MacroShares Oil Up (UCR) and MacroShares Oil Down (DCR) are "paired" exchange traded securities – not exchange traded funds (ETFs). They don’t hold commodities or futures and they don’t track an index. But what does all of that mean, exactly? A lot, it turns out.

Bob Tull, head of the MacroShares division, and Sam Masucci, the company’s CEO, explained it to us. "We’re very different than an ETF," Masucci said. "If you look at the SPDR, they manage a pool of stocks to replicate the movement of the S&P."

Although they are listed on an exchange (the Amex, to be exact) and trade during normal market hours, that’s where much of the similarity ends. UCR and DCR don’t own barrels of oil and they don’t trade futures. Instead, they hold treasuries and cash. The funds are issued in pairs, meaning that authorized participants (APs) receive both of the funds in equal number. They’re then free to trade them on the secondary market.

The trustees of each fund have a "swap" agreement that as the price of oil shifts, they will move assets back and forth. For example, if oil goes up $1, that dollar is put into the up fund and taken out of the down one.

If you’re confused, view page eight of the company’s prospectus for the transaction in graphic form.

"The reason we don’t physically move cash is because it would trigger a capital gains event," Masucci says. Tull adds that this setup makes for a very tax efficient structure.

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