[Federal Register Volume 85, Number 15 (Thursday, January 23, 2020)]
[Notices]
[Pages 4023-4028]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01036]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-87992; File No. SR-CboeBZX-2020-003]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of a Proposed Rule Change To List and Trade Shares of the -1x
Short VIX Futures ETF, a Series of VS Trust, Under Rule 14.11(f)(4)
(Trust Issued Receipts)
January 16, 2020
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on January 3, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'')
filed with the Securities and Exchange Commission (``Commission'') the
proposed rule change described in Items I, II, and III 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 Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing
with the Securities and Exchange Commission (``Commission'') a proposed
rule change to list and trade shares of the -1x Short VIX Futures ETF,
a series of VS Trust, under Rule 14.11(f)(4) (``Trust Issued
Receipts'').
The text of the proposed rule change is also available on the
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, 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 aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange proposes to list and trade Shares of the -1x Short VIX
Futures ETF (the ``Fund'') under Rule 14.11(f)(4), which governs the
listing and trading of Trust Issued Receipts \3\ on the Exchange.\4\
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\3\ Rule 14.11(f)(4) applies to Trust Issued Receipts that
invest in ``Financial Instruments.'' The term ``Financial
Instruments,'' as defined in Rule 14.11(f)(4)(A)(iv), 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.
\4\ The Commission approved BZX Rule 14.11(f)(4) in Securities
Exchange Act Release No. 68619 (January 10, 2013), 78 FR 3489
(January 16, 2013) (SR-BZX-2012-044).
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The Fund seeks to provide daily investment results (before fees and
expenses), as further described below, that correspond to the
performance of a benchmark that seeks to offer short exposure to market
volatility through publicly traded futures markets. The benchmark for
the Fund is the Short VIX Futures Index (the ``Index'' or ticker symbol
SHORTVOL).\5\ The Index measures the daily inverse (i.e., the opposite)
performance of a portfolio of first- and second-month futures contracts
on the Cboe Volatility Index (``VIX'').\6\
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\5\ The index is sponsored by Cboe Global Indexes (the ``Index
Sponsor''). The Index Sponsor is not a registered broker-dealer, but
is affiliated with a broker-dealer. The Index Sponsor has
implemented and will maintain a fire wall with respect to its
relevant personnel regarding access to information concerning the
composition and/or changes to the Index. In addition, the Index
Sponsor has implemented and will maintain procedures around the
relevant personnel that are designed to prevent the use and
dissemination of material, non-public information regarding the
Index.
\6\ The VIX is an index designed to measure the implied
volatility of the S&P 500 over 30 days in the future. The VIX is
calculated based on the prices of certain put and call options on
the S&P 500. The VIX is reflective of the premium paid by investors
for certain options linked to the level of the S&P 500.
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[[Page 4024]]
The Fund will primarily invest in VIX futures contracts traded on
the Cboe Futures Exchange, Inc. (``CFE'') (hereinafter referred to as
``VIX Futures Contracts'') based on the Index to pursue its investment
objective. In the event accountability rules, price limits, position
limits, margin limits or other exposure limits are reached with respect
to VIX Futures Contracts, the Sponsor may cause the Fund to obtain
exposure to the Index through Over-the-Counter (OTC) swaps referencing
the Index or particular VIX Futures Contracts comprising the Index
(hereinafter referred to as ``VIX Swap Agreements''). The Fund may also
invest in VIX Swap Agreements if the market for a specific VIX Futures
Contract experiences emergencies (e.g., natural disaster, terrorist
attack or an act of God) or disruptions (e.g., a trading halt or a
flash crash) or in situations where the Sponsor deems it impractical or
inadvisable to buy or sell VIX Futures Contracts (such as during
periods of market volatility or illiquidity).
The VIX Swap Agreements in which the Fund may invest may be cleared
or non-cleared. The Fund will collateralize its obligations with liquid
assets consistent with the 1940 Act and interpretations thereunder.
The Fund will only enter into VIX Swap Agreements with
counterparties that the Sponsor reasonably believes are capable of
performing under the contract and will post as collateral as required
by the counterparty. The Fund will seek, where possible, to use
counterparties, as applicable, whose financial status is such that the
risk of default is reduced; however, the risk of losses resulting from
default is still possible. The Sponsor will evaluate the
creditworthiness of counterparties on a regular basis. In addition to
information provided by credit agencies, the Sponsor will review
approved counterparties using various factors, which may include the
counterparty's reputation, the Sponsor's past experience with the
counterparty and the price/market actions of debt of the counterparty.
The Fund may use various techniques to minimize OTC counterparty
credit risk including entering into arrangements with its
counterparties whereby both sides exchange collateral on a mark-to-
market basis. Collateral posted by the Fund to a counterparty in
connection with uncleared VIX Swap Agreements is generally held for the
benefit of the counterparty in a segregated tri-party account at the
custodian to protect the counterparty against non-payment by the Fund.
In addition to VIX Swap Agreements, if the fund is unable to meet its
investment objective through investments in VIX Futures Contracts, the
Fund may also obtain exposure to the Index through listed VIX options
contracts traded on the Cboe Exchange, Inc. (``Cboe'') (hereinafter
referred to as ``VIX Options Contracts'').
The Fund may also invest in Cash and Cash Equivalents \7\ that may
serve as collateral in the above referenced VIX Futures Contracts, VIX
Swap Agreements, and VIX Option Contracts (collectively referred to as
the ``VIX Derivative Products'').
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\7\ For purposes of this proposal, the term ``Cash and Cash
Equivalents'' shall have the definition provided in Exchange Rule
14.11(i)(4)(C)(iii), applicable to Managed Fund Shares.
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Volatility Shares LLC (the ``Sponsor''), a Delaware limited
liability company, serves as the Sponsor of VS Trust (the ``Trust'').
The Sponsor is a commodity pool operator.\8\ Tidal ETF Services LLC
serves as the administrator (the ``Administrator'') and U.S. Bank
National Association serves as custodian of the Fund and its Shares.
U.S. Bancorp Fund Services, LLC serves as the sub-administrator (the
``Sub-Administrator'') and transfer agent. Wilmington Trust Company, a
Delaware trust company, is the sole trustee of the Trust.
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\8\ The Fund has filed a draft registration statement on Form S-
1 under the Securities Act of 1933, dated December 6, 2019 (File No.
377-02945) (``Draft Registration Statement''). The description of
the Fund and the Shares contained herein are based on the
Registration Statement.
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If the Sponsor to the Trust issuing the Trust Issued Receipts is
affiliated with a broker-dealer, such Sponsor to the Trust shall erect
a ``fire wall'' between the Sponsor and the broker-dealer with respect
to access to information concerning the composition and/or changes to
such Trust portfolio. The Sponsor is not affiliated with a broker-
dealer. In the event that (a) the Sponsor becomes a broker-dealer or
newly affiliated with a broker-dealer, or (b) any new sponsor is a
broker-dealer or becomes affiliated with a broker-dealer, it will
implement a fire wall with respect to its relevant personnel or such
broker-dealer affiliate, as applicable, regarding access to information
concerning the composition and/or changes to the portfolio, and will be
subject to procedures designed to prevent the use and dissemination of
material non-public information regarding such portfolio.
If the Fund is successful in meeting its objective, its value
(before fees and expenses) on a given day should gain approximately as
much on a percentage basis as the level of the Index when it rises.
Conversely, its value (before fees and expenses) should lose
approximately as much on a percentage basis as the level of the Index
when it declines. The Fund primarily acquires short exposure through
VIX Futures Contracts, such that the Fund has exposure intended to
approximate the benchmark at the time of the net asset value (``NAV'')
calculation of the Fund. However, as discussed above, in the event that
the Fund is unable to meet its investment objective solely through the
investment of VIX Futures Contracts, it may invest in VIX Swap
Agreements or VIX Options Contracts. The Fund may also invest in Cash
or Cash Equivalents that may serve as collateral to the Fund's
investments in VIX Derivative Products.
The Fund is not actively managed by traditional methods, which
typically involve effecting changes in the composition of a portfolio
on the basis of judgments relating to economic, financial and market
considerations with a view toward obtaining positive results under all
market conditions. Rather, the Fund seeks to remain fully invested at
all times in VIX Derivative Products (and Cash and Cash Equivalents as
collateral) \9\ that provide exposure to the Index consistent with its
investment objective without regard to market conditions, trends or
direction.
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\9\ Supra note 7.
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In seeking to achieve the Fund's investment objective, the Sponsor
uses a mathematical approach to investing. Using this approach, the
Sponsor determines the type, quantity and mix of investment positions
that the Sponsor believes in combination should produce daily returns
consistent with the Fund's objective. The Sponsor relies upon a pre-
determined model to generate orders that result in repositioning the
Fund's investments in accordance with its investment objective.
VIX Futures Contracts
The Index is comprised of, and the value of the Fund will be based
on, VIX Futures Contracts. VIX Futures Contracts are measures of the
market's expectation of the level of VIX at certain points in the
future, and as such will behave differently than current, or spot, VIX,
as illustrated below.
While the VIX represents a measure of the current expected
volatility of the S&P 500 over the next 30 days, the prices of VIX
Futures Contracts are based on the current expectation of what the
expected 30-day volatility will
[[Page 4025]]
be at a particular time in the future (on the expiration date). For
example, a VIX Futures Contract purchased in March that expires in May,
in effect, is a forward contract on what the level of the VIX, as a
measure of 30-day implied volatility of the S&P 500, will be on the May
expiration date. The forward volatility reading of the VIX may not
correlate directly to the current volatility reading of the VIX because
the implied volatility of the S&P 500 at a future expiration date may
be different from the current implied volatility of the S&P 500. As a
result, the Index and the Fund should be expected to perform very
differently from the inverse of the VIX over all periods of time. To
illustrate, on December 4, 2019, the VIX closed at a price of 14.8 and
the price of the February 2020 VIX Futures Contracts expiring on
February 19, 2020 was 18.125. In this example, the price of the VIX
represented the 30-day implied, or ``spot,'' volatility (the volatility
expected for the period from December 5, 2019 to January 5, 2020) of
the S&P 500 and the February VIX Futures Contracts represented forward
implied volatility (the volatility expected for the period from
February 19 to March 19, 2020) of the S&P 500.
Short VIX Futures Index
The Index is designed to express the daily inverse performance of a
theoretical portfolio of first- and second-month VIX Futures Contracts
(the ``Index Components''), with the price of each VIX Futures Contract
reflecting the market's expectation of future volatility. The Index
seeks to reflect the returns that are potentially available from
holding an unleveraged short position in first- and second- month VIX
Futures Contracts. While the Index does not correspond to the inverse
of the VIX, as it seeks short exposure to VIX, the value of the Index,
and by extension the Fund, will generally rise as the VIX falls and
fall as the VIX rises. Further, as described above, because VIX Futures
Contracts correlate to future volatility readings of VIX, while the VIX
itself correlates to current volatility, the Index and the Fund may
perform significantly different from the inverse of the VIX.
Unlike the Index, the VIX, which is not a benchmark for the Fund,
is calculated based on the prices of put and call options on the S&P
500, which are traded exclusively on Cboe.
The Short VIX Futures Index employs rules for selecting the Index
Components and a formula to calculate a level for the Index from the
prices of these components. Specifically, the Index Components
represent the prices of the two near-term VIX futures months,
replicating a position that rolls the nearest month VIX Futures
Contract to the next month VIX Futures Contract on a daily basis in
equal fractional amounts. This results in a constant weighted average
maturity of approximately one month. The roll period usually begins on
the Wednesday falling 30 calendar days before the S&P 500 option
expiration for the following month (the ``Cboe VIX Monthly Futures
Settlement Date''), and runs to the Tuesday prior to the subsequent
month's Cboe VIX Monthly Futures Settlement Date.
Calculation of the Index
The level of the Index will be published at least every 15 seconds
both in real time from 9:30 a.m. to 4:00 p.m. ET and at the close of
trading on each Business Day \10\ by Bloomberg and Reuters.
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\10\ A ``Business Day'' means any day other than a day when any
of BZX, Cboe, CFE or other exchange material to the valuation or
operation of the Fund, or the calculation of the VIX, options
contracts underlying the VIX, VIX Futures Contracts or the Index is
closed for regular trading.
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The Index Components comprising the Index represent the prices of
first- and second-month VIX Futures Contracts. The Index takes a daily
rolling short position in such VIX Futures Contracts and is intended to
reflect the returns that are potentially available through an
unleveraged investment in those contracts. The Index measures the
return from a rolling short position in the first- and second-month VIX
Futures Contracts. The Index rolls continuously throughout each month
from the first-month VIX Futures Contracts into the second-month VIX
Futures Contracts.
The Index rolls on a daily basis. One of the effects of daily
rolling is to maintain a constant weighted average maturity for the
underlying VIX Futures Contracts. Unlike equities, which typically
entitle the holder to a continuing stake in a corporation, futures
contracts normally specify a certain date for the delivery of the
underlying asset or financial instrument or, in the case of futures
contracts relating to indices such as the VIX, a certain date for
payment in cash of an amount determined by the level of the underlying
index. The Index operates by buying back, on a daily basis, Index
Components with a nearby settlement date and selling Index Components
with a longer-dated settlement date. The roll for each contract occurs
on each Business Day according to a pre-determined schedule that has
the effect of keeping constant the weighted average maturity of the
relevant futures contracts. This process is known as ``rolling'' a
futures position, and the Index is a ``rolling index''. The constant
weighted average maturity for the VIX Futures Contracts underlying the
Index is approximately one month.
Purchases and Redemptions of Creation Units
The Fund will create and redeem Shares from time to time only in
large blocks of a specified number of Shares or multiples thereof
(``Creation Units''). A Creation Unit is a block of at least 10,000
Shares. Except when aggregated in Creation Units, the Shares are not
redeemable securities.
On any Business Day, an authorized participant may place an order
with the Sub-Administrator to create one or more Creation Units.\11\
The total cash payment required to create each Creation Unit is the NAV
of at least 10,000 Shares of the Fund on the purchase order date plus
the applicable transaction fee.
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\11\ Authorized participants have a cut-off time of 2:00 p.m. ET
to place creation and redemption orders.
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The procedures by which an authorized participant can redeem one or
more Creation Units mirror the procedures for the purchase of Creation
Units. On any Business Day, an authorized participant may place an
order with the Sub-Administrator to redeem one or more Creation Units.
The redemption proceeds from the Fund consist of the cash redemption
amount. The cash redemption amount is equal to the NAV of the number of
Creation Unit(s) of the Fund requested in the authorized participant's
redemption order as of the time of the calculation of a Fund's NAV on
the redemption order date, less transaction fees.
Availability of Information Regarding the Shares
The NAV for the Fund's Shares will be calculated by the Sub-
Administrator once each Business Day and will be disseminated daily to
all market participants at the same time.\12\ Pricing information will
be available on the Fund's website including: (1) The prior Business
Day's reported NAV, the closing market price or the Bid/Ask Price,
daily trading volume, and a calculation of the premium and discount of
the closing market price or Bid/Ask Price against the NAV; and (2) data
in chart format displaying the
[[Page 4026]]
frequency distribution of discounts and premiums of the daily closing
price against the NAV, within appropriate ranges, for each of the four
previous calendar quarters.
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\12\ NAV means the total assets of the Fund including, but not
limited to, all cash and cash equivalents or other debt securities
less total liabilities of the Fund, consistently applied under the
accrual method of accounting. The Fund's NAV is calculated at 4:00
p.m. ET.
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The closing prices and settlement prices of the Index Components
(i.e., the first- and second-month VIX Futures Contracts) will also be
readily available from the websites of CFE (http://www.cfe.cboe.com),
automated quotation systems, published or other public sources, or on-
line information services such as Bloomberg or Reuters. Complete real-
time data for component VIX Futures Contracts underlying the Index is
available by subscription from Reuters and Bloomberg. Specifically, the
level of the Index will be published at least every 15 seconds both in
real time from 9:30 a.m. to 4:00 p.m. ET and at the close of trading on
each Business Day \13\ by Bloomberg and Reuters.
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\13\ A ``Business Day'' means any day other than a day when any
of BZX, Cboe, CFE or other exchange material to the valuation or
operation of the Fund, or the calculation of the VIX, options
contracts underlying the VIX, VIX Futures Contracts or the Index is
closed for regular trading.
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The CFE also provides delayed futures information on current and
past trading sessions and market news free of charge on its website.
The specific contract specifications of Index Components (i.e., first-
month and second-month VIX Futures Contracts) underlying the Index are
also available on such websites, as well as other financial
informational sources.
Quotation and last-sale information regarding the Shares will be
disseminated through the facilities of the Consolidated Tape
Association (``CTA''). Information relating to VIX Futures Contracts
and VIX Options Contracts will be available from the exchange on which
such instruments are traded. Information relating to VIX Options
Contracts will also be available via the Options Price Reporting
Authority. Quotation information from brokers and dealers or pricing
services will be available for VIX Swap Agreements for which the Fund
may invest. Pricing information regarding each asset class in which the
Fund will invest is generally available through nationally recognized
data services providers through subscription agreements.
In addition, the Fund's website at www.volatilityshares.com will
display the end of day closing Index level, and NAV per share for the
Fund. The Fund will provide website disclosure of portfolio holdings
daily and will include, as applicable, the notional value (in U.S.
dollars) of VIX Derivative Products, and characteristics of such
instruments, as well as Cash and Cash Equivalents held in the portfolio
of the Fund. This website disclosure of the portfolio composition of
the Fund will occur at the same time as the disclosure by the Fund of
the portfolio composition to authorized participants so that all market
participants are provided portfolio composition information at the same
time. The same portfolio information will be provided on the public
website as well as in electronic files provided to authorized
participants.
In addition, in order to provide updated information relating to
the Fund for use by investors and market professionals, an updated
Intraday Indicative Value (``IIV'') will be calculated. The IIV is an
indicator of the value of the Fund's holdings, which includes the value
of the VIX Derivative Products (which, as stated above, includes VIX
Futures Contracts, VIX Swap Agreements, and VIX Options Contracts) and
Cash and Cash Equivalents less liabilities of the Fund at the time the
IIV is disseminated. The IIV is calculated and widely disseminated by
one or more major market data vendors every 15 seconds throughout
Regular Trading Hours.\14\
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\14\ As defined in Rule 1.5(w), the term ``Regular Trading
Hours'' means the time between 9:30 a.m. and 4:00 p.m. ET.
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In addition, the IIV is published on the Exchange's website and is
available through on-line information services such as Bloomberg and
Reuters.
The IIV disseminated during Regular Trading Hours should not be
viewed as an actual real time update of the NAV, which is calculated
only once a day. The IIV also should not be viewed as a precise value
of the Shares.
Additional information regarding the Fund and the Shares, including
investment strategies, risks, creation and redemption procedures, fees,
portfolio holdings, disclosure policies, distributions and taxes is
included in the Registration Statement.
Initial and Continued Listing
The Shares of the Fund will conform to the initial and continued
listing criteria under BZX Rule 14.11(f)(4). The Exchange represents
that, for initial and continued listing, the Fund and the Trust must be
in compliance with Rule 10A-3 under the Act. A minimum of 100,000
Shares of the Fund will be outstanding at the commencement of trading
on the Exchange. The Exchange will obtain a representation from the
Sponsor of the Shares that the NAV per Share for the Fund will be
calculated daily and will be made available to all market participants
at the same time.
Trading Halts
With respect to trading halts, the Exchange may consider all
relevant factors in exercising its discretion to halt or suspend
trading in the Shares of the Fund. The Exchange will halt trading in
the Shares under the conditions specified in BZX Rule 11.18. Trading
may be halted because of market conditions or for reasons that, in the
view of the Exchange, make trading in the Shares inadvisable. These may
include: (1) The extent to which trading is not occurring in the
securities and/or the financial instruments composing the daily
disclosed portfolio of the Fund; or (2) whether other unusual
conditions or circumstances detrimental to the maintenance of a fair
and orderly market are present.
Trading Rules
The Exchange deems the Shares to be equity securities, thus
rendering trading in the Shares subject to the Exchange's existing
rules governing the trading of equity securities. The Exchange will
allow trading in the Shares from 8:00 a.m. until 8:00 p.m. ET and has
the appropriate rules to facilitate transactions in the Shares during
all trading sessions. As provided in BZX Rule 11.11(a), the minimum
price variation for quoting and entry of orders in securities traded on
the Exchange is $0.01, with the exception of securities that are priced
less than $1.00, for which the minimum price variation for order entry
is $0.0001.
Surveillance
Trading of the Shares through the Exchange will be subject to the
Exchange's surveillance procedures for derivative products, including
Trust Issued Receipts. All of the VIX Futures Contracts and VIX Options
Contracts held by the Fund will trade on markets that are a member of
ISG or affiliated with a member of ISG or with which the Exchange has
in place a comprehensive surveillance sharing agreement.\15\ The
Exchange, FINRA, on behalf of the Exchange, or both will communicate
regarding trading in the Shares and the underlying listed instruments,
including listed derivatives held by the Fund, with the ISG, other
markets or entities who are members or affiliates of the ISG,
[[Page 4027]]
or with which the Exchange has entered into a comprehensive
surveillance sharing agreement. In addition, the Exchange or FINRA may
obtain information regarding trading in the Shares and the underlying
listed instruments, including listed derivatives, held by the Fund from
markets and other entities that are members of ISG or with which the
Exchange has in place a comprehensive surveillance sharing agreement.
All statements and representations made in this filing regarding the
description of the portfolio or reference assets, limitations on
portfolio holdings or reference assets, dissemination and availability
of reference asset, and IIVs, and the applicability of Exchange rules
specified in this filing shall constitute continued listing
requirements for the Fund. The issuer has represented to the Exchange
that it will advise the Exchange of any failure by the Fund or the
Shares to comply with the continued listing requirements, and, pursuant
to its obligations under Section 19(g)(1) of the Act, the Exchange will
surveil for compliance with the continued listing requirements. If the
Fund or the Shares are not in compliance with the applicable listing
requirements, the Exchange will commence delisting procedures under
Exchange Rule 14.12.
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\15\ For a list of the current members and affiliate members of
ISG, see www.isgportal.com. The Exchange notes that not all
components of the Fund's holdings may trade on markets that are
members of ISG or with which the Exchange has in place a
comprehensive surveillance sharing agreement.
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Information Circular
Prior to the commencement of trading, the Exchange will inform its
members in an Information Circular of the special characteristics and
risks associated with trading the Shares. Specifically, the Information
Circular will discuss the following: (1) The procedures for purchases
and redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (2) BZX Rule 3.7, which imposes suitability
obligations on Exchange members with respect to recommending
transactions in the Shares to customers; (3) how information regarding
the IIV and the Fund's holdings is disseminated; (4) the risks involved
in trading the Shares during the Pre-Opening \16\ and After Hours
Trading Sessions \17\ when an updated IIV will not be calculated or
publicly disseminated; (5) the requirement that members deliver a
prospectus to investors purchasing newly issued Shares prior to or
concurrently with the confirmation of a transaction; and (6) trading
information.
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\16\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. ET.
\17\ The After Hours Trading Session is from 4:00 p.m. to 8:00
p.m. ET.
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In addition, the Information Circular will advise members, prior to
the commencement of trading, of the prospectus delivery requirements
applicable to the Fund. Members purchasing Shares from the Fund for
resale to investors will deliver a prospectus to such investors. The
Information Circular will also discuss any exemptive, no-action and
interpretive relief granted by the Commission from any rules under the
Act.
In addition, the Information Circular will reference that the Fund
is subject to various fees and expenses described in the Registration
Statement. The Information Circular will also disclose the trading
hours of the Shares of the Fund and the applicable NAV calculation time
for the Shares. The Information Circular will disclose that information
about the Shares of the Fund will be publicly available on the Fund's
website.
2. Statutory Basis
The Exchange believes that the proposal is consistent with Section
6(b) of the Act \18\ in general and Section 6(b)(5) of the Act \19\ in
particular in that it is designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to foster cooperation and coordination with
persons engaged in facilitating transactions in securities, 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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\18\ 15 U.S.C. 78f.
\19\ 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 in that the
Shares will be listed and traded on the Exchange pursuant to the
initial and continued listing criteria in Exchange Rule 14.11(f). The
Exchange believes that its surveillance procedures are adequate to
properly monitor the trading of the Shares on the Exchange during all
trading sessions and to deter and detect violations of Exchange rules
and the applicable federal securities laws. If the Sponsor to the Trust
issuing the Trust Issued Receipts is affiliated with a broker-dealer,
such Sponsor to the Trust shall erect a ``fire wall'' between the
Sponsor and the broker-dealer with respect to access to information
concerning the composition and/or changes to such Trust portfolio. The
Sponsor is not affiliated with a broker-dealer. In the event that (a)
the Sponsor becomes a broker-dealer or newly affiliated with a broker-
dealer, or (b) any new sponsor is a broker-dealer or becomes affiliated
with a broker-dealer, it will implement a fire wall with respect to its
relevant personnel or such broker-dealer affiliate, as applicable,
regarding access to information concerning the composition and/or
changes to the portfolio, and will be subject to procedures designed to
prevent the use and dissemination of material non-public information
regarding such portfolio. The Exchange may obtain information regarding
trading in the Shares and the underlying VIX Futures Contracts and VIX
Options Contracts via the ISG from other exchanges who are members or
affiliates of the ISG or with which the Exchange has entered into a
comprehensive surveillance sharing agreement.
The proposed rule change is designed to promote just and equitable
principles of trade and to protect investors and the public interest in
that the Exchange will obtain a representation from the issuer of the
Shares that the NAV will be calculated daily and that the NAV and the
Fund's holdings will be made available to all market participants at
the same time. In addition, a large amount of information is publicly
available regarding the Fund and the Shares, thereby promoting market
transparency. Moreover, the IIV will be disseminated by one or more
major market data vendors at least every 15 seconds during Regular
Trading Hours. On each Business Day, before commencement of trading in
Shares during Regular Trading Hours, the Fund will disclose on its
website the holdings that will form the basis for the Fund's
calculation of NAV at the end of the Business Day. Pricing information
will be available on the Fund's website including: (1) The prior
Business Day's reported NAV, the closing market price or the Bid/Ask
Price, daily trading volume, and a calculation of the premium and
discount of the closing market price or Bid/Ask Price against the NAV;
and (2) data in chart format displaying the frequency distribution of
discounts and premiums of the daily closing price against the NAV,
within appropriate ranges, for each of the four previous calendar
quarters. Additionally, information regarding market price and trading
of the Shares 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 Shares will
[[Page 4028]]
be available on the facilities of the CTA. The websites for the Fund
will include a form of the prospectus for the Fund and additional data
relating to NAV and other applicable quantitative information. Trading
in Shares of the Fund will be halted under the conditions specified in
Exchange Rule 11.18. Trading may also be halted because of market
conditions or for reasons that, in the view of the Exchange, make
trading in the Shares inadvisable. Finally, trading in the Shares will
be subject to 14.11(f)(4)(C)(ii), which sets forth circumstances under
which Shares of the Fund may be halted. In addition, as noted above,
investors will have ready access to information regarding the Fund's
holdings, the IIV, and quotation and last sale information for the
Shares.
Intraday price quotations on VIX Derivative Products held by the
Fund are available from major broker-dealer firms and from third-
parties, which may provide prices free with a time delay, or ``live''
with a paid fee. Major broker-dealer firms will also provide intraday
quotes on swaps of the type held by the Fund. Pricing information
related to exchange-listed instruments, including exchange-listed VIX
Futures Contracts and VIX Options Contracts, will be available directly
from the listing exchange. For VIX Futures Contracts and VIX Options
Contracts, such intraday information is available directly from CFE and
Cboe, respectively. Intraday price information is also available
through subscription services, such as Bloomberg and Thomson Reuters,
which can be accessed by authorized participants and other investors.
The proposed rule change is designed 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
an additional type of exchange-traded product 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 the Shares and may obtain information
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 regarding the Fund's holdings, the IIV, and
quotation and last sale information for the Shares.
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. The Exchange notes that the
proposed rule change, rather will facilitate the listing of an
additional exchange-traded product on the Exchange, which will enhance
competition among listing venues, to the benefit of issuers, investors,
and the marketplace more broadly.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received 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 Exchange 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-CboeBZX-2020-003 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to File Number SR-CboeBZX-2020-003. 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-CboeBZX-2020-003 and should be submitted
on or before February 12, 2020.
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\20\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01036 Filed 1-22-20; 8:45 am]
BILLING CODE 8011-01-P