SECURITIES AND EXCHANGE COMMISSION 

[Release No. 34-90510] 

November 24, 2020 

Order Granting Conditional Exemptive Relief, Pursuant to Section 36 of the Securities 

Exchange Act of 1934 (“Exchange Act”) with Respect to Futures Contracts on the 

SPIKESTM Index

AGENCY: Securities and Exchange Commission. 

ACTION: Exemptive order. 

SUMMARY: The Minneapolis Grain Exchange, Inc. (or any successor thereto) (“MGEX”) has 

expressed an interest in listing and trading contracts for sale for future delivery on the SPIKESTM

Index (“SPIKES”) (such futures contracts (and any options thereon) hereinafter referred to as the 

“Product”). After careful consideration, the Securities and Exchange Commission (“SEC” or 

“Commission”) believes that the Product has the potential to offer competition with the only 

comparable incumbent volatility product in the market, and is therefore conditionally exempting

the Product from the definition of “security future” for all purposes other than as follows: first, 

the anti-fraud and anti-manipulation provisions under the Exchange Act will continue to apply; 

second, MGEX will continue to be subject to the requirement to register with the Commission as 

a national securities exchange (which may be done pursuant to a notice filing) and comply with 

related amendment and supplemental filing requirements; and third, MGEX will continue to be 

required, in its capacity as a national securities exchange, to make available to the Commission 

(or its representatives) books and records relating to transactions in the Product, upon request, 

and to make itself available to inspection and examination by the Commission (or its 

representatives), upon request. However, because registration as a notice-registered national 

securities exchange is intended only as a means to facilitate the Commission’s ability to exercise 

its books and records and examination authority over the Product, MGEX will be exempt from 
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compliance with all other requirements applicable to national securities exchanges. Taken 

together, these actions will allow the Product to trade as a futures contract on MGEX, a 

designated contract market (“DCM”) and derivatives clearing organization (“DCO”) that is 

subject to the jurisdiction of the Commodity Futures Trading Commission (“CFTC”), consistent 

with the terms and conditions set forth below.

EFFECTIVE DATE: This exemptive order is effective as of [INSERT DATE OF 

PUBLICATION IN THE FEDERAL REGISTER].

FOR FURTHER INFORMATION CONTACT: Carol McGee, Assistant Director, or Andrew 

Bernstein, Senior Special Counsel, at (202) 551-5870, Office of Derivatives Policy, Division of 

Trading and Markets, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 

20549-8010.

I. Introduction

A. Overview of the SPIKES Index

On October 12, 2018, the Commission issued an order granting approval of a proposed 

rule change to allow the Miami International Securities Exchange LLC (“MIAX”) to list and 

trade options on SPIKES.1 Although that order permits MIAX to treat SPIKES as a broad-based 

index, as defined under MIAX’s rules, solely for purposes of determining the position limits, 

exercise limits, and margin requirements that apply to each options trade, the Commission stated 

explicitly that it was not determining whether SPIKES is a “narrow-based security index,” as 

defined in Section 3(a)(55)(B) of the Exchange Act.2

 1 See Order Granting Approval of a Proposed Rule Change by Miami International 

Securities Exchange, LLC to List and Trade on the Exchange Options on the SPIKESTM

Index, Exchange Act Release No. 84417 (Oct. 12, 2018), 83 FR 52865 (Oct. 18, 2018) 

(SR-MIAX-2018-14) (“SPIKES Options Approval Order”).

2 See SPIKES Options Approval Order, 82 FR at 52867 n. 36.
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SPIKES measures the expected 30-day volatility of the SPDR® S&P 500® ETF Trust 

(“SPY”), and is calculated using a variance swap methodology that includes live prices of 

existing exchange-traded options on the SPY to calculate volatility. Specifically, the SPIKES 

formula relies on the prices of standard monthly SPY options that expire on the third Friday of 

each calendar month.3

 The formula uses those prices to linearly interpolate between the 

variances of two monthly SPY option expirations – near-term (the closest expiration more than 

two full days into the future) and next-term (the monthly expiration following the near-term). 

This expiration selection method is intended to avoid using highly irregular SPY option prices 

close to the options settlement date.4 When the near-term expiration is too close to expiry (less 

than two full days), rolling to the third-closest expiration occurs.5

The number of options included in the SPIKES calculation varies, and depends on the 

prices of live out-of-the-money (“OTM”) SPY options.

6

 In order to determine which SPY 

options are OTM, the methodology requires identification of the at-the-money (“ATM”) SPY 

options for both the near-term and next-term options by calculating the absolute value of the call 

cash reference price minus the put cash reference price for all SPY options for which both call 

and put prices are available, and then selecting the strike price where that value is closest to zero

(or in the case of a tie, using the lower strike).

7 Once the ATM price has been identified, each 

 3 See The SPIKES Volatility Index: Methodology Guide (available at: 

https://www.miaxoptions.com/sites/default/files/spikesfiles/SPIKES_Methodology_Guide.pdf) (“SPIKES Methodology”). Weekly SPY options 

are not used in the SPIKES calculation.

4 See id.

5 See id.

6 In-the-money SPY options are not included in the SPIKES calculation. See id.

7 See id. The “cash reference price” is the price of a particular SPY option, as determined 

using the “price dragging” technique set forth in the SPIKES methodology. MIAX 
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OTM SPY option successively further away from the money is included in the calculation (for 

both the near-term and next-term) until two consecutive options with a cash reference price of 

five cents or less is reached, at which point all remaining far OTM options are excluded.8 The 

included OTM options are then weighted and used in the SPIKES formula to calculate the 

annualized expected volatility of the SPY, which is quoted in percentage points.

9

 

The Commission understands that SPY options are used as inputs to the SPIKES formula, 

which is designed to interpolate the expected volatility of a single ATM option that expires in 

precisely 30 days. That formula requires the use of multiple live SPY options to determine the 

price (and ultimately the volatility) of what is essentially a synthetic SPY option that is both 

ATM and expires in exactly 30 days, updated on a real-time basis on each trading day beginning 

at 9:30 a.m. and ending at 4:15 p.m. (New York time).10

 

describes “price dragging” as the proprietary method used for determining the ongoing 

price for each individual option used in the calculation of SPIKES. Pursuant to that 

process, all prices are initially set to zero. If there is a trade, the price of the option is 

always set to the trade price. If there is not yet a trade, on the opening quote, the opening 

bid is used as the current price. For newly-placed ask (bid) quotes, if the ask (bid) is 

lower (higher) than the current ongoing reference price, the option price is set to ask 

(bid). MIAX believes that this process “should materially reduce erratic movements of 

the [SPIKES] value as quotations on [OTM] options are rapidly altered during times of 

low liquidity.” See Notice of Filing of a Proposed Rule Change by Miami International 

Securities Exchange, LLC to List and Trade on the Exchange Options on the SPIKESTM 

Index, Exchange Act Release No. 83619 (July 11, 2018), 83 FR 32932, 32934 (“SPIKES 

Options Notice”).

8 See SPIKES Methodology, supra note 3.

9 See SPIKES Options Notice, 83 FR at 32933.

10 See SPIKES Options Approval Order, 83 FR at 52865-66. 
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B. Statutory Authority

The Commodity Futures Modernization Act of 2000 (“CFMA”)11 authorized the trading 

of security futures, which are defined in Section 3(a)(55)(A) of the Exchange Act12 and Section 

1a(44) of the Commodity Exchange Act (“CEA”)13 to include a contract of sale for future 

delivery of a single security or of a narrow-based security index,14 including any interest therein 

or based on the value thereof, other than certain exempt securities. A security future is 

considered to be a “security” for purposes of the Federal securities laws, including the Exchange 

Act15 and the Securities Act of 1933 (“Securities Act”),16 and a futures contract for purposes of

the CEA.17 Thus, the regulatory framework established by the CFMA provides the Commission 

and the CFTC with joint jurisdiction over security futures products.

18

A futures contract on the SPIKES is a futures contract that is based on the value of a 

single security (i.e., the SPY)19 and therefore satisfies the statutory definition of security future 

 11 Pub. L. No. 106-554, 114 Stat. 2763 (2000).

12 15 U.S.C. 78c(a)(55)(A).

13 7 U.S.C. 1a(44).

14 The term “narrow-based security index” is defined in Section 1a(35)(A) of the CEA and 

Section 3(a)(55)(B) of the Exchange Act. 7 U.S.C. 1a(35)(A) and 15 U.S.C. 

78c(a)(55)(B).

15 See Section 3(a)(10) of the Exchange Act. 15 U.S.C. 78c(a)(10).

16 See Section 2(a)(1) of the Securities Act. 15 U.S.C. 77b(a)(1).

17 See Section 1a(44) of the CEA. 7 U.S.C. 1a(44).

18 Section 3(a)(56) of the Exchange Act and Section 1a(45) of the CEA define “security 

futures product” to mean a security future or any put, call, straddle, option, or privilege 

on any security future. 15 U.S.C. 78c(a)(56) and 7 U.S.C. 1a(45).

19 As previously discussed, the SPIKES calculation uses live OTM SPY options to 

interpolate the price of a single synthetic precisely 30-day ATM SPY option which, in 

turn, is used to calculate the precisely 30-day volatility of the SPY. Thus, a futures 

contract on SPIKES could, in the alternative, be viewed as a future based on the value of 

such single synthetic 30-day ATM SPY option.
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in Section 3(a)(55) of the Exchange Act. Nevertheless, the Commission has determined to use 

its authority in Section 36 of the Exchange Act to exempt a futures contracts on the SPIKES 

from the definition of “security future” under the Exchange Act, subject to the exceptions and 

conditions set forth below.20

C. Exemptive Relief Under Section 36 

Section 36(a)(1) of the Exchange Act authorizes the Commission to conditionally or 

unconditionally exempt any person, security, or transaction, or any class or classes of persons, 

securities, or transactions, from any provision or provisions of the Exchange Act or any rule or 

regulation thereunder, by rule, regulation, or order, to the extent that such exemption is necessary 

or appropriate in the public interest, and is consistent with the protection of investors.21 After 

careful consideration, the Commission finds that it is necessary or appropriate in the public 

interest, and is consistent with the protection of investors, to exercise its authority to exempt the 

Product from the definition of security future in Section 3(a)(55) of the Exchange Act for all 

purposes under the Exchange Act, other than certain specified provisions, including: (1) the antifraud and anti-manipulation provisions under the Exchange Act, (2) the obligation of MGEX to 

register with the Commission as a national securities exchange; (3) the obligation of MGEX to 

make available to the Commission (or its representatives) books and records relating to 

transactions in the Product, upon request; and (4) the obligation of MGEX to make itself 

available to inspection and examination by the Commission (or its representatives), upon request.

 20 In the alternative, if SPIKES were considered to be an index composed of options on the 

SPY, a futures contract based on SPIKES would be a security future because SPIKES is a 

narrow-based security index under the definition set forth in Section 3(a)(55)(B) of the 

Exchange Act. See, e.g., Joint Final Rules: Application of the Definition of NarrowBased Security Index to Debt Securities Indexes and Security Futures on Debt Securities, 

Exchange Act Release No. 54106 (July 6, 2006), 71 FR 39534, 39536-37 (July 13, 2006).

21 15 U.S.C. 78mm(a)(1).
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As a result of this exemptive order, market participants will be able to transact in the 

Product as a futures contract on MGEX, a DCM and DCO that is subject to the jurisdiction of the 

CFTC, consistent with the terms and conditions set forth below. The Commission believes that 

permitting the Product to trade as a futures contract, as opposed to as a security future, should

foster competition as it could serve as an alternative to the only comparable incumbent volatility 

product in the market. Facilitating greater competition among these types of products should 

provide market participants with access to a wider range of financial instruments to trade on and 

hedge against volatility in the markets, particularly the S&P 500. In addition, the introduction of 

an additional volatility product in the market should lower transaction costs for market 

participants. Further, because SPY options are traded on 16 different national securities 

exchanges, the Commission would expect there to be a large number of market participants able 

to act as market makers in the Product. Moreover, the fact that SPY options are multi-listed

should provide resiliency by reducing the likelihood that a disruption on one or more options 

exchanges could lead to a disruption in trading in the Product. 

The Commission understands, however, that the Product will need to trade, clear, and 

settle as a futures contract on a CFTC-regulated DCM and DCO in order to achieve such benefits 

to the market. This order, and the exemption of the Product from the definition of “security 

future,” subject to the terms and conditions discussed below, is intended to achieve that result.

II. Exemptive Relief

A. Scope

Pursuant to Section 36 of the Exchange Act, the Commission is exempting the Product 

from the definition of “security future” in Section 3(a)(55) of the Exchange Act for all purposes 

under the Exchange Act other than as follows. First, such definitional exemption does not apply 
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to the anti-fraud and anti-manipulation provisions of the Exchange Act (including related 

investigative, enforcement, and procedural authority) in Sections 9, 10, 15(c), 20, 20A, 21, 21A, 

21B, 21C, 21D, 26, and 27,22 and the rules and regulations thereunder. Moreover, and as 

discussed in detail below, trading in the Product will remain subject to the anti-fraud provisions 

of Section 17(a) of the Securities Act.23 

Given that the price of a futures contract on the SPIKES is based on the value of the SPY 

and is derived using SPY options as inputs to a formula that creates a synthetic SPY option, the 

Commission believes it must retain the ability to exercise enforcement authority when necessary 

to protect the integrity of the securities markets to the extent that fraudulent or manipulative 

trading activity occurs in connection with transactions in the Product that could impact trading in 

the underlying securities (i.e., SPY or SPY options), or vice versa. Accordingly, the 

Commission is retaining this authority to, among other things, help prevent the possibility of 

market participants using fraudulent or manipulative transactions in the Product as a surrogate 

for transactions in the underlying securities in order to evade the Commission’s anti-fraud and 

anti-manipulation authority. Similarly, the Commission also would expect to use its anti-fraud 

and anti-manipulation authority in the event that a market participant were to use transactions in 

the securities markets to engage in fraudulent or manipulative activities related to the Product.

Second, the exemption from the definition of security future does not apply to the 

requirement to register with the Commission as a national securities exchange, as set forth in 

Section 5 of the Exchange Act, and the rules and regulations thereunder, and the requirements 

applicable to national securities exchanges, as set forth in Section 6 of the Exchange Act, and the 

 22 15 U.S.C. 78(i), (j), o(c), t, t-1, u, u-1, u-2, u-3, u-4, z, and aa.

23 15 U.S.C. 77q(a). See infra note 53 and accompanying text (discussing the application of 

Section 17(a) of the Securities Act to the Product).
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rules and regulations thereunder, including Section 6(g), which applies to an exchange that lists 

and trades only security futures products. Specifically, Section 6(g) of the Exchange Act 

provides that an exchange that lists or trades security futures products may register as a national 

securities exchange solely for the purposes of trading security futures products if: (1) the 

exchange is a board of trade, as that term is defined by Section 1a(6) of the CEA,

24 that has been 

designated a contract market by the CFTC and such designation is not suspended by order of the 

CFTC; and (2) such exchange does not serve as a market place for transactions in securities other 

than security futures products or futures on exempted securities or groups or indexes of securities 

or options thereon that have been authorized under Section 2(a)(1)(C) of the CEA.25 Because 

MGEX satisfies the two conditions set forth in Section 6(g), it could avail itself of that provision 

to notice register as a national securities exchange by completing and submitting Form 1-N

pursuant to Exchange Act Rule 6a-4(a)(1).

26 By notice registering as a national securities 

exchange under Section 6(g), MGEX would also be subject to the ongoing requirements under 

Exchange Act Rule 6a-4 regarding amendments to MGEX’s notice of registration on Form 1-

N,27 as well as periodic filings regarding certain supplemental material related to the trading of 

security futures products on MGEX.28

 24 The cross-reference in Section 6(g) of the Exchange Act to the definition of “board of 

trade” cites to Section 1a(2) of the CEA which is no longer accurate due to subsequent 

amendments made to Section 1a of the CEA that modified the paragraph numbering.

25 15 U.S.C. 78f(g).

26 See 17 CFR 240.6a-4(a)(1). Rule 6a-4(a)(2) also requires that promptly after the 

discovery that any information filed on Form 1-N was inaccurate when filed, the 

exchange shall file with the Commission an amendment correcting such inaccuracy. See

17 CFR 240.6a-4(a)(2).

27 See 17 CFR 240.6a-4(b). 

28 See 17 CFR 240.6a-4(c). 
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The Commission believes that registration as a national securities exchange is necessary 

in order to facilitate the use of the Commission’s anti-fraud and anti-manipulation authority with 

respect to the Product. Registration will allow the Commission to access the information it needs 

to determine whether fraudulent or manipulative activity has occurred, the scope of such activity, 

and the parties engaging in it. Accordingly, MGEX will remain subject to the provisions in 

Section 17(a) of the Exchange Act, and the rules and regulations thereunder. Thus, the 

exemption from the definition of security future does not apply to the obligation of MGEX, in its 

capacity as a national securities exchange, to make and keep records relating to transactions in 

the Product, furnish such copies thereof, and to make and disseminate such reports available to 

the Commission (or its representatives), upon request.

29 In particular, Exchange Act Rule 17a-1

requires each national securities exchange to: (1) keep and preserve at least one copy of all 

documents, including all correspondence, memoranda, papers, books, notices, accounts, and 

other such records as shall be made or received by it in the course of its business as such and in 

the conduct of its self-regulatory activity; (2) keep all such documents for a period of not less 

than five years, the first two years in an easily accessible place, subject to the destruction and 

disposition provisions of Exchange Act Rule 17a-6;30 and (3) upon request of any representative 

of the Commission, promptly furnish to the possession of such representative copies of any 

 29 15 U.S.C. 78q(a).

30 Exchange Act Rule 17a-6 applies to national securities exchanges, national securities 

associations, registered clearing agencies, and the Municipal Securities Rulemaking 

Board, and allows for the destruction or disposal of records by these entities prior to the 

five-year retention period of Exchange Act Rule 17a-1 if done according to a plan for 

destruction or disposal that is filed with and approved by the Commission. 17 CFR 

240.17a-6.
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documents required to be kept and preserved by it pursuant to paragraphs (a) and (b) of the 

rule.

31

Similarly, MGEX will remain subject to Section 17(b) of the Exchange Act, and the rules 

and regulations thereunder.32 Thus, the exemption from the definition of security future does not 

apply to the obligation of MGEX, in its capacity as a national securities exchange, to make itself 

available to inspection and examination by the Commission (or its representatives), upon request. 

Taken together, these provisions are intended to provide the Commission with prompt 

access to the information it needs to help determine whether fraudulent or manipulative activity 

has occurred and whether additional steps are necessary to halt such activity. Such information 

also should help to inform the Commission during the course of taking necessary enforcement 

action against parties in connection with transactions in the Product. For example, MGEX’s 

records of transactions in the Product should provide Commission staff with a key resource for 

analyzing whether manipulation has occurred (in the Product, the SPY, or SPY options). 

Trading records also should help the Commission and its staff analyze the amount of damages 

(including potential disgorgement) in connection with such enforcement matters.

However, the Commission also recognizes that Section 6 of the Exchange Act imposes 

other requirements on national securities exchanges that have no relation to recordkeeping or 

examination requirements, and are therefore unlikely to assist the Commission in utilizing its 

anti-fraud and anti-manipulation authority over the Product. Accordingly, the Commission is 

providing MGEX with an exemption from all of the Section 6 requirements applicable to 

national securities exchanges, other than the ones described above. For example, under this 

 31 17 CFR 240.17a-1.

32 15 U.S.C. 78q(b).
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exemptive relief, MGEX will not be required to comply with: (1) the requirement in Section 

6(h)(2) of the Exchange Act to only trade security futures that conform with listing standards that 

are filed with the Commission under Section 19(b) of the Exchange Act and meet the criteria 

specified in Section 2(a)(1)(D)(i) of the CEA; (2) the requirements for listing standards and 

conditions for trading set forth in Section 6(h)(3) of the Exchange Act (including with respect to 

margin); and (3) the requirement to submit proposed rule changes to the Commission, including 

those that would otherwise be required by Section 6(g)(4)(B) of the Exchange Act. With respect 

to the listing standard requirements, given that this order allows MGEX to trade the Product as a 

future (and not as a security future), we do not believe it necessary or appropriate to require 

MGEX to comply with listing standard requirements that are specific to security futures. Rather, 

MGEX will be able to trade the Product under the listing standards for futures contracts that are 

subject to the CFTC’s oversight.33

Finally, the exemption from the definition of security future does not apply to the 

requirement to register with the Commission as a clearing agency, as set forth in Section 17A of 

the Exchange Act, and the rules and regulations thereunder, including the exemption from 

registration in paragraph (b)(7) of that section. Specifically, and as discussed in detail in Section 

II.C below, by not including Section 17A in the exemptive relief provided for in this order, 

MGEX will be able to avail itself of the statutory exemption from clearing agency registration in 

Section 17A(b)(7), which applies to certain clearing agencies that do not clear securities other 

 33 The exemption from the requirements in Section 6 of the Exchange Act applies to MGEX 

so long as it is only lists and trades the Product (as well as futures contracts subject to the 

CFTC’s exclusive jurisdiction). To the extent that MGEX were to expand its offerings to 

include a security futures product that is not subject to this exemptive order, all of the 

requirements in Section 6 would apply to such security futures product. In such an 

instance, however, the applicable exemption would continue to apply to the Product.
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than security futures.34 This carve-out from the exemptive relief is not intended to affect 

MGEX’s obligations under this order, but rather to clarify its ability to rely on an exemption 

from Section 5 of the Securities Act, as discussed in detail in Section II.C. 

In crafting the scope of this exemptive order, the Commission recognizes that the CFTC 

has a regulatory regime that will govern every aspect of the Product on a day-to-basis, including 

the DCM and DCO on which it trades and clears (i.e., MGEX), and the market participants that 

are members of that DCM and DCO. The Commission intends to exercise its authority over 

MGEX and the Product for the limited purposes of enforcing its anti-fraud and anti-manipulation 

authority in connection with trading in the Product, which it is retaining pursuant to this order. 

Such retained authority is in addition to the CFTC’s jurisdiction over the Product and MGEX, 

which includes enforcing anti-fraud provisions and registration and recordkeeping obligations 

under the commodity laws. Accordingly, the Commission does not believe that additional

requirements beyond those specified in this order are necessary given that such requirements 

would generally not directly impact the Commission’s ability to determine whether and how to 

use its anti-fraud and anti-manipulation authority in connection with trading in the Product.

B. Conditions

The relief the Commission is providing in this order is predicated upon certain facts and 

circumstances regarding how the Product (and the securities that underlie it) are currently 

structured and traded. That information has allowed the Commission to reach certain 

conclusions that relate to, among other things, the susceptibility of the Product (or its underlying 

securities) to manipulation and the ability of the SPY to effectively track the S&P 500. To the 

extent that those facts and circumstances were to change, such modifications could potentially 

 34 See infra note 54. 
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undermine the basis for providing relief. Accordingly, this exemptive order includes a number 

of conditions. Those conditions, which are described in detail below, generally fit into one of 

two categories, as follows: (1) conditions related to the SPIKES calculation, including the 

liquidity and trading venue of the required inputs; and (2) conditions on the relationship between 

the SPY and the S&P 500 Index.

To the extent that one or more of these conditions is no longer satisfied, this exemptive

order will no longer apply three calendar months after the end of the month in which any 

condition is no longer satisfied. The Commission recognizes that, to the extent that the 

exemptions in this order are no longer effective, market participants will need time to take the 

necessary steps to wind down their existing transactions in an orderly fashion, which typically 

requires entering into offsetting transactions. In that respect, we believe that three calendar 

months is a sufficient amount of time to allow for such activity to occur.35

Finally, the Commission notes that some of these conditions contain numerical 

thresholds, the purposes of which are explained below in the discussion of each relevant 

condition. As a general matter, each threshold is intended to help ensure either that the securities 

used to calculate the SPIKES are not readily susceptible to manipulation because of their 

significant liquidity,

36 or that the Product continues to serve as a competitor to other financial 

 35 As an example of an analogous situation, the statutory definition of narrow-based 

security index in Section 3(a)(55) of the Exchange Act (which is used to determine 

whether a future on a security index is a security future) includes a similar three month 

grace period after an index transitions from broad- to narrow-based. See 15 U.S.C. 

78c(a)(55)(E) (providing that an index that is a narrow-based security index solely 

because it was a narrow-based security index for more than 45 business days over three

consecutive calendar months pursuant to Section 3(a)(55)(C)(iii) shall not be a narrowbased security index for the three following calendar months).

36 The Commission has previously noted that liquidity is an important factor when 

determining whether a security is readily susceptible to manipulation. See, e.g., 
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products that measure the volatility of the S&P 500 Index because the SPY continues to closely 

track the index. The level of each threshold is based on historical public data relevant to the 

objective of the particular condition. In each instance, the thresholds seek to balance the 

importance of achieving the stated purpose of the relevant condition with the fact that the 

consequence of breaching these thresholds is that the exemptive relief would no longer apply.

i. Conditions Related to the SPIKES Calculation, Including the Liquidity and 

Trading Venue of the Required Inputs

The first condition of this exemptive order requires that SPIKES measure the magnitude 

of changes in the level of the price of the units of the SPY over a defined period of time, which 

magnitude is calculated using the prices of options on the SPY and represents: (a) an annualized 

standard deviation of percent changes in the price of the units of the SPY; (b) an annualized 

 

Publication or Submission of Quotations Without Specified Information, Exchange Act 

Release No. 89891 (Sept. 16, 2020), 85 FR 68124, 68158 (Oct. 27, 2020) (“Further, the 

Commission believes that the exception’s three thresholds of ADTV value, total assets, 

and shareholders’ equity are tailored to appropriately capture issuers of securities that are 

less susceptible to fraud and manipulation based on the liquidity of the security and size 

of the issuer.”). See also Short Sales, Exchange Act Release No. 48709 (Oct. 28. 2003), 

68 FR 62972, 63004 (Nov. 6, 2003) (“The proposed pilot program would suspend the 

operation of the proposed bid test provision for selected stocks that the Commission 

believes are less susceptible to manipulation because they are more liquid and have a 

high market capitalization.”); Concept Release on Short Sales, Exchange Act Release No. 

42037 (Oct. 20, 1999), 64 FR 57996, 58000 (Oct. 28, 1999) (“Some of the Commission’s 

anti-manipulation rules assume that highly liquid securities are less vulnerable to 

manipulation and abuse than securities that are less liquid.”); Joint Order Excluding 

Indexes Comprised of Certain Index Options from the Definition of Narrow-Based 

Security Index pursuant to Section 1a(25)(B)(vi) of the Commodity Exchange Act and 

Section 3(a)(55)(C)(vi) of the Securities Exchange Act of 1934, Exchange Act Release 

No. 49469 (Mar. 25, 2004), 69 FR 16900, 16901 (Mar. 31, 2004) (“2004 Joint Order”) 

(“In addition, the Commissions believe that futures contracts on indexes that satisfy the 

conditions of this exclusion should not be readily susceptible to manipulation because of 

the composition, weighting, and liquidity of the securities in the Underlying Broad-Based 

Security Index and the liquidity that the options comprising the index must have to 

qualify for the exclusion.”).
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variance of percent changes in the price of the units of the SPY; or (c) on a non-annualized basis 

either the standard deviation or the variance of percent changes in the price of the units of the 

SPY. This condition, which is similar to one that is included in prior volatility index orders

(which apply to volatility indexes that measure the expected 30-day volatility of broad-based 

security indexes), is designed to limit the exemption to volatility indexes calculated using one of 

two commonly recognized statistical measurements that show the degree to which an individual 

value tends to vary from an average value.37

The order also contains four conditions designed to measure both the volume and venue 

of trading in the SPY and SPY options, which are as follows:

38

(1) The average daily dollar volume in the units of the SPY must be at least $10 

billion calculated over the preceding 180 days.39

(2) Units of the SPY must be listed and traded on a national securities exchange 

registered under section 6(a) of the Exchange Act.

 37 See 2004 Joint Order, supra note 36; Joint Order to Exclude Indexes Composed of 

Certain Index Options from the Definition of Narrow-Based Security Index Pursuant to 

Section 1a(25)(B)(vi) of the Commodity Exchange Act and Section 3(a)(55)(C)(vi) of the 

Securities Exchange Act of 1934, Exchange Act Release No. 61020 (Nov. 17, 2009), 74 

FR 61116 (Nov. 23, 2009).

38 To determine the liquidity thresholds relating to the SPY and its component options, 

Commission staff reviewed data from the equity consolidated data feeds, namely the UTP 

Trade Data Feed (UTDF) and the Consolidated Tape System (CTS), and the Options 

Price Reporting Authority (OPRA), as collected by the Commission’s Market 

Information Data Analytics System (MIDAS) for the six-month period beginning in 

October 2019. Specifically, these thresholds were determined by identifying the level at 

which at least 90% of the values exceeded such level.

39 For the 180 days ending on October 14, 2020, the average daily dollar volume in the units 

of the SPY was approximately $13.7 billion.
-17-

(3) The aggregate average daily notional volume in options on the SPY must be at 

least $400 million calculated over the preceding 180 days.

40

(4) Options on the SPY must be listed and traded on a national securities exchange 

registered under section 6(a) of the Exchange Act.

Although the Commission has retained its ability to exercise anti-fraud and antimanipulation authority in connection with the Product, certain aspects of how SPIKES is 

designed should help to ensure that the need to use such authority is limited. For example, the 

fact that the SPY is one of the most liquid securities in the world, and is therefore likely to be not 

readily susceptible to manipulation, should minimize the possibility of market participants using

the Product as a surrogate for trading in the SPY in order to avoid application of the Federal 

securities laws. Similarly, the significant liquidity of SPY options, in the aggregate, and the fact 

that such options are traded on 16 different national securities exchanges, supports the 

conclusion that the securities used to compute the SPIKES also should not be readily susceptible 

to manipulation. Finally, the fact that the SPY and its component options are traded on a 

national securities exchange – and must continue to be so – helps to ensure that pricing 

information is current, accurate, and publicly available, and that trading is appropriately 

surveilled.

ii. Conditions on the Relationship Between the SPY and the S&P 500 Index

As previously noted, SPIKES differs from other volatility products currently trading in 

the market in that while such other products measure the expected 30-day volatility of the S&P 

500 Index, a broad-based security index,”41 SPIKES measures the expected 30-day volatility of 

 40 For the 180 days ending on October 14, 2020, the aggregate average daily notional 

volume in options on the SPY was $1,369 million.

41 See supra note 37.
-18-

the SPY, a single security. Although the stated investment objective of the SPY is to provide 

investment returns that, before expenses, correspond generally to the price and yield performance 

of the S&P 500 Index,

42 we generally do not believe it appropriate to “look through” to an 

issuer’s holdings in order to treat the issuer’s security as an index for purposes of determining the 

status of a futures contract.

At the same time, however, the Commission recognizes the importance of fostering 

competition in the volatility markets, in a manner that is consistent with the protection of 

investors. Specifically, the introduction of an additional volatility product in the market should 

lower transaction costs for market participants. Those competitive benefits animate the 

Commission’s decision to exempt SPIKES futures from the definition of security future – subject 

to certain exceptions and conditions – under these limited and factually-specific circumstances. 

Those facts and circumstances include, among other things, the liquidity of the SPY (and options 

on the SPY), as previously discussed, and the historical performance of the SPY in tracking the 

performance of the S&P 500 Index. Accordingly, this order includes a number of conditions 

designed to protect investors should significant deviations between the SPY and the S&P 500 

Index materialize. The Commission believes that if any of those conditions are no longer 

satisfied, it could suggest a dislocation between the SPY and its underlying index large enough to 

call into question whether the Product would continue to be a competitor to volatility products 

that measure the expected 30-day volatility of the S&P 500 Index.

The first two of these conditions address the structure and holdings of the SPY, and are as 

follows:

 42 See State Street Global Advisors Fact Sheet: SPDR® S&P 500® ETF Trust, available at: 

https://www.ssga.com/library-content/products/factsheets/etfs/us/factsheet-us-en-spy.pdf.
-19-

• The SPY is a unit investment trust (“UIT”), as defined in Section 4(2) of the Investment 

Company Act of 1940, and is registered with the Commission as an investment company 

under the Investment Company Act of 1940.43

• The SPY holds a portfolio of common stocks designed to provide investment returns that, 

before expenses, correspond generally to the price and yield performance of the S&P 500 

Index.

A UIT is an investment company organized under a trust indenture or similar instrument 

that issues redeemable securities, each of which represents an undivided interest in a unit of 

specified securities. By statute, a UIT is unmanaged and its portfolio is fixed.44 Substitution of 

securities may take place only under certain predefined circumstances. A UIT does not have a 

board of directors, corporate officers, or an investment adviser to render advice during the life of 

the trust. Exchange-Traded Funds (“ETFs”) organized as UITs (e.g., the SPY) operate pursuant 

to exemptive orders issued by the Commission.45 Under these circumstances, the Commission 

believes that the SPY’s status as a UIT, together with the condition addressing its investment

objective and the composition of its portfolio, appropriately limit the possibility that the SPIKES 

 43 15 U.S.C. 80a-4(2). 

44 See Exchange-Traded Funds, Investment Company Act Release No. 33646 (Sept. 25 

2019), 84 FR 57162 n. 42 (Oct. 24, 2019) (“ETF Adopting Release).

45 See Exchange-Traded Funds, Investment Company Act Release No. 33140 (June 28 

2018), 83 FR 37332, 37336 n. 37 (July 31, 2018) (further explaining, in the context of 

UITs that are ETFs, that “[b]ecause a UIT must invest in ‘specified securities,’ the 

investment strategies that a UIT ETF can pursue are limited. All UIT ETFs today seek to 

track the performance of an index by investing in the component securities of the index in 

the same approximate proportions as in the index (i.e., “replicating” the index). The 

trustee of an UIT ETF may make adjustments to the ETF’s portfolio only to reflect 

changes in the composition of the underlying index”) (internal citations omitted). 
-20-

would be based on the SPY at a time when the SPY is pursuing a different investment strategy, 

given that the SPY, as a UIT, must be an unmanaged investment vehicle with a fixed portfolio.

Notwithstanding the legal requirements limiting the scope of the SPY’s investment 

objective, circumstances may ultimately arise impacting the relationship between the SPY and

the S&P 500 Index, particularly during times of market volatility. Accordingly, this order 

contains a number of conditions designed to protect investors should a tracking error between the 

SPY and its underlying index materialize.

Specifically, this order contains two tracking error conditions, one of which compares the 

net asset value (“NAV”) of the SPY to the S&P 500 Index, and the other compares the NAV of 

the SPY to its official closing price.46 The Commission is bifurcating the tracking error 

requirements in this manner – as opposed to simply comparing the official closing price of the 

SPY to the S&P 500 Index – to account for situations when a tracking error is quickly resolved 

and able to be netted, thereby allowing the exemptive relief to remain in effect. The Commission 

also is including two notice requirements designed to serve as an early warning to the 

Commission of a deviation between the NAV of the SPY and the corresponding returns of the 

S&P 500 Index, or between the NAV of the SPY and its official closing price. Each of those 

requirements is discussed in detail below.

 46 The tracking error conditions set forth below have been designed solely for the purposes 

of this order. The methodologies and thresholds discussed herein are specific to the facts 

and circumstances of this exemptive order and should not be viewed as precedent for any 

other purposes, including as it relates to the regulation of investment companies under the 

Investment Company Act of 1940.
-21-

The first tracking error condition requires that the annualized tracking error between the 

NAV of the SPY and the S&P 500 Index not meet or exceed 1%.

47 This condition, however,

also provides that if over two consecutive trading days the returns used to calculate annualized 

tracking error can be netted, such that the annualized tracking error falls below 1%, then any 

such exceedance shall be deemed not to have occurred on those two consecutive trading days for 

purposes of this condition. For purposes of this condition, the term “annualized tracking error” 

should be calculated by taking the weekly return differences between the NAV of the SPY and 

the S&P 500 Index for the trailing 12 months (with each week beginning and ending on a 

Friday), taking into account dividends (as applicable), and then multiplying the standard 

deviation of those return differences by the square root of 52.

The Commission believes it important to provide some flexibility in circumstances when 

a large tracking error between the NAV of the SPY and the S&P 500 Index is quickly resolved.

As a result, this condition will not be considered to have been breached if the tracking error falls 

below the 1% threshold when netted consecutive weekly returns are used to recalculate 

annualized tracking error. In addition, the Commission has decided to use an annualized 

measure for this condition in order to capture only those tracking errors that are large enough or 

so sustained (or both) that they result in a breach of the 1% threshold for an entire year.

The second tracking error condition requires that the official closing price of the SPY not 

deviate from the NAV of the SPY by more than 20 basis points for five or more consecutive 

 47 To determine the threshold for the comparison between the NAV of the SPY and the 

S&P 500 Index, Commission staff reviewed the annualized NAV tracking error, as 

provided by Bloomberg, between January 2008 and October 2020, which was generally 

below 1%.
-22-

trading days.

48 As a general matter, ETFs (including the SPY) are structured in such a way to 

help ensure that the NAV per share of an ETF remains at or close to its market price per share.49 

Accordingly, deviations between the SPY’s NAV and its official closing price that exceed 20

basis points and that persist for five or more consecutive trading days should generally not 

occur.

50 For purposes of both this requirement and the notice requirement discussed below, the 

“official closing price” of the SPY should be determined pursuant to the rules of its primary 

listing exchange.

Finally, the order is conditioned on MGEX providing the Commission with notice of 

certain tracking error issues. Specifically, MGEX is required to monitor the daily closing prices 

and the SPY’s NAV and the corresponding returns of the S&P 500 Index. If (i) at any time the 

annualized tracking error between the NAV of the SPY and the S&P 500 Index exceeds 0.5% or 

(ii) for two or more consecutive trading days the official closing price of the SPY deviates from 

the NAV of the SPY by more than 20 basis points, MGEX must: (A) promptly notify the 

Commission of such divergence, in a form and manner acceptable to the Commission, and 

(B) conduct an investigation in an attempt to determine its cause. As with the other tracking 

 48 To determine the threshold for the comparison between the NAV of the SPY and the 

closing auction price, Commission staff reviewed Bloomberg data between January 2008 

and October 2020. Based on that review, it appears that the average difference over time 

is close to zero. Those differences do vary on a day-to-day basis, however, with the 

standard deviation of those differences being approximately 10 basis points, which 

suggests that the closing auction price of the SPY has historically been within 20 basis 

points of its NAV approximately 95% of the time.

49 See ETF Adopting Release, 84 FR at 57165 (“[t]he combination of the creation and 

redemption process with secondary market trading in ETF shares and underlying 

securities provides arbitrage opportunities that are designed to help keep the market price 

of ETF shares at or close to the NAV per share of the ETF.”)

50 See ETF Adopting Release, 84 FR at 57173 n.119 (“[i]n an analysis of various asset 

classes during 2017–2018, end-of-day deviations between closing price of ETFs and 

NAV were relatively rare and generally not persistent.”) (internal citations omitted).
-23-

error conditions, the notice requirement is intended to identify situations where a divergence 

between the SPY and the S&P 500 could result in the Product no longer serving as a viable 

competitor to existing volatility products, which would undermine the basis for providing this 

relief.

The events that trigger the notice requirements largely mirror the two tracking error 

conditions described above. However, the threshold for the annualized tracking error between 

the NAV of the SPY and the S&P 500 Index is 0.5% for purposes of this notice requirement, 

rather than 1%. With respect to the deviation between the official closing price of the SPY and 

the NAV of the SPY, the time period is two or more consecutive trading days, rather than five or 

more consecutive trading days. These more restrictive thresholds reflect the fact that they trigger

only a notice requirement, as opposed to resulting in the exemptive relief no longer applying. 

Those thresholds also are consistent with our view of the importance of providing the 

Commission and MGEX with an early warning of one or more divergences that could undermine 

the basis for the relief set forth in this exemptive order.

C. Securities Act Status

Section 5 of the Securities Act provides that any offer or sale of a security, including a 

security futures product, must either be registered under the Securities Act or made pursuant to 

an exemption from registration.51 Section 3(a)(14) of the Securities Act provides an exemption 

from the registration requirements of Section 5 of the Securities Act for any security futures 

product that is: (i) cleared by a clearing agency registered under section 17A of the Exchange 

Act or exempt from registration under subsection (b)(7) of such section 17A, and (ii) traded on a 

 51 15 U.S.C. 77e.
-24-

national securities exchange or a national securities association registered pursuant to section 

15A(a) of the Exchange Act.52 A security futures product that satisfies the conditions of the 

Section 3(a)(14) exemption remains subject to the anti-fraud provisions of Section 17 of the 

Securities Act.53

Although the statutory exemption contained in Section 3(a)(14) of the Securities Act is 

effective by operation of law, and therefore does not require Commission action, for the 

avoidance of doubt we are confirming our view that MGEX will be able to rely on that 

exemption to offer and sell the Product, as follows. First, MGEX will need to register with the 

Commission as a national securities exchange under Section 6(g) of the Exchange Act due to the 

fact that the exemption from the definition of security future does not apply to the registration 

requirements in Section 5 of the Exchange Act. Second, because the exemptive relief also does 

not apply to Section 17A of the Exchange Act, and the rules and regulations thereunder, MGEX 

(which will also clear the Product) will be able to avail itself of the statutory exemption from 

 52 15 U.S.C. 77c(a)(14).

53 See Section 17(c) of the Securities Act. 15 U.S.C. 77q(c) (providing that “[t]he 

exemptions provided in section 3 shall not apply to the provisions of this section”). 
-25-

registration as a clearing agency in Section 17A(b)(7),

54 given that it is regulated directly by the 

CFTC as both a DCM and as a DCO.55

III. Conclusion

IT IS HEREBY ORDERED, pursuant to section 36 of the Securities Exchange Act of 

1934 (“Exchange Act”), that a contract of sale for future delivery on the SPIKESTM Index 

(“SPIKES”) trading on the Minneapolis Grain Exchange, Inc. (or any successor thereto) 

(“MGEX”) (such futures contracts (and any options thereon) hereinafter referred to as the 

“Product”) shall be exempt from the definition of “security future” in Section 3(a)(55) of the 

Exchange Act for all purposes under the Exchange Act, other than the following:

(1) the anti-fraud and anti-manipulation provisions of the Exchange Act (including 

related investigative, enforcement, and procedural authority) in Sections 9, 10, 

15(c), 20, 20A, 21, 21A, 21B, 21C, 21D, 26, and 27,56 and the rules and 

regulations thereunder; 

(2) the requirement that MGEX register with the Securities and Exchange 

Commission (“Commission”) as a national securities exchange, as set forth in 

 54 17 U.S.C. 78q-1(b)(7)(A). Subsection (b)(7) provides, in part, that “[a] clearing agency 

that is regulated directly or indirectly by the CFTC through its association with a 

designated contract market for security futures products that is a national securities 

exchange registered pursuant to [Section 6(g) of the Exchange Act], and that would be 

required to register pursuant to [Section 17A(b)(1) of the Exchange Act] only because it 

performs the functions of a clearing agency with respect to security futures products 

effected pursuant to the rules of the designated contract market with which such agency is 

associated, is exempted from the provisions of this section and the rules and regulations 

thereunder.” 

55 The Commission notes that the other requirements of the exemption from registration as 

a clearing agency set forth in Section 17A(b)(7) of the Exchange Act do not apply with 

respect to transactions in the Product, given that it will be cash settled and cleared only 

by MGEX.

56 15 U.S.C. 78(i), (j), o(c), t, t-1, u, u-1, u-2, u-3, u-4, z, and aa.
-26-

Section 5 of the Exchange Act, and the rules and regulations thereunder, and the 

requirements applicable to national securities exchanges, as set forth in Section 6 

of the Exchange Act, and the rules and regulations thereunder, including Section 

6(g) and Exchange Act Rule 6a-4 (17 CFR 240.6a-4); provided, however, that 

once registered with the Commission as a national securities exchange, MGEX

shall be exempt from all other requirements contained in Section 6 of the 

Exchange Act solely as they relate to transactions in the Product;

(3) Section 17(a) of the Exchange Act, and the rules and regulations thereunder

(including Exchange Act Rule 17a-1 (17 CFR 240.17a-1)), as it relates to the 

obligation of MGEX, in its capacity as a national securities exchange, to make 

and keep records relating to transactions in the Product, furnish such copies 

thereof, and to make and disseminate such reports available to the Commission 

(or its representatives), upon request; 

(4) Section 17(b) of the Exchange Act, and the rules and regulations thereunder, as it 

relates to the obligation of MGEX, in its capacity as a national securities 

exchange, to make itself available to inspection and examination by the 

Commission (or its representatives), upon request; and

(5) the requirement that MGEX register with the Commission as a clearing agency, as 

set forth in Section 17A of the Exchange Act, and the rules and regulations 

thereunder, including the exemption from registration in paragraph (b)(7) of that 

section.
-27-

Such exemptions are subject to the conditions set forth below. To the extent that one or more of 

these conditions is no longer satisfied, the exemptions set forth in this order will no longer apply

three calendar months after the end of the month in which any condition was no longer satisfied.

(1) SPIKES measures the magnitude of changes in the level of the price of the units 

of the SPDR® S&P 500® ETF Trust (“SPY”) over a defined period of time, 

which magnitude is calculated using the prices of options on the SPY and 

represents: (a) an annualized standard deviation of percent changes in the price of 

the units of the SPY; (b) an annualized variance of percent changes in the price of 

the units of the SPY; or (c) on a non-annualized basis either the standard deviation 

or the variance of percent changes in the price of the units of the SPY.

(2) The average daily dollar volume in the units of the SPY is at least $10 billion 

calculated over the preceding 180 days.

(3) Units of the SPY are listed and traded on a national securities exchange registered 

under section 6(a) of the Exchange Act.

(4) The aggregate average daily notional volume in options on the SPY is at least 

$400 million calculated over the preceding 180 days.

(5) Options on the SPY are listed and traded on a national securities exchange 

registered under section 6(a) of the Exchange Act.

(6) The SPY is a “unit investment trust,” as defined in Section 4(2) of the Investment 

Company Act of 1940, and is registered with the Commission as an investment 

company under the Investment Company Act of 1940.
-28-

(7) The SPY holds a portfolio of common stocks designed to provide investment 

returns that, before expenses, correspond generally to the price and yield 

performance of the S&P 500 Index.

(8) The annualized tracking error between the net asset value (“NAV”) of the SPY 

and the S&P 500 Index does not meet or exceed 1%; provided, however, that if 

over two consecutive trading days the returns used to calculate annualized 

tracking error can be netted, such that the annualized tracking error falls below 

1%, then any such exceedance shall be deemed not to have occurred on those two 

consecutive trading days for purposes of this condition. For purposes of this 

condition, the term “annualized tracking error” should be calculated by taking the 

weekly return differences between the NAV of the SPY and the S&P 500 Index 

for the trailing 12 months (with each week beginning and ending on a Friday), 

taking into account dividends (as applicable), and then multiplying the standard 

deviation of those return differences by the square root of 52.

(9) The official closing price of the SPY, as determined pursuant to the rules of its 

primary listing exchange, does not deviate from the NAV of the SPY by more 

than 20 basis points for five or more consecutive trading days.

(10) MGEX shall monitor the daily closing prices and the NAV of the SPY and the 

corresponding returns of the S&P 500 Index. If (i) at any time the annualized 

tracking error between the NAV of the SPY and the S&P 500 Index exceeds 0.5% 

or (ii) for two or more consecutive trading days the official closing price of the 

SPY, as determined pursuant to the rules of its primary listing exchange, deviates 

from the NAV of the SPY by more than 20 basis points, MGEX shall 
-29-

(A) promptly notify the Commission of such divergence, in a form and manner 

acceptable to the Commission, and (B) conduct an investigation in an attempt to 

determine its cause.

Dated: November 24, 2020.

By the Commission.

Vanessa A. Countryman,

Secretary.