[Federal Register Volume 90, Number 153 (Tuesday, August 12, 2025)]
[Notices]
[Pages 38864-38866]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2025-15259]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-103659; File No. SR-CboeBZX-2025-059]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change Related to the 2x Long VIX Futures ETF and the -1x
Short VIX Futures ETF
August 7, 2025.
On March 21, 2025, Cboe BZX Exchange, Inc. (``BZX'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule
[[Page 38865]]
19b-4 thereunder,\2\ a proposed rule change to amend certain
representations relating to the 2x Long VIX Futures ETF and the -1x
Short VIX Futures ETF (each a ``Fund,'' and collectively, the
``Funds''), shares of which have been approved by the Commission to
list and trade on the Exchange as Trust Issued Receipts pursuant to BZX
Rule 14.11(f)(4). The proposed rule change was published for comment in
the Federal Register on May 9, 2025.\3\
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 102991 (May 5,
2025), 90 FR 19741 (``Notice''). The Commission has not received any
comments regarding the proposed rule change.
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On June 16, 2025, pursuant to Section 19(b)(2) of the Act,\4\ the
Commission designated a longer period within which to approve the
proposed rule change, disapprove the proposed rule change, or institute
proceedings to determine whether to disapprove the proposed rule
change.\5\
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\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 103274, 90 FR 26352
(June 20, 2025) (designating August 7, 2025, as the date by which
the Commission shall either approve, disapprove, or institute
proceedings to determine whether to disapprove the proposed rule
change).
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The Commission is publishing this order to solicit comments on the
proposed rule change from interested persons and to institute
proceedings under Section 19(b)(2)(B) of the Act \6\ to determine
whether to approve or disapprove the proposed rule change.
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\6\ 15 U.S.C. 78s(b)(2)(B).
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I. Description of the Proposal
The Commission approved the listing and trading of the Funds on
October 1, 2021.\7\
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\7\ See Securities Exchange Act Release Nos. 93229 (Oct. 1,
2021), 86 FR 55873 (Oct. 7, 2021) (Order Setting Aside Action by
Delegated Authority and Approving a Proposed Rule Change, as
Modified by Amendment Nos. 2 and 4, To List and Trade Shares of the
2x Long VIX Futures ETF Under BZX Rule 14.11(f)(4)(Trust Issued
Receipts)) (SR-CboeBZX-2020-053) (``Order Approving UVIX''); and
93229 (Oct. 1, 2021), 86 FR 55881 (Oct. 7, 2021) (Order Setting
Aside Action by Delegated Authority and Approving a Proposed Rule
Change, as Modified by Amendment Nos. 1 and 3, To List and Trade
Shares of the -1x Short VIX Futures ETF Under BZX Rule
14.11(f)(4)(Trust Issued Receipts)) (SR-CboeBZX-2020-070) (``Order
Approving SVIX,'' and, together with the Order Approving UVIX, the
``Approval Orders'').
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The Approval Orders include representations that Volatility Shares
LLC (``Sponsor'') will limit the Funds' participation in Cboe
Volatility Index (``VIX'') futures contracts traded on the Cboe Futures
Exchange, Inc. (``CFE'') (``VIX Futures Contracts'') to no more than
10% during any ``Rebalance Period,'' defined as any fifteen minute
period of continuous market trading.\8\ In the event that the Funds
expect to hit the 10% threshold during the primary Rebalance Period
from 3:45 p.m. to 4:00 p.m. ET, the Funds will extend their respective
rebalances into additional Rebalance Periods and the Trade at
Settlement market (each, an ``Extended Rebalance Period'').\9\ Further,
in the event that either Fund participates in an Extended Rebalance
Period, each Fund represented that it will notify the Exchange and the
Commission of such participation as soon as practicable, but no later
than 9:00 a.m. ET on the trading day following the event.\10\
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\8\ See Order Approving SVIX, 86 FR at 55882; and Order
Approving UVIX, 86 FR at 55874. This restriction applies ``across
all exchange traded products based on VIX Futures Contracts (`VIX
ETPs') that [the Sponsor] sponsors.'' See Order Approving SVIX, 86
FR at 55882; and Order Approving UVIX, 86 FR at 55874.
\9\ See Order Approving SVIX, 86 FR at 55882-83; and Order
Approving UVIX, 86 FR at 55874.
\10\ See Order Approving SVIX, 86 FR at 55883; and Order
Approving UVIX, 86 FR at 55874.
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The Exchange is proposing to eliminate the 10% participation cap
for the Funds' participation in VIX Futures Contracts during any
Rebalance Period as well as the representation that the Funds will
notify the Exchange and the Commission of the Funds' participation in
any Extended Rebalance Period.
The Exchange proposes to instead provide, with respect to each
Fund:
The time and manner in which the Fund will rebalance its
portfolio is defined by the Index methodology but may vary from the
Index methodology depending upon market conditions and other
circumstances including the potential impact of the rebalance on the
price of the VIX Futures Contracts. To limit participation during
periods of market illiquidity, the Sponsor, on any given day, may
vary the manner and period over which all funds it sponsors are
rebalanced, and as such, the manner and period over which the Fund
is rebalanced. The Sponsor believes that the Fund will enter an
Extended Rebalance Period most often during periods of extraordinary
market conditions or illiquidity in VIX Futures Contracts.\11\
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\11\ See Notice, supra note 3, 90 FR at 19742-43.
The Exchange states that Sponsor will continue to operate each Fund
in a manner that seeks to minimize market impact across the Funds, and
by way of example, notes that the Sponsor's products differ from
previous and existing VIX ETPs by using a valuation method that is an
average price over a longer time period instead of exclusively at the
4:00 p.m. ET settlement price, which it believes mitigates market
impact.\12\ The Exchange represents that the Sponsor owes the Funds a
fiduciary duty and operates the Funds accordingly.\13\
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\12\ See Notice, supra note 3, 90 FR at 19743.
\13\ According to the Exchange, the Sponsor, as a commodity pool
operator, owes a fiduciary duty to the commodity pools it operates,
i.e., the Funds. See Notice, supra note 3, 90 FR at 19743.
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II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2025-059 and Grounds for Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \14\ to determine whether the proposed rule
change should be approved or disapproved. Institution of such
proceedings is appropriate at this time in view of the legal and policy
issues raised by the proposed rule change. Institution of proceedings
does not indicate that the Commission has reached any conclusions with
respect to any of the issues involved. Rather, as described below, the
Commission seeks and encourages interested persons to provide comments
on the proposed rule change.
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\14\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\15\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposal's consistency with Section 6(b)(5) of the Act,
which requires, among other things, that the rules of a national
securities exchange be ``designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade,'' and ``to protect investors and the public
interest.'' \16\
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\15\ Id.
\16\ 15 U.S.C. 78f(b)(5).
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In its assessment of the original proposals, the Commission
considered the potential for market disruption during periods with
large percentage increases in volatility and, because of the potential
for large, sudden moves in VIX levels, the potential for large spikes
in rebalancing demand for VIX ETPs.\17\ In its Approval Orders, the
Commission concluded that, based on the record at the time, the
Exchange's proposals were reasonably designed to help mitigate the
potential market impact on the Funds' daily rebalance demand during
periods when there are large percentage increases in volatility.\18\
Specifically, the Commission concluded that the rebalance design of the
Funds may help distribute rebalancing volume, and that the 10%
participation cap strikes an appropriate balance between allowing the
Funds to rebalance within a reasonably short period of time and
[[Page 38866]]
managing the potential market impact of a large rebalance.\19\
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\17\ See Order Approving SVIX, 86 FR at 55884; and Order
Approving UVIX, 86 FR at 55875.
\18\ See Order Approving SVIX, 86 FR at 55884; and Order
Approving UVIX, 86 FR at 55876.
\19\ See Order Approving SVIX, 86 FR at 55884; and Order
Approving UVIX, 86 FR at 55876.
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Under the current proposal, the Exchange seeks to eliminate the 10%
participation cap. In its statements in support of the Exchange's
original proposals to list and trade shares of the Funds, the Sponsor
stated, among other things, that committing to a 10% participation cap
for all VIX ETPs offered by the Sponsor should result in ``an execution
method that minimizes market impact and meaningfully lowers the chances
of [the Funds] experiencing a significant disruption'' and ``less
volatile products with minimal impacts to the underlying VIX futures
and the broader market.'' \20\
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\20\ See Order Approving SVIX, 86 FR at 55883 (citing Letter
from Barry I. Pershkow, Partner, Chapman and Cutler LLP, on behalf
of the Sponsor, dated May 7, 2021); and Order Approving UVIX, 86 FR
at 55875 (citing Letter from Barry I. Pershkow, Partner, Chapman and
Cutler LLP, on behalf of the Sponsor, dated May 7, 2021).
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The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal in addition to any
other comments they may wish to submit about the proposed rule change.
In particular, the Commission seeks comment on the following questions
and asks commenters to submit data where appropriate to support their
views:
1. Given the previous statements made by the Sponsor and Exchange
in support of the 10% participation cap, in conjunction with the
Commission's determination that such representation was consistent with
Section 6(b)(5) of the Act, including the protection of investors and
the public interest, what are commenters' views on whether the Exchange
has satisfied its burden in demonstrating that the elimination of the
10% participation cap is consistent with Section 6(b)(5) of the Act?
Absent the 10% participation cap, do the other aspects of the Funds'
rebalancing methodology serve to mitigate the market impact concerns
articulated in the Approval Orders?
2. In its Approval Orders, the Commission also stated that,
although the Commission's findings in such order were based on the
specific proposed rule changes filed with the Commission, including how
the proposed rules operated under the then-current market conditions
discussed in that order, the Commission recognized that, over time,
market conditions in VIX ETP markets, and the related VIX Futures
market, may change.\21\ What are commenters' views on whether market
conditions or other circumstances have changed that would affect the
Commission's review of the current proposal?
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\21\ See Order Approving SVIX, 86 FR at 55884 n.48; and Order
Approving UVIX, 86 FR at 55876 n.43.
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III. Procedure: Request for Written Comments
The Commission requests that interested persons provide written
submissions of their data, views, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposed rule change
is consistent with Section 6(b)(5) of the Act \22\ or any other
provision of the Act, or the rules and regulations thereunder. Although
there do not appear to be any issues relevant to approval or
disapproval that would be facilitated by an oral presentation of data,
views, and arguments, the Commission will consider, pursuant to Rule
19b-4 under the Act,\23\ any request for an opportunity to make an oral
presentation.\24\
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\22\ 15 U.S.C. 78f(b)(5).
\23\ 17 CFR 240.19b-4.
\24\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Acts Amendments of 1975, Public Law 94-29 (June 4, 1975),
grants to the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Acts Amendments of
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
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Interested persons are invited to submit written data, views, and
arguments regarding whether the proposed rule change should be approved
or disapproved by September 2, 2025. Any person who wishes to file a
rebuttal to any other person's submission must file that rebuttal by
September 16, 2025. The Commission asks that commenters address the
sufficiency of the Exchange's statements in support of the proposal, in
addition to any other comments they may wish to submit about the
proposed rule change.
Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-CboeBZX-2025-059 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-2025-059. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the filing will be available for inspection and
copying at the principal office of the Exchange. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to file number SR-CboeBZX-2025-059 and should be submitted
on or before September 2, 2025. Rebuttal comments should be submitted
by September 16, 2025.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\25\
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\25\ 17 CFR 200.30-3(a)(57).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-15259 Filed 8-11-25; 8:45 am]
BILLING CODE 8011-01-P