[Federal Register Volume 83, Number 70 (Wednesday, April 11, 2018)]
[Notices]
[Pages 15659-15662]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-07406]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-83000; File No. SR-NYSEArca-2018-17]


Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change Relating to the 
ProShares Short VIX Short-Term Futures ETF and ProShares Ultra VIX 
Short-Term Futures ETF

April 5, 2018.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby given 
that on March 23, 2018, NYSE Arca, Inc. (``Exchange'' or ``NYSE Arca'') 
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 self-regulatory organization. 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\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to make changes to certain representations 
made in the proposed rule change previously filed with the Commission 
pursuant to Rule 19b-4 relating to ProShares Short VIX Short-Term 
Futures ETF and ProShares Ultra VIX Short-Term Futures ETF, shares of 
which currently are listed and traded under NYSE Arca Rule 8.200-E, 
Commentary .02. The proposed rule change is available on the Exchange's 
website at www.nyse.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 self-regulatory organization 
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 those 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Commission has approved the listing and trading on the Exchange 
of shares (``Shares'') of the ProShares Short VIX Short-Term Futures 
ETF (the ``Short Fund'') and ProShares Ultra VIX Short-Term Futures ETF 
(the ``Ultra Fund'' and, together with the Short Fund, the ``Funds'') 
under NYSE Arca Rule 8.200-E, Commentary .02 (formerly NYSE Arca 
Equities Rule 8.200, Commentary .02), which governs the listing and 
trading of Trust Issued Receipts.\4\ Shares of the Funds are currently 
listed and traded on the Exchange under NYSE Arca Rule 8.200-E, 
Commentary .02.\5\ Other than Shares of the Short Fund and the Ultra 
Fund, shares of the ProShares ETFs approved for listing and trading in 
the Prior Order are not listed and traded on the Exchange.\6\
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    \4\ Commentary .02 to NYSE Arca Rule 8.200-E applies to TIRs 
that invest in ``Financial Instruments''. The term ``Financial 
Instruments'', as defined in Commentary .02(b)(4) to NYSE Arca Rule 
8.200-E, means any combination of investments, including cash; 
securities; options on securities and indices; futures contracts; 
options on futures contracts; forward contracts; equity caps, 
collars and floors; and swap agreements.
    \5\ The Commission previously approved the listing and trading 
of the Shares of the Funds on the Exchange. See Securities Exchange 
Act Release Nos. 65134 (August 15, 2011), 76 FR 52034 (August 19, 
2011) (SR-NYSEArca-2011-23) (Order Granting Approval of Proposed 
Rule Change To List and Trade Shares of ProShares Short VIX Short-
Term Futures ETF, ProShares Short VIX Mid-Term Futures ETF, 
ProShares Ultra VIX Short-Term Futures ETF, ProShares Ultra VIX Mid-
Term Futures ETF, ProShares UltraShort VIX Short-Term Futures ETF, 
and ProShares UltraShort VIX Mid-Term Futures ETF Under NYSE Arca 
Equities Rule 8.200, Commentary .02) (the ``Prior Order''); 64470 
(May 11, 2011), 76 FR 28493 (May 17, 2011) (SR-NYSEArca-2011-23) 
(Notice of Filing of Proposed Rule Change To List and Trade Shares 
of the Funds Under NYSE Arca Equities Rule 8.200, Commentary .02.) 
(the ``Prior Notice'').
    \6\ On February 28, 2018, the Exchange appended a ``.BC'' (below 
compliance) indicator to the trading symbols for the Funds (SVXY for 
the Short Fund and UVXY for the Ultra Fund), signifying non-
compliance with certain representations in the Prior Notice and 
Prior Order.
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    The Shares are issued by ProShares Trust II (the ``Trust''). 
ProShare Capital Management LLC (``Sponsor'') serves as the Trust's 
Sponsor.
    In this proposed rule change, the Exchange proposes to amend 
certain representations made in the Prior Notice relating to each 
Fund's investment

[[Page 15660]]

objective, in order to reflect recent changes to the investment 
objective of each Fund, as described below.\7\
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    \7\ The Funds have a filed registration statement on Form S-3 
under the Securities Act of 1933 (File No. 333-220688). The Funds' 
prospectus containing the previous investment objectives for the 
Funds was filed pursuant to Rule 424(b)(3) on February 15, 2018. A 
prospectus containing the new objectives, as described herein, was 
filed pursuant to Rule 424(b)(3) on February 28, 2018 
(``Registration Statement''). The description of the Funds and the 
Shares contained herein are based on the Registration Statement. The 
change to each Fund's investment objective as described herein was 
implemented effective as of the close of business on February 27, 
2018. The Sponsor issued a press release dated February 26, 2018 
regarding the Sponsor's plans to reduce the target exposure for the 
Funds. See http://www.proshares.com/news/proshare_capital_management_llc_plans_to_reduce_target_exposure_on_two_etfs.html.
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    The Sponsor believes the change to each Fund's investment objective 
(as described herein) is appropriate and consistent with the best 
interest of each Fund and Fund shareholders in light of recent extreme 
changes in the value of the S&P 500 [supreg] VIX Short-Term Futures 
Index (the ``Index''). As a result of the change to each Fund's 
investment objective, the Sponsor expects the risk profile and 
volatility of each Fund to be significantly reduced.
    As stated in the Prior Notice, each Fund seeks, on a daily basis, 
to provide investment results (before fees and expenses) that 
correspond to the inverse of the daily performance or a multiple of the 
daily performance of a benchmark (i.e., the Index) that seeks to offer 
exposure to market volatility through publicly traded futures markets. 
Specifically, the prior investment objective of the Short Fund was to 
seek results (before fees and expenses) that correspond to the inverse 
(-1x) of the performance of the Index for a single day. The prior 
investment objective of the Ultra Fund was to seek results (before fees 
and expenses) that correspond to two times (2x) the performance of the 
Index for a single day.\8\ Each Fund seeks to achieve its investment 
objective by investing under normal market conditions in VIX Futures 
Contracts.\9\
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    \8\ According to the Registration Statement, for these purposes, 
a ``single day'' is measured from the time a Fund calculates its net 
asset value (``NAV'') to the time of the Fund's next NAV 
calculation.
    \9\ The term ``under normal conditions'' includes, but is not 
limited to, the absence of extreme volatility or trading halts in 
the futures markets or the financial markets generally; operational 
issues causing dissemination of inaccurate market information; or 
force majeure type events such as systems failure, natural or man-
made disaster, act of God, armed conflict, act of terrorism, riot or 
labor disruption or any similar intervening circumstance.
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    If the Short Fund is successful in meeting its objective, its value 
(before fees and expenses) should gain approximately as much on a 
percentage basis as its Index when the Index declines on a given day. 
Conversely, its value (before fees and expenses) should lose 
approximately as much on a percentage basis as its Index when the Index 
rises on a given day.
    If the Ultra Fund is successful in meeting its objective, its value 
(before fees and expenses) should gain approximately twice as much on a 
percentage basis as its Index when the Index rises on a given day. 
Conversely, its value (before fees and expenses) should lose 
approximately twice as much on a percentage basis as its Index when the 
Index declines on a given day.
    As of the close of business on February 27, 2018, the Short Fund 
changed its investment objective to seek results (before fees and 
expenses) that correspond to one-half the inverse (-0.5x) of the 
performance of the Index for a single day. The Ultra Fund changed its 
investment objective to seek results (before fees and expenses) that 
correspond to one and one-half times (1.5x) of the performance of the 
Index for a single day.
    As a result of the change to each Fund's investment objective, the 
Exchange proposes to amend the representations in the Prior Notice 
described in the preceding two paragraphs as follows.
    If the Short Fund is successful in meeting its objective, its value 
(before fees and expenses) should gain approximately half as much on a 
percentage basis as its Index when the Index declines on a given day. 
Conversely, its value (before fees and expenses) should lose 
approximately half as much on a percentage basis as the Index when the 
Index rises on a given day.
    If the Ultra Fund is successful in meeting its objective, its value 
(before fees and expenses) should gain approximately 1.5 times as much 
on a percentage basis as its Index when the Index rises on a given day. 
Conversely, its value (before fees and expenses) should lose 
approximately 1.5 times as much on a percentage basis as its Index when 
the Index declines on a given day.
    The Prior Notice stated that the Funds do not seek to achieve their 
stated investment objective over a period of time greater than one day 
because mathematical compounding prevents the Funds from perfectly 
achieving such results. Accordingly, as noted in the Prior Notice, 
results over periods of time greater than one day typically will not be 
a simple inverse correlation (-100%) or multiple correlation (+200%) of 
the period return of the Index and may differ significantly.
    As a result of the change to each Fund's investment objective, the 
Exchange proposes to amend the representations in the preceding 
paragraph with respect to the Short Fund and the Ultra Fund as 
described below.
    The Funds do not seek to achieve their stated investment objective 
over a period of time greater than one day because mathematical 
compounding prevents the Funds from perfectly achieving such results. 
Accordingly, results over periods of time greater than one day 
typically will not be a simple one-half of the inverse correlation (-
50%) or multiple correlation (+150%) of the period return of the Index 
and may differ significantly.
    The Prior Notice stated that NYSE Arca will calculate and 
disseminate every 15 seconds throughout the NYSE Arca Core Trading 
Session (9:30 a.m. to 4:00 p.m. E.T.) an updated Intraday Optimized 
Portfolio Value (``IOPV''). The Prior Notice also stated that the IOPV 
will be calculated by the NYSE Arca using the prior day's closing net 
assets of a Fund as a base and updating throughout the trading day 
changes in the value of such Fund's holdings. The Exchange proposes to 
amend these representations to state that the IOPV will be calculated 
and widely disseminated by one or more major market data vendors every 
15 seconds throughout the NYSE Arca Core Trading Session, and that the 
IOPV will be calculated using the prior day's closing net assets of a 
Fund as a base and updating throughout the trading day changes in the 
value of such Fund's holdings, consistent with the Exchange's previous 
proposed rule change regarding calculation of the Intraday Indicative 
Value for specified Exchange-Traded Products.\10\
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    \10\ See Securities Exchange Act Release No. 81985 (October 31, 
2017) (SR-NYSEArca-2017-127) (Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change Regarding Exchange Calculation 
of the Intraday Indicative Value for Specified Exchange-Traded 
Products).
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    Except for the changes noted above, all other statements and 
representations made in the Prior Notice remain unchanged.\11\ The 
Funds will comply with all continued listing requirements under NYSE 
Arca Rule 8.200-E, Commentary .02.
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    \11\ See note 5, supra.
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2. Statutory Basis
    The basis under the Act for this proposed rule change is the 
requirement under Section 6(b)(5) \12\ that an exchange have rules that 
are designed to prevent fraudulent and manipulative

[[Page 15661]]

acts and practices, to promote just and equitable principles of trade, 
to remove impediments to, and perfect the mechanism of a free and open 
market and, in general, to protect investors and the public interest.
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    \12\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices, and is designed 
to promote just and equitable principles of trade and to protect 
investors and the public interest.
    Consistent with the representations in the Prior Notice, each Fund 
will continue to seek to achieve its investment objective by investing 
under normal market conditions in VIX Futures Contracts.
    As a result of the change to each Fund's investment objective, the 
Exchange is proposing to amend representations in the Prior Notice 
regarding the correlation of the value of the Shares of the Short Fund 
and the Ultra Fund with the Index.
    The Short Fund previously had an investment objective to seek 
results (before fees and expenses) that correspond to the inverse (-1x) 
of the performance of the Index for a single day. As of February 27, 
2018, the Fund's objective was changed to seek results (before fees and 
expenses) that correspond to one-half of the inverse (-0.5x) of the 
performance of the Index for a single day.
    The Ultra Fund previously had an investment objective to seek 
results (before fees and expenses) that correspond to two times (2x) 
the performance of the Index for a single day. As of the close of 
business on February 27, 2018, the Fund's objective was changed to seek 
results (before fees and expenses) that correspond to one and one-half 
times (1.5x) of the performance of the Index for a single day.
    The Sponsor believes the change to each Fund's investment objective 
is appropriate and consistent with the best interest of each Fund and 
Fund shareholders in light of recent extreme changes in the value of 
the Index. As a result of the change to each Fund's investment 
objective, the Sponsor expects the risk profile and volatility of each 
Fund to be significantly reduced.
    The Exchange's proposal to amend the representations in the Prior 
Notice regarding the IOPV calculation and dissemination as described 
above reflects changes that are consistent with the Exchange's previous 
proposed rule change regarding calculation of the Intraday Indicative 
Value for specified Exchange-Traded Products.\13\
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    \13\ See note 10, supra.
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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 purposes of the Act. The Exchange believes the 
proposed rule change will enhance competition and benefit investors and 
the marketplace by permitting continued listing and trading of Shares 
of the Funds with their revised investment objectives, as described 
above.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the foregoing proposed rule change does not: (i) 
Significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \14\ and Rule 19b-
4(f)(6) thereunder.\15\
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    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires a self-regulatory organization to give the Commission 
written notice of its intent to file the proposed rule change, along 
with a brief description and text of the proposed rule change, at 
least five business days prior to the date of filing of the proposed 
rule change, or such shorter time as designated by the Commission. 
The Exchange has satisfied this requirement.
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    A proposed rule change filed pursuant to Rule 19b-4(f)(6) under the 
Act \16\ normally does not become operative for 30 days after the date 
of its filing. However, Rule 19b-4(f)(6)(iii) \17\ permits the 
Commission to designate a shorter time if such action is consistent 
with the protection of investors and the public interest. The Exchange 
has requested that the Commission waive the 30-day operative delay so 
that the proposed rule change may become operative upon filing. The 
Commission notes that, as a result of the change to each Fund's 
investment objective,\18\ the risk profile and volatility of each Fund 
is expected to be reduced. Moreover, the proposed changes to the 
representations in the Prior Notice regarding IOPV calculation and 
dissemination are consistent with the Exchange's previous proposed rule 
change regarding calculation of the Intraday Indicative Value for 
specified Exchange-Traded Products. The Commission notes that, except 
for the changes in this proposed rule change, all other statements and 
representations made in the Prior Notice remain unchanged, and the 
Funds will comply with all continued listing requirements under NYSE 
Arca Rule 8.200-E, Commentary .02. The Commission believes that waiver 
of the 30-day operative delay is consistent with the protection of 
investors and the public interest. Accordingly, the Commission hereby 
waives the operative delay and designates the proposed rule change 
operative upon filing.\19\
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    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ 17 CFR 240.19b-4(f)(6)(iii).
    \18\ As noted above, the change to each Fund's investment 
objective was implemented effective as of the close of business on 
February 27, 2018. On February 28, 2018, the Exchange appended a 
``.BC'' indicator to the trading symbols for the Funds, signifying 
non-compliance with certain representations in the Prior Notice and 
Prior Order.
    \19\ For purposes only of waiving the 30-day operative delay, 
the Commission also has considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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 change 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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-NYSEArca-2018-17 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange

[[Page 15662]]

Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEArca-2018-17. 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 (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 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-NYSEArca-2018-17 and should be submitted 
on or before May 2, 2018.

    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)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-07406 Filed 4-10-18; 8:45 am]
 BILLING CODE 8011-01-P