[Federal Register Volume 81, Number 133 (Tuesday, July 12, 2016)]
[Notices]
[Pages 45185-45188]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-16380]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-78236; File No. SR-BatsBZX-2016-26]
Self-Regulatory Organizations; Bats BZX Exchange, Inc.; Notice of
Filing of Proposed Rule Change to BZX Rule 14.11(d) To Add the EURO
STOXX 50[supreg] Volatility Futures to the Definition of Futures
Reference Asset
July 6, 2016.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given
that on June 23, 2016, Bats BZX Exchange, Inc. (the ``Exchange'' or
``BZX'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of the
Substance of the Proposed Rule Change
The Exchange filed a proposal to amend Rule 14.11(d) in order to
add the EURO STOXX 50[supreg] Volatility (VSTOXX[supreg]) Futures
(``VSTOXX Futures'') to the definition of Futures Reference Asset.
The text of the proposed rule change is available at the Exchange's
Web site at www.batstrading.com, at the principal office of the
Exchange, and at the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
Sections A, B, and C below, of the most significant parts of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Commission has approved the listing of debt securities known as
Linked Securities \3\ and, in particular, Futures-Linked Securities,
which are Linked Securities with a payment at maturity based on the
performance of a Futures Reference Asset,\4\ including listing pursuant
to Rule 19b-4(e) under Rule 14.11(d)(2).\5\ Rule 19b-4(e) \6\ under the
Act provides that the listing and trading of a new derivative
securities product by a self-regulatory organization (``SRO'') shall
not be deemed a proposed rule change, pursuant to section (c)(1) of
Rule 19b-4,\7\ if the Commission has
[[Page 45186]]
approved, pursuant to Section 19(b) of the Act,\8\ the SRO's trading
rules, procedures, and listing standards for the product class and the
SRO has a surveillance program for the product class.\9\
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\3\ As defined in Rule 14.11(d), ``Linked Securities'' includes
Multifactor Index-Linked Securities, Equity Index-Linked Securities,
Commodity-Linked Securities, Fixed Income Index-Linked Securities,
and Futures-Linked Securities.
\4\ As defined in Rule 14.11(d), ``Futures Reference Asset''
includes ``an index of (a) futures on Treasury Securities, GSE
Securities, supranational debt and debt of a foreign country or a
subdivision thereof, or options or other derivatives on any of the
foregoing; or (b) interest rate futures or options or derivatives on
the foregoing in this subparagraph (b); or (c) CBOE Volatility Index
(VIX) Futures.''
\5\ See Securities Exchange Act Release No. 65225 (August 30,
2011), 76 FR 55148 (September 6, 2011) (SR-BATS-2011-018) (Order
Approving Proposed Rule Change to Adopt Rules for the Qualification,
Listing and Delisting of Companies on the Exchange) (the ``Approval
Order''). The Approval Order approved the rules permitting the
listing of both Tier I and Tier II securities on the Exchange and
the requirements associated therewith, which includes, among others,
the listing and trading of Linked Securities, trading hours and
halts, and listing fees originally applicable to Linked Securities.
\6\ 17 CFR 240.19b-4(e).
\7\ 17 CFR 240.19b-4(c)(1).
\8\ 15 U.S.C. 78s(b).
\9\ See Securities Exchange Act Release No. 40761 (December 8,
1998), 63 FR 70952 (December 22, 1998).
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The Exchange proposes to amend Rule 14.11(d) in order to add VSTOXX
Futures to the definition of Futures Reference Asset, which would allow
the Exchange to list Futures-Linked Securities linked to VSTOXX Futures
through generic listing standards pursuant to Rule 19b-4(e) under BZX
Rule 14.11(d)(2)(K)(iv).
Rule 14.11(d)(2)(K)(iv)(a) requires that a Futures-Linked Security
meet one of the following standards: (1) That the Futures Reference
Asset to which the security is linked shall have been reviewed and
approved for the trading of Futures-Linked Securities or options or
other derivatives by the Commission under Section 19(b)(2) of the Act
and rules thereunder and the conditions set forth in the Commission's
approval order, including with respect to comprehensive surveillance
sharing agreements, continue to be satisfied; or (2) the pricing
information for components of a Futures Reference Asset must be derived
from a market which is a member or affiliate of a member of the
Intermarket Surveillance Group (``ISG'') or a market with which the
Exchange has a comprehensive surveillance sharing agreement
(``CSSA'').\10\ A Futures Reference Asset may include components not
representing more than 10% of the dollar weight of such Futures
Reference Asset for which the pricing information is derived from
markets that do not meet requirement (2); provided, however, that no
single component subject to this exceptions [sic] exceeds 7% of the
dollar weight of the Futures Reference Asset. As proposed, adding
VSTOXX Futures to the definition of Futures Reference Asset would
satisfy the first criterion described above and the second criterion
would be satisfied by virtue of Eurex Deutschland's membership in ISG,
as further described below.
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\10\ ISG is comprised of an international group of exchanges,
market centers, and market regulators that perform front-line market
surveillance in their respective jurisdictions. See https://www.isgportal.org/home.html.
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Further, any Futures-Linked Securities linked to VSTOXX Futures
would also be required to meet both the initial and continued listing
standards under Rule 14.11(d)(2)(K)(iv)(b) and (c) or be subject to
delisting or removal proceedings, which include: (i) That the value of
the Futures Reference Asset be calculated and widely disseminated by
one or more major market data vendors on at least a 15-second basis
during the Exchange's regular market session; (ii) for Futures-Linked
Securities that are periodically redeemable, the Intraday Indicative
Value of the securities must be calculated and widely disseminated by
the Exchange or one or more major market data vendors on at least a 15-
second basis during the Exchange's regular market session; (iii) the
aggregate market value or the principal amount of the Futures-Linked
Securities must be at least $400,000; (iv) the value of the VSTOXX
Futures must be calculated and available; and (v) any other event
occurs or condition exists which in the opinion of the Exchange makes
further dealings on the Exchange inadvisable. Any Futures-Linked
Securities linked to VSTOXX Futures would also be required to meet the
listing standards applicable to all Linked Securities under
14.11(d)(2). Finally, all Linked Securities listed pursuant to Rule
14.11(d) are included within the definition of ``security'' or
``securities'' as such terms are used in the Rules of the Exchange and,
as such, are subject to the full panoply of Exchange Rules and
procedures that currently govern the trading of securities on the
Exchange.
The Exchange believes that the proposed standards would continue to
ensure transparency surrounding the listing process for Linked
Securities. Additionally, the Exchange believes that the existing
standards for listing and trading Futures-Linked Securities are
reasonably designed to promote a fair and orderly market for such
Futures-Linked Securities and the addition of VSTOXX Futures to Futures
Reference Assets does not affect this. The proposed addition of VSTOXX
Futures to those instruments included in Futures Reference Assets would
also work in conjunction with the existing initial and continued
listing criteria related to surveillance procedures and trading
guidelines.
The Exchange believes that its surveillance procedures are adequate
to continue to properly monitor the trading of the Futures-Linked
Securities linked to VSTOXX Futures in all trading sessions and to
deter and detect violations of Exchange rules. Specifically, the
Exchange intends to utilize its existing surveillance procedures
applicable to derivative products, which includes Linked Securities, to
monitor trading in the Futures-Linked Securities. The issuer of a
series of Linked Securities is and will continue to be required to
comply with Rule 10A-3 under the Act for the initial and continued
listing of Linked Securities, as provided under Rule 14.11(d)(2)(F).
The Exchange notes that the proposed change is not intended to amend
any other component or requirement of Rule 14.11(d).
VSTOXX
The information in this filing relating to the VSTOXX was taken
from the Web site of STOXX Limited (``STOXX''). The VSTOXX was
originally developed by STOXX in 2005 and is based on EURO STOXX 50
Index real-time option prices that are listed on the Eurex Deutschland
(``Eurex'') and are designed to reflect the market expectations of
near-term up to long-term volatility by measuring the square root of
the implied variances across all options of a given time to expiration.
The EURO STOXX 50 Index, Europe's leading Blue-chip index for the
Eurozone, provides a blue-chip representation of super sector leaders
in the Eurozone. The index covers 50 stocks from 12 Eurozone countries:
Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal and Spain.
The model for VSTOXX aims at making pure volatility tradable--i.e.
it should be possible to replicate the indices with an options
portfolio which does not react to price fluctuations, but to changes in
volatility only. The VSTOXX does not measure implied volatilities of
at-the-money EURO STOXX 50 Index options, but the implied variance
across all options of a given time to expiry. A portfolio of EURO STOXX
50 Index options with different exercise price and weighting meets this
goal: the implied volatilities of all eligible options with a given
time to expiry are considered. The VSTOXX is calculated using a series
of sub-indices that are based on put and call options on the EURO STOXX
in eight expiry months with a maximum time to expiry of two years in
order to bracket a 30-day calendar period. The VSTOXX is calculated
using linear interpolation of the sub-indices whose times to expiration
closely surround the targeted fixed time to expiry. If there are no
such surrounding sub-indices, the VSTOXX is calculated by extrapolation
of two sub-indices with closest time to expiry. Because the calculation
relies on two sub-indices, VSTOXX is independent of a specific time to
expiry, which helps to eliminate effects that typically result in
strong volatility fluctuations close to expiry.
[[Page 45187]]
STOXX will compute the index on a real-time basis throughout each
trading day, from 8:50 a.m. until 5:30 p.m. Central European Time
(``CET'') (3:50 a.m. until 12:30 p.m. Eastern Time (``ET'')). VSTOXX
levels will be calculated by STOXX and disseminated by major market
data vendors such as Bloomberg and Thomson Reuters.
VSTOXX Futures
Additional information regarding the VSTOXX Futures can be found on
the Eurex Web site. Eurex \11\ began listing and trading VSTOXX Futures
in June 2009 under the ticker symbol FVS. VSTOXX Futures are cash
settled and trade between the hours of 7:30 a.m. and 10:30 p.m. CET
(2:30 a.m. and 5:30 p.m. ET). The VSTOXX Futures contract value is 100
Euros per index point of the underlying and it is traded to two decimal
places with a minimum price change of 0.05 points (equivalent to a
value of 5 Euros). The daily settlement price is determined during the
closing auction of the respective futures contract. The last trading
day and final settlement day is 30 calendar days prior to the third
Friday of the expiration month of the underlying options, which is
usually the Wednesday prior to the second to last Friday of the
respective maturity month.
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\11\ The Exchange notes that Eurex is a member of the ISG and,
as such, the Exchange may obtain information regarding trading in
the underlying VSTOXX futures contracts. For a list of the current
members and affiliate members of ISG, see www.isgportal.com.
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The monthly volume and open interest, in USD, as of the last day of
each month in 2015 for the VSTOXX Futures was as follows:
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Monthly volume Open interest
(USD) (USD)
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Jan-15................................ 1,916,437,601 486,772,067
Feb-15................................ 1,126,070,071 409,419,303
Mar-15................................ 1,318,852,657 414,012,733
Apr-15................................ 1,484,997,987 451,249,212
May-15................................ 1,236,975,400 426,194,591
Jun-15................................ 1,952,524,278 588,991,482
Jul-15................................ 1,658,790,585 575,821,234
Aug-15................................ 1,269,161,197 469,785,978
Sep-15................................ 2,059,860,768 684,640,331
Oct-15................................ 1,354,413,865 600,708,025
Nov-15................................ 1,239,076,845 397,025,249
Dec-15................................ 15,350,681,777 276,743,850
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Both in the numbers shown above and throughout the history of
VSTOXX Futures, the monthly trading volume and open interest in VSTOXX
Futures has, subject to natural fluctuation in the market, continued to
grow. The Exchange notes that the monthly trading volume in the VSTOXX
Futures is very similar to the trading volume of the CBOE Volatility
Index[supreg] (VIX[supreg]) Futures prior to NYSE Arca, Inc. adding the
VIX Futures to the definition of futures reference asset in its
comparable rule,\12\ which, as noted above, the Exchange also added to
its rules related to Futures-Linked Securities. Much like the Futures-
Linked Securities linked to the VIX Futures, Futures-Linked Securities
linked to the VSTOXX Futures will provide investors with the ability to
better diversify and hedge their portfolios using an exchange listed
security without having to trade directly in the underlying futures
contracts.
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\12\ See Securities Exchange Act Release No. 58968 (November 17,
2008), 73 FR 71082 (November 24, 2008) (NYSEArca-2008-111).
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As such, the Exchange believes that the proposed amendment to add
VSTOXX Futures as an underlying Futures Reference asset will facilitate
the listing and trading of an additional Futures-Linked Security that
will enhance competition among market participants, to the benefit of
investors and the marketplace.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \13\ in general and Section 6(b)(5) of the Act \14\ in
particular in that it is designed to promote just and equitable
principles of trade, to remove impediments to and perfect the mechanism
of a free and open market and a national market system and, in general,
to protect investors and the public interest.
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\13\ 15 U.S.C. 78f.
\14\ 15 U.S.C. 78f(b)(5).
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The proposed rule change is designed to promote just and equitable
principles of trade, to perfect the mechanism of a free and open market
and, in general, to protect investors and the public interest in that
it will facilitate the listing and trading of additional types of
Futures-Linked Securities that will enhance competition among market
participants, to the benefit of investors and the marketplace. As noted
above, the Exchange has in place surveillance procedures relating to
trading in Futures-Linked Securities and may obtain information
regarding both the Futures-Linked Securities and VSTOXX Futures via ISG
from other exchanges that are members of ISG or with which the Exchange
has entered into a comprehensive surveillance sharing agreement. In
addition, as noted above, investors will have ready access to
information on an intraday basis regarding: (i) The value of the
Futures Reference Asset, which will be calculated and widely
disseminated by one or more major market data vendors on at least a 15-
second basis during the Exchange's regular market session; (ii) for
Futures-Linked Securities that are periodically redeemable, the
Intraday Indicative Value of the securities, which must be calculated
and widely disseminated by the Exchange or one or more major market
data vendors on at least a 15-second basis during the Exchange's
regular market session; and (iii) information regarding market price
and trading of Futures-Linked Securities will be continually available
on a real-time basis throughout the day on brokers' computer screens
and other electronic services, and quotation and last sale information
for the securities will be available on the facilities of the CTA.
Further, any Futures-Linked Securities linked to VSTOXX Futures
would be required to meet both the initial and continued listing
standards, including certain of those named above, under Rule
14.11(d)(2)(K)(iv)(b) and (c) or be subject to delisting or removal
proceedings, which include: (i) That the value of the Futures Reference
Asset be calculated and widely disseminated by one or more major market
data vendors on at least a 15-second basis during the Exchange's
regular market session; (ii) for Futures-Linked Securities that are
periodically redeemable, the Intraday Indicative Value of the
securities must be calculated and widely disseminated by the Exchange
or one or more major market data vendors on at least a 15-second basis
during the Exchange's regular market session; (iii) the aggregate
market value or the principal amount of the Futures-Linked Securities
must be at least $400,000; (iv) the value of the VSTOXX Futures must be
calculated and available; and (v) any other event occurs or condition
exists which in the opinion of the Exchange makes further dealings on
the Exchange inadvisable. Any Futures-Linked Securities linked to
VSTOXX Futures would also be required to meet the listing standards
applicable to all Linked Securities under 14.11(d)(2). Finally, all
Linked Securities listed pursuant to Rule 14.11(d) are included within
the definition of ``security'' or ``securities'' as such terms are used
in the Rules of the Exchange and, as such, are subject to the full
panoply of Exchange Rules and procedures that currently govern the
trading of securities on the Exchange. Additionally, trading in the
securities will be halted under the conditions specified in BZX Rule
11.18. Trading may also be halted because of market conditions, for
reasons that, in the view of the Exchange, make trading in the
[[Page 45188]]
securities inadvisable, or the circumstances set forth in BZX Rule
14.11(d)(2)(H), which sets forth circumstances under which Linked
Securities may be halted.
As noted above, both in the context presented herein and throughout
the history of VSTOXX Futures, the monthly trading volume and open
interest in VSTOXX Futures has, subject to natural fluctuation in the
market, continued to grow. The Exchange notes that the monthly trading
volume in the VSTOXX Futures is very similar to the trading volume of
the CBOE Volatility Index[supreg] (VIX[supreg]) Futures prior to NYSE
Arca, Inc. adding the VIX Futures to the definition of futures
reference asset in its comparable rule,\15\ which, as noted above, the
Exchange also added to its rules related to Futures-Linked Securities.
Much like the Futures-Linked Securities linked to the VIX Futures,
Futures-Linked Securities linked to the VSTOXX Futures will provide
investors with the ability to better diversify and hedge their
portfolios using an exchange listed security without having to trade
directly in the underlying futures contracts. The Exchange also
believes that the proposed rule change would fulfill the intended
objective of Rule 19b-4(e) under the Act by allowing Futures-Linked
Securities linked to the VSTOXX Futures that satisfy the listing
standards in Rule 14.11(d) to be listed and traded without separate
Commission approval. However, as proposed, the Exchange would continue
to file separate proposed rule changes before the listing and trading
of Futures-Linked Securities that do not satisfy the criteria of Rule
14.11(d)(2)(K)(iv). As such, the Exchange believes that the proposed
amendment to add VSTOXX Futures as an underlying Futures Reference
asset will facilitate the listing and trading of an additional Futures-
Linked Security that will enhance competition among market
participants, to the benefit of investors and the marketplace.
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\15\ See Securities Exchange Act Release No. 58968 (November 17,
2008), 73 FR 71082 (November 24, 2008) (NYSEArca-2008-111).
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For the above reasons, the Exchange believes that the proposed rule
change is consistent with the requirements of Section 6(b)(5) of the
Act.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. Instead, the Exchange
believes that the proposed rule change would facilitate the listing and
trading of additional types of Futures-Linked Securities, which will
enhance competition among market participants, to the benefit of
investors and the marketplace and provide investors with the ability to
better diversify and hedge their portfolios using an exchange listed
security without having to trade directly in the underlying futures
contracts. The Exchange believes that this would reduce the time frame
for bringing Futures-Linked Securities linked to the VSTOXX Futures to
market, thereby reducing the burdens on issuers and other market
participants and promoting competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange has neither solicited nor received written comments on
the proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of publication of this notice in the
Federal Register or within such longer period up to 90 days (i) as the
Commission may designate if it finds such longer period to be
appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization consents, the Commission will:
(a) By order approve or disapprove such proposed rule change; or (b)
institute proceedings to determine whether the proposed rule change
should be 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 (http://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
File Number SR-BatsBZX-2016-26 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-BatsBZX-2016-26. 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 Web site (http://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 Web site 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 such filing will also be available
for inspection and copying at the principal offices of the Exchange.
All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-BatsBZX-2016-
26, and should be submitted on or before August 2, 2016.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\16\
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\16\ 17 CFR 200.30-3(a)(12).
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Brent J. Fields,
Secretary.
[FR Doc. 2016-16380 Filed 7-11-16; 8:45 am]
BILLING CODE 8011-01-P