Order Granting Conditional Exemptive Relief, Pursuant to Section 36 of the Securities Exchange Act of 1934 (“Exchange Act”) With Respect to Futures Contracts on the SPIKESTM, 77297-77304 [2020-26419]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 85, Number 231 (Tuesday, December 1, 2020)]
[Notices]
[Pages 77297-77304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-26419]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-90510]


Order Granting Conditional Exemptive Relief, Pursuant to Section 
36 of the Securities Exchange Act of 1934 (``Exchange Act'') With 
Respect to Futures Contracts on the SPIKESTM Index

November 24, 2020.
AGENCY: Securities and Exchange Commission.

ACTION: Exemptive order.

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SUMMARY: The Minneapolis Grain Exchange, Inc. (or any successor 
thereto) (``MGEX'') has expressed an interest in listing and trading 
contracts for sale for future delivery on the SPIKES\TM\ Index 
(``SPIKES'') (such futures contracts (and any options thereon) 
hereinafter referred to as the ``Product''). After careful 
consideration, the Securities and Exchange Commission (``SEC'' or 
``Commission'') believes that the Product has the potential to offer 
competition with the only comparable incumbent volatility product in 
the market, and is therefore conditionally exempting the Product from 
the definition of ``security future'' for all purposes other than as 
follows: First, the anti-fraud and anti-manipulation provisions under 
the Exchange Act will continue to apply; second, MGEX will continue to 
be subject to the requirement to register with the Commission as a 
national securities exchange (which may be done pursuant to a notice 
filing) and comply with related amendment and supplemental filing 
requirements; and third, MGEX will continue to be required, in its 
capacity as a national securities exchange, to make available to the 
Commission (or its representatives) books and records relating to 
transactions in the Product, upon request, and to make itself available 
to inspection and examination by the Commission (or its 
representatives), upon request. However, because registration as a 
notice-registered national securities exchange is intended only as a 
means to facilitate the Commission's ability to exercise its books and 
records and examination authority over the Product, MGEX will be exempt 
from compliance with all other requirements applicable to national 
securities exchanges. Taken together, these actions will allow the 
Product to trade as a futures contract on MGEX, a designated contract 
market (``DCM'') and derivatives clearing organization (``DCO'') that 
is subject to the jurisdiction of the Commodity Futures Trading 
Commission (``CFTC''), consistent with the terms and conditions set 
forth below.

DATES: This exemptive order is effective as of December 1, 2020.

FOR FURTHER INFORMATION CONTACT: Carol McGee, Assistant Director, or 
Andrew Bernstein, Senior Special Counsel, at (202) 551-5870, Office of 
Derivatives Policy, Division of Trading and Markets, Securities and 
Exchange Commission, 100 F Street NE, Washington, DC 20549-8010.

I. Introduction

A. Overview of the SPIKES Index

    On October 12, 2018, the Commission issued an order granting 
approval of a proposed rule change to allow the Miami International 
Securities Exchange LLC (``MIAX'') to list and trade options on 
SPIKES.\1\ Although that order permits MIAX to treat SPIKES as a broad-
based index, as defined under MIAX's rules, solely for purposes of 
determining the position limits, exercise limits, and margin 
requirements that apply to each options trade, the Commission stated 
explicitly that it was not determining whether SPIKES is a ``narrow-
based security index,'' as defined in Section 3(a)(55)(B) of the 
Exchange Act.\2\
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    \1\ See Order Granting Approval of a Proposed Rule Change by 
Miami International Securities Exchange, LLC to List and Trade on 
the Exchange Options on the SPIKES\TM\ Index, Exchange Act Release 
No. 84417 (Oct. 12, 2018), 83 FR 52865 (Oct. 18, 2018) (SR-MIAX-
2018-14) (``SPIKES Options Approval Order'').
    \2\ See SPIKES Options Approval Order, 82 FR at 52867 n. 36.
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    SPIKES measures the expected 30-day volatility of the SPDR[supreg] 
S&P 500[supreg] ETF Trust (``SPY''), and is calculated using a variance 
swap methodology that includes live prices of existing exchange-traded 
options on the SPY to calculate volatility. Specifically, the SPIKES 
formula relies on the prices of standard monthly SPY options that 
expire on the third Friday of each calendar month.\3\ The formula uses

[[Page 77298]]

those prices to linearly interpolate between the variances of two 
monthly SPY option expirations--near-term (the closest expiration more 
than two full days into the future) and next-term (the monthly 
expiration following the near-term). This expiration selection method 
is intended to avoid using highly irregular SPY option prices close to 
the options settlement date.\4\ When the near-term expiration is too 
close to expiry (less than two full days), rolling to the third-closest 
expiration occurs.\5\
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    \3\ See The SPIKES Volatility Index: Methodology Guide 
(available at: https://www.miaxoptions.com/sites/default/files/spikes-files/SPIKES_Methodology_Guide.pdf) (``SPIKES Methodology''). 
Weekly SPY options are not used in the SPIKES calculation.
    \4\ See id.
    \5\ See id.
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    The number of options included in the SPIKES calculation varies, 
and depends on the prices of live out-of-the-money (``OTM'') SPY 
options.\6\ In order to determine which SPY options are OTM, the 
methodology requires identification of the at-the-money (``ATM'') SPY 
options for both the near-term and next-term options by calculating the 
absolute value of the call cash reference price minus the put cash 
reference price for all SPY options for which both call and put prices 
are available, and then selecting the strike price where that value is 
closest to zero (or in the case of a tie, using the lower strike).\7\ 
Once the ATM price has been identified, each OTM SPY option 
successively further away from the money is included in the calculation 
(for both the near-term and next-term) until two consecutive options 
with a cash reference price of five cents or less is reached, at which 
point all remaining far OTM options are excluded.\8\ The included OTM 
options are then weighted and used in the SPIKES formula to calculate 
the annualized expected volatility of the SPY, which is quoted in 
percentage points.\9\
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    \6\ In-the-money SPY options are not included in the SPIKES 
calculation. See id.
    \7\ See id. The ``cash reference price'' is the price of a 
particular SPY option, as determined using the ``price dragging'' 
technique set forth in the SPIKES methodology. MIAX describes 
``price dragging'' as the proprietary method used for determining 
the ongoing price for each individual option used in the calculation 
of SPIKES. Pursuant to that process, all prices are initially set to 
zero. If there is a trade, the price of the option is always set to 
the trade price. If there is not yet a trade, on the opening quote, 
the opening bid is used as the current price. For newly-placed ask 
(bid) quotes, if the ask (bid) is lower (higher) than the current 
ongoing reference price, the option price is set to ask (bid). MIAX 
believes that this process ``should materially reduce erratic 
movements of the [SPIKES] value as quotations on [OTM] options are 
rapidly altered during times of low liquidity.'' See Notice of 
Filing of a Proposed Rule Change by Miami International Securities 
Exchange, LLC to List and Trade on the Exchange Options on the 
SPIKESTM Index, Exchange Act Release No. 83619 (July 11, 
2018), 83 FR 32932, 32934 (``SPIKES Options Notice'').
    \8\ See SPIKES Methodology, supra note 3.
    \9\ See SPIKES Options Notice, 83 FR at 32933.
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    The Commission understands that SPY options are used as inputs to 
the SPIKES formula, which is designed to interpolate the expected 
volatility of a single ATM option that expires in precisely 30 days. 
That formula requires the use of multiple live SPY options to determine 
the price (and ultimately the volatility) of what is essentially a 
synthetic SPY option that is both ATM and expires in exactly 30 days, 
updated on a real-time basis on each trading day beginning at 9:30 a.m. 
and ending at 4:15 p.m. (New York time).\10\
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    \10\ See SPIKES Options Approval Order, 83 FR at 52865-66.
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B. Statutory Authority

    The Commodity Futures Modernization Act of 2000 (``CFMA'') \11\ 
authorized the trading of security futures, which are defined in 
Section 3(a)(55)(A) of the Exchange Act \12\ and Section 1a(44) of the 
Commodity Exchange Act (``CEA'') \13\ to include a contract of sale for 
future delivery of a single security or of a narrow-based security 
index,\14\ including any interest therein or based on the value 
thereof, other than certain exempt securities. A security future is 
considered to be a ``security'' for purposes of the Federal securities 
laws, including the Exchange Act \15\ and the Securities Act of 1933 
(``Securities Act''),\16\ and a futures contract for purposes of the 
CEA.\17\ Thus, the regulatory framework established by the CFMA 
provides the Commission and the CFTC with joint jurisdiction over 
security futures products.\18\
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    \11\ Public Law 106-554, 114 Stat. 2763 (2000).
    \12\ 15 U.S.C. 78c(a)(55)(A).
    \13\ 7 U.S.C. 1a(44).
    \14\ The term ``narrow-based security index'' is defined in 
Section 1a(35)(A) of the CEA and Section 3(a)(55)(B) of the Exchange 
Act. 7 U.S.C. 1a(35)(A) and 15 U.S.C. 78c(a)(55)(B).
    \15\ See Section 3(a)(10) of the Exchange Act. 15 U.S.C. 
78c(a)(10).
    \16\ See Section 2(a)(1) of the Securities Act. 15 U.S.C. 
77b(a)(1).
    \17\ See Section 1a(44) of the CEA. 7 U.S.C. 1a(44).
    \18\ Section 3(a)(56) of the Exchange Act and Section 1a(45) of 
the CEA define ``security futures product'' to mean a security 
future or any put, call, straddle, option, or privilege on any 
security future. 15 U.S.C. 78c(a)(56) and 7 U.S.C. 1a(45).
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    A futures contract on the SPIKES is a futures contract that is 
based on the value of a single security (i.e., the SPY) \19\ and 
therefore satisfies the statutory definition of security future in 
Section 3(a)(55) of the Exchange Act. Nevertheless, the Commission has 
determined to use its authority in Section 36 of the Exchange Act to 
exempt a futures contracts on the SPIKES from the definition of 
``security future'' under the Exchange Act, subject to the exceptions 
and conditions set forth below.\20\
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    \19\ As previously discussed, the SPIKES calculation uses live 
OTM SPY options to interpolate the price of a single synthetic 
precisely 30-day ATM SPY option which, in turn, is used to calculate 
the precisely 30-day volatility of the SPY. Thus, a futures contract 
on SPIKES could, in the alternative, be viewed as a future based on 
the value of such single synthetic 30-day ATM SPY option.
    \20\ In the alternative, if SPIKES were considered to be an 
index composed of options on the SPY, a futures contract based on 
SPIKES would be a security future because SPIKES is a narrow-based 
security index under the definition set forth in Section 3(a)(55)(B) 
of the Exchange Act. See, e.g., Joint Final Rules: Application of 
the Definition of Narrow-Based Security Index to Debt Securities 
Indexes and Security Futures on Debt Securities, Exchange Act 
Release No. 54106 (July 6, 2006), 71 FR 39534, 39536-37 (July 13, 
2006).
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C. Exemptive Relief Under Section 36

    Section 36(a)(1) of the Exchange Act authorizes the Commission to 
conditionally or unconditionally exempt any person, security, or 
transaction, or any class or classes of persons, securities, or 
transactions, from any provision or provisions of the Exchange Act or 
any rule or regulation thereunder, by rule, regulation, or order, to 
the extent that such exemption is necessary or appropriate in the 
public interest, and is consistent with the protection of 
investors.\21\ After careful consideration, the Commission finds that 
it is necessary or appropriate in the public interest, and is 
consistent with the protection of investors, to exercise its authority 
to exempt the Product from the definition of security future in Section 
3(a)(55) of the Exchange Act for all purposes under the Exchange Act, 
other than certain specified provisions, including: (1) The anti-fraud 
and anti-manipulation provisions under the Exchange Act, (2) the 
obligation of MGEX to register with the Commission as a national 
securities exchange; (3) the obligation of MGEX to make available to 
the Commission (or its representatives) books and records relating to 
transactions in the Product, upon request; and (4) the obligation of 
MGEX to make itself available to inspection and examination by the 
Commission (or its representatives), upon request.
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    \21\ 15 U.S.C. 78mm(a)(1).
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    As a result of this exemptive order, market participants will be 
able to transact in the Product as a futures contract on MGEX, a DCM 
and DCO that is subject to the jurisdiction of the CFTC, consistent 
with the terms and conditions set forth below. The Commission believes 
that permitting the Product to trade as a futures contract, as opposed 
to as a security future, should foster competition as it could serve as

[[Page 77299]]

an alternative to the only comparable incumbent volatility product in 
the market. Facilitating greater competition among these types of 
products should provide market participants with access to a wider 
range of financial instruments to trade on and hedge against volatility 
in the markets, particularly the S&P 500. In addition, the introduction 
of an additional volatility product in the market should lower 
transaction costs for market participants. Further, because SPY options 
are traded on 16 different national securities exchanges, the 
Commission would expect there to be a large number of market 
participants able to act as market makers in the Product. Moreover, the 
fact that SPY options are multi-listed should provide resiliency by 
reducing the likelihood that a disruption on one or more options 
exchanges could lead to a disruption in trading in the Product.
    The Commission understands, however, that the Product will need to 
trade, clear, and settle as a futures contract on a CFTC-regulated DCM 
and DCO in order to achieve such benefits to the market. This order, 
and the exemption of the Product from the definition of ``security 
future,'' subject to the terms and conditions discussed below, is 
intended to achieve that result.

II. Exemptive Relief

A. Scope

    Pursuant to Section 36 of the Exchange Act, the Commission is 
exempting the Product from the definition of ``security future'' in 
Section 3(a)(55) of the Exchange Act for all purposes under the 
Exchange Act other than as follows. First, such definitional exemption 
does not apply to the anti-fraud and anti-manipulation provisions of 
the Exchange Act (including related investigative, enforcement, and 
procedural authority) in Sections 9, 10, 15(c), 20, 20A, 21, 21A, 21B, 
21C, 21D, 26, and 27,\22\ and the rules and regulations thereunder. 
Moreover, and as discussed in detail below, trading in the Product will 
remain subject to the anti-fraud provisions of Section 17(a) of the 
Securities Act.\23\
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    \22\ 15 U.S.C. 78(i), (j), o(c), t, t-1, u, u-1, u-2, u-3, u-4, 
z, and aa.
    \23\ 15 U.S.C. 77q(a). See infra note 53 and accompanying text 
(discussing the application of Section 17(a) of the Securities Act 
to the Product).
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    Given that the price of a futures contract on the SPIKES is based 
on the value of the SPY and is derived using SPY options as inputs to a 
formula that creates a synthetic SPY option, the Commission believes it 
must retain the ability to exercise enforcement authority when 
necessary to protect the integrity of the securities markets to the 
extent that fraudulent or manipulative trading activity occurs in 
connection with transactions in the Product that could impact trading 
in the underlying securities (i.e., SPY or SPY options), or vice versa. 
Accordingly, the Commission is retaining this authority to, among other 
things, help prevent the possibility of market participants using 
fraudulent or manipulative transactions in the Product as a surrogate 
for transactions in the underlying securities in order to evade the 
Commission's anti-fraud and anti-manipulation authority. Similarly, the 
Commission also would expect to use its anti-fraud and anti-
manipulation authority in the event that a market participant were to 
use transactions in the securities markets to engage in fraudulent or 
manipulative activities related to the Product.
    Second, the exemption from the definition of security future does 
not apply to the requirement to register with the Commission as a 
national securities exchange, as set forth in Section 5 of the Exchange 
Act, and the rules and regulations thereunder, and the requirements 
applicable to national securities exchanges, as set forth in Section 6 
of the Exchange Act, and the rules and regulations thereunder, 
including Section 6(g), which applies to an exchange that lists and 
trades only security futures products. Specifically, Section 6(g) of 
the Exchange Act provides that an exchange that lists or trades 
security futures products may register as a national securities 
exchange solely for the purposes of trading security futures products 
if: (1) The exchange is a board of trade, as that term is defined by 
Section 1a(6) of the CEA,\24\ that has been designated a contract 
market by the CFTC and such designation is not suspended by order of 
the CFTC; and (2) such exchange does not serve as a market place for 
transactions in securities other than security futures products or 
futures on exempted securities or groups or indexes of securities or 
options thereon that have been authorized under Section 2(a)(1)(C) of 
the CEA.\25\ Because MGEX satisfies the two conditions set forth in 
Section 6(g), it could avail itself of that provision to notice 
register as a national securities exchange by completing and submitting 
Form 1-N pursuant to Exchange Act Rule 6a-4(a)(1).\26\ By notice 
registering as a national securities exchange under Section 6(g), MGEX 
would also be subject to the ongoing requirements under Exchange Act 
Rule 6a-4 regarding amendments to MGEX's notice of registration on Form 
1-N,\27\ as well as periodic filings regarding certain supplemental 
material related to the trading of security futures products on 
MGEX.\28\
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    \24\ The cross-reference in Section 6(g) of the Exchange Act to 
the definition of ``board of trade'' cites to Section 1a(2) of the 
CEA which is no longer accurate due to subsequent amendments made to 
Section 1a of the CEA that modified the paragraph numbering.
    \25\ 15 U.S.C. 78f(g).
    \26\ See 17 CFR 240.6a-4(a)(1). Rule 6a-4(a)(2) also requires 
that promptly after the discovery that any information filed on Form 
1-N was inaccurate when filed, the exchange shall file with the 
Commission an amendment correcting such inaccuracy. See 17 CFR 
240.6a-4(a)(2).
    \27\ See 17 CFR 240.6a-4(b).
    \28\ See 17 CFR 240.6a-4(c).
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    The Commission believes that registration as a national securities 
exchange is necessary in order to facilitate the use of the 
Commission's anti-fraud and anti-manipulation authority with respect to 
the Product. Registration will allow the Commission to access the 
information it needs to determine whether fraudulent or manipulative 
activity has occurred, the scope of such activity, and the parties 
engaging in it. Accordingly, MGEX will remain subject to the provisions 
in Section 17(a) of the Exchange Act, and the rules and regulations 
thereunder. Thus, the exemption from the definition of security future 
does not apply to the obligation of MGEX, in its capacity as a national 
securities exchange, to make and keep records relating to transactions 
in the Product, furnish such copies thereof, and to make and 
disseminate such reports available to the Commission (or its 
representatives), upon request.\29\ In particular, Exchange Act Rule 
17a-1 requires each national securities exchange to: (1) Keep and 
preserve at least one copy of all documents, including all 
correspondence, memoranda, papers, books, notices, accounts, and other 
such records as shall be made or received by it in the course of its 
business as such and in the conduct of its self-regulatory activity; 
(2) keep all such documents for a period of not less than five years, 
the first two years in an easily accessible place, subject to the 
destruction and disposition provisions of Exchange Act Rule 17a-6; \30\ 
and (3) upon request of

[[Page 77300]]

any representative of the Commission, promptly furnish to the 
possession of such representative copies of any documents required to 
be kept and preserved by it pursuant to paragraphs (a) and (b) of the 
rule.\31\
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    \29\ 15 U.S.C. 78q(a).
    \30\ Exchange Act Rule 17a-6 applies to national securities 
exchanges, national securities associations, registered clearing 
agencies, and the Municipal Securities Rulemaking Board, and allows 
for the destruction or disposal of records by these entities prior 
to the five-year retention period of Exchange Act Rule 17a-1 if done 
according to a plan for destruction or disposal that is filed with 
and approved by the Commission. 17 CFR 240.17a-6.
    \31\ 17 CFR 240.17a-1.
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    Similarly, MGEX will remain subject to Section 17(b) of the 
Exchange Act, and the rules and regulations thereunder.\32\ Thus, the 
exemption from the definition of security future does not apply to the 
obligation of MGEX, in its capacity as a national securities exchange, 
to make itself available to inspection and examination by the 
Commission (or its representatives), upon request.
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    \32\ 15 U.S.C. 78q(b).
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    Taken together, these provisions are intended to provide the 
Commission with prompt access to the information it needs to help 
determine whether fraudulent or manipulative activity has occurred and 
whether additional steps are necessary to halt such activity. Such 
information also should help to inform the Commission during the course 
of taking necessary enforcement action against parties in connection 
with transactions in the Product. For example, MGEX's records of 
transactions in the Product should provide Commission staff with a key 
resource for analyzing whether manipulation has occurred (in the 
Product, the SPY, or SPY options). Trading records also should help the 
Commission and its staff analyze the amount of damages (including 
potential disgorgement) in connection with such enforcement matters.
    However, the Commission also recognizes that Section 6 of the 
Exchange Act imposes other requirements on national securities 
exchanges that have no relation to recordkeeping or examination 
requirements, and are therefore unlikely to assist the Commission in 
utilizing its anti-fraud and anti-manipulation authority over the 
Product. Accordingly, the Commission is providing MGEX with an 
exemption from all of the Section 6 requirements applicable to national 
securities exchanges, other than the ones described above. For example, 
under this exemptive relief, MGEX will not be required to comply with: 
(1) The requirement in Section 6(h)(2) of the Exchange Act to only 
trade security futures that conform with listing standards that are 
filed with the Commission under Section 19(b) of the Exchange Act and 
meet the criteria specified in Section 2(a)(1)(D)(i) of the CEA; (2) 
the requirements for listing standards and conditions for trading set 
forth in Section 6(h)(3) of the Exchange Act (including with respect to 
margin); and (3) the requirement to submit proposed rule changes to the 
Commission, including those that would otherwise be required by Section 
6(g)(4)(B) of the Exchange Act. With respect to the listing standard 
requirements, given that this order allows MGEX to trade the Product as 
a future (and not as a security future), we do not believe it necessary 
or appropriate to require MGEX to comply with listing standard 
requirements that are specific to security futures. Rather, MGEX will 
be able to trade the Product under the listing standards for futures 
contracts that are subject to the CFTC's oversight.\33\
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    \33\ The exemption from the requirements in Section 6 of the 
Exchange Act applies to MGEX so long as it is only lists and trades 
the Product (as well as futures contracts subject to the CFTC's 
exclusive jurisdiction). To the extent that MGEX were to expand its 
offerings to include a security futures product that is not subject 
to this exemptive order, all of the requirements in Section 6 would 
apply to such security futures product. In such an instance, 
however, the applicable exemption would continue to apply to the 
Product.
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    Finally, the exemption from the definition of security future does 
not apply to the requirement to register with the Commission as a 
clearing agency, as set forth in Section 17A of the Exchange Act, and 
the rules and regulations thereunder, including the exemption from 
registration in paragraph (b)(7) of that section. Specifically, and as 
discussed in detail in Section II.C below, by not including Section 17A 
in the exemptive relief provided for in this order, MGEX will be able 
to avail itself of the statutory exemption from clearing agency 
registration in Section 17A(b)(7), which applies to certain clearing 
agencies that do not clear securities other than security futures.\34\ 
This carve-out from the exemptive relief is not intended to affect 
MGEX's obligations under this order, but rather to clarify its ability 
to rely on an exemption from Section 5 of the Securities Act, as 
discussed in detail in Section II.C.
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    \34\ See infra note 54.
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    In crafting the scope of this exemptive order, the Commission 
recognizes that the CFTC has a regulatory regime that will govern every 
aspect of the Product on a day-to-basis, including the DCM and DCO on 
which it trades and clears (i.e., MGEX), and the market participants 
that are members of that DCM and DCO. The Commission intends to 
exercise its authority over MGEX and the Product for the limited 
purposes of enforcing its anti-fraud and anti-manipulation authority in 
connection with trading in the Product, which it is retaining pursuant 
to this order. Such retained authority is in addition to the CFTC's 
jurisdiction over the Product and MGEX, which includes enforcing anti-
fraud provisions and registration and recordkeeping obligations under 
the commodity laws. Accordingly, the Commission does not believe that 
additional requirements beyond those specified in this order are 
necessary given that such requirements would generally not directly 
impact the Commission's ability to determine whether and how to use its 
anti-fraud and anti-manipulation authority in connection with trading 
in the Product.

B. Conditions

    The relief the Commission is providing in this order is predicated 
upon certain facts and circumstances regarding how the Product (and the 
securities that underlie it) are currently structured and traded. That 
information has allowed the Commission to reach certain conclusions 
that relate to, among other things, the susceptibility of the Product 
(or its underlying securities) to manipulation and the ability of the 
SPY to effectively track the S&P 500. To the extent that those facts 
and circumstances were to change, such modifications could potentially 
undermine the basis for providing relief. Accordingly, this exemptive 
order includes a number of conditions. Those conditions, which are 
described in detail below, generally fit into one of two categories, as 
follows: (1) Conditions related to the SPIKES calculation, including 
the liquidity and trading venue of the required inputs; and (2) 
conditions on the relationship between the SPY and the S&P 500 Index.
    To the extent that one or more of these conditions is no longer 
satisfied, this exemptive order will no longer apply three calendar 
months after the end of the month in which any condition is no longer 
satisfied. The Commission recognizes that, to the extent that the 
exemptions in this order are no longer effective, market participants 
will need time to take the necessary steps to wind down their existing 
transactions in an orderly fashion, which typically requires entering 
into offsetting transactions. In that respect, we believe that three 
calendar months is a sufficient amount of time to allow for such 
activity to occur.\35\
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    \35\ As an example of an analogous situation, the statutory 
definition of narrow-based security index in Section 3(a)(55) of the 
Exchange Act (which is used to determine whether a future on a 
security index is a security future) includes a similar three month 
grace period after an index transitions from broad- to narrow-based. 
See 15 U.S.C. 78c(a)(55)(E) (providing that an index that is a 
narrow-based security index solely because it was a narrow-based 
security index for more than 45 business days over three consecutive 
calendar months pursuant to Section 3(a)(55)(C)(iii) shall not be a 
narrow-based security index for the three following calendar 
months).

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[[Page 77301]]

    Finally, the Commission notes that some of these conditions contain 
numerical thresholds, the purposes of which are explained below in the 
discussion of each relevant condition. As a general matter, each 
threshold is intended to help ensure either that the securities used to 
calculate the SPIKES are not readily susceptible to manipulation 
because of their significant liquidity,\36\ or that the Product 
continues to serve as a competitor to other financial products that 
measure the volatility of the S&P 500 Index because the SPY continues 
to closely track the index. The level of each threshold is based on 
historical public data relevant to the objective of the particular 
condition. In each instance, the thresholds seek to balance the 
importance of achieving the stated purpose of the relevant condition 
with the fact that the consequence of breaching these thresholds is 
that the exemptive relief would no longer apply.
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    \36\ The Commission has previously noted that liquidity is an 
important factor when determining whether a security is readily 
susceptible to manipulation. See, e.g., Publication or Submission of 
Quotations Without Specified Information, Exchange Act Release No. 
89891 (Sept. 16, 2020), 85 FR 68124, 68158 (Oct. 27, 2020) 
(``Further, the Commission believes that the exception's three 
thresholds of ADTV value, total assets, and shareholders' equity are 
tailored to appropriately capture issuers of securities that are 
less susceptible to fraud and manipulation based on the liquidity of 
the security and size of the issuer.''). See also Short Sales, 
Exchange Act Release No. 48709 (Oct. 28. 2003), 68 FR 62972, 63004 
(Nov. 6, 2003) (``The proposed pilot program would suspend the 
operation of the proposed bid test provision for selected stocks 
that the Commission believes are less susceptible to manipulation 
because they are more liquid and have a high market 
capitalization.''); Concept Release on Short Sales, Exchange Act 
Release No. 42037 (Oct. 20, 1999), 64 FR 57996, 58000 (Oct. 28, 
1999) (``Some of the Commission's anti-manipulation rules assume 
that highly liquid securities are less vulnerable to manipulation 
and abuse than securities that are less liquid.''); Joint Order 
Excluding Indexes Comprised of Certain Index Options from the 
Definition of Narrow-Based Security Index pursuant to Section 
1a(25)(B)(vi) of the Commodity Exchange Act and Section 
3(a)(55)(C)(vi) of the Securities Exchange Act of 1934, Exchange Act 
Release No. 49469 (Mar. 25, 2004), 69 FR 16900, 16901 (Mar. 31, 
2004) (``2004 Joint Order'') (``In addition, the Commissions believe 
that futures contracts on indexes that satisfy the conditions of 
this exclusion should not be readily susceptible to manipulation 
because of the composition, weighting, and liquidity of the 
securities in the Underlying Broad-Based Security Index and the 
liquidity that the options comprising the index must have to qualify 
for the exclusion.'').
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i. Conditions Related to the SPIKES Calculation, Including the 
Liquidity and Trading Venue of the Required Inputs
    The first condition of this exemptive order requires that SPIKES 
measure the magnitude of changes in the level of the price of the units 
of the SPY over a defined period of time, which magnitude is calculated 
using the prices of options on the SPY and represents: (a) An 
annualized standard deviation of percent changes in the price of the 
units of the SPY; (b) an annualized variance of percent changes in the 
price of the units of the SPY; or (c) on a non-annualized basis either 
the standard deviation or the variance of percent changes in the price 
of the units of the SPY. This condition, which is similar to one that 
is included in prior volatility index orders (which apply to volatility 
indexes that measure the expected 30-day volatility of broad-based 
security indexes), is designed to limit the exemption to volatility 
indexes calculated using one of two commonly recognized statistical 
measurements that show the degree to which an individual value tends to 
vary from an average value.\37\
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    \37\ See 2004 Joint Order, supra note 36; Joint Order to Exclude 
Indexes Composed of Certain Index Options from the Definition of 
Narrow-Based Security Index Pursuant to Section 1a(25)(B)(vi) of the 
Commodity Exchange Act and Section 3(a)(55)(C)(vi) of the Securities 
Exchange Act of 1934, Exchange Act Release No. 61020 (Nov. 17, 
2009), 74 FR 61116 (Nov. 23, 2009).
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    The order also contains four conditions designed to measure both 
the volume and venue of trading in the SPY and SPY options, which are 
as follows: \38\
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    \38\ To determine the liquidity thresholds relating to the SPY 
and its component options, Commission staff reviewed data from the 
equity consolidated data feeds, namely the UTP Trade Data Feed 
(UTDF) and the Consolidated Tape System (CTS), and the Options Price 
Reporting Authority (OPRA), as collected by the Commission's Market 
Information Data Analytics System (MIDAS) for the six-month period 
beginning in October 2019. Specifically, these thresholds were 
determined by identifying the level at which at least 90% of the 
values exceeded such level.
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    (1) The average daily dollar volume in the units of the SPY must be 
at least $10 billion calculated over the preceding 180 days.\39\
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    \39\ For the 180 days ending on October 14, 2020, the average 
daily dollar volume in the units of the SPY was approximately $13.7 
billion.
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    (2) Units of the SPY must be listed and traded on a national 
securities exchange registered under section 6(a) of the Exchange Act.
    (3) The aggregate average daily notional volume in options on the 
SPY must be at least $400 million calculated over the preceding 180 
days.\40\
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    \40\ For the 180 days ending on October 14, 2020, the aggregate 
average daily notional volume in options on the SPY was $1,369 
million.
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    (4) Options on the SPY must be listed and traded on a national 
securities exchange registered under section 6(a) of the Exchange Act.
    Although the Commission has retained its ability to exercise anti-
fraud and anti-manipulation authority in connection with the Product, 
certain aspects of how SPIKES is designed should help to ensure that 
the need to use such authority is limited. For example, the fact that 
the SPY is one of the most liquid securities in the world, and is 
therefore likely to be not readily susceptible to manipulation, should 
minimize the possibility of market participants using the Product as a 
surrogate for trading in the SPY in order to avoid application of the 
Federal securities laws. Similarly, the significant liquidity of SPY 
options, in the aggregate, and the fact that such options are traded on 
16 different national securities exchanges, supports the conclusion 
that the securities used to compute the SPIKES also should not be 
readily susceptible to manipulation. Finally, the fact that the SPY and 
its component options are traded on a national securities exchange--and 
must continue to be so--helps to ensure that pricing information is 
current, accurate, and publicly available, and that trading is 
appropriately surveilled.
ii. Conditions on the Relationship Between the SPY and the S&P 500 
Index
    As previously noted, SPIKES differs from other volatility products 
currently trading in the market in that while such other products 
measure the expected 30-day volatility of the S&P 500 Index, a broad-
based security index,'' \41\ SPIKES measures the expected 30-day 
volatility of the SPY, a single security. Although the stated 
investment objective of the SPY is to provide investment returns that, 
before expenses, correspond generally to the price and yield 
performance of the S&P 500 Index,\42\ we generally do not believe it 
appropriate to ``look through'' to an issuer's holdings in order to 
treat the issuer's security as an index for purposes of determining the 
status of a futures contract.
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    \41\ See supra note 37.
    \42\ See State Street Global Advisors Fact Sheet: SPDR[supreg] 
S&P 500[supreg] ETF Trust, available at: https://www.ssga.com/library-content/products/factsheets/etfs/us/factsheet-us-en-spy.pdf.
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    At the same time, however, the Commission recognizes the importance 
of fostering competition in the volatility

[[Page 77302]]

markets, in a manner that is consistent with the protection of 
investors. Specifically, the introduction of an additional volatility 
product in the market should lower transaction costs for market 
participants. Those competitive benefits animate the Commission's 
decision to exempt SPIKES futures from the definition of security 
future--subject to certain exceptions and conditions--under these 
limited and factually-specific circumstances. Those facts and 
circumstances include, among other things, the liquidity of the SPY 
(and options on the SPY), as previously discussed, and the historical 
performance of the SPY in tracking the performance of the S&P 500 
Index. Accordingly, this order includes a number of conditions designed 
to protect investors should significant deviations between the SPY and 
the S&P 500 Index materialize. The Commission believes that if any of 
those conditions are no longer satisfied, it could suggest a 
dislocation between the SPY and its underlying index large enough to 
call into question whether the Product would continue to be a 
competitor to volatility products that measure the expected 30-day 
volatility of the S&P 500 Index.
    The first two of these conditions address the structure and 
holdings of the SPY, and are as follows:
     The SPY is a unit investment trust (``UIT''), as defined 
in Section 4(2) of the Investment Company Act of 1940, and is 
registered with the Commission as an investment company under the 
Investment Company Act of 1940.\43\
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    \43\ 15 U.S.C. 80a-4(2).
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     The SPY holds a portfolio of common stocks designed to 
provide investment returns that, before expenses, correspond generally 
to the price and yield performance of the S&P 500 Index.
    A UIT is an investment company organized under a trust indenture or 
similar instrument that issues redeemable securities, each of which 
represents an undivided interest in a unit of specified securities. By 
statute, a UIT is unmanaged and its portfolio is fixed.\44\ 
Substitution of securities may take place only under certain predefined 
circumstances. A UIT does not have a board of directors, corporate 
officers, or an investment adviser to render advice during the life of 
the trust. Exchange-Traded Funds (``ETFs'') organized as UITs (e.g., 
the SPY) operate pursuant to exemptive orders issued by the 
Commission.\45\ Under these circumstances, the Commission believes that 
the SPY's status as a UIT, together with the condition addressing its 
investment objective and the composition of its portfolio, 
appropriately limit the possibility that the SPIKES would be based on 
the SPY at a time when the SPY is pursuing a different investment 
strategy, given that the SPY, as a UIT, must be an unmanaged investment 
vehicle with a fixed portfolio.
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    \44\ See Exchange-Traded Funds, Investment Company Act Release 
No. 33646 (Sept. 25 2019), 84 FR 57162 n. 42 (Oct. 24, 2019) (``ETF 
Adopting Release).
    \45\ See Exchange-Traded Funds, Investment Company Act Release 
No. 33140 (June 28 2018), 83 FR 37332, 37336 n. 37 (July 31, 2018) 
(further explaining, in the context of UITs that are ETFs, that 
``[b]ecause a UIT must invest in `specified securities,' the 
investment strategies that a UIT ETF can pursue are limited. All UIT 
ETFs today seek to track the performance of an index by investing in 
the component securities of the index in the same approximate 
proportions as in the index (i.e., ``replicating'' the index). The 
trustee of an UIT ETF may make adjustments to the ETF's portfolio 
only to reflect changes in the composition of the underlying 
index'') (internal citations omitted).
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    Notwithstanding the legal requirements limiting the scope of the 
SPY's investment objective, circumstances may ultimately arise 
impacting the relationship between the SPY and the S&P 500 Index, 
particularly during times of market volatility. Accordingly, this order 
contains a number of conditions designed to protect investors should a 
tracking error between the SPY and its underlying index materialize.
    Specifically, this order contains two tracking error conditions, 
one of which compares the net asset value (``NAV'') of the SPY to the 
S&P 500 Index, and the other compares the NAV of the SPY to its 
official closing price.\46\ The Commission is bifurcating the tracking 
error requirements in this manner--as opposed to simply comparing the 
official closing price of the SPY to the S&P 500 Index--to account for 
situations when a tracking error is quickly resolved and able to be 
netted, thereby allowing the exemptive relief to remain in effect. The 
Commission also is including two notice requirements designed to serve 
as an early warning to the Commission of a deviation between the NAV of 
the SPY and the corresponding returns of the S&P 500 Index, or between 
the NAV of the SPY and its official closing price. Each of those 
requirements is discussed in detail below.
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    \46\ The tracking error conditions set forth below have been 
designed solely for the purposes of this order. The methodologies 
and thresholds discussed herein are specific to the facts and 
circumstances of this exemptive order and should not be viewed as 
precedent for any other purposes, including as it relates to the 
regulation of investment companies under the Investment Company Act 
of 1940.
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    The first tracking error condition requires that the annualized 
tracking error between the NAV of the SPY and the S&P 500 Index not 
meet or exceed 1%.\47\ This condition, however, also provides that if 
over two consecutive trading days the returns used to calculate 
annualized tracking error can be netted, such that the annualized 
tracking error falls below 1%, then any such exceedance shall be deemed 
not to have occurred on those two consecutive trading days for purposes 
of this condition. For purposes of this condition, the term 
``annualized tracking error'' should be calculated by taking the weekly 
return differences between the NAV of the SPY and the S&P 500 Index for 
the trailing 12 months (with each week beginning and ending on a 
Friday), taking into account dividends (as applicable), and then 
multiplying the standard deviation of those return differences by the 
square root of 52.
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    \47\ To determine the threshold for the comparison between the 
NAV of the SPY and the S&P 500 Index, Commission staff reviewed the 
annualized NAV tracking error, as provided by Bloomberg, between 
January 2008 and October 2020, which was generally below 1%.
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    The Commission believes it important to provide some flexibility in 
circumstances when a large tracking error between the NAV of the SPY 
and the S&P 500 Index is quickly resolved. As a result, this condition 
will not be considered to have been breached if the tracking error 
falls below the 1% threshold when netted consecutive weekly returns are 
used to recalculate annualized tracking error. In addition, the 
Commission has decided to use an annualized measure for this condition 
in order to capture only those tracking errors that are large enough or 
so sustained (or both) that they result in a breach of the 1% threshold 
for an entire year.
    The second tracking error condition requires that the official 
closing price of the SPY not deviate from the NAV of the SPY by more 
than 20 basis points for five or more consecutive trading days.\48\ As 
a general matter, ETFs (including the SPY) are structured in such a way 
to help ensure that the NAV per share of

[[Page 77303]]

an ETF remains at or close to its market price per share.\49\ 
Accordingly, deviations between the SPY's NAV and its official closing 
price that exceed 20 basis points and that persist for five or more 
consecutive trading days should generally not occur.\50\ For purposes 
of both this requirement and the notice requirement discussed below, 
the ``official closing price'' of the SPY should be determined pursuant 
to the rules of its primary listing exchange.
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    \48\ To determine the threshold for the comparison between the 
NAV of the SPY and the closing auction price, Commission staff 
reviewed Bloomberg data between January 2008 and October 2020. Based 
on that review, it appears that the average difference over time is 
close to zero. Those differences do vary on a day-to-day basis, 
however, with the standard deviation of those differences being 
approximately 10 basis points, which suggests that the closing 
auction price of the SPY has historically been within 20 basis 
points of its NAV approximately 95% of the time.
    \49\ See ETF Adopting Release, 84 FR at 57165 (``[t]he 
combination of the creation and redemption process with secondary 
market trading in ETF shares and underlying securities provides 
arbitrage opportunities that are designed to help keep the market 
price of ETF shares at or close to the NAV per share of the ETF.'')
    \50\ See ETF Adopting Release, 84 FR at 57173 n.119 (``[i]n an 
analysis of various asset classes during 2017-2018, end-of-day 
deviations between closing price of ETFs and NAV were relatively 
rare and generally not persistent.'') (internal citations omitted).
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    Finally, the order is conditioned on MGEX providing the Commission 
with notice of certain tracking error issues. Specifically, MGEX is 
required to monitor the daily closing prices and the SPY's NAV and the 
corresponding returns of the S&P 500 Index. If (i) at any time the 
annualized tracking error between the NAV of the SPY and the S&P 500 
Index exceeds 0.5% or (ii) for two or more consecutive trading days the 
official closing price of the SPY deviates from the NAV of the SPY by 
more than 20 basis points, MGEX must: (A) Promptly notify the 
Commission of such divergence, in a form and manner acceptable to the 
Commission, and (B) conduct an investigation in an attempt to determine 
its cause. As with the other tracking error conditions, the notice 
requirement is intended to identify situations where a divergence 
between the SPY and the S&P 500 could result in the Product no longer 
serving as a viable competitor to existing volatility products, which 
would undermine the basis for providing this relief.
    The events that trigger the notice requirements largely mirror the 
two tracking error conditions described above. However, the threshold 
for the annualized tracking error between the NAV of the SPY and the 
S&P 500 Index is 0.5% for purposes of this notice requirement, rather 
than 1%. With respect to the deviation between the official closing 
price of the SPY and the NAV of the SPY, the time period is two or more 
consecutive trading days, rather than five or more consecutive trading 
days. These more restrictive thresholds reflect the fact that they 
trigger only a notice requirement, as opposed to resulting in the 
exemptive relief no longer applying. Those thresholds also are 
consistent with our view of the importance of providing the Commission 
and MGEX with an early warning of one or more divergences that could 
undermine the basis for the relief set forth in this exemptive order.

C. Securities Act Status

    Section 5 of the Securities Act provides that any offer or sale of 
a security, including a security futures product, must either be 
registered under the Securities Act or made pursuant to an exemption 
from registration.\51\ Section 3(a)(14) of the Securities Act provides 
an exemption from the registration requirements of Section 5 of the 
Securities Act for any security futures product that is: (i) Cleared by 
a clearing agency registered under section 17A of the Exchange Act or 
exempt from registration under subsection (b)(7) of such section 17A, 
and (ii) traded on a national securities exchange or a national 
securities association registered pursuant to section 15A(a) of the 
Exchange Act.\52\ A security futures product that satisfies the 
conditions of the Section 3(a)(14) exemption remains subject to the 
anti-fraud provisions of Section 17 of the Securities Act.\53\
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    \51\ 15 U.S.C. 77e.
    \52\ 15 U.S.C. 77c(a)(14).
    \53\ See Section 17(c) of the Securities Act. 15 U.S.C. 77q(c) 
(providing that ``[t]he exemptions provided in section 3 shall not 
apply to the provisions of this section'').
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    Although the statutory exemption contained in Section 3(a)(14) of 
the Securities Act is effective by operation of law, and therefore does 
not require Commission action, for the avoidance of doubt we are 
confirming our view that MGEX will be able to rely on that exemption to 
offer and sell the Product, as follows. First, MGEX will need to 
register with the Commission as a national securities exchange under 
Section 6(g) of the Exchange Act due to the fact that the exemption 
from the definition of security future does not apply to the 
registration requirements in Section 5 of the Exchange Act. Second, 
because the exemptive relief also does not apply to Section 17A of the 
Exchange Act, and the rules and regulations thereunder, MGEX (which 
will also clear the Product) will be able to avail itself of the 
statutory exemption from registration as a clearing agency in Section 
17A(b)(7),\54\ given that it is regulated directly by the CFTC as both 
a DCM and as a DCO.\55\
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    \54\ 17 U.S.C. 78q-1(b)(7)(A). Subsection (b)(7) provides, in 
part, that ``[a] clearing agency that is regulated directly or 
indirectly by the CFTC through its association with a designated 
contract market for security futures products that is a national 
securities exchange registered pursuant to [Section 6(g) of the 
Exchange Act], and that would be required to register pursuant to 
[Section 17A(b)(1) of the Exchange Act] only because it performs the 
functions of a clearing agency with respect to security futures 
products effected pursuant to the rules of the designated contract 
market with which such agency is associated, is exempted from the 
provisions of this section and the rules and regulations 
thereunder.''
    \55\ The Commission notes that the other requirements of the 
exemption from registration as a clearing agency set forth in 
Section 17A(b)(7) of the Exchange Act do not apply with respect to 
transactions in the Product, given that it will be cash settled and 
cleared only by MGEX.
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III. Conclusion

    It is hereby ordered, pursuant to section 36 of the Securities 
Exchange Act of 1934 (``Exchange Act''), that a contract of sale for 
future delivery on the SPIKES\TM\ Index (``SPIKES'') trading on the 
Minneapolis Grain Exchange, Inc. (or any successor thereto) (``MGEX'') 
(such futures contracts (and any options thereon) hereinafter referred 
to as the ``Product'') shall be exempt from the definition of 
``security future'' in Section 3(a)(55) of the Exchange Act for all 
purposes under the Exchange Act, other than the following:
    (1) The anti-fraud and anti-manipulation provisions of the Exchange 
Act (including related investigative, enforcement, and procedural 
authority) in Sections 9, 10, 15(c), 20, 20A, 21, 21A, 21B, 21C, 21D, 
26, and 27,\56\ and the rules and regulations thereunder;
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    \56\ 15 U.S.C. 78(i), (j), o(c), t, t-1, u, u-1, u-2, u-3, u-4, 
z, and aa.
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    (2) the requirement that MGEX register with the Securities and 
Exchange Commission (``Commission'') as a national securities exchange, 
as set forth in Section 5 of the Exchange Act, and the rules and 
regulations thereunder, and the requirements applicable to national 
securities exchanges, as set forth in Section 6 of the Exchange Act, 
and the rules and regulations thereunder, including Section 6(g) and 
Exchange Act Rule 6a-4 (17 CFR 240.6a-4); provided, however, that once 
registered with the Commission as a national securities exchange, MGEX 
shall be exempt from all other requirements contained in Section 6 of 
the Exchange Act solely as they relate to transactions in the Product;
    (3) Section 17(a) of the Exchange Act, and the rules and 
regulations thereunder (including Exchange Act Rule 17a-1 (17 CFR 
240.17a-1)), as it relates to the obligation of MGEX, in its capacity 
as a national securities exchange, to make and keep records relating to 
transactions in the Product, furnish such copies thereof, and to make 
and disseminate such reports available

[[Page 77304]]

to the Commission (or its representatives), upon request;
    (4) Section 17(b) of the Exchange Act, and the rules and 
regulations thereunder, as it relates to the obligation of MGEX, in its 
capacity as a national securities exchange, to make itself available to 
inspection and examination by the Commission (or its representatives), 
upon request; and
    (5) the requirement that MGEX register with the Commission as a 
clearing agency, as set forth in Section 17A of the Exchange Act, and 
the rules and regulations thereunder, including the exemption from 
registration in paragraph (b)(7) of that section.
    Such exemptions are subject to the conditions set forth below. To 
the extent that one or more of these conditions is no longer satisfied, 
the exemptions set forth in this order will no longer apply three 
calendar months after the end of the month in which any condition was 
no longer satisfied.
    (1) SPIKES measures the magnitude of changes in the level of the 
price of the units of the SPDR[supreg] S&P 500[supreg] ETF Trust 
(``SPY'') over a defined period of time, which magnitude is calculated 
using the prices of options on the SPY and represents: (a) An 
annualized standard deviation of percent changes in the price of the 
units of the SPY; (b) an annualized variance of percent changes in the 
price of the units of the SPY; or (c) on a non-annualized basis either 
the standard deviation or the variance of percent changes in the price 
of the units of the SPY.
    (2) The average daily dollar volume in the units of the SPY is at 
least $10 billion calculated over the preceding 180 days.
    (3) Units of the SPY are listed and traded on a national securities 
exchange registered under section 6(a) of the Exchange Act.
    (4) The aggregate average daily notional volume in options on the 
SPY is at least $400 million calculated over the preceding 180 days.
    (5) Options on the SPY are listed and traded on a national 
securities exchange registered under section 6(a) of the Exchange Act.
    (6) The SPY is a ``unit investment trust,'' as defined in Section 
4(2) of the Investment Company Act of 1940, and is registered with the 
Commission as an investment company under the Investment Company Act of 
1940.
    (7) The SPY holds a portfolio of common stocks designed to provide 
investment returns that, before expenses, correspond generally to the 
price and yield performance of the S&P 500 Index.
    (8) The annualized tracking error between the net asset value 
(``NAV'') of the SPY and the S&P 500 Index does not meet or exceed 1%; 
provided, however, that if over two consecutive trading days the 
returns used to calculate annualized tracking error can be netted, such 
that the annualized tracking error falls below 1%, then any such 
exceedance shall be deemed not to have occurred on those two 
consecutive trading days for purposes of this condition. For purposes 
of this condition, the term ``annualized tracking error'' should be 
calculated by taking the weekly return differences between the NAV of 
the SPY and the S&P 500 Index for the trailing 12 months (with each 
week beginning and ending on a Friday), taking into account dividends 
(as applicable), and then multiplying the standard deviation of those 
return differences by the square root of 52.
    (9) The official closing price of the SPY, as determined pursuant 
to the rules of its primary listing exchange, does not deviate from the 
NAV of the SPY by more than 20 basis points for five or more 
consecutive trading days.
    (10) MGEX shall monitor the daily closing prices and the NAV of the 
SPY and the corresponding returns of the S&P 500 Index. If (i) at any 
time the annualized tracking error between the NAV of the SPY and the 
S&P 500 Index exceeds 0.5% or (ii) for two or more consecutive trading 
days the official closing price of the SPY, as determined pursuant to 
the rules of its primary listing exchange, deviates from the NAV of the 
SPY by more than 20 basis points, MGEX shall (A) promptly notify the 
Commission of such divergence, in a form and manner acceptable to the 
Commission, and (B) conduct an investigation in an attempt to determine 
its cause.

    Dated: November 24, 2020.

    By the Commission.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-26419 Filed 11-30-20; 8:45 am]
BILLING CODE 8011-01-P