Component Indices, the methodology
for compiling the S&P GSCITM relates as well to the methodology of compiling the S&P GSCI
Component Indices. Each of the S&P GSCI Component Indices is calculated in the same manner
as the S&P GSCITM, except that (i) the daily contract reference price, CPWs and roll weights (each
as discussed below) used in performing those calculations are limited to those of the commodities
included in the relevant S&P GSCI Component Index and (ii) each S&P GSCI Component Index
has a separate normalizing constant (discussed below). The methodology for determining the
composition and weighting of the S&P GSCITM and for calculating its value is subject to
modification in a manner consistent with the purposes of the S&P GSCITM, as described below.
S&P Dow Jones Indices LLC makes the official calculations of the S&P GSCI Indices.
-68-
The Index Committee and the Index Advisory Panel
S&P Dow Jones Indices LLC has established an index committee (the “Index
Committee”) to oversee the daily management and operations of the S&P GSCITM, and is
responsible for all analytical methods and calculation of the S&P GSCI Indices. The Index
Committee consists of full- time professional members of S&P Dow Jones Indices LLC’s staff.
At each meeting, the Index Committee reviews any issues that may affect index constituents,
statistics comparing the composition of the indices to the market, commodities 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 commodities or other
matters.
S&P Dow Jones Indices LLC considers information about changes to its indices and related
matters to be potentially market-moving and material. Therefore, all Index Committee discussions
are confidential.
S&P Dow Jones Indices LLC has established an index advisory panel (the “Advisory
Panel”) to assist it in connection with the operation of the S&P GSCITM. The Advisory Panel
meets on an annual basis and at other times at the request of the Index Committee. The principal
purpose of the Advisory Panel is to advise the Index Committee with respect to, among other
things, the calculation of the S&P GSCITM, the effectiveness of the S&P GSCITM as a measure of
commodity futures market performance and the need for changes in the composition or in the
methodology of the S&P GSCITM. The Advisory Panel acts solely in an advisory and consultative
capacity; the Index Committee makes all decisions with respect to the composition, calculation
and operation of the S&P GSCITM.
Composition of the S&P GSCITM
In order to be included in the S&P GSCITM, a contract must satisfy the following eligibility
criteria:
the contract must be in respect of a physical commodity and not a financial commodity;
the contract must have a specified expiration or term or provide in some other manner
for delivery or settlement at a specified time, or within a specified period, in the future;
the contract must, at any given point in time, be available for trading at least five months
prior to its expiration or such other date or time period specified for delivery or
settlement;
the contract must be traded on an exchange, facility or other platform (referred to as a
“trading facility”) that allows market participants to execute spread transactions,
through a single order entry, between the pairs of contract expirations included in the
S&P GSCITM that, at any given point in time, will be involved in the rolls to be effected
in the next three roll periods (defined below);
the contract must be denominated in U.S. dollars; and
-69-
the contract must be traded on or through a trading facility that has its principal place
of business or operations in a country that is a member of the Organization for
Economic Cooperation and Development and that:
o makes price quotations generally available to its members or participants (and
to S&P Dow Jones Indices LLC) in a manner and with a frequency that is
sufficient to provide reasonably reliable indications of the level of the relevant
market at any given point in time;
o makes reliable trading volume information available to S&P Dow Jones Indices
LLC with at least the frequency required by S&P Dow Jones Indices LLC to
make the monthly determinations;
o accepts bids and offers from multiple participants or price providers; and
o is accessible by a sufficiently broad range of participants
The price of the relevant contract that is used as a reference or benchmark by market
participants (referred to as the “daily contract reference price”) generally must have been
available on a continuous basis for at least two years prior to the proposed date of inclusion in the
S&P GSCITM. In appropriate circumstances, S&P Dow Jones Indices LLC may determine that a
shorter time period is sufficient or that historical daily contract reference prices for such contract
may be derived from daily contract reference prices for a similar or related contract. The daily
contract reference price may be (but is not required to be) the price (a) used by the relevant trading
facility or clearing facility to determine the margin obligations (if any) of its members or
participants or margining transactions or for other purposes or (b) referred to generally as the
reference, closing or settlement price of the relevant contract.
At and after the time a contract is included in the S&P GSCITM, the daily contract reference
price for such contract must be published between 10:00 a.m. and 4:00 p.m., New York City time,
on each business day relating to such contract by the trading facility on or through which it is
traded and must generally be available to all members of, or participants in, such facility (and to
S&P Dow Jones Indices LLC) on the same day from the trading facility or through a recognized
third-party data vendor. Such publication must include, at all times, daily contract reference prices
for at least one expiration or settlement date that is five months or more from the date the
determination is made, as well as for all expiration or settlement dates during such five-month
period.
For a contract to be eligible for inclusion in the S&P GSCITM, volume data with respect to
such contract must be available for at least the three months immediately preceding the date on
which the determination is made. The following eligibility criteria apply:
In order to be added to the S&P GSCITM, a contract that is not included in the S&P
GSCITM at the time of determination and that is based on a commodity that is not
represented in the S&P GSCITM at such time must have an annualized total dollar value
traded over the relevant period of at least U.S. $15 billion. The total dollar value traded
is the dollar value of the total quantity of the commodity underlying transactions in the
-70-
relevant contract over the period for which the calculation is made, based on the
average of the daily contract reference prices on the last day of each month during the
period.
In order to continue to be included in the S&P GSCITM, a contract that is already
included in the S&P GSCITM at the time of determination and that is the only contract
on the relevant commodity included in the S&P GSCITM must have an annualized total
dollar value traded of at least U.S. $5 billion over the relevant period and of at least
U.S. $10 billion during at least one of the three most recent annual periods used in
making the determination.
In order to be added to the S&P GSCITM, a contract that is not included in the S&P
GSCITM at the time of determination and that is based on a commodity on which there
are one or more contracts already included in the S&P GSCITM at such time must have
an annualized total dollar value traded over the relevant period of at least
U.S. $30 billion.
In order to continue to be included in the S&P GSCITM, a contract that is already
included in the S&P GSCITM at the time of determination and that is based on a
commodity on which there are one or more contracts already included in the S&P
GSCITM at such time must have an annualized total dollar value traded, over the
relevant period of at least U.S. $10 billion over the relevant period and of at least
U.S. $20 billion during at least one of the three most recent annual periods used in
making the determination.
In addition to the volume requirements described above, a contract must have a minimum
reference percentage dollar weight:
In order to continue to be included in the S&P GSCITM, a contract that is already
included in the S&P GSCITM at the time of determination must have a reference
percentage dollar weight of at least 0.10%. The reference percentage dollar weight of
a contract is determined by multiplying the CPW (defined below) of a contract by the
average of its daily contract reference prices on the last day of each month during the
relevant period. These amounts are summed for all contracts included in the S&P
GSCITM and each contract’s percentage of the total is then determined.
In order to be added to the S&P GSCITM, a contract that is not included in the S&P
GSCITM at the time of determination must have a reference percentage dollar weight of
at least 1.00% at the time of determination.
In the event that two or more contracts on the same commodity satisfy the eligibility
criteria, such contracts are included in the S&P GSCITM in the order of their respective total
quantity traded during the relevant period (determined as the total quantity of the commodity
underlying transactions in the relevant contract), with the contract having the highest total quantity
traded being included first. No further contracts are included if such inclusion results in the portion
of the S&P GSCITM attributable to such commodity exceeding a particular level.
-71-
If under the procedure set forth in the preceding paragraph, additional contracts could be
included with respect to several commodities at the same time, the procedure is first applied to the
commodity that has the smallest portion of the S&P GSCITM attributable to it at the time of
determination. Subject to the other eligibility criteria, the contract with the highest total quantity
traded on such commodity is included. Before any additional contracts on any commodity are
included, the portion of the S&P GSCITM attributable to all commodities is recalculated. The
selection procedure described above is then repeated with respect to the contracts on the
commodity that then has the smallest portion of the S&P GSCITM attributable to it.
The contracts currently included in the S&P GSCITM are all futures contracts traded on the
New York Mercantile Exchange, Inc. (“NYMEX”), ICE Futures Europe (“ICE-Europe”), ICE
Futures U.S. (“ICE-US”), the Chicago Mercantile Exchange (“CME”), the Chicago Board of
Trade (“CBOT”), the Kansas City Board of Trade (“KBT”), the Commodities Exchange Inc.
(“CMX”) and the London Metal Exchange (“LME”).
The quantity of each of the contracts included in the S&P GSCITM is determined on the
basis of a five-year average (referred to as the “world production average”) of the production
quantity of the underlying commodity from sources determined by S&P Dow Jones Indices LLC
to be reasonably accurate and reliable, such as the United Nations Industrial Commodity Statistics
Yearbook. However, if a commodity is primarily a regional commodity, based on its production,
use, pricing, transportation or other factors, S&P Dow Jones Indices LLC may calculate the weight
of such commodity based on regional, rather than world, production data. At present, natural gas
is the only commodity the weight of which is calculated on the basis of regional production data,
with the relevant region being North America.
The five-year moving average is updated annually for each commodity included in the S&P
GSCITM, based on the most recent five-year period (ending approximately two years prior to the
date of calculation and moving backwards) for which complete data for all commodities is
available. The contract production weights (the “CPWs”) used in calculating the S&P GSCITM
are derived from world or regional production averages, as applicable, of the relevant
commodities, and are calculated based on the total quantity traded for the relevant contract and the
world or regional production average, as applicable, of the underlying commodity. However, if
the volume of trading in the relevant contract, as a multiple of the production levels of the
commodity, is below specified thresholds, the CPW of the contract is reduced until the threshold
is satisfied. This is designed to ensure that trading in each such contract is sufficiently liquid
relative to the production of the commodity.
In addition, S&P Dow Jones Indices LLC performs this calculation on a monthly basis and,
if the multiple of any contract is below the prescribed threshold, the composition of the S&P
GSCITM is reevaluated, based on the criteria and weighting procedure described above. This
procedure is undertaken to allow the S&P GSCITM to shift from contracts that have lost substantial
liquidity into more liquid contracts, during the course of a given year. As a result, it is possible
that the composition or weighting of the S&P GSCITM will change on one or more of these monthly
evaluation dates. In addition, regardless of whether any changes have occurred during the year,
S&P Dow Jones Indices LLC reevaluates the composition of the S&P GSCITM at the conclusion
of each year, based on the above criteria. Other commodities that satisfy such criteria, if any, will
-72-
be added to the S&P GSCITM. Commodities included in the S&P GSCITM that no longer satisfy
such criteria, if any, will be deleted.
S&P Dow Jones Indices LLC also determines whether modifications in the selection
criteria or the methodology for determining the composition and weights of and for calculating the
S&P GSCITM are necessary or appropriate in order to assure that the S&P GSCITM represents a
measure of commodity market performance. S&P Dow Jones Indices LLC has the discretion to
make any such modifications.
Contract Expirations
Because the S&P GSCITM comprises actively traded contracts with scheduled expirations,
it can only be calculated by reference to the prices of contracts for specified expiration, delivery
or settlement periods, referred to as “contract expirations.” The contract expirations included in
the S&P GSCITM for each commodity during a given year are designated by S&P Dow Jones
Indices LLC, provided that each such contract must be an “active contract.” An “active contract”
for this purpose is a liquid, actively traded contract expiration, as defined or identified by the
relevant trading facility or, if no such definition or identification is provided by the relevant trading
facility, as defined by standard custom and practice in the industry.
If a trading facility deletes one or more contract expirations, the S&P GSCITM will be
calculated during the remainder of the year in which such deletion occurs based on the remaining
contract expirations designated by S&P Dow Jones Indices LLC. If a trading facility ceases trading
in all contract expirations relating to a particular contract, S&P Dow Jones Indices LLC may
designate an eligible replacement contract on the commodity. To the extent practicable, the
replacement will be in effect during the next monthly review of the composition of the S&P
GSCITM. If that timing is not practicable, S&P Dow Jones Indices LLC will determine the date of
the replacement and will consider a number of factors, including the differences between the
existing contract and the replacement contract specifications and contract expirations.
Value of the S&P GSCITM
The value of the S&P GSCITM on any given day is equal to the total dollar weight of the
S&P GSCITM divided by a normalizing constant that assures the continuity of the S&P GSCITM
over time. The total dollar weight of the S&P GSCITM is the sum of the dollar weight of each of
the underlying commodities. The dollar weight of each such commodity on any given day is equal
to:
the “daily contract reference price” (discussed below),
multiplied by the appropriate CPWs, and
during a roll period, the appropriate “roll weights” (discussed below).
The daily contract reference price used in calculating the dollar weight of each commodity
on any given day is the most recent daily contract reference price made available by the relevant
trading facility, except that the daily contract reference price for the most recent prior day will be
used if the exchange is closed or otherwise fails to publish a daily contract reference price on that
-73-
day. In addition, if the trading facility fails to make a daily contract reference price available or
publishes a daily contract reference price that, in the reasonable judgment of S&P Dow Jones
Indices LLC, reflects manifest error, the relevant calculation will be delayed until the price is made
available or corrected; provided that, if the price is not made available or corrected by 4:00 p.m.,
New York City time, S&P Dow Jones Indices LLC may, if it deems such action to be appropriate
under the circumstances, determine the appropriate daily contract reference price for the applicable
futures contract in its reasonable judgment for purposes of the relevant S&P GSCITM calculation.
The “roll weight” of each commodity reflects the fact that the positions in contracts must
be liquidated or rolled forward into more distant contract expirations as they approach expiration.
If actual positions in the relevant markets were rolled forward, the roll would likely need to take
place over a period of days. Since the S&P GSCITM is designed to replicate the performance of
actual investments in the underlying contracts, the rolling process incorporated in the S&P GSCITM
also takes place over a period of days at the beginning of each month (referred to as the “roll
period”). On each day of the roll period, the “roll weights” of the first nearby contract expiration
on a particular commodity and the more distant contract expiration into which it is rolled are
adjusted, so that the hypothetical position in the contract on the commodity that is included in the
S&P GSCITM is gradually shifted from the first nearby contract expiration to the more distant
contract expiration.
If on any day during a roll period any of the following conditions exists, the portion of the
roll that would have taken place on that day is deferred until the next day on which such conditions
do not exist:
no daily contract reference price is available for a given contract expiration;
any such price represents the maximum or minimum price for such contract month,
based on exchange price limits (referred to as a “Limit Price”);
the daily contract reference price published by the relevant trading facility reflects
manifest error, or such price is not published by 4:00 p.m., New York City time. In
that event, S&P Dow Jones Indices LLC may, but is not required to, determine a daily
contract reference price and complete the relevant portion of the roll based on such
price; provided, that, if the trading facility publishes a price before the opening of
trading on the next day, S&P Dow Jones Indices LLC will revise the portion of the roll
accordingly; or
trading in the relevant contract terminates prior to its scheduled closing time.
If any of these conditions exist throughout the roll period, the roll with respect to the
affected contract will be effected in its entirety on the next day on which such conditions no longer
exist.
Contract Daily Return
The contract daily return on any given day is equal to the sum, for each of the commodities
included in the S&P GSCITM, of the applicable daily contract reference price on the relevant
-74-
contract multiplied by the appropriate CPW and the appropriate “roll weight,” divided by the total
dollar weight of the S&P GSCITM on the preceding day, minus one.
Calculation of the S&P GSCI Indices
Excess return S&P GSCI Indices
The value of any excess return version of a S&P GSCI Index on any day on which the S&P
GSCITM is calculated (an “S&P GSCITM Business Day”) is equal to the product of:
the value of the applicable S&P GSCI Index on the immediately preceding S&P
GSCITM Business Day; and
one plus the contract daily return of the applicable S&P GSCI Index on the S&P
GSCITM Business Day on which the calculation is made.
Total Return S&P GSCI Indices
The value of any total return version of a S&P GSCI Index on any S&P GSCITM Business
Day reflects the value of an investment in the excess return version of that S&P GSCI Index
together with a Treasury bill return and is equal to the product of:
the value of the applicable S&P GSCI Index on the immediately preceding S&P
GSCITM Business Day;
one plus the sum of the contract daily return and the Treasury Bill return on the S&P
GSCITM Business Day on which the calculation is made; and
one plus the Treasury Bill return for each non-S&P GSCITM Business Day since the
immediately preceding S&P GSCITM Business Day.
The Treasury Bill return is the return on a hypothetical investment in the applicable S&P
GSCI Index at a rate equal to the interest rate on a specified U.S. Treasury Bill, at a rate equal to
the interest rate on a specified U.S. Treasury Bill.
Settlement Pricing
The daily calculation of any S&P GSCI Settlement Index on business day (t) will use the
settlement prices from business day (t) for all commodity contracts that did not experience a market
disruption on business day (t). For each contract that experiences a market disruption on business
day (t), the disrupted settlement price from business day (t) will be replaced by the settlement price
on the first subsequent business day when that commodity contract does not experience a market
disruption. Each commodity contract is evaluated independently. On any given business day (t), if
no commodity contract within an S&P GSCI Index experiences a market disruption, the S&P GSCI
Settlement Index equals the corresponding standard S&P GSCI Index.
-75-
Information
All information contained herein relating to the S&P GSCITM and each of the S&P GSCI
Indices, including their make-up, method of calculation, changes in their components and
historical performance, has been derived from publicly available information, without independent
verification.
The information contained herein with respect to each of the S&P GSCI Indices and the
S&P GSCITM reflects the policies of, and is subject to change by, S&P Dow Jones Indices LLC.
Current information regarding the market values of the S&P GSCI Indices is available from
S&P Dow Jones Indices LLC and from numerous public information sources.
License Agreement with S&P
The S&P GSCI Indices are licensed by S&P Dow Jones Indices LLC for use in connection
with an issuance of any Products linked to the Index.
Any Products linked to the Index are not sponsored, endorsed, sold or promoted by S&P
Dow Jones Indices LLC or its third party licensors. Neither S&P Dow Jones Indices LLC nor its
third party licensors makes any representation or warranty, express or implied, to the owners of
any Products linked to the Index or any member of the public regarding the advisability of
investing in securities generally or in any Products linked to the Index particularly or the ability of
the S&P GSCI Indices to track general stock market performance. S&P and its third party
licensor’s only relationship to JPMorgan Chase & Co. is the licensing of certain trademarks and
trade names of S&P and the third party licensors and of the S&P GSCI Indices which are
determined, composed and calculated by S&P or its third party licensors without regard to
JPMorgan Chase & Co. or any Products linked to the Index. S&P Dow Jones Indices LLC and its
third party licensors have no obligation to take the needs of JPMorgan Chase & Co. or the owners
of any Products linked to the Index into consideration in determining, composing or calculating
the S&P GSCI Indices. Neither S&P Dow Jones Indices LLC nor its third party licensors is
responsible for and has not participated in the determination of the prices and amount of any
Products linked to the Index or the timing of the issuance or sale of any Products linked to the
Index or in the determination or calculation of the equation by which any Products linked to the
Index are to be converted into cash. S&P Dow Jones Indices LLC has no obligation or liability in
connection with the administration, marketing or trading of any Products linked to the Index.
NEITHER S&P DOW JONES INDICES, ITS AFFILIATES NOR THEIR THIRD PARTY
LICENSORS GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS OR
COMPLETENESS OF THE S&P GSCI INDICES OR ANY DATA INCLUDED THEREIN
OR ANY COMMUNICATIONS, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATIONS (INCLUDING ELECTRONIC COMMUNICATIONS)
WITH RESPECT THERETO. S&P DOW JONES INDICES, ITS AFFILIATES AND
THEIR THIRD PARTY LICENSORS SHALL NOT BE SUBJECT TO ANY DAMAGES
OR LIABILITY FOR ANY ERRORS, OMISSIONS OR DELAYS THEREIN. S&P
MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS
ALL WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
-76-
PURPOSE OR USE WITH RESPECT TO THE MARKS, THE S&P GSCI INDICES OR
ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES, ITS
AFFILIATES OR THEIR THIRD PARTY LICENSORS BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE OR CONSEQUENTIAL DAMAGES,
INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST
TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY OR
OTHERWISE.
“Standard & Poor’s,” “S&P” and “S&P GSCITM” are trademarks of Standard & Poor’s Financial
Services LLC and have been licensed for use by J.P. Morgan Securities LLC and sublicensed for
use by JPMorgan Chase & Co.
-77-
DISCLAIMERS
S&P Index Disclaimers
S&P GSCITM Agriculture Excess Return Index and S&P GSCITM Agriculture Settlement Excess
Return Index
S&P GSCITM Precious Metals Excess Return Index
S&P GSCITM Industrial Metals Excess Return Index
S&P GSCITM Energy Excess Return Index (together, the “S&P GSCI Indices”)
Each S&P GSCI® Index (each, an “S&P GSCI® Index”) is a product of S&P Dow Jones Indices
LLC (“SPDJI”) and has been licensed for use by JPMS plc and/or its affiliates (the “JPM
Licensee”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s
Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark
Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI. S&P®
and S&P GSCI® are trademarks of S&P and have been licensed for use by SPDJI and its affiliates
and sublicensed for certain purposes by the JPM Licensee. The S&P GSCI® Indices are not owned,
endorsed, or approved by or associated with Goldman Sachs & Co. or its affiliated companies.
The JPM Licensee’s Index is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones,
S&P, any of their respective affiliates or third party licensors (collectively, “S&P Dow Jones
Indices”). S&P Dow Jones Indices do not make any representation or warranty, express or
implied, to counterparts to the JPM Licensee’s Index or any member of the public regarding the
advisability of investing in securities generally or in the JPM Licensee’s Index particularly or the
ability of the Index to track general market performance. S&P Dow Jones Indices’ only
relationship to the JPM Licensee with respect to the S&P GSCI® Index is the licensing of the S&P
GSCI® Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices.
The S&P GSCI® Index is determined, composed and calculated by S&P Dow Jones Indices
without regard to the JPM Licensee or the JPM Licensee’s Index. S&P Dow Jones Indices have
no obligation to take the needs of the JPM Licensee or the owners of or counterparts to the Index
into consideration in determining, composing or calculating the S&P GSCI® Index. S&P Dow
Jones Indices are not responsible for and have not participated in the determination or calculation
of the Index. S&P Dow Jones Indices have no obligation or liability in connection with the
administration, marketing or trading of the JPM Licensee’s Index. There is no assurance that
investment products based on the S&P GSCI® Index will accurately track index performance or
provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor.
Inclusion of a futures contract within the S&P GSCI® Index is not a recommendation by S&P Dow
Jones Indices to buy, sell, or hold such contract, nor is it considered to be investment advice.
Notwithstanding the foregoing, CME Group Inc. and its affiliates may independently issue and/or
sponsor financial products unrelated to the JPM Licensee’s Index currently being maintained by
the JPM Licensee, but which may be similar to and competitive with the JPM Licensee’s Index.
In addition, CME Group Inc. and its affiliates may trade financial products which are linked to the
performance of the S&P GSCI® Index. It is possible that this trading activity will affect the value
of the S&P GSCI® Index and the JPM Licensee’s Index.
S&P DOW JONES INDICES DO NOT GUARANTEE THE ADEQUACY, ACCURACY,
TIMELINESS AND/OR THE COMPLETENESS OF THE S&P GSCI® INDEX OR ANY DATA
-78-
RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO,
ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC
COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL
NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS,
OR DELAYS THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO
RESULTS TO BE OBTAINED BY THE JPM LICENSEE, OWNERS OF OR COUNTERPARTS
TO THE JPM LICENSEE’S INDEX, OR ANY OTHER PERSON OR ENTITY FROM THE USE
OF THE S&P GSCI® INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL
S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL,
PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS
OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT,
TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY
BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW
JONES INDICES AND THE JPM LICENSEE, OTHER THAN THE LICENSORS OF S&P
DOW JONES INDICES.
FX Rates Disclaimers
The FX Rates are provided by The WM Company plc in conjunction with Reuters Limited. The
WM Company plc shall not be liable for any errors in or delays in providing or making available
the data contained within this service or for any actions taken in reliance on the same, except to
the extent that the same is directly caused by its or its employees’ negligence.
-79-
ANNEX A
[remainder of page intentionally left blank]
The J.P. Morgan MOZAIC Index (USD)
Index Rules
21 August 2009,
as last amended and restated as of 24 October 2019 and updated as of 27 November 2019
© All Rights Reserved
2
Table of Contents
1. Introduction .............................................................................................................................. 5
2. General Notes on the Index ................................................................................................ 5
3. Index Calculation .................................................................................................................... 9
5. Calculation Agent and Index Sponsor .......................................................................... 20
6. Market Disruption Events ................................................................................................ 20
7. Extraordinary Events ......................................................................................................... 20
8. Corrections in respect of the Index .............................................................................. 21
9. Responsibility ....................................................................................................................... 22
10. Miscellaneous ........................................................................................................................ 22
11. Hypothetical Back-Tested Levels .................................................................................. 22
12. Definitions .............................................................................................................................. 23
3
Notices, Disclaimers and Conflicts
Capitalized terms used in this section but not otherwise defined have the meanings set out in other parts of the Rules.
Neither the Index Sponsor nor the Index Calculation Agent endorses or makes any representation or warranty, express or implied, in connection with any security, transaction, fund, structured deposit or other financial product or investment (each, a “Product”) that references the Index including as to the advisability or purchasing or entering into or issuing a Product or the results to be obtained by any party using the Index in connection with a Product. Furthermore, neither the Index Sponsor nor the Index Calculation Agent has any obligation or liability in connection with the administration, entry into, issuance, marketing or trading of any such Product.
The Index is the exclusive property of the Index Sponsor and the Index Sponsor retains all proprietary rights in the Index.
No one may reproduce, distribute or disseminate this document or the information contained in this document or an Index Level (as applicable) 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.
Neither the Index Sponsor nor the Index Calculation Agent in its capacity as such has any liability whatsoever to any person who uses the Index (or any Index Level) in any circumstances.
Potential conflicts of interest may exist between the structure and operation of the Index, the 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 Relevant Person.
During the course of their businesses, the Index Sponsor, the Index Calculation Agent and any Relevant Person may enter into or promote, offer or sell transactions or investments (structured or otherwise) that reference the Index, any Constituent or any component of a Constituent. In addition, the Index Sponsor, the Index Calculation Agent and 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, any Constituent or any component of a Constituent, or may invest or engage in transactions with other persons, or on behalf of such persons, relating to any of these. Such activity could give rise to a conflict of interest, and such conflict may have an impact, positive or negative, on the Index Level. None of the Index Sponsor, the Index Calculation Agent and the Relevant Persons have any duty (a) to consider the circumstances of any person when participating in such transactions or (b) to conduct themselves in a manner that is favorable to anyone with exposure to the Index.
Neither the Index Sponsor nor the Index Calculation Agent is under any obligation to continue the calculation, publication or dissemination of the Index. 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. Further information relating to the identity and role of third parties that are non-affiliates of J.P. Morgan, in respect of the Index is available upon request from the Index Sponsor.
The following further information is available at https://www.jpmorganindices.com:
(i) supplemental disclosure on the Index Sponsor’s governance and oversight framework; (ii) information on complaints handling; and (iii) additionally, in respect of Indices where the Index Sponsor is J.P. Morgan Securities plc, further
information on conflicts of interest.
Except as provided in the following paragraph, none of the Index Sponsor, the Index Calculation Agent or any Relevant Person gives any representation, warranty or undertaking, of any type (whether express or implied, statutory or otherwise) in relation to the Index, as to (i) the condition, satisfactory quality, performance or fitness for purpose of the Index, (ii) the results to be achieved by an investment in any Product, (iii) any data included in or omissions from the Index, (iv) the use of the Index in connection with a Product, (v) the Index Level at any time on any day, (vi) the veracity, currency, completeness or accuracy of the Index Level or the information on which the Index or the Index Level is based (and without limitation, the Index Sponsor and the Index Calculation Agent accept no liability to any investor in a Product or any issuer or counterparty of a Product for any errors or omissions in that information or the results of any interruption to it and the Index Sponsor and the Index Calculation Agent shall be under no obligation to advise any person of any such error, omission or interruption), or (vii) any other matter. To the extent any such representation, warranty or undertaking could be deemed to have been given by the Index Sponsor, the Index Calculation Agent or any Relevant Person, it
4
is excluded save to the extent that such exclusion is prohibited by law.
To the fullest extent permitted by law, none of the Index Sponsor, the Index Calculation Agent and the Relevant Persons shall have any liability or responsibility to any person or entity (including, without limitation, any investor in any Product or any issuer or counterparty of a Product) for any loss, 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 any Product.
Nothing in these Rules shall be taken to exclude any liability for fraud on the part of the Index Sponsor or Index Calculation Agent.
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 neither of them accepts responsibility or liability in respect of such calculations or information.
Notwithstanding anything to the contrary, nothing in these Rules should be construed to be investment advice or a recommendation to purchase a specific Product, issue a specific Product or enter into any transaction. Nothing in these Rules or any other communication between you, on the one hand, and the Index Sponsor, the Index Calculation Agent or any Relevant Person, on the other hand, should be deemed to or be construed as creating a “fiduciary relationship” or any relationship of agency or trust. None of the Index Sponsor, the Index Calculation Agent or any Relevant Person is a fiduciary for you, and none of them accept any duty of care in respect of any person or entity. 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 issuing or transaction 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 or issuance of a Product or entry into any transaction.
The foregoing notices, disclaimers and conflicts disclosure is not intended to be exhaustive. Anyone reading these Rules should seek such advice as you consider necessary from your professional advisors, legal, tax or otherwise, without reliance on the Index Sponsor, Index Calculation Agent or any Relevant Person to satisfy you that you fully understand these Rules and the risks associated with the Index.
These Rules have been developed with the possibility of one or more entities entering into or promoting, offering or selling Products (structured or otherwise) linked to the Index and the hedging of such transactions or Products in any manner that they see fit.
Copyright JPMorgan Chase & Co. 2019. 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 and the Index Calculation Agent do not assume any obligation or duty to any party in connection with the Index and do not assume any relationship of agency, trust or of a fiduciary nature with such party.
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 Rules. Third parties shall not use the Index Sponsor’s intellectual property without the prior written consent of the Index Sponsor (including in situations in which a third party performs certain functions in relation to the Index).
THIS DOCUMENT IS IMPORTANT. YOU SHOULD NOT INVEST IN A PRODUCT LINKED TO THE INDEX UNLESS YOU HAVE ENSURED THAT YOU FULLY UNDERSTAND THE NATURE OF SUCH AN INVESTMENT AND THE RISKS INVOLVED AND ARE SATISFIED THAT THE INVESTMENT IS SUITABLE AND APPROPRIATE FOR YOUR CIRCUMSTANCES AND OBJECTIVES. IF YOU ARE IN ANY DOUBT ABOUT THIS YOU SHOULD TAKE ADVICE FROM AN APPROPRIATELY QUALIFIED ADVISER. EVEN IF YOU ARE A HIGHLY SOPHISTICATED INVESTOR WHO REGULARLY TRANSACTS IN PRODUCTS LINKED TO INDICES OF THIS TYPE, YOU ARE STRONGLY ADVISED TO TAKE SUCH ADVICE IN ANY EVENT.
5
1. Introduction
This document comprises the index rules (“Rules”) of the J.P. Morgan MOZAIC Index (USD) (“Index”). The Rules may be amended from time to time pursuant to the provisions set out in Section 4.1 (Amendments) below. This document is published by JPMS plc of 25 Bank Street, Canary Wharf, London E14 5JP, United Kingdom in its capacity as Index Calculation Agent. ALL PERSONS READING THIS DOCUMENT SHOULD REFER TO THE NOTICES, DISCLAIMERS AND CONFLICTS SECTIONS AND CONSIDER THE INFORMATION CONTAINED IN THIS DOCUMENT IN LIGHT OF SUCH NOTICES, DISCLAIMERS AND CONFLICTS.
NOTHING HEREIN CONSTITUTES AN OFFER TO BUY OR SELL ANY SECURITIES, PARTICIPATE IN ANY TRANSACTION OR ADOPT ANY INVESTMENT STRATEGY OR LEGAL, TAX, REGULATORY OR ACCOUNTING ADVICE.
2. General Notes on the Index
2.1 Algorithmic Strategy
The Index is a rules-based investment strategy that seeks to replicate, in accordance with the methodology described herein, synthetic exposure to a portfolio of Government Bond Futures Constituents and Equity Index Futures Constituents (each, as defined in Section 2.2 (The Securities-based Constituents) below, and together, the “Securities-based Constituents”) and synthetic exposure to certain excess return indices within the S&P GSCITM commodity index group (the “Non-Securities-based Constituents”, and together with the Securities-based Constituents, the “Constituents”). The Index is composed of a universe of twelve Constituents, although, in most circumstances, the Index will initiate synthetic long exposure in respect of six (or fewer) Constituents, in accordance with the methodology described herein.
The Index seeks to provide, in most circumstances: (a) long synthetic exposure to each of the six Constituents with the highest relative performance, ranked on the basis of a ranking methodology as of the applicable rebalancing date, which also satisfy the Trading Signal test, as set out in Section 3.5.3 (Trading Signal) below and (b) neutral synthetic exposure to the remaining Constituents. The Index’s exposure to the Constituents is scaled up or down each month on the basis of a Constituent Leverage adjustment as set out in Section 3.5.2 (Calculating the Constituent Leverages) below, which is determined for each Constituent on the basis of the historical realised volatility of such Constituent over a defined period of time, and by the Target Volatility which is set at 7.75%. The Index is denominated in USD and each Constituent that is not denominated in USD has its daily return converted into USD on a daily basis, in accordance with the provisions set out in the Rules.
The Index also embeds a mechanic, which is referred to in these Rules as the “InTrade” indicator which, depending on the recent performance of the Index, can switch the existing synthetic long exposure positions within the Index into synthetic neutral exposure positions for all Constituents for a specified period of time, in accordance with the terms set out in Section 3.5.7 (InTrade) below.
The Index is a synthetic strategy. There is no actual portfolio of assets to which any person is entitled or in which any person has any ownership interest. The Index Calculation Agent and its affiliates have no obligation to buy, sell or hold any of the Constituents or any asset underlying any of the Constituents.
2.2 The Securities-based Constituents
The Index references the following Securities-based Constituents:
The “Government Bond Futures Constituents” consist of:
(i) the CBOT 2-Year U.S. Treasury Note Futures Contract (Code: ZT/TU), which is a series of exchange-traded futures contracts with expiry dates at three month intervals. As defined by the Relevant Exchange the underlying unit of each contract is a single notional note issued by the U.S. Treasury that has a face value at maturity of USD 200,000 and Deliverable Grades of instruments eligible for settlement include U.S. Treasury notes with (a) an original term to maturity of not more than five years and three months, and (b) a remaining term to maturity of not less than one year and nine months from the first day of the delivery month and not more than two years from the last day of the delivery month, where the invoice price equals the futures settlement price times a conversion factor, plus accrued interest and the conversion factor is the price of the delivered note ($1 par value) to yield (6) percent (the “2 Year Note Futures”);
6
(ii) the CBOT 10-Year U.S. Treasury Note Futures Contract (Code: ZN/TY), which is a series of exchange-traded futures contracts with expiry dates at three month intervals. As defined by the Relevant Exchange the underlying unit of each contract is a single notional note issued by the U.S. Treasury that has a face value at maturity of USD 100,000 and Deliverable Grades of instruments eligible for settlement include U.S. Treasury notes with a remaining term to maturity of at least six and a half years, but not more than ten years, from the first day of the delivery month, where the invoice price equals the futures settlement price times a conversion factor, plus accrued interest and the conversion factor is the price of the delivered note ($1 par value) to yield (6) percent (the “10 Year Note Futures”);
(iii) the EUREX Euro-Schatz Futures Contract (Code: FGBS/DU), which is a series of exchange-traded futures contracts, with expiry dates at three month intervals. As defined by the Relevant Exchange each contract references certain notional debt instruments issued by the Federal Republic of Germany that have (a) a face value at maturity of EUR 100,000, (b) a remaining term on the Delivery Day of not less than one and three quarter years, and not more than two and a quarter years, and (c) has a six (6) percent coupon (the “Schatz Futures”);
(iv) the EUREX Euro-Bund Futures Contract (Code: FGBL/RX), which is a series of exchange-traded futures contracts, with expiry dates at three month intervals. As defined by the Relevant Exchange each contract references certain notional debt instruments issued by the Federal Republic of Germany that have (a) a face value at maturity of EUR 100,000, (b) a remaining term on the Delivery Day of not less than eight and a half years, and not more than ten and half years, and (c) has a six (6) percent coupon (the “Bund Futures”); and
(v) the Osaka 10-Year Japanese Government Bond Futures Contract (Code: JGB/JB), which is a series of exchange-traded futures contracts, with expiry dates at three month intervals. Each contract references a single notional bond issued by the State of Japan that has (a) a face value at maturity of JPY 100,000,000, (b) a remaining term to maturity of not less than seven years, and not more than eleven years, as of the issued date and delivery date and (c) pays a notional six (6) percent coupon (the “JGB Futures”).
The “Equity Index Futures Constituents” consist of:
(i) the CME Standard and Poor’s 500 Stock Price IndexTM Futures Contract (Code: SP/SP), which is a series of exchange-traded futures contracts, with expiry dates at three month intervals. As defined by the Relevant Exchange each contract references the Standard and Poor’s 500 Stock Price Index, which provides a notional exposure equal to the product of the level of the Standard and Poor’s 500 Stock Price Index and USD250 (the “S&P Futures”);
(ii) the EUREX DAX® Index Futures Contract (Code: FDAX/GX), which is a series of exchange-traded futures contracts, with expiry dates at three month intervals. As defined by the Relevant Exchange each contract references the Deutscher Aktien Index which provides a notional exposure equal to the product of the level of the DAX Index and EUR25 (the “DAX Futures”); and
(iii) the Osaka Nikkei 225 Index Futures Contract (Code: NK/NK), which is a series of exchange-traded futures contracts, with expiry dates at three month intervals. As defined by the Relevant Exchange each contract references the Nikkei Stock Average (Nikkei 225 Index), which provides a notional exposure equal to the product of the level of the Nikkei 225 Index and JPY1,000 (the “Nikkei Futures”).
2.3 The Non-Securities-based Constituents
The Index references the following Non-Securities-based Constituents:
(i) The S&P GSCITM Agriculture Excess Return Index (the “GSCI AG”), with the understanding that:
1) in the absence of an Agricultural Commodities Postponement Event, the Index Level will be calculated by reference to the level of the S&P GSCITM Agriculture Excess Return Index that is published daily on Bloomberg Ticker SPGCAGP Index <go>, and
2) in the case of the occurrence or continuation of an Agricultural Commodities Postponement Event, the Index Level in respect of the applicable Agricultural Commodities Postponement Resolution Day will be calculated by reference to the settlement level of the S&P GSCITM Agriculture Excess Return Index that is published periodically on Bloomberg Ticker SPGSAGSP Index <go> (the “Agricultural Commodities Settlement Index”);
7
(ii) The S&P GSCITM Energy Excess Return Index is published daily on Bloomberg Ticker SPGCENP Index <go> (the “GSCI EN”);
(iii) The S&P GSCITM Industrial Metals Excess Return Index is published daily on Bloomberg Ticker SPGCINP Index <go> (the “GSCI IM”); and
(iv) The S&P GSCITM Precious Metals OC Excess Return Index is published daily on Bloomberg Ticker SPGCPMP Index <go> (the “GSCI PM”).
Note regarding the Agricultural Commodities Settlement Index: The Constituentc that is the GSCI AG is associated with a single excess return commodity sector settlement index, the Agricultural Commodities Settlement Index. The official closing level of each such settlement index is published or otherwise made available by or on behalf of the Constituent Sponsor to the Index Calculation Agent for each Scheduled Trading Day for such Constituent. The Agricultural Commodities Settlement Index is designed and calculated by the Constituent Sponsor to track, upon the occurrence or continuation of a relevant event affecting a futures contract referenced in the index methodology for the GSCI AG for any date of determination, the Agricultural Constituent Settlement Price. The daily calculation of the Agricultural Commodities Settlement Index in respect of Scheduled Trading Dayc,t will use the official closing prices from Scheduled Trading Dayc,t for those agricultural commodities futures contracts that did not experience a market disruption on Scheduled Trading Dayc,t. For each agricultural commodities futures contract that experiences a market disruption on Scheduled Trading Dayc,t, the disrupted settlement price from Scheduled Trading Dayc,t will be replaced by the settlement price on the first subsequent Scheduled Trading Day when that agricultural commodities futures contract does not experience a market disruption. Each agricultural commodities futures contract is evaluated independently (which is referred to as a “value what you can when you can” approach for the futures contracts referenced by the GSCI AG). On any given Scheduled Trading Dayc,t, if no agricultural commodities futures contract referenced by the GSCI AG experiences a market disruption, the Agricultural Commodities Settlement Index on any date of determination is calculated by or on behalf of the Constituent Sponsor such that the Closing Price for the GSCI AG and the Agricultural Constituent Settlement Price would be expected to be identical for any non-disrupted date of determination.
2.4 Constituent Associated Currencies
In respect of any Weekdayt, for any Constituentc that is not denominated in USD, the Index Calculation Agent will, in accordance with Section 3.4 (Returns for each Constituent converted into USD), convert the returns associated with such Constituentc into USD using the FX Rate published on the FX Price Source at the Fixing Time in respect of such Weekdayt. In respect of any Weekdayt for any Constituentc that is denominated in U.S. dollars, the FX Rate will be equal to 1. If any Weekday is an FX Disrupted Day, the Index Calculation Agent shall determine the FX Rate in respect of such Weekday taking into consideration all available information, that it, in good faith, deems relevant.
Where: “FX Ratec,t” or “𝑓𝑥𝑐,𝑡" means, in respect of any Constituentc and Weekdayt:
(a) “USD / EUR” shall mean the “Mid” exchange rate expressed as a number of USD for one EUR as published on the FX Price Source at the Fixing Time in respect of such day; and
(b) “USD / JPY” shall mean the “Mid” exchange rate expressed as a number of USD for one JPY, determined by dividing 1 by the number of JPY for one USD as published on the FX Price Source at the Fixing Time in respect of such day;
“FX Price Source” means the Reuters Page as set forth in Table A below, or if the relevant rate is not published or announced by such FX Price Source at the relevant time the successor or an alternative price source or page/publication for the relevant rate as determined by the Index Calculation Agent, in its sole discretion; and “Fixing Time” means approximately 4:00 PM London, England time.
Table A: The FX Rate and Reuters Page for each Constituent Constituentc FX Ratec,t Reuters Page
2 Year Note Futures 1 Not Applicable
10 Year Note Futures 1 Not Applicable
Schatz Futures USD / EUR WMRSPOT05
8
Bund Futures USD / EUR WMRSPOT05
JGB Futures USD / JPY WMRSPOT12
S&P Futures 1 Not Applicable
DAX Futures USD / EUR WMRSPOT05
Nikkei Futures USD/ JPY WMRSPOT12
GSCI AG 1 Not Applicable
GSCI EN 1 Not Applicable
GSCI IM 1 Not Applicable
GSCI PM 1 Not Applicable
9
3. Index Calculation
3.1 The Index Level 3.1.1 Frequency of calculation
Subject to the provisions of Section 6 (Market Disruption Events) regarding publication of the Index Level, the Index Calculation Agent shall calculate the Index Level (“Index Levelt” or “Indext”) in respect of each Weekdayt in accordance with the following formula:
𝐼𝑛𝑑𝑒𝑥𝑡 = 𝐼𝑛𝑑𝑒𝑥𝑡−1 × (1 + 𝑈𝑆𝐷 𝑅𝑒𝑡𝑢𝑟𝑛𝑠𝑡) Where:
“𝐼𝑛𝑑𝑒𝑥𝑡” means, in respect of each Weekdayt, the Index Level of the Index in respect of such Weekdayt.
“𝐼𝑛𝑑𝑒𝑥𝑡−1” means, in respect of each Weekdayt, the Index Level of the Index in respect of the Weekday immediately preceding such Weekdayt; and
“𝑈𝑆𝐷 𝑅𝑒𝑡𝑢𝑟𝑛𝑠𝑡” is defined in Section 3.2.
If, in respect of any Weekdayt, the calculations referenced in this Section 3.1.1 would result in an Index Level that is less than or equal to zero (0), the Index Level for that Weekdayt and each subsequent Weekdayt shall be deemed to be zero (0).
3.1.2 Index Start Date and Base Level The Index was deemed to have commenced on 1 January 1999 (“Index Start Date”) at which point the level was 100 (“Base Level”). The “Live Date” of the Index is 17 April 2009. The Index Calculation Agent began calculating the Index on a live basis on the Live Date.
3.2 The Index USD Returns
3.2.1 The Index USD Returns for each Weekday (other than an Agricultural Commodities Postponement Resolution Day)
In respect of any Weekdayt (other than a Weekday that is also an Agricultural Commodities Postponement Resolution Day), the Index Calculation Agent will determine the daily return of the Index expressed in USD terms (“Index USD Returnst” or “USD Returnst”) in accordance with the following formula:
𝑈𝑆𝐷 𝑅𝑒𝑡𝑢𝑟𝑛𝑠𝑡 =1
6×∑(𝑈𝑆𝐷 𝑅𝑐,𝑡 ×𝑊𝑐,𝑡 × 𝐼𝑛𝑇𝑟𝑎𝑑𝑒𝑐,𝑡)
12
𝑐=1
Where:
“𝑈𝑆𝐷 𝑅𝑐,𝑡” is defined in Section 3.4;
“𝑊𝑐,𝑡” is defined in Section 3.5; and
“𝐼𝑛𝑇𝑟𝑎𝑑𝑒𝑐,𝑡” is defined in Section 3.5.7.
3.2.2 The Index USD Returns for an Agricultural Commodities Postponement Resolution Day
In respect of a Weekdayt that is also an Agricultural Commodities Postponement Resolution Day, the Index Calculation Agent will determine the Index USD Returns in accordance with the following formula:
𝑈𝑆𝐷 𝑅𝑒𝑡𝑢𝑟𝑛𝑠𝑡 =1
6×∑(𝑈𝑆𝐷 𝑅𝑐,𝑡 × 𝑊𝑐,𝑡 × 𝐼𝑛𝑇𝑟𝑎𝑑𝑒𝑐,𝑡)
12
𝑐=1
+1
6× 𝑊𝐴𝐺𝑅𝑡
Where:
𝑈𝑆𝐷 𝑅𝑐,𝑡 is defined in Section 3.4;
𝑊𝑐,𝑡 means, in respect of (a) each Constituent that is not the GSCI AG, the Constituent Weight as
defined in Section 3.5 and (b) the Constituent that is the GSCI AG, zero (0);
𝐼𝑛𝑇𝑟𝑎𝑑𝑒𝑐,𝑡 is defined in Section 3.5.7; and
𝑊𝐴𝐺𝑅𝑡 is defined in Section 3.5.8.
10
3.3 Returns for each Constituent 3.3.1 Securities-based Constituents
In respect of any Securities-based Constituentc and any Weekdayt, the Index Calculation Agent will determine the Daily Return of the Securities-based Constituents (“Daily Returnc,t” or “𝑅𝑐,𝑡”) in accordance with the
following methodology:
(a) if such a Weekdayt is a Scheduled Trading Dayc,t and is not a Disrupted Day in respect of such
Securities-based Constituentc and such Weekdayt occurs in the period from, and including, the Roll Dayc in respect of the Second Near Futures Contract to, but excluding, the Expiry Last Trading Day of the First Near Futures Contract for such a Securities-based Constituentc:
𝑅𝑐,𝑡 =𝐹𝑐,𝑡𝑠𝑒𝑐𝑜𝑛𝑑
𝐹𝑐,𝑡−1𝑠𝑒𝑐𝑜𝑛𝑑
− 1
(b) if such a Weekdayt is a Scheduled Trading Dayc,t and is not a Disrupted Day in respect of such
Securities-based Constituentc and such Weekdayt is prior to the Roll Dayc in respect of the Second Near Futures Contract:
𝑅𝑐,𝑡 =𝐹𝑐,𝑡𝑓𝑟𝑜𝑛𝑡
𝐹𝑐,𝑡−1𝑓𝑟𝑜𝑛𝑡
− 1
(c) if such a Weekdayt is not a Scheduled Trading Dayc,t or is a Disrupted Day for such a Securities-
based Constituentc:
𝑅𝑐,𝑡 = 0
Where:
“𝐹𝑐,𝑡𝑓𝑟𝑜𝑛𝑡
” means, in respect of Scheduled Trading Dayc,t that is not a Disrupted Day in respect of
such Securities-based Constituentc, the Closing Price of the First Near Futures Contract for such Securities-based Constituentc published by the Relevant Exchange as of such Scheduled Trading Dayc,t,;
“𝐹𝑐,𝑡−1𝑓𝑟𝑜𝑛𝑡
" means, in respect of Scheduled Trading Dayc,t that is not a Disrupted Day in respect of
such Securities-based Constituentc, the Closing Price of the First Near Futures Contract for such Securities-based Constituentc published by the Relevant Exchange in respect of the Scheduled Trading Day that was not a Disrupted Day in respect of such Securities-based Constituentc immediately preceding such Scheduled Trading Dayc,t ;
“𝐹𝑐,𝑡𝑠𝑒𝑐𝑜𝑛𝑑" means, in respect of Scheduled Trading Dayc,t that is not a Disrupted Day in respect of
such Securities-based Constituentc, the Closing Price of the Second Near Futures Contract for such Securities-based Constituentc published by the Relevant Exchange as of such Scheduled Trading Dayc,t; and
“𝐹𝑐,𝑡−1𝑠𝑒𝑐𝑜𝑛𝑑" means, in respect of Scheduled Trading Dayc,t that is not a Disrupted Day in respect of
such Securities-based Constituentc, the Closing Price of the Second Near Futures Contract for such Securities-based Constituentc published by the Relevant Exchange in respect of the Scheduled Trading Day that was not a Disrupted Day in respect of such Securities-based Constituentc immediately preceding such Scheduled Trading Dayc,t.
3.3.2 Non-Securities-based Constituents
In respect of any Non-Securities-based Constituentc and any Weekdayt, the Index Calculation Agent will determine the Daily Return of the Non-Securities-based Constituents (“Daily Returnc,t” or “𝑅𝑐,𝑡”) in
accordance with the following methodology:
(a) if Weekdayt is a Scheduled Trading Dayc,t and is not a Disrupted Day in respect of such Constituentc:
𝑅𝑐,𝑡 =𝐶𝑚𝑑𝑡𝑐,𝑡𝐶𝑚𝑑𝑡𝑐,𝑡−1
− 1
(b) if Weekdayt is not a Scheduled Trading Dayc,t or is a Disrupted Day in respect of such
Constituentc:
11
𝑅𝑐,𝑡 = 0
Where: “𝐶𝑚𝑑𝑡𝑐,𝑡” means, in respect of a Scheduled Trading Dayc,t that is not a Disrupted Day in respect of
such Constituentc, the Closing Price of such Non-Securities-based Constituentc as of such Scheduled Trading Dayc,t; and
“𝐶𝑚𝑑𝑡𝑐,𝑡−1” means, in respect of a Scheduled Trading Dayc,t that is not a Disrupted Day in respect of
such Constituentc, the Closing Price of such Non-Securities-based Constituentc in respect of the Scheduled Trading Day that was not a Disrupted Day in respect of such Constituentc immediately preceding such Scheduled Trading Dayc,t.
3.4 Returns for each Constituent converted into USD
In respect of any Constituentc and any Weekdayt, the Index Calculation Agent will determine the Daily USD Return (“Daily USD Returnc,t” or “USD Rc,t”) by converting the Daily Returnc,t associated with each Constituentc into USD in accordance with the following formula:
𝑈𝑆𝐷 𝑅𝑐,𝑡 = 𝑅𝑐,𝑡 ×𝑓𝑥𝑐,𝑡𝑓𝑥𝑐,𝑡−1
Where:
“Rc,t“ is defined in Section 3.3.1 or 3.3.2 (as the case may be);
"𝑓𝑥𝑐,𝑡” means, in respect of any Constituentc and any Weekdayt, the applicable FX Ratec,t as of such
Weekdayt; and
"𝑓𝑥𝑐,𝑡−1” means, in respect of any Constituentc and any Weekdayt, the applicable FX Ratec,t as of the
Weekday immediately preceding such Weekdayt.
If any Weekday is an FX Disrupted Day, the Index Calculation Agent shall determine the FX Rate in respect of such Weekday taking into consideration all available information, that it, in good faith, deems relevant.
3.5 Monthly Rebalancing
In respect of any Weekdayt and any Constituentc, the Index Calculation Agent shall rebalance the Index’s synthetic exposure to each Constituent on each Rebalancing Day (“Rebalancing Dayc,t”), which shall originally be scheduled to occur on the first Weekdayt of a calendar month.
In respect of each Constituentc and Weekdayt the Index Calculation Agent shall determine the Rebalancing Dayc,t in accordance with the following methodology (the “Monthly Rebalancing Methodology”). The following Monthly Rebalancing Methodology was modified only (a) for the Constituent that is the GSCI IM effective as of 22 March 2018 (the “Industrial Metals Monthly Rebalancing Modification Date”) and (b) for the Constituent that is the GSCI AG effective as of 24 October 2019 (the “Agricultural Commodities Monthly Rebalancing Modification Date”):
In the case of (1) a Constituentc that is neither the GSCI IM nor the GSCI AG and the first Weekdayt of a calendar month (whether prior to or following either (x) the Industrial Metals Monthly Rebalancing Modification Date or (y) the Agricultural Commodities Monthly Rebalancing Modification Date), (2) a Constituentc that is (x) the GSCI IM and the first Weekdayt of a calendar month in the case of a Weekdayt prior to the Industrial Metals Monthly Rebalancing Modification Date or (y) a Constituent that is the GSCI AG and the first Weekdayt of a calendar month in the case of a Weekdayt prior to the Agricultural Commodities Monthly Rebalancing Modification Date, (3) a Constituentc that is the GSCI IM and the first Weekdayt of a calendar month in the case of a Weekdayt following the Industrial Metals Monthly Rebalancing Modification Date, where such Weekdayt is a day on which the relevant commodity exchange is scheduled to be open for trading for all of the individual commodity futures contracts referenced by the GSCI IM, (4) a Constituentc that is the GSCI IM and the first Weekdayt of a calendar month in the case of a Weekdayt following the Industrial Metals Monthly Rebalancing Modification Date (i) where such Weekdayt is not a day on which the relevant commodity exchange is scheduled to be open for trading for all of the individual commodity futures contracts referenced by the GSCI IM and (ii) where the Weekday immediately preceding such Weekdayt is both (x) a day on which the relevant commodity exchange is scheduled to be open for trading for all of the individual commodity futures contracts referenced by the GSCI IM and (y) a day on which no Market Disruption Event occurs or exists for one or more of the individual commodity futures contracts referenced by the GSCI IM or (5) a Constituentc that is the GSCI AG and the first Weekdayt of a calendar month in the case of a Weekdayt following the Agricultural Commodities Monthly Rebalancing Modification Date, where such
12
Weekdayt is (x) a day on which a relevant commodity exchange is scheduled to be open for trading for all of the individual commodity futures contracts referenced by the GSCI AG, (y) a day that does not fall during an Agricultural Commodities Postponement Resolution Period and (z) a day that is not an Agricultural Commodities Postponement Resolution Day:
(a) if the first Weekdayt of any calendar month is both (i) a Scheduled Trading Dayc,t for such Constituentc and (ii) not a Disrupted Day for such Constituentc, then such Weekdayt shall be the Rebalancing Dayc,t for the given calendar month for such a Constituentc; or
(b) if the first Weekdayt of any calendar month is either (i) not a Scheduled Trading Dayc,t for such Constituentc or (ii) a Disrupted Day for such Constituentc, then such Weekdayt shall not be a Rebalancing Dayc,t for such Constituentc and there will be no Rebalancing Dayc,t for such Constituentc for the given calendar month.
In the case of (6) a Constituentc that is the GSCI IM and the first Weekdayt of a calendar month following the Industrial Metals Monthly Rebalancing Modification Date (x) where such Weekdayt is not a day on which the relevant commodity exchange is scheduled to be open for trading for all of the individual commodity futures contracts referenced by the GSCI IM and (y)(i) where the Weekday immediately preceding such Weekdayt is not a day on which the relevant commodity exchange is scheduled to be open for trading for all of the individual commodity futures contracts referenced by the GSCI IM or (ii) where the Weekday immediately preceding such Weekdayt is a day on which the relevant commodity exchange is scheduled to be open for trading for all of the individual commodity futures contracts referenced by the GSCI IM but is a day on which a Market Disruption Event did occur or exist for one or more of the individual commodity futures contracts referenced by the GSCI IM, then such Weekdayt shall not be a Rebalancing Dayc,t for such Constituentc and if the first Weekday following such Weekdayt (the “Industrial Metals Following Date”):
(a) is both (i) a Scheduled Trading Dayc,t for such Constituentc and (ii) not a Disrupted Day for such Constituentc, then such Industrial Metals Following Date shall be the Rebalancing Dayc,t for the given calendar month for such Constituentc; or
(b) is either (i) not a Scheduled Trading Dayc,t for such Constituentc or (ii) a Disrupted Day for such Constituentc, then such Industrial Metals Following Date shall not be a Rebalancing Dayc,t for such Constituentc and there will be no Rebalancing Dayc,t for such Constituentc for the given calendar month.
In the case of (7) a Constituentc that is the GSCI AG and the first Weekdayt of a calendar month in the case of a Weekdayt following the Agricultural Commodities Monthly Rebalancing Modification Date, where such Weekdayt is (x) not a day on which the relevant commodity exchange is scheduled to be open for trading for all of the individual commodity futures contracts referenced by the GSCI AG, (y) a day that falls during an Agricultural Commodities Postponement Resolution Period or (z) a day that is an Agricultural Commodities Postponement Resolution Day:
(a) if the first Weekdayt of any calendar month (i) is not a Scheduled Trading Dayc,t for such Constituentc, or (ii) immediately follows a Weekdayt that falls within an Agricultural Commodities Postponement Resolution Period, then such Weekdayt shall not be a Rebalancing Dayc,t for such Constituentc and there will be no Rebalancing Dayc,t for such Constituentc for the given calendar month; or
(b) if the first Weekdayt of any calendar month is both (i) a Scheduled Trading Dayc,t for such Constituentc and (ii) the Index Calculation Agent determines in its sole discretion (a “Designated Agricultural Commodities Postponement Determination”) that such Weekday is a Disrupted Day for such Constituentc solely due to the occurrence or continuation of an Agricultural Commodities Postponement Event for one or more of the individual commodity futures contracts referenced by the GSCI AG, then such Weekdayt shall be the Rebalancing Dayc,t for the given calendar month for such a Constituentc and the Agricultural Commodities Postponement Resolution Mechanism set forth in Section 3.5.8 (Agricultural Commodities Postponement Resolution Mechanism) shall apply.
3.5.1 Calculating the Constituent Weights
In respect of any Weekdayt and any Constituentc, the Index Calculation Agent will determine the allocated Constituent Weight (“Constituent Weightc,t” or “𝑊𝑐,𝑡”) in respect of each Constituentc based on the Trading
Signalc,t determined in respect of such a Weekdayt. With respect to each Weekdayt and Constituentc and Rebalancing Dayc,t the Index Calculation Agent will determine 𝑊𝑐,𝑡 in accordance with the following methodology:
13
(a) if Weekdayt-1 is a Rebalancing Dayc,t for Constituentc:
𝑊𝑐,𝑡 = 𝐿𝑐,𝑅−2 × 𝜀𝑐,𝑅−2; and
(b) if Weekdayt-1 is not a Rebalancing Dayc,t for Constituentc:
𝑊𝑐,𝑡 = 𝑊𝑐,𝑡−1
Where:
"𝐿𝑐,𝑅−2" means the Constituent Leveragec,t as defined in Section 3.5.2 in respect of any Constituentc
and the second (2nd) Weekday immediately preceding the originally scheduled Rebalancing Dayc,t;
"𝜀𝑐,𝑅−2" means the Trading Signalc,t as defined in Section 3.5.3 in respect of any Constituentc and
the second Weekday immediately preceding the originally scheduled Rebalancing Dayc,t;
"𝑊𝑐,𝑡−1" means the corresponding Constituent Weightc,t in respect of any Constituentc on the
Weekday immediately preceding such Weekdayt; and
“Trading Signalc,t” shall have the meaning defined in Section 3.5.3 in respect of any Constituentc and Weekdayt.
3.5.2 Calculating the Constituent Leverages
In respect of any Weekdayt and any Constituentc, the Constituent Leverage (“Constituent Leveragec,t” or “𝐿𝑐,𝑡”) is defined by the following formula:
𝐿𝑐,𝑡 =𝜎𝑙𝑖𝑚
𝜎𝑐,𝑡
Where:
"𝜎𝑙𝑖𝑚” means 7.75%; and
"𝜎𝑐,𝑡” is defined in Section 3.5.6.
If, in respect of any Weekdayt and any Constituentc, the Constituent Leveragec,t, calculated in accordance with the formula set forth in Section 3.5.2 (Calculating the Constituent Leverages) of these Rules would result in a Constituent Leveragec,t that is equal to or more than 6000%, the Constituent Leveragec,t for that Weekdayt shall be deemed to be 6000%.
3.5.3 Trading Signal In respect of any Weekdayt and Constituentc, the Index Calculation Agent will determine the Trading Signal (the “Trading Signalc,t” or "εc,t") for each Constituentc. If the specific Constituentc has a Rankc,t, determined in
accordance with Section 3.5.5 (Ranking of Constituents) below, equal to or less than six (6) and the Cumulative Returnc,t, determined in accordance with Section 3.5.4 (Cumulative Return) below, is positive, then the Trading Signalc,t for each such Constituentc with respect to such a Weekdayt will be equal to 1, otherwise the Trading Signalc,t for such a Constituentc with respect to such a Weekdayt will be equal to 0. With respect to any Weekdayt and any Constituentc the Trading Signalc,t is defined by the following formula:
𝜀𝑐,𝑡 = 1 If Rankc,t ≤ 6 and 𝐶𝑅𝑐,𝑡 > 0
𝜀𝑐,𝑡 = 0 Otherwise
Where:
“Rankc,t” is defined in section 3.5.5.; and
“CRc,t“ is defined in Section 3.5.4.
For the avoidance of doubt, in the event that two or more Constituents have identical Cumulative Returns in respect of a Weekdayt, then there may be more than six (6) Constituents with a non-zero Trading Signal.
3.5.4 Cumulative Return
In respect of any Weekdayt and any Constituentc, the Index Calculation Agent will calculate the Cumulative Return (“Cumulative Returnc,t” or “𝐶𝑅𝑐,𝑡”) for each Constituentc, which is the sum of the Daily Returns in
14
respect of each Weekday from, and including, Weekdayt-124 to, and including, Weekdayt, in accordance with the following formula:
𝐶𝑅𝑐,𝑡 = ∑ 𝑅𝑐,𝑘
𝑘=𝑡
𝑘=𝑡−124
Where:
"𝑅𝑐,𝑘” means the Daily Return (as defined in Sections 3.3.1 and 3.3.2) for Constituentc; and
“k” denotes a day in respect of which calculations are performed.
3.5.5 Ranking of Constituents
In respect of each Weekdayt, and Constituentc, the Index Calculation Agent will rank the Constituents from the Constituentc with the highest Cumulative Returnc,t to the Constituentc with the lowest Cumulative Returnc,t, assigning each such Constituentc a Rank ( “Rankc,t” ) in accordance with the following formula: one (1) plus the number of Constituents whose Cumulative Return is strictly greater than CRc,t (the Cumulative Return of such Constituentt in respect of Weekdayt).
3.5.6 Calculating the Constituent Volatility
In respect of any Weekdayt and any Constituentc, the Index Calculation Agent will calculate the annualized volatility of each Constituent (“Constituent Volatilityc,t” or “𝜎𝑐,𝑡”) in accordance with the following formula:
𝜎𝑐,𝑡 =
(
√252
124× ∑ (𝑅𝑐,𝑘 − 𝑅𝑐,𝑡)
2𝑘=𝑡
𝑘=𝑡−124)
Where:
𝑅𝑐,𝑡 =1
125× ∑ 𝑅𝑐,𝑘
𝑘=𝑡
𝑘=𝑡−124
Where:
"𝑅𝑐,𝑘” means the Daily Return (as defined in Sections 3.3.1 and 3.3.2) for Constituentc; and
“k” denotes a day in respect of which calculations are performed.
3.5.7 InTrade
In respect of any Weekdayt and each Constituentc, the Index Calculation Agent will determine the value InTrade (“𝐈𝐧𝐓𝐫𝐚𝐝𝐞𝐜,𝐭") for each Constituentc.. Such determination will be implemented in accordance with
the following steps and as further described in paragraphs (a), (b) and (c) below:
(i) observing whether the return of the Index Level has decreased by more than minus three percent over a period of time of five (5) Weekdays and if so, the Index will switch to a zero (0) weight position for that Constituentc as described in the methodology set out in paragraph (a) below (Determination of the Triggert) of this Section 3.5.7; and
(ii) determining the number of Weekdays since the Triggert last triggered a change in the weight from one (1) to zero (0) in respect of that Constituentc, i as described in the methodology set out in paragraph (b) below (Determination of InTrade Change Daysc,t) of this Section 3.5.7.
The above steps are implemented in accordance with the following methodology:
a) Determination of the Triggert
In respect of any Weekdayt, the Index Calculation Agent will determine the “Triggert” in accordance with the following formula:
Triggert = {if InTrade Returnt < −3.00%, 1if InTrade Returnt ≥ −3.00%, 0
Where:
15
“InTrade Returnt” means, in respect of any Weekdayt and Index Levelt, a return calculated in accordance with the following formula:
InTrade Returnt = Index LeveltIndex Levelt−5
− 1
Where:
“Index Levelt−5” means, in respect of Weekdayt, the Index Level as of the 5th Weekday preceding such a day determined in accordance with Section 3.1.1; and
“Index Levelt” means, in respect of Weekdayt, the Index Level as of such a day determined in accordance with Section 3.1.1.
b) Determination of InTrade Change Daysc,t
In respect of the Index Start Date, the InTrade Change Daysc for each Constituentc was set equal to six (6).
In respect of any Weekdayt (other than the Index Start Date) and any Constituentc, the “InTrade Change Daysc,t” will be determined in the accordance with the methodology set out below.
i) Except as provided below, the InTrade Change Daysc,t in respect of such Weekdayt will be determined in accordance with the following formula:
InTrade Change Daysc,t = InTrade Change Daysc,t−1 + 1
ii) Notwithstanding the foregoing,
(A) in the case of a Constituentc that is neither the GSCI IM nor the GSCI AG: (1) if the Weekday immediately preceding such Weekdayt is a Scheduled Trading Dayc,t for such Constituentc and (2) if the Weekday immediately preceding such Weekdayt is not a Disrupted Day for such Constituentc; or
(B) in the case of a Constituentc that is the GSCI IM: (1) if the Weekday immediately preceding such Weekdayt is a Scheduled Trading Dayc,t for such Constituentc, (2) if the Weekday immediately preceding such Weekdayt is not a Disrupted Day for such Constituentc and (3) (aa) if the Weekday immediately preceding such Weekdayt is a day on which the relevant commodity exchange is scheduled to be open for trading for all of the individual commodity futures contracts referenced by the GSCI IM or (bb) (I) if the Weekday immediately preceding such Weekdayt is not a day on which the relevant commodity exchange is scheduled to be open for trading for all of the individual commodity futures contracts referenced by the GSCI IM and (II) if the Weekday that is 2 Weekdays immediately preceding such Weekdayt is a day on which the relevant commodity exchange is scheduled to be open for trading for all of the individual commodity futures contracts referenced by the GSCI IM and is a day on which a Market Disruption Event did not occur or exist for one or more of the individual commodity futures contracts referenced by the GSCI IM; or
(C) in the case of a Constituentc that is the GSCI AG: (1) if the Weekday immediately preceding such Weekdayt is a Scheduled Trading Dayc,t for such Constituentc, and (2) (i) only for any such Weekday preceding the Agricultural Commodities Monthly Rebalancing Modification Date, if the Weekday immediately preceding such Weekdayt is not a Disrupted Day for such Constituentc; or (ii) only for any such Weekday on, or that follows the Agricultural Commodities Monthly Rebalancing Modification Date, the second (2nd) Weekday immediately preceding such Weekdayt also does not fall within an Agricultural Commodities Postponement Resolution Period:
then, if all of the following conditions (x), (y) and (z) are satisfied, the InTrade Change Daysc,t in respect of such a Weekdayt and Constituentc will be equal to one (1):
(x) the InTrade Change Daysc,t in respect of the Weekday immediately preceding such Weekdayt is not equal to one (1);
(y) the InTrade Change Daysc,t in respect of the Weekday immediately preceding such Weekdayt is greater than or equal to five (5); and
(z) the Triggert in respect of the Weekday that is the third (3rd) Weekday immediately preceding such Weekdayt is equal to one (1).
Where:
16
“InTrade Change Daysc,t-1” means, in respect of such Weekdayt, the InTrade Change Days in respect of the Weekday immediately preceding Weekdayt.
c) Determination of InTradec,t
In respect of any Weekdayt and (i) any Constituentc, prior to the Agricultural Commodities Monthly Rebalancing Modification Date and (ii) any Constituentc that is not the GSCI AG following the Agricultural Commodities Monthly Rebalancing Modification Date, the InTradec,t will be determined in the following manner:
i) If the Weekday immediately preceding such Weekdayt is a Disrupted Day for Constituentc or is not a Scheduled Trading Dayc,t, then InTradec,t in respect of such Weekdayt and Constituentc will be equal to InTradec,t in respect of the Weekday immediately preceding such Weekdayt.
ii) If (a) the Weekday immediately preceding such Weekdayt is a Scheduled Trading Dayc,t and not a Disrupted Day for Constituentc and (b) the InTrade Change Daysc,t in respect of such Weekdayt is less than or equal to five (5), then the InTradec,t for such Weekdayt will be equal to zero (0).
iii) If (a) the Weekday immediately preceding such Weekdayt is a Scheduled Trading Dayc,t and not a Disrupted Day for Constituentc and (b) the InTrade Change Daysc,t in respect of such Weekdayt is greater than five (5), then InTradec,t for such Weekdayt will be equal to one (1).
In respect of the GSCI AG and any Weekdayt following the Agricultural Commodities Monthly Rebalancing Modification Date, the InTradec,t will be determined in the following manner:
i) If (a) the Weekday immediately preceding such Weekdayt is not a Scheduled Trading Dayc,t, or (b) the second Weekday immediately preceding such Weekdayt falls within an Agricultural Commodities Postponement Resolution Period, then InTradec,t in respect of such Weekdayt and Constituentc will be equal to InTradec,t in respect of the Weekday immediately preceding such Weekdayt.
ii) If (a) the Weekday immediately preceding such Weekdayt is a Scheduled Trading Dayc,t, (b) the second (2nd) Weekday immediately preceding such Weekdayt does not fall within an Agricultural Commodities Postponement Resolution Period and (c) the InTrade Change Daysc,t in respect of such Weekdayt is less than or equal to five (5), then the InTradec,t for such Weekdayt will be equal to zero (0).
iii) If (a) the Weekday immediately preceding such Weekdayt is a Scheduled Trading Dayc,t, (b) the second (2nd) Weekday immediately preceding such Weekdayt does not fall within an Agricultural Commodities Postponement Resolution Period and (c) the InTrade Change Daysc,t in respect of such Weekdayt is greater than five (5), then InTradec,t for such Weekdayt will be equal to one (1).
If the Weekday immediately preceding such Weekdayt is both (i) a Scheduled Trading Dayc,t for such Constituentc and (ii) a Weekday in respect of which the Index Calculation Agent in its sole discretion has made a Designated Agricultural Commodities Postponement Determination, the Agricultural Commodities Postponement Resolution Mechanism set forth in Section 3.5.8 (Agricultural Commodities Postponement Resolution Mechanism) shall apply.
Where:
“InTrade Change Daysc,t” shall have the meaning set forth in Part (b) of this Section 3.5.7.
3.5.8 Agricultural Commodities Postponement Resolution Mechanism
In the event that the Index Calculation Agent determines that an Agricultural Commodities Postponement Event has occurred following the Agricultural Commodities Monthly Rebalancing Modification Date, the provisions of this Section 3.5.8 shall apply (the “Agricultural Commodities Postponement Resolution Mechanism”).
In the case of a Constituentc that is the GSCI AG and a Weekdayt in respect of which the Index Calculation Agent has made a Designated Agricultural Commodities Postponement Determination, each Weekday from and including such Weekdayt to but excluding the Agricultural Commodities Postponement Resolution Day (the period from and including such Weekday to but excluding the associated Agricultural Commodities Postponement Resolution Day, the “Agricultural Commodities Postponement Resolution Period”) shall be considered a Disrupted Day for the Constituentc that is the GSCI AG for purposes of calculating the Index USD Returns in accordance with Section 3.2 (The Index USD Returns). The Index USD Returns for the Agricultural Commodities Postponement Resolution Day falling at the end of such Agricultural Commodities
17
Postponement Resolution Period will be calculated by reference to the Agricultural Constituent Settlement Price and Weighted Agricultural Commodities Resolution Return, in accordance with Section 3.2.2 (The Index USD Returns for an Agricultural Commodities Postponement Resolution Day) and this Section 3.5.8.
Solely in respect of the Constituentc that is the GSCI AG and a Weekdayt that is also an Agricultural Commodities Postponement Resolution Day, the Index Calculation Agent will determine the weighted return of such Constituent (the “Weighted Agricultural Commodities Resolution Return”) in accordance with the following formula:
𝑊𝐴𝐺𝑅𝑡 = 𝑊𝑐,𝐿−1 × 𝐼𝑛𝑇𝑐,𝐿−1 × (𝐶𝑚𝑑𝑡𝐴𝐺𝑇𝐿𝐿𝑅𝐷𝐶𝑚𝑑𝑡𝐴𝐺 𝐿−1
− 1)+𝑊𝑐,𝑡 × 𝐼𝑛𝑇𝑐,𝑡 × (𝐶𝑚𝑑𝑡𝐴𝐺𝑡
𝐶𝑚𝑑𝑡𝐴𝐺𝑇𝐿 𝐿𝑅𝐷− 1)
Where:
𝑊𝑐,𝐿−1 means the Constituent Weight (as defined in Section 3.5) for such Constituentc in
respect of the first Weekdayt, that was not a Disrupted Day and is a Scheduled Trading Dayc,t, immediately preceding the relevant Agricultural Commodities Postponement Resolution Day;
𝐼𝑛𝑇𝑐,𝐿−1 means the InTrade (as defined in Section 3.5.7) for such Constituentc in respect of
the first Weekdayt, that was not a Disrupted Day and is a Scheduled Trading Dayc,t, immediately preceding the relevant Agricultural Commodities Postponement Resolution Day;
𝐶𝑚𝑑𝑡𝐴𝐺𝑇𝐿𝐿𝑅𝐷 means the Agricultural Constituent Settlement Price for such Constituentc in respect of the first Weekdayt within the Agricultural Commodities Postponement Resolution Period as made available on the relevant Agricultural Commodities Postponement Resolution Day;
𝐶𝑚𝑑𝑡𝐴𝐺𝐿−1 means the official Closing Price for such Constituentc in respect of the first Weekdayt, that was not a Disrupted Day and is a Scheduled Trading Dayc,t immediately preceding the relevant Agricultural Commodities Postponement Resolution Day;
𝑊𝑐,𝑡 means the Constituent Weight (as defined in Section 3.5) for such Constituentc in
respect of such Weekdayt;
𝐼𝑛𝑇𝑐,𝑡 means the InTrade (as defined in Section 3.5.7) for such Constituentc in respect of
such Weekdayt; and
𝐶𝑚𝑑𝑡𝐴𝐺𝑡 means, in the case of a Scheduled Trading Dayc,t that is not a Disrupted Day in respect of such Constituentc, the Closing Price of such Constituentc as of such Scheduled Trading Dayc,t.
3.6 Roll Schedule for each Securities-based Constituent
Each Securities-based Constituentc rolls on its respective Roll Days (each such day, a “Roll Day”). Each such Roll Day shall be considered to be the Roll Day in respect of the futures contract that the exposure notionally rolls over to on such Roll Day, as set forth below:
(i) In respect of the 2 Year Note Futures, the exposure notionally rolls over from the nearest delivery quarterly 2 Year Note Futures to the following 2 Year Note Futures on the last trading day of the option on the nearest delivery 2 Year Note Futures in the month before which such nearest delivery quarterly 2 Year Note Futures expires;
(ii) In respect of the 10 Year Note Futures, the exposure notionally rolls over from the nearest delivery quarterly 10 Year Note Futures to the following 10 Year Note Futures on the last trading day of the option on the nearest delivery 10 Year Note Futures in the month before which such nearest delivery quarterly 10 Year Note Futures expires;
(iii) In respect of the Schatz Futures, (x) prior to and including 24 October 2019 (the “Schatz Roll Schedule Modification Date”) the exposure notionally rolls over from the nearest delivery quarterly Schatz Futures to the following Schatz Futures on the fifth (5th) calendar day in the month on which such nearest delivery quarterly Schatz Futures is due to expire and (y) from but excluding the Schatz Roll Schedule Modification Date, the exposure notionally rolls over from the nearest delivery quarterly Schatz Futures to the following Schatz Futures on the second (2nd)
18
Scheduled Trading Day for the Schatz Futures that is prior to the Expiry Last Trading Day of such nearest delivery quarterly Schatz Futures as specified by the Relevant Exchange;
(iv) In respect of the Bund Futures, (x) prior to and including 24 October 2019 (the “Bund Roll Schedule Modification Date”) the exposure notionally rolls over from the nearest delivery quarterly Bund Futures to the following Bund Futures on the fifth (5th) calendar day in the month on which such nearest delivery quarterly Bund Futures is due to expire and (y) from but excluding the Bund Roll Schedule Modification Date, the exposure notionally rolls over from the nearest delivery quarterly Bund Futures to the following Bund Futures on the second (2nd) Scheduled Trading Day for the Bund Futures that is prior to the Expiry Last Trading Day of such nearest delivery quarterly Bund Futures as specified by the Relevant Exchange;
(v) In respect of the JGB Futures, the exposure notionally rolls over from the nearest delivery quarterly JGB Futures to the following JGB Futures on the tenth Weekday prior to delivery of the front JGB Futures in the month on which such nearest delivery quarterly JGB Futures is due to expire;
(vi) In respect of the S&P Futures, the exposure notionally rolls over from the nearest delivery quarterly S&P Futures to the following S&P Futures on the third (3rd) Weekday prior to the Expiry Last Trading Day of such nearest delivery quarterly S&P Futures;
(vii) In respect of the DAX Futures, the exposure notionally rolls over from the nearest delivery quarterly DAX Futures to the following DAX Futures on the third (3rd) Weekday prior to the Expiry Last Trading Day of such nearest delivery quarterly DAX Futures; and
(viii) In respect of the Nikkei Futures, the exposure notionally rolls over from the nearest delivery quarterly Nikkei Futures to the following Nikkei Futures on the second (2nd) Weekday prior to the Expiry Last Trading Day of such nearest delivery quarterly Nikkei Futures.
In respect of any Roll Day where the immediately preceding Scheduled Trading Dayc,t (the “Original Scheduled Trading Day”) for Securities-based Constituentc was a Disrupted Day in respect of such Securities-based Constituentc (for these purposes, an “Affected Securities-based Constituentc”), then the relevant Roll Dayc for the Affected Securities-based Constituentc shall be deemed to be the first Weekday immediately following the first Scheduled Trading Dayc,t that is not a Disrupted Day for the Affected Securities-based Constituentc, after the Original Scheduled Trading Day, provided that if such Scheduled Trading Day that is not a Disrupted Day in respect of the Affected Securities-based Constituentc (the “Affected Constituent Determination Day”) falls on or after the Expiry Last Trading Day, then the Index Calculation Agent will determine the Daily Return in respect of the Affected Securities-based Constituentc and the Affected Constituent Determination Day pursuant to the formula set out Section 3.3.1(b), but using
the Index Calculation Agent’s determination of 𝐹𝑐,𝑡𝑓𝑟𝑜𝑛𝑡
and 𝐹𝑐,𝑡−1𝑓𝑟𝑜𝑛𝑡
in respect of the First Near Futures Contract
as such First Near Futures Contract is determined in respect of the Original Scheduled Trading Day, acting in good faith and using such information and/or methods as it determines, in its reasonable discretion, are appropriate.
In the event that each of the ten (10) Scheduled Trading Days immediately following the scheduled Expiry Last Trading Day are Disrupted Days in respect of such Affected Securities-based Constituent, then in such case, that tenth (10th) Scheduled Trading Day shall be deemed to be the applicable Roll Day (notwithstanding that it is a Disrupted Day in respect of the Affected Securities-based Constituent), and then the Index Calculation Agent shall implement a roll in respect of the Affected Securities-based Constituent acting in good faith using such information and/or methods as it determines, in its reasonable discretion, are appropriate.
19
4. Publication of the Index Level
4.1 Amendments
Economic, market, regulatory, legal, financial or other circumstances may arise that may necessitate or make desirable an amendment of the Index Rules.
Notwithstanding the foregoing, the Index Sponsor may amend the Index Rules as it deems appropriate. Such amendments may include (without limitation):
(a) correcting or curing any errors, omission or contradictory provisions; or
(b) modifications to the methodology described in the Index Rules (including, without limitation, a change in the frequency of calculation of the Index Level) that are necessary or desirable in order for the calculation of the Index to continue notwithstanding any economic, market, regulatory, legal, financial or other circumstances as of the Live Date of the Index; or
(c) modifications of a formal, minor or technical nature.
The Index Sponsor will notify the Index Calculation Agent (if a different entity than the Index Sponsor) before making an amendment pursuant to this Section 4.1. The Index Sponsor may, but is not obliged to, take into account the views of the Index Calculation Agent regarding any proposed amendment.
Following any amendment, the Index Sponsor will make available (as soon as practicable) the amended version of the Index Rules and will include the effective date of such amendment in the new version of the Index Rules. However, the Index Sponsor is under no obligation to inform any person about any amendments to the Index (except as required by law).
The Index Sponsor may, in its reasonable discretion, at any time and without notice, terminate the calculation and publication of the Index.
4.2 No Advice or offer of securities
The Rules do not constitute investment, taxation, legal, accounting or other advice, including 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.
The Index Rules neither constitute an offer to purchase or sell securities nor constitute specific advice in whatever form (investment, tax, legal, accounting or regulatory) in respect of any investment that may be linked to the Index.
4.3 Publication timing
Subject to Section 6 (Market Disruption Events), the Index Level will be calculated and published in USD by the Index Calculation Agent in respect of each day that is a Weekday on Bloomberg page “JMOZUSD Index”.
With respect to any Weekday that is not a Disrupted Day for any Constituent, the Index Calculation Agent shall publish (in a manner determined by the Index Calculation Agent from time to time) the Index Level calculated in respect of such Weekday in accordance with the Index Rules. If a Weekday is a Disrupted Day for any Constituent, the Index Level in respect of such Weekday will only be published in accordance with the provisions set forth in Section 6.
Notwithstanding anything to the contrary, the Index Sponsor may cease calculation and publication of the Index Level at any time in its sole discretion and nothing in this document shall be construed as an agreement by the Index Sponsor to continue to calculate the Index Level if the Index Sponsor has elected to cease publication.
4.4 No obligation to calculate and publish
Neither the Index Sponsor nor the Index Calculation Agent is under no obligation to continue the calculation, publication and dissemination of the Index.
4.5 Rounding
The Index Level shall be expressed to at least two decimal places as determined by the Index Calculation Agent in a commercially reasonable manner. The Index Calculation Agent may maintain the Index to a greater degree of specification and may calculate the Index Level using such calculated levels.
20
5. Calculation Agent and Index Sponsor
J.P. Morgan Securities plc is the sponsor of the Index (the “Index Sponsor”).
The Index Sponsor is responsible for, among other things, the creation and design of the Index, the documentation of the Index Rules, and the appointment of the calculation agent of the Index (the "Index Calculation Agent"), which may be the Index Sponsor, a non-related third party or an affiliate or subsidiary of the Index Sponsor.
The Index Sponsor may at any time and for any reason terminate the appointment of an Index Calculation Agent and appoint an alternative entity as the replacement Index Calculation Agent.
The Index Calculation Agent is responsible for:
(a) calculating the Index Level in respect of each Weekday in accordance with the Index Rules; and
(b) determining (subject to the prior agreement of the Index Sponsor) if a Market Disruption Event, Disrupted Day, Extraordinary Event (or other similar event as set out in these Rules) has occurred and the related consequences and adjustments in accordance with the Index Rules.
The Index Sponsor may delegate and/or transfer any of its obligations or responsibilities in connection with the Index to one or more entities which it determines are appropriate. The Index Calculation Agent must obtain written permission from the Index Sponsor prior to any delegation or transfer of its responsibilities or obligations in connection with the Index to a third party.
6. Market Disruption Events
If a Weekdayt is a Disrupted Day in respect of a Constituentc (including, in the case of a Constituentc that is the GSCI AG and each Weekday that falls within an Agricultural Commodities Postponement Resolution Period) and the corresponding Constituent Weightc,t (as defined in section 3.5.1) is not equal to 0 in respect of such Weekdayt, the Index Calculation Agent will not publish the Index Level with respect to such Weekdayt and the Index Calculation Agent will resume publishing the Index Level with respect to the immediately following Weekday that is not a Disrupted Day in respect of any such Constituentc.
7. Extraordinary Events
7.1 Successor Constituents or Reference Data
If any of the Constituents, or any data or information referenced by a Constituent or the Index is (a) not calculated and announced by the applicable Constituent Sponsor or the sponsor or provider of such data or information but is calculated and announced by a successor sponsor or provider acceptable to the Index Calculation Agent, or (b) replaced by a successor Constituent, successor data or successor information using, in the determination of the Index Calculation Agent, the same or substantially similar formula for and method of calculation as used in the calculation or preparation of such Constituent, data, or information then such Constituent, data or information will be deemed to be the constituent, or reference data so calculated and announced by that successor sponsor or provider as the case may be with effect from a date determined by the Index Calculation Agent who may make such adjustments to the Index Rules of the Index as it determines appropriate to account for such change.
7.2 Change in Law
Without prejudice to the ability of the Index Calculation Agent to amend the Rules (see Section 1 (Introduction)) in respect of a Change in Law, the Index Calculation Agent may:
(a) exclude, or
(b) substitute,
any Constituent or other any data or information referenced by a Constituent or the Index (i) following the occurrence (and/or continuation) of a Change in Law, or (ii) in circumstances where it considers it reasonably necessary to do so to reflect the objective of the Index, including (without prejudice to the generality of the foregoing) any perception among market participants generally that the published value of a Constituent or any data or information referenced by a Constituent or the Index is inaccurate (e.g., an exchange fails to correct such value of any affected futures contract ), and then the Index Calculation Agent may adjust the Rules as it determines in good faith to be appropriate to account for such exclusion or substitution on such date(s) selected by the Index Calculation Agent.
21
7.3 Material Change
On any Weekday, if any Constituent Sponsor or any non-affiliated third party person that provides any data or information referenced by a Constituent or the Index makes a material change in the formula for or the method of calculating or preparation of such Constituent, data or information, which affects the ability of the Index Calculation Agent to calculate the Index Level, then the Index Calculation Agent may make such adjustment(s) that it determines to be appropriate to any variable, calculation, methodology or detail in these Index Rules to account for such modification. Such adjustment may occur prior to, on or after the date of such material change, depending on when such change is announced and when the Index Calculation Agent determines such change has occurred.
7.4 Impairment of License or Other Rights
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 Constituent or relevant data or information or to refer to the level/price or other information in respect of any Constituent or relevant data or information (or other component of the Index or another 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) the Constituent for the purposes of the Index or (ii) the Index in connection with any other license or sub-license agreement is otherwise impaired, ceases or cannot be obtained or will cease to be available on commercially reasonable terms (for any reason), then Index Calculation Agent may remove such Constituent or any other relevant data or information from the Index or substitute a successor constituent, data or information and may make such adjustment to these Rules as it determines appropriate to account for such change(s) on such date(s) selected by the Index Calculation Agent including, without limitation, selecting a replacement constituent, index or reference asset having similar characteristics to such Constituent and the date such replacement is effective.
7.5 Successor currency or change to an underlying currency
If, at any time, any FX Currency is lawfully eliminated, converted, redenominated or exchanged for any successor currency, then such currency shall be deemed replaced by such successor currency.
To the extent that any such elimination, conversion, redenomination or exchange results in two or more currencies that were formerly 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, the Index Calculation Agent may select one of the applicable currencies to be a successor currency or amend the formulas for calculating the Index to account for the new exchange rate, if any.
7.6 Non-Publication of a Constituent as a result of Cancellation of a Constituent If a Constituent Sponsor or a relevant exchange (as the case may be) permanently cancels a Constituent (including, for the avoidance of doubt, amending the frequency or timing of the issuance of options/futures contracts, determined by reference to the frequency or timing as of the Live Date), and no successor index or contract exists that is acceptable to the Index Calculation Agent, the Index Calculation Agent shall either:
(a) make such adjustment(s) 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 cancellation, including but not limited to excluding or substituting the affected Constituent; or
(b) cease to calculate and publish the Index Level.
Such adjustment may occur prior to, on or after the date of such cancellation, depending on when such cancellation is announced and when the Index Calculation Agent becomes aware of such change.
8. Corrections in respect of the Index
If any publicly available financial information (including, but not limited to, interest rates, spot exchange rates, index levels, futures contract prices and volatility levels) published by the relevant financial information source selected by the Index Calculation Agent and used in any calculation or determination herein is subsequently corrected, or if the Index Calculation Agent identifies an error or omission in any of its calculations or determinations in respect of the Index, the Index Calculation Agent may, if the Index Calculation Agent determines that such error, omission or correction (as the case may be) is material and it is practicable, adjust or correct the relevant calculation or determination to take into account such correction as soon as reasonably practicable to do so.
22
9. Responsibility
The Index Calculation Agent shall act in good faith and in a commercially reasonable manner.
Whilst these Rules are intended to be comprehensive, ambiguities may arise. In such circumstances the Index Calculation Agent shall resolve such ambiguities in a reasonable manner and, if necessary, amend these Rules to reflect such resolution.
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 made or anything done (or omitted to be determined or done) in respect of the Index or publication of the Index Level (or failure to publish such level) and any use to which any person may put the Index or the Index Level. All determinations in respect of the Index and the Index Level shall be final, conclusive and binding and no person shall be entitled to make any claim against any of the Relevant Persons in respect thereof. Once a determination or calculation is made or action taken by the Index Calculation Agent in respect of the Index, neither the Index Calculation Agent or any other Relevant Person shall be under any obligation to revise any determination or calculation made or action taken for any reason.
10. Miscellaneous
Except where expressly stated otherwise herein, any determination required to be made or action required to be taken in respect of the Index on a day that is not a Weekday, shall be made or taken (as the case may be) on the next following Weekday.
11. 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 model designed with the benefit of hindsight. The Index Calculation Agent, in calculating hypothetical back-tested index levels, may have applied the disruption provisions specified in these Index Rules differently 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 a Constituent (or other calculated values) 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 Index levels. These assumptions may have a material impact on the hypothetical back-tested levels occurring on or before the Live Date. 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 modelling techniques 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.
23
12. Definitions
Terms not otherwise defined herein shall have the following meanings:
“Affected Constituent Determination Day” shall have the meaning set forth in Section 3.6;
“Affected Securities-based Constituent” shall have the meaning set forth in Section 3.6;
“Agricultural Commodities InTrade Postponement Event” means, in respect of a Constituentc that is the GSCI AG and a Weekdayt where InTradec,t is different from InTradec,t+1 in the case of a Weekdayt following the Agricultural Commodity Monthly Rebalancing Modification Date, where such Weekdayt is a Scheduled Trading Day for such Constituent, that (a) a Market Disruption Event has occurred or is continuing in respect of such Constituent and that, (b) as a result of the occurrence or continuation of such Market Disruption Event in respect of such Weekdayt, the Agricultural Constituent Settlement Price for such Weekday is either (i) not published or otherwise made available by or on behalf of the Constituent Sponsor to the Index Calculation Agent on such Weekday, or (ii) published or otherwise made available by or on behalf of the Constituent Sponsor to the Index Calculation Agent on that Weekday, but is not equal to the Closing Price for such Constituent for that Weekday;
“Agricultural Commodities Monthly Rebalancing Modification Date” shall have the meaning set forth in Section 3.5;
“Agricultural Commodities Postponement Event” means, in respect of a Constituentc that is the GSCI AG and a Weekdayt, either (i) an Agricultural Commodities Rebalancing Postponement Event or (ii) an Agricultural Commodities InTrade Postponement Event;
“Agricultural Commodities Postponement Resolution Day" means the first Weekday, following the Weekday in respect of which the Index Calculation Agent has made a Designated Agricultural Commodities Postponement Determination, for which the Agricultural Constituent Settlement Price for such first following Weekday is published or otherwise made available by or on behalf of the Constituent Sponsor to the Index Calculation Agent;
“Agricultural Commodities Postponement Resolution Mechanism” shall have the meaning set forth in Section 3.5.8;
“Agricultural Commodities Postponement Resolution Period” shall have the meaning set forth in Section 3.5.8;
“Agricultural Commodities Rebalancing Postponement Event” means, in respect of a Constituentc that is the GSCI AG and the first Weekdayt of a calendar month in the case of a Weekdayt following the Agricultural Commodity Monthly Rebalancing Modification Date, where such Weekdayt is a Rebalancing Dayc,t for such Constituent, that (a) a Market Disruption Event has occurred or is continuing in respect of such Constituent and that, (b) as a result of the occurrence or continuation of such Market Disruption Event in respect of such Weekdayt, the Agricultural Constituent Settlement Price for such Weekday is either (i) not published or otherwise made available by or on behalf of the Constituent Sponsor to the Index Calculation Agent on such Weekday or (ii) published or otherwise made available by or on behalf of the Constituent Sponsor to the Index Calculation Agent on that Weekday, but is not equal to the Closing Price for such Constituent for that Weekday;
“Agricultural Commodities Settlement Index” shall have the meaning set forth in Section 2.3;
24
“Agricultural Constituent Settlement Price” means, in respect of a Constituent that is the GSCI AG and a Scheduled Trading Day and for the Agricultural Commodities Settlement Index (associated with the GSCI AG), (a) the official closing level of such Agricultural Commodities Settlement Index as published or otherwise made available to the Index Calculation Agent by the relevant sponsor of such Agricultural Commodities Settlement Index for such Scheduled Trading 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 Agricultural Commodities Settlement Index or the Constituent Sponsor of such Agricultural Commodities Settlement Index does not postpone the publication of or fail to timely make available or publish the official closing level of such Agricultural Commodities Settlement Index on the Scheduled Trading Day on which such official closing level could have been published pursuant to the methodology of the Agricultural Commodities Settlement Index), (b) if the Index Calculation Agent determines that the official closing level of such Agricultural Commodities Settlement Index published or otherwise made available to the Index Calculation Agent by the Constituent Sponsor of such Agricultural Commodities Settlement Index for such Scheduled Trading Day reflects manifest error on the part of the relevant sponsor of such Agricultural Commodities Settlement Index, the closing level of such Agricultural Commodities Settlement Index as calculated in good faith and in a commercially reasonable manner by the Index Calculation Agent based on the most recent publicly available formula for and method of calculating such Agricultural Commodities Settlement Index or (c) if the Constituent Sponsor of such Agricultural Commodities 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 Agricultural Commodities Settlement Index scheduled to be published or otherwise made available to the Index Calculation Agent by the Constituent Sponsor of such Agricultural Commodities Settlement Index for such Scheduled Trading Day by 8:00 PM, New York time on the Scheduled Trading Day on which such official closing level is calculable pursuant to the methodology of the Agricultural Commodities Settlement Index, the closing level of such Agricultural Commodities Settlement Index as calculated in good faith and in a commercially reasonable manner by the Index Calculation Agent based on the most recent publicly available formula for and method of calculating such Agricultural Commodities Settlement Index;
“Base Level” shall have the meaning set forth in Section 3.1.2;
“Bund Roll Schedule Modification Date” shall have the meaning set forth in Section 3.6;
“CBOT” means the Chicago Board of Trade or any successor;
“CBOT 10 Year Futures” shall have the meaning set forth in Section 2.2; or “10 Year Note Futures”
“CBOT 2 Year Note Futures” shall have the meaning set forth in Section 2.2; or “2 Year Note Futures”
“Change in Law” means, on or after the Live Date:
(a) due to:
(i) the adoption of, or any change in, any applicable law, regulation, order or rule (including, without limitation, any tax law); or
(ii) the promulgation of, or any change in, the announcement or statement of a formal or informal
25
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 and Futures Trading Commission, the U.S. Securities and Exchange Commission or any exchange or trading facility),
in each case, 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 or interest in or a transaction referencing or relating to the Index, any Constituent, or any component of the Index or any Constituent or, (y) holding a position or interest in or a transaction referencing or relating to the Index, any Constituent or any component of the Index or any Constituent is (or, but for the consequent disposal or termination thereof, would otherwise be) in excess of any allowable position limit(s) applicable to any market participants that are brokers or financial intermediaries (individually or collectively) under any such law, rule, regulation or order in relation to the Index, any Constituent or any component of the Index or any Constituent, including in any case traded on any exchange(s), market or other trading facility (including, without limitation, any Relevant Exchange); or
(b) the occurrence or existence of any:
(i) suspension or limitation imposed on trading futures contracts (including, without limitation, referencing the Non-Securities-based Constituents); or
(ii) any other event that causes trading in futures contracts (including, without limitation, referencing the Non-Securities-based Constituents) to cease;
“Closing Price” means (as the case may be) (i) the official settlement price in respect of a Securities-based Constituent as calculated and published by the applicable Constituent Sponsor and (ii) the official closing level in respect of the Non-Securities-based Constituent as calculated and published by the applicable Constituent Sponsor;
“CME” means the Chicago Mercantile Exchange or any successor;
“CME S&P500 Index Futures” shall have the meaning set forth in Section 2.2; or “S&P Futures”
“Constituent Sponsor” means in respect of any Constituent (or, as applicable, in the case of the Constituent that is the GSCI AG, the associated Agricultural Commodities Settlement Index) the Relevant Exchange or any corporation or other entity that, as determined by the Index Calculation Agent: (a) is responsible for setting and reviewing the rules and procedures and the method of calculation and adjustments, if any, related to such Constituent and (b) announces (directly or through an agent) the level or price of such Constituent on a regular basis in respect of each Scheduled Trading Day;
“Constituents” means together the Securities-based Constituent and the Non-Securities-based Constituents as described in Section 2.1;
“Constituent Leverage” shall have the meaning set forth in Section 3.5.2;
“Constituent Volatility” shall have the meaning set forth in Section 3.5.6;
“Constituent Weight” shall have the meaning set forth in Section 3.5.1;
26
“Cumulative Return” shall have the meaning set forth in Section 3.5.4;
“Daily Return” shall have the meaning set forth in Sections 3.3.1 and 3.3.2;
“Daily USD Return” shall have the meaning set forth in Section 3.4;
“Designated Agricultural Commodities Postponement Determination” shall have the meaning set forth in Section 3.5;
“Disrupted Day” means, in respect of a Scheduled Trading Day and a Constituent, the occurrence or existence of a Market Disruption Event;
“Equity Index Futures Constituents” shall have the meaning set forth in Section 2.2;
“EUR” means the lawful currency of the member states of the European Union that have adopted and continue to retain a common single currency through monetary union in accordance with European Union treaty law (as amended from time tom time), subject to the terms set forth in Section 7.5;
“EUREX” means the EUREX Exchange or any successor;
“EUREX Bund Futures” shall have the meaning set forth in Section 2.2; or “Bund Futures”
“EUREX DAX Index Futures” shall have the meaning set forth in Section 2.2; or “DAX Futures”
“EUREX Schatz Futures” shall have the meaning set forth in Section 2.2; or “Schatz Futures”
“Expiry Last Trading Day” means, in respect of a quarterly futures contract that is a Securities-based Constituent, the last Scheduled Trading Day for such contract as specified by the Relevant Exchange.
“First Near Futures Contract” means, in respect of any Scheduled Trading Dayt, the quarterly futures contract with the Expiry Last Trading Day that follows most closely such Scheduled Trading Dayt;
“Fixing Time” shall have the meaning set forth in Section 2.4;
“Futures Delivery Month” means, in respect of each futures contract, March, June, September and December;
“FX Currency” means the USD, EUR or JPY;
“FX Currency Jurisdiction” means, the European Union, the United States or Japan, or any political subdivision or regulatory authority thereof;
“FX Currency Pair” means: (a) USD and EUR; and (b) USD and JPY;
“FX Disrupted Day” means any applicable day where: (a) the FX Rate is not available on the FX Price Source at the Fixing Time; or (b) an FX Disruption Event has occurred or is continuing;
“FX Disruption Event” means, in respect of any applicable day, the occurrence or continuation of any of the following events (as determined by the Index Calculation Agent):
(a) a “Convertibility Event,” which is an event that, in effect, prevents, restricts or delays a market participant’s ability to:
(i) convert an FX Currency in an FX Currency Pair into the other FX Currency in such FX Currency Pair through customary legal channels; or
(ii) convert an FX Currency in an FX Currency Pair into the other FX Currency in such FX Currency Pair at a rate at least as favorable as the rate for domestic institutions located in an FX Currency Jurisdiction in such FX Currency Pair;
27
(b) a “Deliverability Event,” which is an event that has the effect of preventing, restricting or delaying a market participant from delivering an FX Currency from accounts inside an FX Currency Jurisdiction to accounts outside of such FX Currency Jurisdiction;
(c) a “Liquidity Event,” which is the imposition by the an FX Currency Jurisdiction (of any capital or currency controls (such as a restriction placed on the holding of assets in or transactions through any account in an FX Currency Jurisdiction by a non-resident of such FX Currency Jurisdiction) or the publication of any notice of an intention to do so, which the Index Calculation Agent determines is likely to materially affect an investment in an FX Currency Jurisdiction;
(d) a “Taxation Event,” which is the implementation by an FX Currency Jurisdiction (or any political subdivision 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 such FX Currency Jurisdiction (including, but not limited to, changes in tax laws and/or laws relating to capital markets and corporate ownership), which the Index Calculation Agent determines are likely to materially affect an investment in such FX Currency Jurisdiction; or
(e) a “Discontinuity Event” which is the occurrence or continuation of the pegging of one FX Currency in an FX Currency Pair to the other FX Currency in such FX Currency Pair, or any other currency or the controlled appreciation or devaluation by an FX Currency Jurisdiction (or any political subdivision or regulatory authority thereof) of an FX Currency, or any other currency, as determined by the Index Calculation Agent;
“FX Price Source” shall have the meaning set forth in Section 2.4;
“FX Rate” shall have the meaning set forth in Section 2.4
“Government Bond Futures Constituents” shall have the meaning set forth in Section 2.2;
“GSCI AG / EN/ IM and PM” shall have the meaning set forth in Section 2.3;
“Index” means the J.P. Morgan MOZAIC Index (USD);
“Index Calculation Agent” shall have the meaning set forth in Section 5;
“Index Level” means the level of the Index as calculated in accordance with the provisions in Section 3.1;
“Index Sponsor” shall have the meaning set forth in Section 5;
“Index Start Date” shall have the meaning set forth in Section 3.1.2;
“Index USD Returns” shall have the meaning set forth in Section 3.2;
“Industrial Metals Following Date” shall have the meaning set forth in Section 3.5;
“Industrial Metals Monthly Rebalancing Modification Date” shall have the meaning set forth in Section 3.5;
“InTrade” shall have the meaning set forth in Section 3.5.7;
“InTradec,t” means the InTrade (as set forth in Section 3.5.7) in respect of Constituentc and a Weekdayt;
“InTradec,t+1” means the InTrade (as set forth in Section 3.5.7) in respect of Constituentc and the immediately following Weekday;
“InTrade Change Days” shall have the meaning set forth in Section 3.5.7;
28
“JPY” means the Japanese Yen, which is the lawful currency of the State of Japan, subject to the terms set forth in Section 7.5;
“Live Date” means the date set forth in Section 3.1.2.
“Market Disruption Event” means, in respect of a Scheduled Trading Day and a Constituent:
(a) In respect of a Securities-based Constituent: the failure of by the relevant Constituent Sponsor to calculate and publish the Closing Price of such Securities-based Constituent; and
(b) In respect of a Non-Securities-based Constituent the occurrence of any one or more of the following circumstances: (i) a material limitation, suspension, or disruption of
trading in one or more of the futures contracts included in the Non-Securities-based Constituent which results in a failure by the exchange on which such futures contract is traded to report a closing price for such futures contract on the day on which such event occurs or any succeeding day on which it continues;
(ii) the closing price for any futures contract included in the Non-Securities-based Constituent is a "limit price", which means that the closing price for such futures contract for a day has increased or decreased from the previous day's closing price by the maximum amount permitted under applicable exchange rules;
(iii) a failure by the applicable exchange or other price source to announce or publish the closing price for any futures contract included in the Non-Securities-based Constituent; or
(iv) the failure of by the relevant Constituent Sponsor to calculate and publish the Closing Price of such Non-Securities-based Constituent.
“Monthly Rebalancing Methodology” shall have the meaning set forth in Section 3.5;
“Non-Securities-based Constituents” shall have the meaning set forth in Section 2.1;
“Original Scheduled Trading Day” shall have the meaning set forth in Section 3.6;
“Osaka JGB Futures” or “JGB Futures” shall have the meaning set forth in Section 2.2;
“Osaka Nikkei Futures” shall have the meaning set forth in Section 2.2; or “Nikkei Futures”
“OSE” means the Osaka Stock Exchange or any successor;
“Product” shall have the meaning set forth in Notices, Disclaimers and Conflicts;
“Rank” shall have the meaning set forth in Section 3.5.5;
“Rebalancing Day” shall have the meaning set forth in Section 3.5;
“Relevant Exchange” means, in respect of:
(a) the Bund Futures, the Schatz Futures and the DAX Futures, the EUREX
(b) the 10 Year Note Futures and the 2 Year Note Futures, the CBOT;
(c) the S&P Futures, the CME; and
(d) the JGB Futures and the Nikkei Futures, the OSE;
“Relevant Person” shall have the meaning set forth in Section 9;
“Roll Day” shall have the meaning set forth in Section 3.6;
“Rules” shall have the meaning set forth in Section 1;
29
“Schatz Roll Schedule Modification Date” shall have the meaning set forth in Section 3.6;
“Scheduled Trading Day” means:
(a) in respect of a Securities-based Constituent, a day on which the Relevant Exchange is scheduled to be open for trading for its regular trading session or in respect of any such exchange, any successor exchange thereof (broadly construed as occurring as a result of a merger, acquisition or otherwise); and
(b) in respect of a Non-Securities-based Constituent, a day on which the relevant index sponsor is scheduled to publish the Closing Price for such Constituent;
“Second Near Futures Contract” means, in respect of any Scheduled Trading Dayt, the quarterly futures contract with the Expiry Last Trading Day that follows most closely Expiry Last Trading Day of the First Near Futures Contract;
“Securities-based Constituents” shall have the meaning set forth in Section 2.1;
“Trading Signal” shall have the meaning set forth in Section 3.5.3;
“Trigger” shall have the meaning set forth in Section 3.5.7;
“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 7.5; and
“Weighted Agricultural Commodities Resolution Return” shall have the meaning set forth in Section 3.5.8;
“Weekday” means any day other than a Saturday or Sunday.
30
13. Versions of the Index Rules and Index Adjustments
Any amendment or adjustment to the Index Rules for the Index and the effective date of any such amendment or adjustment may but does not have to be reflected in a revised version of the Index Rules. Copies of the latest issue of the Index Rules and/or details of relevant adjustments (where not reflected in a revised version of the Index Rules) may be obtained free of charge on request to the Index Sponsor at its principal office in London, England.
Version Date Release
1.0 21 August 2009 1st Release
1.1 5 December 2012 2nd Release
1.2 6 June 2014 3rd Release
1.3 30 October 2014 4th Release
1.4 27 January 2015 5th Release
1.5 3 June 2015 6th Release
1.6 16 September 2015 7th Release
1.7 30 November 2016 8th Release
1.8 22 March 2018 9th Release
1.9 24 October 2019 10th Release
1.10 27 November 2019 11th Release
31
Index Disclaimers
S&P Index Disclaimers
S&P GSCITM Agriculture Excess Return Index and S&P GSCITM Agriculture Settlement Excess Return Index S&P GSCITM Precious Metals Excess Return Index S&P GSCITM Industrial Metals Excess Return Index S&P GSCITM Energy Excess Return Index (together, the “S&P GSCI Indices”)
Each S&P GSCI® Index (Each, an “S&P GSCI® Index”) is a product of S&P Dow Jones Indices LLC (“SPDJI”) and has been licensed for use by JPMS plc and/or its affiliates (the “Licensee”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI. S&P® and S&P GSCI® are trademarks of S&P and have been licensed for use by SPDJI and its affiliates and sublicensed for certain purposes by Licensee. The S&P GSCI® Indices are not owned, endorsed, or approved by or associated with Goldman Sachs & Co. or its affiliated companies.
Licensee’s Index is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates or third party licensors (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices do not make any representation or warranty, express or implied, to counterparts to the Licensee’s Index or any member of the public regarding the advisability of investing in securities generally or in Licensee’s Index particularly or the ability of the Index to track general market performance. S&P Dow Jones Indices’ only relationship to Licensee with respect to the S&P GSCI® Index is the licensing of the S&P GSCI® Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices. The S&P GSCI® Index is determined, composed and calculated by S&P Dow Jones Indices without regard to Licensee or the Licensee’s Index. S&P Dow Jones Indices have no obligation to take the needs of Licensee or the owners of or counterparts to the Index into consideration in determining, composing or calculating the S&P GSCI® Index. S&P Dow Jones Indices are not responsible for and have not participated in the determination or calculation of the Index. S&P Dow Jones Indices have no obligation or liability in connection with the administration, marketing or trading of Licensee’s Index. There is no assurance that investment products based on the S&P GSCI® Index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a futures contract within the S&P GSCI® Index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such contract, nor is it considered to be investment advice. Notwithstanding the foregoing, CME Group Inc. and its affiliates may independently issue and/or sponsor financial products unrelated to Licensee’s Index currently being maintained by Licensee, but which may be similar to and competitive with Licensee’s Index. In addition, CME Group Inc. and its affiliates may trade financial products which are linked to the performance of the S&P GSCI® Index. It is possible that this trading activity will affect the value of the S&P GSCI® Index and Licensee’s Index.
S&P DOW JONES INDICES DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P GSCI® INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF OR COUNTERPARTS TO THE LICENSEE’S INDEX, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P GSCI® INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND LICENSEE, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
FX Rates Disclaimers The FX Rates are provided by The WM Company plc in conjunction with Reuters Limited. The WM Company plc shall not be liable for any errors in or delays in providing or making available the data contained within this service or for any actions taken in reliance on the same, except to the extent that the same is directly caused by its or its employees’ negligence.