What changed in this filing

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Item 1A. Risk Factors

2020-08-05 compared with 2020-05-07 · 88 added, 15 removed, 74 unchanged (58% of the section changed)

1 unchanged sentence

Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission on February 27, 2020, except for the following:

(1) The risk factor entitled “The value of the Shares depends on the value of Index Futures, which fluctuates based on the prices of commodity futures contracts reflected in the S&P GSCI-ER.

(1)     The risk factor entitled “The value of the Shares depends on the value of Index Futures, which fluctuates based on the prices of commodity futures contracts reflected in the S&P GSCI-ER.

These prices may be volatile, thereby creating the potential for losses regardless of the length of time you intend to hold your Shares,”

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This exposes you to a potential loss on your investment in the Shares, regardless of the length of time you intend to hold your Shares.

With regard to oil, a variety of factors can affect the price of oil and in turn the related Index Futures, including significant increases or decreases in production or available supply or significant increases or decreases in demand due to natural factors, epidemics, technological factors, tension and competition between oil exporting nations, civil unrest and sabotage, fluctuations in the reserve capacity, large purchases by governmental entities and competition from other energy sectors.

With regard to oil, a variety of factors can affect the price of oil and in turn the related Index Futures, including sudden and significant increases or decreases in production or available supply or significant increases or decreases in demand due to natural factors, epidemics, technological factors, tension and competition between oil exporting nations, civil unrest and sabotage, fluctuations in the reserve capacity, large purchases by governmental entities and competition from other energy sectors.

Such risks historically and recently have led, and in the future could lead, to significant market volatility, which could impact the Index Futures held by the Trust and negatively impact the price of the Shares.

Such risks may be exacerbated as a result of the COVID-19 pandemic and other factors.

In April 2020, the collapse of demand for fuel as a result of economic conditions relating to COVID-19 and other factors created an oversupply of crude oil that rapidly filled most available oil storage facilities.

As a result, market participants that had agreed to take delivery of crude oil under the May 2020 WTI crude oil futures contract were at risk of default.

In response, certain market participants took the extreme measure of selling their futures contracts at a negative price.

This caused the May 2020 WTI crude oil futures contract to trade at a negative price.

If all or a significant portion of the futures contracts reflected in the S&P GSCI ER were to reach a negative price, you could lose your entire investment.

The following events, among others, would generally result in a decline in the price of the Shares:

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Should producers of the commodities underlying the S&P GSCI-ER increase their hedging of their future production through forward sales or other short positions, this increased selling pressure could depress the price of one or more of the underlying commodities, which could adversely affect the price of the Shares.

A significant change in the attitude of speculators and investors toward the futures contracts or commodities underlying the S&P GSCI-ER.

A significant change in the attitude of speculators and investors toward the futures contracts or commodities underlying the S&P GSCI‑ER.

Should the speculative community take a negative view towards one or more of the underlying futures contracts or commodities, it could cause a decline in the price of the Index Futures, which may reduce the price of the Shares.

Based on market conditions, futures contracts underlying the S&P GSCI-ER may trade or settle at or below zero, and the zero or negative value will be used in calculation of impacted indices, including the S&P GSCI-ER.

A zero or negative value in respect of one or more underlying futures contracts may result in a zero or negative value in respect of the S&P GSCI-ER, and, consequently, the Index Futures.

Significant reductions in the size of positions permitted to be owned by the Trust or others in Index Futures or in the futures contracts and/or commodities comprising the S&P GSCI-ER, for example, as a result of more restrictive position limits or position limit exemptions or more expansive position aggregation requirements, could reduce liquidity and depress the price of the S&P GSCI-ER and/or the underlying futures contracts or commodities, adversely affecting the value of your Shares.

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In that case, you could buy Shares at prices affected by the temporarily high commodity prices, and you could subsequently incur losses when the causes for the temporary increase disappear.

(2) The risk factor entitled “Regulatory developments with respect to the futures and over-the-counter derivatives markets, and in particular, with respect to speculative trading in futures contracts and over-the-counter derivatives involving commodities and commodity indices, could adversely affect the value of your Shares,”

(2)    

The risk factor entitled “During a period when commodity prices are fairly stationary, an absence of “backwardation”

in the prices of the commodities included in the S&P GSCI-ER may cause the price of your Shares to decrease" is modified to read as follows:

The absence of “backwardation”

or the existence of "contango" in the prices of the commodities included in the S&P GSCI-ER may adversely affect the value of your Shares.

As the futures contracts that underlie the S&P GSCI-ER near expiration, they are replaced by contracts that have a later expiration.

Thus, for example, a contract purchased in March may specify a June expiration.

As that contract nears expiration, it may be replaced by selling the June contract and purchasing the contract expiring in September.

This process is referred to as “rolling.”

Historically, the prices of some futures contracts (generally those relating to commodities that are typically consumed immediately rather than stored) have frequently been higher for contracts with shorter-term expirations than for contracts with longer-term expirations, which is referred to as “backwardation.”

In these circumstances, absent other factors, the sale of the earlier contract would take place at a price that is higher than the price at which the later contract is purchased, thereby allowing the contract holder to purchase a greater quantity of the later contract.

While some of the contracts included in the S&P GSCI-ER have historically exhibited periods of backwardation, backwardation will likely not exist at all times.

Moreover, some of the commodities reflected in the S&P GSCI-ER have historically exhibited 

characteristics typical of “contango”

markets rather than backwardation.

Contango markets are those in which the prices of contracts are higher in the distant delivery months than in the nearer delivery months due to the costs of long-term storage of a physical commodity prior to delivery or other factors.

The forward price of a commodity futures contract may also fluctuate between backwardation and contango.

The absence of backwardation or the existence of contango in the commodity markets could result in losses, which could adversely affect the value of the S&P GSCI-ER and accordingly, decrease the value of your Shares.

Moreover, because the Trust must pay certain ongoing fees and expenses, the value of the Shares may decrease even in periods where commodity prices are otherwise stationary.

While contango and backwardation are consistently present in trading in the commodity markets, such conditions can be exacerbated by market forces.

For example, following the onset of the COVID-19 pandemic, as a result of an excess supply of crude oil and weak demand as well as disputes among oil-producing countries regarding limitations on oil production, the crude oil futures markets experienced extraordinarily high levels of contango in the first half of 2020, resulting in a negative price in the May 2020 WTI crude oil futures contract on April 20, 2020.

The effects of rolling futures contracts under such conditions generally are more severe than rolling futures contracts in the absence of such conditions.

Such conditions may continue to exist, which could adversely affect the value of the S&P GSCI-ER and the Index Futures, and accordingly, adversely affect the value of your Shares.

(3)     The risk factor entitled “Regulatory developments with respect to the futures and over-the-counter derivatives markets, and in particular, with respect to speculative trading in futures contracts and over-the-counter derivatives involving commodities and commodity indices, could adversely affect the value of your Shares,”

is modified to read as follows:

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Many of these legislative proposals have not been enacted but could be in the future.

In 2010, Congress adopted some anti-speculative proposals in the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the “Dodd-Frank Act.”

In 2010, Congress adopted certain anti-speculative proposals in the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the “Dodd-Frank Act.”

These provisions of the Dodd-Frank Act have been interpreted by the CFTC to require the CFTC to expand its existing speculative position limits regime that is applicable to certain agricultural commodity futures (and options thereon), as appropriate, to a wider range of listed futures and options on physical commodities (including certain energy, metals and agricultural products) as well as to economically equivalent swaps.

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Any of these effects could increase volatility in and otherwise adversely affect the price of the Shares.

The public comment period on the Proposed Position Limits Rules will close on April 29, 2020.

The public comment period on the Proposed Position Limits Rules closed on May 15, 2020.

The CFTC had specifically solicited, among other things, comments on issues affecting position limits for physical commodity derivatives that could directly affect the value of the Trust’s position in Index Futures going forward.

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Any such measures could adversely affect the value of your Shares.

(3) A risk factor entitled “The Trust may be negatively impacted by the effects of the spread of illnesses or other public health emergencies on the global economy and the markets and service providers relevant to the performance of the Trust,”

(4)     A risk factor entitled “The Trust may be negatively impacted by the effects of the spread of illnesses or other public health emergencies on the global economy and the markets and service providers relevant to the performance of the Trust,”

is added as follows:

An outbreak of an infectious respiratory illness, COVID-19, caused by a novel coronavirus was first detected in China in December 2019 and has now been spread globally.

An outbreak of an infectious respiratory illness, COVID-19, caused by a novel coronavirus was first detected in China in December 2019 and has spread globally.

This outbreak has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions, disruptions in markets, lower consumer demand, layoffs, defaults and other significant economic impacts, as well as general concern and uncertainty.

Further, certain markets in which the Trust may invest may be subject to closures, and there can be no assurance that the ability to invest in Index Futures will continue in any segment of the markets in which the Trust invests, when any resumption of trading will occur or, once such markets resume trading, whether they will face further closures.

Any suspension of the ability to invest in the Index Futures in which the Trust invests will impact the Trust’s ability to purchase Index Futures and could cause the Trust to suspend the issuance of new Shares. 

The outbreak may have serious negative effects on social, economic and financial systems, including significant uncertainty and volatility in the financial markets.

The outbreak may continue to have serious negative effects on social, economic and financial systems, including significant uncertainty and volatility in the financial markets.

The outbreak has caused increased volatility in the market for the Index Futures and the underlying futures contracts, which has led to increased trading spreads in the Index Futures and the underlying futures contracts, a higher than usual number of trading or price limits for certain underlying futures, reduced liquidity in the markets for the underlying futures contracts, and increased premium or discount in the Shares.

A prolonged outbreak could result in an increase of the costs of the Trust, 

affect liquidity in the market for the Index Futures or the underlying futures contracts, as well as the correlation between the price of the Shares and the net asset value of the Trust, any of which could adversely affect the value of your Shares. 

In addition, the outbreak could also impair the information technology and other operational systems upon which the Trust’s service providers, including the Sponsor, the Trustee and the Advisor, rely, and could otherwise disrupt the ability of employees of the Trust’s service providers to perform essential tasks on behalf of the Trust. 

The impact of this outbreak has adversely affected the economies of many nations and the entire global economy and may impact individual issuers and capital markets in ways that cannot be foreseen. 

A prolonged outbreak could result in an increase of the costs of the Trust, affect liquidity in the market for the Index Futures or the underlying futures contracts, as well as the correlation between the price of the Shares and the net asset value of the Trust, any of which could adversely affect the value of your Shares.

The impact of this outbreak has adversely affected the economies of many nations and the entire global economy and may impact individual issuers and capital markets in ways that cannot be foreseen.

In the past, governmental and quasi-governmental authorities and regulators throughout the world have responded to major economic disruptions with a variety of fiscal and monetary policy changes, including, but not limited to, direct capital infusions into companies and other issuers, new monetary tools and lower interest rates.

An unexpected or sudden reversal of these policies, or the ineffectiveness of these policies, is likely to increase volatility in the market for the Index Futures or the underlying futures contracts, which could adversely affect the price of the Shares. 

Other infectious illness outbreaks that may arise in the future could have similar impacts or other unforeseen effects.

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The duration of the outbreak and its effects cannot be determined with certainty.

(5)    

The risk factor entitled “Changes in the composition and valuation of the S&P GSCI-ER may adversely affect your Shares.”

is modified to read as follows:

The composition of the S&P GSCI-ER may change over time as additional commodities satisfy the eligibility criteria or commodities currently included in the S&P GSCI-ER fail to satisfy those criteria.

The weighting factors applied to each commodity included in the S&P GSCI-ER change annually, based on changes in commodity production statistics and changes in the trading volume of the related futures contracts.

In addition, the Index Sponsor may modify the method for determining the composition and weighting of the S&P GSCI-ER and for calculating its value.

The methodology for determining the contracts to be included in the S&P GSCI-ER may be modified from time to time.

Such changes could adversely affect the value of your Shares or otherwise affect the risks associated with owning the Shares, such as by increasing relative concentrations in particular commodities and causing the value of the Shares to become more sensitive to fluctuations in the prices of those commodities.

For more information about the methodology for determining the composition and weighting of the S&P GSCI-ER, see “Business —

The Index and the S&P GSCI-ER.”

Based on market conditions, futures contracts included in the S&P GSCI-ER may trade or settle at or below zero, and the zero or negative value will be used in calculation of impacted indices, including the S&P GSCI-ER.

Zero or negative values of futures contracts included in the S&P GSCI-ER occurring during a roll period may impact the composition of the S&P GSCI-ER.

For example, effective prior to market open on July 27, 2020, based on market conditions, the Index Committee may elect to implement an unscheduled designated contract roll in relation to the normal parameters of the roll of one or more futures contracts included in the S&P GSCI-ER.

Among other things, this may entail adjustments of when the roll occurs, the length of the roll, the proportions of the roll, or the roll-in contract.

In the event of the foregoing circumstances, the Index Committee has indicated it will aim to conform to the index’s objective to the greatest extent possible, and will typically roll into the next most viable contract as published in the methodology.

However, the Index Committee retains the right to roll into a further dated contract based on market conditions at the time of its decision.

In the case of an unscheduled roll event, if there are no viable designated contracts to roll into, the Index Committee will convene and determine the appropriate course of action, which may include, but not be limited to, the removal of the contract from the S&P GSCI-ER.

The Index Committee may review the contract roll schedule at any time and as market conditions warrant.

(6) The risk factor entitled “Exchange position limits and other rules may restrict the creation of Baskets and the operation of the Trust.”

is modified to read as follows:

The CME imposes speculative position limits on market participants trading in Index Futures, including the Trust, that typically prohibit any person from holding a position of more than 59,000 contracts.

The Trust may from time to time seek to obtain exemptions from those position limits from the CME, but these exemptions may be limited, including with respect to the additional number of contracts permitted to be held under such exemption and the time period for which the exemption applies.

Position limits may also apply to other Index Futures traded by the Trust.

The availability of obtaining any exemption from any such position limits is expected to be subject to the ability or willingness of the applicable Exchange to grant such exemption, as well as applicable law.

The Trust’s ability to issue new Baskets or reinvest income in additional Index Futures may be limited to the extent these activities would cause the Trust to exceed the position limits then applicable to those Index Futures.

The Trust may also be required to liquidate any existing contracts in excess of the then-applicable position limits, including as a result of changes to applicable position limits or as a result of the loss of an exemption, or be required to take other actions with potentially adverse effects on the liquidity or value of the Shares.

Additionally, legislative or regulatory action, actions by a DCM or actions by the Clearing FCM may impose limitations on the size of positions that the Trust may take in Index Futures and/or impose limitations on the size of positions that may be carried by other market participants, adversely affecting the liquidity and price of Index Futures and the underlying futures.

Such events could force the Trust or other market participants to sell Index Futures, or encourage market participants to sell or redeem their Shares.

The CFTC has proposed to repeal risk management exemptions that may be applicable to the Trust’s positions in Index Futures.

As a result, if the Proposed Position Limits Rules are adopted as proposed, the current maximum position in Index Futures permitted to be held by the Trust could be reduced relative to the maximum position otherwise permitted, which could in turn require the Trust to liquidate some or all of its positions in Index Futures.

Any such reduction could affect the liquidity of Index Futures and adversely impact the price of the Shares as well as the correlation between the price of the Shares and the net asset value of the Trust.

DCMs may also take steps, such as requiring liquidation of open positions, in the case of disorderly markets, market congestion and other market disruptions.

These actions could require the Trust to liquidate all or part of its Index Futures positions or require holders of positions in the futures contracts underlying the S&P GSCI-ER to liquidate their positions.

This could affect the level of the Index and the NAV.

See also “Risk Factors Relating to Commodities Markets—Regulatory developments with respect to the futures and over-the-counter derivatives markets, and in particular, with respect to speculative trading in futures contracts and over-the-counter derivatives involving commodities and commodity indices, could adversely affect the value of your Shares.”

On May 13, 2020, the CFTC published a Staff Advisory on Risk Management and Market Integrity under Current Market Conditions addressed to DCMs, FCMs and derivatives clearing organizations (“DCOs”) registered with the CFTC (the “Staff Advisory”).

The Staff Advisory notes that adverse economic conditions resulting from the COVID-19 pandemic have coincided with substantially increased market volatility in key agricultural, energy, and financial sectors, including the futures and options on futures markets regulated by the CFTC, and that the impact has been particularly acute for contracts that call for physical delivery of the underlying 

The Staff Advisory notes DCMs, FCMs and DCOs should prepare for the possibility that certain contracts may continue to experience extreme market volatility, low liquidity and possibly negative pricing.

Such preparations include assessment of risk controls and related mechanisms in light of market conditions, including whether such risk controls and related mechanisms are reasonably designed, fit for purpose, and appropriately implemented.

In response to the Staff Advisory and other factors, the Trust may be subject to increased margin requirements and limitations on the size of positions that the Trust may take in Index Futures.

Other market participants may also be subject to increased margin requirements and position limits, adversely affecting the liquidity and price of Index Futures and the underlying futures.

Such events could force the Trust or other market participants to sell Index Futures, or encourage market participants to sell or redeem their Shares.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1A. Risk Factors