Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order Instituting Proceedings To Determine Whether To Approve or Disapprove a Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade Shares of the 2x Long VIX Futures ETF, a Series of VS Trust, Under Rule 14.11(f)(4) (Trust Issued Receipts), 64563-64565 [2020-22639]
Download as PDF
Federal Register / Vol. 85, No. 198 / Tuesday, October 13, 2020 / Notices
khammond on DSKJM1Z7X2PROD with NOTICES
and other exchanges will be able to
modify such incentives in order to
compete with the Exchange.
With respect to the specific pricing
resulting in the neutral net capture, the
Exchange also notes that the proposed
fee to remove liquidity is neither the
lowest fee in the market today 29 nor is
the proposed rebate provided to adding
liquidity the highest rebate in the
market today.30 Accordingly, with
respect to a participant deciding to
either submit an order to add liquidity
or seeking to remove liquidity, there are
multiple exchanges that will continue to
be competitively priced for such orders
when compared to the Exchange’s
pricing. Further, while pricing
incentives do cause shifts of liquidity
between trading centers, market
participants make determinations on
where to provide liquidity or route
orders to take liquidity based on factors
other than pricing, including
technology, functionality, and other
considerations. Consequently, the
Exchange believes that the degree to
which its fees and rebates could impose
any burden on competition is extremely
limited, and does not believe that such
fees would burden competition of
Equity Members or competing venues in
a manner that is not necessary or
appropriate in furtherance of the
purposes of the Act. The Exchange does
not believe that the proposed rule
change will impose any burden on
intramarket competition that is not
necessary or appropriate in furtherance
of the purposes of the Act because the
proposed fees and rebates apply equally
to all Equity Members. The proposed
pricing structure is intended to
encourage market participants to add
liquidity to the Exchange by providing
rebates that are comparable to those
offered by other exchanges as well as to
provide a competitive rate charged for
removing liquidity, which the Exchange
believes will help to encourage Equity
Members to send orders to the Exchange
to the benefit of all Exchange
participants. As the proposed rates are
equally applicable to all market
participants, the Exchange does not
29 For example, the Investors Exchange fee
schedule on its public website reflects standard fees
for matched liquidity of $0.0009 for shares executed
at or above $1.00, which would apply to all orders
removing liquidity; see https://iextrading.com/
trading/fees/. Other markets offering ‘‘taker/maker’’
pricing provide rebates to provide liquidity; see,
e.g., Nasdaq BX fee schedule, at https://
www.nasdaqtrader.com/Trader.aspx?id=bx_pricing;
Cboe BYX fee schedule at https://
markets.cboe.com/us/equities/membership/fee_
schedule/byx/.
30 See supra note 24.
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18:52 Oct 09, 2020
Jkt 253001
believe there is any burden on
intramarket competition.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
Written comments were neither
solicited nor received.
III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
The foregoing rule change has become
effective pursuant to Section
19(b)(3)(A)(ii) of the Act,31 and Rule
19b–4(f)(2) 32 thereunder. At any time
within 60 days of the filing of the
proposed rule change, the Commission
summarily may temporarily suspend
such rule change if it appears to the
Commission that such action is
necessary or appropriate in the public
interest, for the protection of investors,
or otherwise in furtherance of the
purposes of the Act. If the Commission
takes such action, the Commission shall
institute proceedings to determine
whether the proposed rule should be
approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
PEARL–2020–17 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–PEARL–2020–17. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–PEARL–2020–17 and
should be submitted on or before
November 3, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.33
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–22477 Filed 10–9–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90118; File No. SR–
CboeBZX–2020–053]
Self-Regulatory Organizations; Cboe
BZX Exchange, Inc.; Order Instituting
Proceedings To Determine Whether To
Approve or Disapprove a Proposed
Rule Change, as Modified by
Amendment No. 1, To List and Trade
Shares of the 2x Long VIX Futures
ETF, a Series of VS Trust, Under Rule
14.11(f)(4) (Trust Issued Receipts)
October 7, 2020.
I. Introduction
On June 23, 2020, Cboe BZX
Exchange, Inc. (‘‘Exchange’’ or ‘‘BZX’’)
filed with the Securities and Exchange
Commission (‘‘Commission’’), pursuant
to Section 19(b)(1) of the Securities
Exchange Act of 1934 (‘‘Act’’)1 and Rule
19b–4 thereunder,2 a proposed rule
change to list and trade shares
(‘‘Shares’’) of the 2x Long VIX Futures
ETF (‘‘Fund’’), a Series of VS Trust
33 17
31 15
U.S.C. 78s(b)(3)(A)(ii).
32 17 CFR 240.19b–4(f)(2).
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Fmt 4703
Sfmt 4703
64563
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
1 15
E:\FR\FM\13OCN1.SGM
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64564
Federal Register / Vol. 85, No. 198 / Tuesday, October 13, 2020 / Notices
(‘‘Trust’’). On June 26, 2020, the
Exchange filed Amendment No. 1 to the
proposed rule change. The proposed
rule change, as modified by Amendment
No. 1, was published for comment in
the Federal Register on July 10, 2020.3
On August 13, 2020, pursuant to Section
19(b)(2) of the Act,4 the Commission
designated a longer period within which
to approve the proposed rule change,
disapprove the proposed rule change, or
institute proceedings to determine
whether to disapprove the proposed
rule change.5 This order institutes
proceedings pursuant to Section
19(b)(2)(B) of the Act 6 to determine
whether to approve or disapprove the
proposed rule change, as modified by
Amendment No. 1.
II. Description of and Comment on the
Proposal 7
A. Description of the Proposal
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The Exchange proposes to list and
trade the Shares pursuant to BZX Rule
14.11(f)(4), which governs the listing
and trading of Trust Issued Receipts on
the Exchange.
Volatility Shares LLC (‘‘Sponsor’’), a
Delaware limited liability company, is
the sponsor of the Trust.8 The Sponsor
is a commodity pool operator.9 Tidal
ETF Services LLC serves as the
administrator, and U.S. Bank National
Association serves as custodian of the
Fund and its Shares. U.S. Bancorp Fund
Services, LLC is the sub-administrator
and transfer agent. Wilmington Trust
3 See Securities Exchange Act Release No. 89234
(July 6, 2020), 85 FR 41644 (‘‘Notice’’). Comments
on the proposed rule change can be found at:
https://www.sec.gov/comments/sr-cboebzx-2020053/srcboebzx2020053.htm.
4 15 U.S.C. 78s(b)(2).
5 See Securities Exchange Act Release No. 89545,
85 FR 51124 (August 19, 2020). The Commission
designated October 8, 2020 as the date by which the
Commission shall approve or disapprove, or
institute proceedings to determine whether to
disapprove, the proposed rule change.
6 15 U.S.C. 78s(b)(2)(B).
7 Additional information regarding the Fund, the
Trust, and the Shares can be found in the Notice,
supra note 3.
8 The Sponsor is not a broker-dealer or affiliated
with a broker-dealer. In the event that (a) the
Sponsor becomes a broker-dealer or newly affiliated
with a broker-dealer, or (b) any new sponsor is a
broker-dealer or becomes affiliated with a brokerdealer, it will implement and maintain a fire wall
with respect to its relevant personnel or such
broker-dealer affiliate, as applicable, regarding
access to information concerning the composition
and/or changes to the portfolio, and will be subject
to procedures designed to prevent the use and
dissemination of material non-public information
regarding the portfolio.
9 The Exchange represents that the Fund will file
a registration statement on Form S–1 under the
Securities Act of 1933, and that the Shares will not
be listed on the Exchange until there is an effective
registration statement for the Shares.
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18:52 Oct 09, 2020
Jkt 253001
Company, a Delaware trust company, is
the sole trustee of the Trust.
The Fund will seek to provide a
return that is 200% of the return of its
benchmark index for a single day.
Therefore, if the Fund is successful in
meeting its objective, its value (before
fees and expenses) on a given day
should gain approximately 200% of the
return of its benchmark index for a
single day; conversely, its value (before
fees and expenses) should lose
approximately 200% of the return of its
benchmark index for a single day when
it declines.
The benchmark index seeks to offer
long exposure to market volatility
through publicly traded futures markets.
The benchmark for the Fund is the Long
VIX Futures Index (‘‘Index’’), ticker
symbol LONGVOL,10 which measures
the daily performance of a theoretical
portfolio of first- and second-month
futures contracts on the Cboe Volatility
Index (‘‘VIX’’).11 The Index is comprised
of, and the value of the Fund will be
based on, VIX futures contracts traded
on the Cboe Futures Exchange, Inc.
(‘‘VIX Futures Contracts’’).12
The Fund would primarily invest in
VIX Futures Contracts based on
components of the Index to pursue its
investment objective. In the event
accountability rules, price limits,
position limits, margin limits or other
exposure limits are reached with respect
to VIX Futures Contracts, the Sponsor
might cause the Fund to obtain
exposure to the Index through over-thecounter swaps referencing the Index or
particular VIX Futures Contracts
comprising the Index (‘‘VIX Swap
Agreements’’).13 The VIX Swap
10 The Index is sponsored by Cboe Global Indexes
(‘‘Index Sponsor’’). The Index Sponsor is not a
registered broker-dealer, but is affiliated with a
broker-dealer. The Index Sponsor has implemented
and will maintain a fire wall with respect to the
broker-dealer affiliate regarding access to
information concerning the composition and/or
changes to the Index. In addition, the Index
Sponsor has implemented and will maintain
procedures that are designed to prevent the use and
dissemination of material, non-public information
regarding the Index.
11 The VIX is an index designed to measure the
implied volatility of the S&P 500 over 30 days in
the future. The VIX is calculated based on the
prices of certain put and call options on the S&P
500. The VIX is reflective of the premium paid by
investors for certain options linked to the level of
the S&P 500.
12 VIX Futures Contracts are measures of the
market’s expectation of the level of VIX at certain
points in the future. While the VIX represents a
measure of the current expected volatility of the
S&P 500 over the next 30 days, the prices of VIX
Futures Contracts are based on the current
expectation of what the expected 30-day volatility
will be on the contracts’ expiration date.
13 The Fund may also invest in VIX Swap
Agreements if the market for a specific VIX Futures
Contract experiences emergencies (e.g., natural
PO 00000
Frm 00124
Fmt 4703
Sfmt 4703
Agreements in which the Fund may
invest may be cleared or non-cleared.
In addition to VIX Swap Agreements,
if the Fund is unable to meet its
investment objective through
investments in VIX Futures Contracts,
the Fund may also obtain exposure to
the Index through listed VIX options
contracts traded on the Cboe Exchange,
Inc. (‘‘VIX Options Contracts’’).
The Fund may also invest in Cash and
Cash Equivalents that may serve as
collateral for the VIX Futures Contracts,
VIX Swap Agreements, and VIX Options
Contracts (collectively, the ‘‘VIX
Derivative Products’’).14
The Fund would seek to remain fully
invested at all times in VIX Derivative
Products (as well as the Cash and Cash
Equivalents that may serve as collateral)
that provide exposure to the Index
consistent with its investment objective
without regard to market conditions,
trends or direction. The Sponsor would
rely upon a pre-determined model to
reposition the Fund’s investments in
accordance with its investment
objective.
B. Comment on the Proposal
A commenter opposes the proposed
rule change and states that 2x long
volatility is not a profitable investment
during bull markets. The commenter
points to the predominantly negative
annual returns of another exchangetraded product linked to long volatility,
which the commenter characterizes as
the predecessor to the Fund. The
commenter also asserts that 2x long
volatility does not make sense as a
product, as volatility is already
volatile.15
III. Proceedings To Determine Whether
To Approve or Disapprove SR–
CboeBZX–2020–053, as Modified by
Amendment No. 1, and Grounds for
Disapproval Under Consideration
The Commission is instituting
proceedings pursuant to Section
19(b)(2)(B) of the Act 16 to determine
whether the proposed rule change, as
modified by Amendment No. 1, should
be approved or disapproved. Institution
of such proceedings is appropriate at
this time in view of the legal and policy
disaster, terrorist attack or an act of God) or
disruptions (e.g., a trading halt or a flash crash) or
in situations where the Sponsor deems it
impractical or inadvisable to buy or sell VIX
Futures Contracts (such as during periods of market
volatility or illiquidity).
14 ‘‘Cash and Cash Equivalents’’ means the
instruments defined in BZX Rule 14.11(i)(4)(C)(iii).
15 See letter dated July 10, 2020 from John
Motson, available at: https://www.sec.gov/
comments/sr-cboebzx-2020-053/srcboebzx20200537409699-219192.htm.
16 15 U.S.C. 78s(b)(2)(B).
E:\FR\FM\13OCN1.SGM
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Federal Register / Vol. 85, No. 198 / Tuesday, October 13, 2020 / Notices
issues raised by the proposal. Institution
of proceedings does not indicate that the
Commission has reached any
conclusions with respect to any of the
issues involved. Rather, as described
below, the Commission seeks and
encourages interested persons to
provide comments on the proposed rule
change.
Pursuant to Section 19(b)(2)(B) of the
Act,17 the Commission is providing
notice of the grounds for disapproval
under consideration. The Commission is
instituting proceedings to allow for
additional analysis of the proposal’s
consistency with Section 6(b)(5) of the
Act, which requires, among other
things, that the rules of a national
securities exchange be ‘‘designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade,’’ and ‘‘to
protect investors and the public
interest.’’ 18
IV. Procedure: Request for Written
Comments
The Commission requests that
interested persons provide written
submissions of their views, data, and
arguments with respect to the issues
identified above, as well as any other
concerns they may have with the
proposal. In particular, the Commission
invites the written views of interested
persons concerning whether the
proposed rule change, as modified by
Amendment No. 1, is consistent with
Section 6(b)(5) or any other provision of
the Act, or the rules and regulations
thereunder. Although there do not
appear to be any issues relevant to
approval or disapproval that would be
facilitated by an oral presentation of
views, data, and arguments, the
Commission will consider, pursuant to
Rule 19b–4, any request for an
opportunity to make an oral
presentation.19
Interested persons are invited to
submit written data, views, and
arguments regarding whether the
proposed rule change, as modified by
Amendment No. 1, should be approved
or disapproved by November 3, 2020.
Any person who wishes to file a rebuttal
17 Id.
18 15
U.S.C. 78f(b)(5).
19(b)(2) of the Act, as amended by the
Securities Act Amendments of 1975, Public Law
94–29 (June 4, 1975), grants the Commission
flexibility to determine what type of proceeding—
either oral or notice and opportunity for written
comments—is appropriate for consideration of a
particular proposal by a self-regulatory
organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban
Affairs, S. Rep. No. 75, 94th Cong., 1st Sess. 30
(1975).
khammond on DSKJM1Z7X2PROD with NOTICES
19 Section
VerDate Sep<11>2014
18:52 Oct 09, 2020
Jkt 253001
to any other person’s submission must
file that rebuttal by November 17, 2020.
The Commission asks that
commenters address the sufficiency of
the Exchange’s statements in support of
the proposal, which are set forth in the
Notice, in addition to any other
comments they may wish to submit
about the proposed rule change. In this
regard, the Commission seeks
commenters’ views regarding whether
the Exchange’s proposal to list and trade
the Shares, which seek to provide daily
investment results that correspond to
200% of the return of an index designed
to measure the daily performance of a
theoretical portfolio of first- and secondmonth VIX Futures Contracts, is
adequately designed to prevent
fraudulent and manipulative acts and
practices, to promote just and equitable
principles of trade, and to protect
investors and the public interest, and is
consistent with the maintenance of a
fair and orderly market under the Act.
The Commission also seeks
commenters’ views regarding whether
the Exchange has adequately described
the potential impact of sudden
fluctuations in market volatility on the
Index and on the Fund’s operation and
performance for the Commission to
make a determination under Section
6(b)(5) of the Act. In particular, the
Commission seeks comment regarding
the Fund’s operation during periods
with large percentage increases in
volatility, and the potential market
impact of the Fund’s daily rebalance.
Comments may be submitted by any
of the following methods:
Electronic Comments
• Use the Commission’s internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CboeBZX–2020–053 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CboeBZX–2020–053. This
file number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
internet website (https://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
PO 00000
Frm 00125
Fmt 4703
Sfmt 4703
64565
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for website viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE,
Washington, DC 20549 on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change.
Persons submitting comments are
cautioned that we do not redact or edit
personal identifying information from
comment submissions. You should
submit only information that you wish
to make available publicly. All
submissions should refer to File
Number SR–CboeBZX–2020–053 and
should be submitted by November 3,
2020. Rebuttal comments should be
submitted by November 17, 2020.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.20
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020–22639 Filed 10–9–20; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–90096; File No. 4–757]
Joint Industry Plan; Notice of Filing of
a National Market System Plan
Regarding Consolidated Equity Market
Data.
October 6, 2020.
I. Introduction
Pursuant to Section 11A of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 608 of Regulation
National Market System (‘‘NMS’’)
thereunder,2 notice is hereby given that
on August 11, 2020, Cboe BYX
Exchange, Inc., Cboe BZX Exchange,
Inc., Cboe EDGA Exchange, Inc., Cboe
EDGX Exchange, Inc., Cboe Exchange,
Inc., Investors Exchange LLC, Long
Term Stock Exchange, Inc., MEMX LLC,
Nasdaq BX, Inc., Nasdaq ISE, LLC,
Nasdaq PHLX LLC, Nasdaq Stock
Market LLC, New York Stock Exchange
LLC, NYSE American LLC, NYSE Arca,
Inc., NYSE Chicago, Inc., NYSE
20 17
CFR 200.30–3(a)(57).
15 U.S.C. 78k–1.
2 17 CFR 242.608.
1
E:\FR\FM\13OCN1.SGM
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Agencies
[Federal Register Volume 85, Number 198 (Tuesday, October 13, 2020)]
[Notices]
[Pages 64563-64565]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-22639]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-90118; File No. SR-CboeBZX-2020-053]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change, as Modified by Amendment No. 1, To List and Trade
Shares of the 2x Long VIX Futures ETF, a Series of VS Trust, Under Rule
14.11(f)(4) (Trust Issued Receipts)
October 7, 2020.
I. Introduction
On June 23, 2020, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'')\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
list and trade shares (``Shares'') of the 2x Long VIX Futures ETF
(``Fund''), a Series of VS Trust
[[Page 64564]]
(``Trust''). On June 26, 2020, the Exchange filed Amendment No. 1 to
the proposed rule change. The proposed rule change, as modified by
Amendment No. 1, was published for comment in the Federal Register on
July 10, 2020.\3\ On August 13, 2020, pursuant to Section 19(b)(2) of
the Act,\4\ the Commission designated a longer period within which to
approve the proposed rule change, disapprove the proposed rule change,
or institute proceedings to determine whether to disapprove the
proposed rule change.\5\ This order institutes proceedings pursuant to
Section 19(b)(2)(B) of the Act \6\ to determine whether to approve or
disapprove the proposed rule change, as modified by Amendment No. 1.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 89234 (July 6,
2020), 85 FR 41644 (``Notice''). Comments on the proposed rule
change can be found at: https://www.sec.gov/comments/sr-cboebzx-2020-053/srcboebzx2020053.htm.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 89545, 85 FR 51124
(August 19, 2020). The Commission designated October 8, 2020 as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
\6\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------
II. Description of and Comment on the Proposal \7\
---------------------------------------------------------------------------
\7\ Additional information regarding the Fund, the Trust, and
the Shares can be found in the Notice, supra note 3.
---------------------------------------------------------------------------
A. Description of the Proposal
The Exchange proposes to list and trade the Shares pursuant to BZX
Rule 14.11(f)(4), which governs the listing and trading of Trust Issued
Receipts on the Exchange.
Volatility Shares LLC (``Sponsor''), a Delaware limited liability
company, is the sponsor of the Trust.\8\ The Sponsor is a commodity
pool operator.\9\ Tidal ETF Services LLC serves as the administrator,
and U.S. Bank National Association serves as custodian of the Fund and
its Shares. U.S. Bancorp Fund Services, LLC is the sub-administrator
and transfer agent. Wilmington Trust Company, a Delaware trust company,
is the sole trustee of the Trust.
---------------------------------------------------------------------------
\8\ The Sponsor is not a broker-dealer or affiliated with a
broker-dealer. In the event that (a) the Sponsor becomes a broker-
dealer or newly affiliated with a broker-dealer, or (b) any new
sponsor is a broker-dealer or becomes affiliated with a broker-
dealer, it will implement and maintain a fire wall with respect to
its relevant personnel or such broker-dealer affiliate, as
applicable, regarding access to information concerning the
composition and/or changes to the portfolio, and will be subject to
procedures designed to prevent the use and dissemination of material
non-public information regarding the portfolio.
\9\ The Exchange represents that the Fund will file a
registration statement on Form S-1 under the Securities Act of 1933,
and that the Shares will not be listed on the Exchange until there
is an effective registration statement for the Shares.
---------------------------------------------------------------------------
The Fund will seek to provide a return that is 200% of the return
of its benchmark index for a single day. Therefore, if the Fund is
successful in meeting its objective, its value (before fees and
expenses) on a given day should gain approximately 200% of the return
of its benchmark index for a single day; conversely, its value (before
fees and expenses) should lose approximately 200% of the return of its
benchmark index for a single day when it declines.
The benchmark index seeks to offer long exposure to market
volatility through publicly traded futures markets. The benchmark for
the Fund is the Long VIX Futures Index (``Index''), ticker symbol
LONGVOL,\10\ which measures the daily performance of a theoretical
portfolio of first- and second-month futures contracts on the Cboe
Volatility Index (``VIX'').\11\ The Index is comprised of, and the
value of the Fund will be based on, VIX futures contracts traded on the
Cboe Futures Exchange, Inc. (``VIX Futures Contracts'').\12\
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\10\ The Index is sponsored by Cboe Global Indexes (``Index
Sponsor''). The Index Sponsor is not a registered broker-dealer, but
is affiliated with a broker-dealer. The Index Sponsor has
implemented and will maintain a fire wall with respect to the
broker-dealer affiliate regarding access to information concerning
the composition and/or changes to the Index. In addition, the Index
Sponsor has implemented and will maintain procedures that are
designed to prevent the use and dissemination of material, non-
public information regarding the Index.
\11\ The VIX is an index designed to measure the implied
volatility of the S&P 500 over 30 days in the future. The VIX is
calculated based on the prices of certain put and call options on
the S&P 500. The VIX is reflective of the premium paid by investors
for certain options linked to the level of the S&P 500.
\12\ VIX Futures Contracts are measures of the market's
expectation of the level of VIX at certain points in the future.
While the VIX represents a measure of the current expected
volatility of the S&P 500 over the next 30 days, the prices of VIX
Futures Contracts are based on the current expectation of what the
expected 30-day volatility will be on the contracts' expiration
date.
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The Fund would primarily invest in VIX Futures Contracts based on
components of the Index to pursue its investment objective. In the
event accountability rules, price limits, position limits, margin
limits or other exposure limits are reached with respect to VIX Futures
Contracts, the Sponsor might cause the Fund to obtain exposure to the
Index through over-the-counter swaps referencing the Index or
particular VIX Futures Contracts comprising the Index (``VIX Swap
Agreements'').\13\ The VIX Swap Agreements in which the Fund may invest
may be cleared or non-cleared.
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\13\ The Fund may also invest in VIX Swap Agreements if the
market for a specific VIX Futures Contract experiences emergencies
(e.g., natural disaster, terrorist attack or an act of God) or
disruptions (e.g., a trading halt or a flash crash) or in situations
where the Sponsor deems it impractical or inadvisable to buy or sell
VIX Futures Contracts (such as during periods of market volatility
or illiquidity).
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In addition to VIX Swap Agreements, if the Fund is unable to meet
its investment objective through investments in VIX Futures Contracts,
the Fund may also obtain exposure to the Index through listed VIX
options contracts traded on the Cboe Exchange, Inc. (``VIX Options
Contracts'').
The Fund may also invest in Cash and Cash Equivalents that may
serve as collateral for the VIX Futures Contracts, VIX Swap Agreements,
and VIX Options Contracts (collectively, the ``VIX Derivative
Products'').\14\
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\14\ ``Cash and Cash Equivalents'' means the instruments defined
in BZX Rule 14.11(i)(4)(C)(iii).
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The Fund would seek to remain fully invested at all times in VIX
Derivative Products (as well as the Cash and Cash Equivalents that may
serve as collateral) that provide exposure to the Index consistent with
its investment objective without regard to market conditions, trends or
direction. The Sponsor would rely upon a pre-determined model to
reposition the Fund's investments in accordance with its investment
objective.
B. Comment on the Proposal
A commenter opposes the proposed rule change and states that 2x
long volatility is not a profitable investment during bull markets. The
commenter points to the predominantly negative annual returns of
another exchange-traded product linked to long volatility, which the
commenter characterizes as the predecessor to the Fund. The commenter
also asserts that 2x long volatility does not make sense as a product,
as volatility is already volatile.\15\
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\15\ See letter dated July 10, 2020 from John Motson, available
at: https://www.sec.gov/comments/sr-cboebzx-2020-053/srcboebzx2020053-7409699-219192.htm.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2020-053, as Modified by Amendment No. 1, and Grounds for
Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \16\ to determine whether the proposed rule
change, as modified by Amendment No. 1, should be approved or
disapproved. Institution of such proceedings is appropriate at this
time in view of the legal and policy
[[Page 64565]]
issues raised by the proposal. Institution of proceedings does not
indicate that the Commission has reached any conclusions with respect
to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change.
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\16\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\17\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposal's consistency with Section 6(b)(5) of the Act,
which requires, among other things, that the rules of a national
securities exchange be ``designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade,'' and ``to protect investors and the public
interest.'' \18\
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\17\ Id.
\18\ 15 U.S.C. 78f(b)(5).
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IV. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule
change, as modified by Amendment No. 1, is consistent with Section
6(b)(5) or any other provision of the Act, or the rules and regulations
thereunder. Although there do not appear to be any issues relevant to
approval or disapproval that would be facilitated by an oral
presentation of views, data, and arguments, the Commission will
consider, pursuant to Rule 19b-4, any request for an opportunity to
make an oral presentation.\19\
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\19\ Section 19(b)(2) of the Act, as amended by the Securities
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the
Commission flexibility to determine what type of proceeding--either
oral or notice and opportunity for written comments--is appropriate
for consideration of a particular proposal by a self-regulatory
organization. See Securities Act Amendments of 1975, Senate Comm. on
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st
Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change, as modified by
Amendment No. 1, should be approved or disapproved by November 3, 2020.
Any person who wishes to file a rebuttal to any other person's
submission must file that rebuttal by November 17, 2020.
The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in the Notice, in addition to any other comments they may wish to
submit about the proposed rule change. In this regard, the Commission
seeks commenters' views regarding whether the Exchange's proposal to
list and trade the Shares, which seek to provide daily investment
results that correspond to 200% of the return of an index designed to
measure the daily performance of a theoretical portfolio of first- and
second-month VIX Futures Contracts, is adequately designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and to protect investors and the public
interest, and is consistent with the maintenance of a fair and orderly
market under the Act. The Commission also seeks commenters' views
regarding whether the Exchange has adequately described the potential
impact of sudden fluctuations in market volatility on the Index and on
the Fund's operation and performance for the Commission to make a
determination under Section 6(b)(5) of the Act. In particular, the
Commission seeks comment regarding the Fund's operation during periods
with large percentage increases in volatility, and the potential market
impact of the Fund's daily rebalance.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-CboeBZX-2020-053 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeBZX-2020-053. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml).
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for website viewing and printing in
the Commission's Public Reference Room, 100 F Street NE, Washington, DC
20549 on official business days between the hours of 10:00 a.m. and
3:00 p.m. Copies of the filing also will be available for inspection
and copying at the principal office of the Exchange. All comments
received will be posted without change. Persons submitting comments are
cautioned that we do not redact or edit personal identifying
information from comment submissions. You should submit only
information that you wish to make available publicly. All submissions
should refer to File Number SR-CboeBZX-2020-053 and should be submitted
by November 3, 2020. Rebuttal comments should be submitted by November
17, 2020.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
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\20\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-22639 Filed 10-9-20; 8:45 am]
BILLING CODE 8011-01-P