Federal Register / Vol. 83, No. 247 / Thursday, December 27, 2018 / Notices 66791 

14See Securities Exchange Release No. 61061 

(November 24, 2009), 74 FR 62857 (December 1, 

2009) (SR–NYSEArca–2009–44). 

15For purposes only of waiving the operative 

delay for this proposal, the Commission has 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 

16 17 CFR 200.30–3(a)(12). 

1 12 U.S.C. 5465(e)(1). 

2 17 CFR 240.19b–4(n)(1)(i). 

3 15 U.S.C. 78a et seq. 

4See Notice of Filing infra note 6, at 83 FR 60541. 

5 In Partial Amendment No. 1, OCC corrected an 

error in Exhibit 5 without changing the substance 

of the Advance Notice. References to the Advance 

Notice from this point forward refer to the Advance 

Notice, as amended by Partial Amendment No. 1. 

6Securities Exchange Act Release No. 84626 

(November 19, 2018), 83 FR 60541 (November 26, 

2018) (SR–OCC–2018–804) (‘‘Notice of Filing’’). On 

October 22, 2018, OCC also filed a related proposed 

rule change (SR–OCC–2018–014) with the 

Commission pursuant to Section 19(b)(1) of the 

Exchange Act and Rule 19b–4 thereunder, seeking 

approval of changes to its rules necessary to 

implement the Advance Notice (‘‘Proposed Rule 

Change’’). 15 U.S.C. 78s(b)(1) and 17 CFR 240.19b– 

4, respectively. The Proposed Rule Change was 

published in the Federal Register on November 8, 

2018. Securities Exchange Act Release No. 84524 

(Nov. 2, 2018), 83 FR 55918 (Nov. 8, 2018) (SR– 

OCC–2018–014). 

7Since the proposal contained in the Advance 

Notice was also filed as a proposed rule change, all 

public comments received on the proposal are 

considered regardless of whether the comments are 

submitted on the proposed rule change or the 

Advance Notice. 

8 In December 2015, the Commission approved a 

proposed rule change and issued a Notice of No 

Objection to an advance notice filing by OCC to its 

modify margin methodology by more broadly 

incorporating variations in implied volatility within 

STANS. See Securities Exchange Act Release No. 

76781 (December 28, 2015), 81 FR 135 (January 4, 

Continued 

Commission believes that waiving the 

30-day operative delay is consistent 

with the protection of investors and the 

public interest because doing so will 

allow the Pilot Program to continue 

without interruption in a manner that is 

consistent with the Commission’s prior 

approval of the extension and expansion 

of the Pilot Program.14 Accordingly, the 

Commission designates the proposed 

rule change as operative upon filing 

with the Commission.15

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s internet 

comment form (http://www.sec.gov/ 

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NYSEAMER–2018–57 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–NYSEAMER–2018–57. 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 20549–1090 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–NYSEAMER–2018–57 and 

should be submitted on or before 

January 17, 2019. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.16

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–27991 Filed 12–26–18; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84838; File No. SR–OCC– 

2018–804] 

Self-Regulatory Organizations; The 

Options Clearing Corporation; Notice 

of No Objection to Advance Notice, as 

Modified by Partial Amendment No. 1, 

Related to The Options Clearing 

Corporation’s Margin Methodology for 

Incorporating Variations in Implied 

Volatility 

December 19, 2018. 

I. Introduction 

On October 22, 2018, The Options 

Clearing Corporation (‘‘OCC’’) filed with 

the Securities and Exchange 

Commission (‘‘Commission’’) advance 

notice SR–OCC–2018–804 (‘‘Advance 

Notice’’) pursuant to Section 806(e)(1) of 

Title VIII of the Dodd-Frank Wall Street 

Reform and Consumer Protection Act, 

entitled Payment, Clearing and 

Settlement Supervision Act of 2010 

(‘‘Clearing Supervision Act’’) 1 and Rule 

19b–4(n)(1)(i) 2 under the Securities 

Exchange Act of 1934 (‘‘Exchange 

Act’’) 3 to propose changes to OCC’s 

model for incorporating variations in 

implied volatility within OCC’s margin 

methodology, the System for Theoretical 

Analysis and Numerical Simulations.4

On October 30, 2018, OCC filed a 

partial amendment (‘‘Partial 

Amendment No. 1’’) to modify the 

Advance Notice.5 The Advance Notice, 

as modified by Partial Amendment No. 

1, was published for public comment in 

the Federal Register on November 26, 

2018,6 and the Commission received no 

comments regarding the proposal 

contained in the Advance Notice.7 This 

publication serves as notice of no 

objection to the Advance Notice. 

II. Background 

The System for Theoretical Analysis 

and Numerical Simulations (‘‘STANS’’) 

is OCC’s methodology for calculating 

margin. STANS includes econometric 

models that incorporate a number of 

risk factors. OCC defines a risk factor in 

STANS as a product or attribute whose 

historical data is used to estimate and 

simulate the risk for an associated 

product. The majority of risk factors 

utilized in STANS are the returns on 

individual equity securities; however, a 

number of other risk factors may be 

considered, including, among other 

things, returns on implied volatility risk 

factors.8


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66792 Federal Register / Vol. 83, No. 247 / Thursday, December 27, 2018 / Notices 

2016) (SR–OCC–2015–016) and Securities Exchange 

Act Release No. 76548 (December 3, 2015), 80 FR 

76602 (December 9, 2015) (SR–OCC–2015–804). 9Using the Black-Scholes options pricing model, 

the implied volatility is the standard deviation of 

the underlying asset price necessary to arrive at the 

market price of an option of a given strike, time to 

maturity, underlying asset price and the current 

risk-free rate. 10OCC’s Implied Volatility Model excludes: (i) 

Binary options, (ii) options on commodity futures, 

(iii) options on U.S. Treasury securities, and (iv) 

Asians and Cliquets. These products were relatively 

new products at the time that OCC completed its 

last implied volatility margin methodology changes, 

and OCC had de minimus open interest in those 

options. OCC uses its Implied Volatility Model 

specifically for options that have a residual tenor 

of less than three years (‘‘Shorter Tenor Options’’). 

11See Notice of Filing, 83 FR at 60542. 

12The VIX is a measure of the implied volatility 

of the of Standard & Poor’s 500 index (‘‘SPX’’). 

13See Notice of Filing, 83 FR at 60542. 

14See Notice of Filing, 83 FR at 60542. 

15See Notice of Filing, 83 FR at 60542. For 

example, the total margin requirements for one 

Clearing Member would have increased from $120 

million on February 2, 2018 to $1.78 billion on 

February 5, 2018. See Notice of Filing, 83 FR at 

60542, n. 22. 

16An exponentially weighted moving average is 

a statistical method that averages data in a way that 

gives more weight to the most recent observations. 

17OCC’s backtesting, which the Commission has 

reviewed and analyzed, demonstrated that coverage 

levels using the proposed model were substantially 

similar to the results obtained from the current 

model. See Notice, 83 FR at 60542. 

18See 12 U.S.C. 5461(b). 

19 12 U.S.C. 5464(a)(2). 

20 12 U.S.C. 5464(b). 

21 12 U.S.C. 5464(c). 

22 17 CFR 240.17Ad–22. See Securities Exchange 

Act Release No. 68080 (October 22, 2012), 77 FR 

66220 (November 2, 2012) (S7–08–11). See also 

Securities Exchange Act Release No. 78961 

(September 28, 2016), 81 FR 70786 (October 13, 

2016) (S7–03–14) (‘‘Covered Clearing Agency 

Standards’’). The Commission established an 

effective date of December 12, 2016, and a 

compliance date of April 11, 2017, for the Covered 

Clearing Agency Standards. OCC is a ‘‘covered 

clearing agency’’ as defined in Rule 17Ad–22(a)(5). 

As a general matter, the implied 

volatility of an option is a measure of 

the expected future volatility of the 

option’s underlying security at 

expiration, which is reflected in the 

price of the option.9 Changes in implied 

volatility, therefore, result in changes to 

an option’s value. In effect, the implied 

volatility is responsible for that portion 

of the premium that cannot be attributed 

to the then-current intrinsic value of the 

option (i.e., the difference between the 

price of the underlying and the exercise 

price of the option), discounted to 

reflect its time value. 

STANS includes a model that 

simulates variations in implied 

volatility for most of the option 

contracts that OCC clears (‘‘Implied 

Volatility Model’’).10 The purpose of 

OCC’s Implied Volatility Model is to 

ensure that the anticipated cost of 

liquidating options positions in an 

account recognizes the possibility that 

implied volatility could change during 

the two-business day liquidation time 

horizon and lead to corresponding 

changes in the market prices of the 

options. OCC, in turn, uses such 

anticipated costs to determine and 

collect the amount of margin necessary 

to collateralize the exposure that OCC 

could face in the event of a Clearing 

Member default. 

One component of the Implied 

Volatility Model is a forecast of the 

volatility of implied volatility. In the 

process of performing backtesting and 

impact analyses as well as comparing 

the Implied Volatility Model to industry 

benchmarks, OCC determined that its 

process for forecasting the volatility of 

implied volatility is extremely sensitive 

to sudden spikes in volatility, which 

can at times result in over-reactive 

margin requirements that OCC believes 

are unreasonable and procyclical.11 For 

example, on February 5, 2018, the Cboe 

Volatility Index (‘‘VIX’’) experienced a 

large amount of volatility.12 Based on its 

review and understanding of OCC’s 

analysis, the Commission understands 

that OCC’s Implied Volatility Model 

forecasted an extreme increase in the 

volatility of implied volatility in 

response to the increase in the VIX on 

February 5, 2018.13 Specifically, the 

Implied Volatility Model forecasted a 

volatility of implied volatility for an atthe-money, one-month tenor SPX 

position that was approximately 4 times 

larger than the comparable market 

index.14 This forecast caused aggregate 

margin requirements at OCC to jump 

more than 80 percent overnight due to 

the Implied Volatility Model, and 

margin requirements for certain 

individual Clearing Members increased 

by a factor of 10.15 Due in large part to 

the over-reaction of the Implied 

Volatility Model’s to the rise in the VIX, 

a future shock to the VIX during a time 

of market stress could result in an 

increase in margin requirements that 

likely would impose additional stresses 

on Clearing Members. 

The Advance Notice proposes to 

modify OCC’s Implied Volatility Model 

by introducing an exponentially 

weighted moving average 16 for the daily 

forecasted volatility of implied volatility 

risk factors. Specifically, when 

forecasting the volatility for each 

implied volatility risk factor, OCC 

would use an exponentially weighted 

moving average of forecasted volatilities 

over a specified look-back period rather 

than using unweighted daily forecasted 

volatilities. The proposal would change 

the Implied Volatility Model’s 

sensitivity to large, sudden shocks in 

market volatility when forecasting the 

volatility of implied volatility. 

Specifically, the proposal would result 

in a more measured initial response to 

such shocks while producing margin 

requirements that may remain elevated 

for a longer period of time following a 

market shock. Based on its analysis of 

data provided by OCC, the Commission 

understands that the margin 

requirements calculated with the 

current and proposed models would be 

very similar during less volatile periods, 

and that the likelihood that OCC would 

have sufficient margin to cover its 

exposures under normal market 

conditions would not decrease under 

the proposed model.17 However, the 

proposed model would present a more 

commensurate response to the extreme 

volatility increases in the market. 

III. Discussion and Commission 

Findings 

Although the Clearing Supervision 

Act does not specify a standard of 

review for an advance notice, the stated 

purpose of the Clearing Supervision Act 

is instructive: To mitigate systemic risk 

in the financial system and promote 

financial stability by, among other 

things, promoting uniform risk 

management standards for systemically 

important financial market utilities 

(‘‘SIFMUs’’) and strengthening the 

liquidity of SIFMUs.18

Section 805(a)(2) of the Clearing 

Supervision Act 19 authorizes the 

Commission to prescribe regulations 

containing risk-management standards 

for the payment, clearing, and 

settlement activities of designated 

clearing entities engaged in designated 

activities for which the Commission is 

the supervisory agency. Section 805(b) 

of the Clearing Supervision Act 20

provides the following objectives and 

principles for the Commission’s riskmanagement standards prescribed under 

Section 805(a): 

• To promote robust risk 

management; 

• to promote safety and soundness; 

• to reduce systemic risks; and 

• to support the stability of the 

broader financial system. 

Section 805(c) provides, in addition, 

that the Commission’s risk-management 

standards may address such areas as 

risk-management and default policies 

and procedures, among others areas.21

The Commission has adopted riskmanagement standards under Section 

805(a)(2) of the Clearing Supervision 

Act and Section 17A of the Exchange 

Act (the ‘‘Clearing Agency Rules’’).22

The Clearing Agency Rules require, 

among other things, each covered 


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Federal Register / Vol. 83, No. 247 / Thursday, December 27, 2018 / Notices 66793 

23 17 CFR 240.17Ad–22. 

24 12 U.S.C. 5464(b). 

25 17 CFR 240.17Ad–22(e)(6)(i). 

26 12 U.S.C. 5464(b). 

27 17 CFR 240.17Ad–22(e)(6)(i). 

28See supra note 17. 

29 17 CFR 240.17Ad–22(e)(6). 

clearing agency to establish, implement, 

maintain, and enforce written policies 

and procedures that are reasonably 

designed to meet certain minimum 

requirements for its operations and riskmanagement practices on an ongoing 

basis.23 As such, it is appropriate for the 

Commission to review advance notices 

against the Clearing Agency Rules and 

the objectives and principles of these 

risk management standards as described 

in Section 805(b) of the Clearing 

Supervision Act. As discussed below, 

the Commission believes the proposal in 

the Advance Notice is consistent with 

the objectives and principles described 

in Section 805(b) of the Clearing 

Supervision Act,24 and in the Clearing 

Agency Rules, in particular Rule 17Ad– 

22(e)(6)(i).25

A. Consistency With Section 805(b) of 

the Clearing Supervision Act 

The Commission believes that the 

proposal contained in the Advance 

Notice is consistent with the stated 

objectives and principles of Section 

805(b) of the Clearing Supervision Act. 

OCC manages its credit exposure to 

Clearing Members, in part, through the 

collection of collateral based on OCC’s 

margin methodology. As noted above, 

however, the imposition of margin 

requirements resulting from a model 

that overreacts to increases in implied 

volatility may impose stresses on OCC’s 

Clearing Members. Clearing Members, 

particularly large Clearing Members or 

their affiliates, are active in various 

markets. A large, unexpected margin 

call at OCC could affect a Clearing 

Member’s ability to meet its obligations 

to other counterparties, including other 

SIMFUs. As a consequence, the 

imposition of margin requirements 

resulting from a model overreaction 

could have implications for the broader 

financial system. As discussed below, 

the Commission believes that the 

changes to OCC’s margin methodology 

proposed in the Advance Notice could 

enhance OCC’s management of credit 

risk while reducing potential systemic 

risk. 

First, the proposal would change the 

Implied Volatility Model’s response to 

sudden, large changes in market 

volatility. As noted above, the margin 

requirements produced by the current 

model appear to be overly responsive to 

sudden, large shocks. The proposed 

change would result in a more measured 

initial response to a sudden, large 

change in market volatility while 

maintaining elevated margin 

requirements following such a shock. 

Although the initial reduction in 

sensitivity would result in the collection 

of less margin than under the current 

model, backtesting results demonstrate 

that margin requirements produced 

under the proposed model would 

provide as consistent a level of coverage 

as margin requirements produced under 

the proposed model. In addition, the 

proposal would result in margin 

requirements that remain elevated for a 

longer period of time following a market 

shock, which could provide further 

support for OCC’s ability to cover its 

potential future exposure to risk. 

Therefore, the Commission believes that 

the consistent level of coverage, taken 

together with the potential for extended 

elevation of margin requirements after a 

market shock, is consistent with the 

promotion of both robust risk 

management and safety and soundness. 

Second, the proposal could reduce the 

likelihood that OCC’s margin 

requirements impose sudden and 

excessive stress on Clearing Members 

during times of broader market stress. 

As described above, the current Implied 

Volatility Model could result in 

dramatic increases in Clearing Member 

margin requirements in response to a 

sudden, large shock in market volatility. 

Based on its review of OCC’s data 

comparing margin requirements to 

market data on February 5, 2018, the 

Commission understands that the size of 

such an increase would not necessarily 

be commensurate with the risk of the 

Clearing Member’s portfolio because, as 

described above, the volatility of 

implied volatility forecasted by the 

current model on that day was 4 times 

the size of a comparable market index, 

resulting in margin requirements for 

some Clearing Members that rose by a 

factor of 10. Imposing a large, 

unexpected increase in margin 

requirements could impose a large, 

unexpected stress on a Clearing Member 

during a period of high volatility. The 

Commission believes that reducing the 

likelihood of unnecessarily large and 

unexpected stresses on Clearing 

Members could help to lessen the risk 

of Clearing Member defaults. Reducing 

the risk of Clearing Member defaults 

could also reduce the likelihood of 

contagion during times of market stress 

because Clearing Members, particularly 

large Clearing Members, tend to be 

active participants in multiple asset 

markets. Therefore, the Commission 

believes that the proposed change is 

consistent with the reduction of 

systemic risk and supporting the 

stability of the broader financial system. 

Accordingly, and for the reasons 

stated, the Commission believes the 

changes proposed in the Advance 

Notice are consistent with Section 

805(b) of the Clearing Supervision 

Act.26

B. Consistency With Rule 17Ad–22(e)(6) 

Under the Exchange Act 

Rule 17Ad–22(e)(6)(i) under the 

Exchange Act requires that a covered 

clearing agency establish, implement, 

maintain, and enforce written policies 

and procedures reasonably designed to 

cover, if the covered clearing agency 

provides central counterparty services, 

its credit exposures to its participants by 

establishing a risk-based margin system 

that, among other things, considers, and 

produces margin levels commensurate 

with, the risks and particular attributes 

of each relevant product, portfolio, and 

market.27

The proposed change is designed to 

better align the margin requirements 

produced by OCC’s margin methodology 

with the level of risk posed by changes 

in market volatility. The component of 

the current Implied Volatility Model 

that forecasts the volatility of implied 

volatility is very sensitive to sudden, 

large changes in market volatility, as 

evidenced by the model’s reaction to the 

large, sudden spike in market volatility 

observed on February 5, 2018 discussed 

above which produced dramatic 

increases in Clearing Member margin 

requirements. The proposed change to 

the Implied Volatility Model would 

reduce the sensitivity of the model to 

sudden, large changes in market 

volatility, and, as demonstrated by 

OCC’s backtesting, would be unlikely to 

reduce the level of coverage.28

The Commission believes that 

revising the Implied Volatility Model 

could produce margin requirements that 

are more precise and better reflect the 

risks and particular attributes of the 

products cleared by OCC. The 

Commission further believes that such 

changes could produce margin levels 

that are commensurate with the risks of 

the products being cleared. Accordingly, 

based on the foregoing, the Commission 

believes that the proposed change to the 

Implied Volatility Model is consistent 

with Exchange Act Rule 17Ad– 

22(e)(6)(i).29

IV. Conclusion 

It is therefore noticed, pursuant to 

Section 806(e)(1)(I) of the Clearing 

Supervision Act, that the Commission 

DOES NOT OBJECT to the Advance 

Notice (SR–OCC–2018–804) and that 


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66794 Federal Register / Vol. 83, No. 247 / Thursday, December 27, 2018 / Notices 

1 15 U.S.C.78s(b)(1). 

2 15 U.S.C. 78a. 

3 17 CFR 240.19b–4. 

4Commentary .02 to NYSE Arca Rule 8.200–E 

applies to Trust Issued Receipts that invest in 

‘‘Financial Instruments.’’ The term ‘‘Financial 

Instruments,’’ as defined in Commentary .02(b)(4) to 

NYSE Arca Rule 8.200–E, means any combination 

of investments, including cash; securities; options 

on securities and indices; futures contracts; options 

on futures contracts; forward contracts; equity caps, 

collars and floors; and swap agreements. 

5See Securities Exchange Act Release Nos. 58457 

(September 3, 2008), (73 FR 52711 (September 10, 

2008) (SR–NYSEArca–2008–91) (notice of filing and 

order granting accelerated approval of proposed 

rule change regarding listing and trading of shares 

of 14 funds of the Commodities and Currency Trust 

(now the ProShares Trust II)); 58162 (July 15, 2008), 

73 FR 42391 (July 21, 2008) (SR–NYSEArca–2008– 

73) (notice of filing and immediate effectiveness of 

proposed rule change relating to trading of shares 

of 14 funds of the Commodities and Currency Trust 

pursuant to unlisted trading privileges) (‘‘Prior 

NYSE Arca Notice’’). See also Securities Exchange 

Act Release Nos. 58161 (July 15, 2008), 73 FR 42380 

(July 21, 2008) (SR–Amex–2008–39) (order 

approving listing and trading on the American 

Stock Exchange LLC of shares of 14 funds of the 

Commodities and Currency Trust) (‘‘Prior Amex 

Order’’); 57932 (June 5, 2008), 73 FR 33467 (June 

12, 2008) (notice of proposed rule change regarding 

listing and trading of shares of 14 funds of the 

Commodities and Currency Trust) (‘‘Prior Amex 

Notice’’ and, together with the Prior Amex Order, 

the ‘‘Prior Amex Releases’’). 

6The ProShares Ultra Gold and ProShares Ultra 

Silver are referred to herein as ‘‘Ultra Funds’’ and 

the ProShares UltraShort Gold and ProShares 

UltraShort Silver are referred to herein as 

‘‘UltraShort Funds.’’ 

7On October 1, 2018, the Trust filed with the 

Commission, registration statements pursuant to 

Rule 424(b)(3) under the Securities Act of 1933 

(‘‘Securities Act’’) (15 U.S.C. 77a) relating to the 

Ultra Gold and Ultra Silver Funds (File No. 333– 

220688) and the UltraShort Silver and UltraShort 

Gold Funds (File No. 333–223012). The registration 

statements filed pursuant to Rule 424(b)(3) are 

collectively referred to herein as the ‘‘Registration 

Statements.’’ The description of the operation of the 

Trust and the Funds herein is based, in part, on the 

Registration Statements. Share of the Funds are 

currently listed and traded on the Exchange in 

compliance with all original and continued listing 

standards of the Exchange and requirements of the 

Prior NYSE Arca Order and the Prior Amex 

Releases. 

OCC is AUTHORIZED to implement the 

proposed change as of the date of this 

notice or the date of an order by the 

Commission approving proposed rule 

change SR–OCC–2018–014, as modified 

by Partial Amendment No. 1, whichever 

is later. 

By the Commission. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2018–28008 Filed 12–26–18; 8:45 am] 

BILLING CODE P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–84853; File No. SR– 

NYSEArca–2018–91] 

Self-Regulatory Organizations; NYSE 

Arca, Inc.; Notice of Filing and 

Immediate Effectiveness of Proposed 

Rule Changes Relating to ProShares 

Ultra Gold, ProShares UltraShort Gold, 

ProShares Ultra Silver, and ProShares 

UltraShort Silver 

December 19, 2018. 

Pursuant to Section 19(b)(1) 1 of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’) 2 and Rule 19b–4 thereunder,3

notice is hereby given that, on December 

6, 2018, NYSE Arca, Inc. (the 

‘‘Exchange’’ or ‘‘NYSE Arca’’) filed with 

the Securities and Exchange 

Commission (the ‘‘Commission’’) the 

proposed rule change as described in 

Items I, II, and III below, which Items 

have been prepared by the selfregulatory organization. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

The Exchange proposes to reflect 

changes to the underlying benchmark, 

net asset value calculation times, and 

creation and redemption order cut-off 

times applicable to the ProShares Ultra 

Gold, ProShares UltraShort Gold, 

ProShares Ultra Silver, and ProShares 

UltraShort Silver. The proposed rule 

change is available on the Exchange’s 

website at www.nyse.com, at the 

principal office of the Exchange, and at 

the Commission’s Public Reference 

Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

self-regulatory organization included 

statements concerning the purpose of, 

and basis for, the proposed rule change 

and discussed any comments it received 

on the proposed rule change. The text 

of those statements may be examined at 

the places specified in Item IV below. 

The Exchange has prepared summaries, 

set forth in sections A, B, and C below, 

of the most significant parts of such 

statements. 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and the 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

The Commission previously approved 

the listing and trading of the shares 

(‘‘Shares’’) on the Exchange of the 

following under Commentary .02 to 

NYSE Arca Rule 8.200–E,4 which 

governs the listing and trading of ‘‘Trust 

Issued Receipts’’ (‘‘TIRs’’) on the 

Exchange: 5 ProShares Ultra Gold, 

ProShares UltraShort Gold, ProShares 

Ultra Silver, and ProShares UltraShort 

Silver (each a ‘‘Fund’’ and, collectively, 

the ‘‘Funds’’).6 The Funds are series of 

ProShares Trust II (‘‘Trust’’). The Bank 

of New York Mellon Corporation is 

custodian for the Trust. SEI Investments 

Distribution Co. is the distributor for the 

Funds.7 Shares of the Funds are 

currently listed and trading on the 

Exchange. 

The Exchange is submitting this 

proposed rule change to reflect a change 

to the underlying benchmarks, net asset 

value calculation times, and creation 

and redemption order cut-off times 

applicable to the Funds, as described 

below. 

Changes to Underlying Benchmarks 

The Ultra Funds seek daily 

investment results, before fees and 

expenses, that correspond to two times 

(2x) the daily performance of their 

‘‘Underlying Benchmark’’ (as described 

below) If each such Fund is successful 

in meeting its investment objective, the 

value of the Shares of each such Fund, 

on a given day, before fees and 

expenses, should gain approximately 

two times as much on a percentage basis 

as the level of each such Fund’s 

respective Underlying Benchmark when 

the price of the Underlying Benchmark 

rises, and should lose approximately 

two times as much when such price 

declines on a given day, before fees and 

expenses. The Ultra Funds do not seek 

to achieve their stated objective over a 

period greater than a single day. A 

‘‘single day’’ is measured from the time 

an Ultra Fund calculates its respective 

NAV to the time of the Ultra Fund’s 

next NAV calculation. 

The UltraShort Funds seek daily 

investment results, before fees and 

expenses that correspond to two times 

the inverse (¥2x) of the daily 

performance of their Underlying 

Benchmark. If each such Fund is 

successful in meeting its objective, the 

value of the Shares of each such Fund, 

on a given day, before fees and 

expenses, should gain approximately 

two times as much, on a percentage 

basis, when the level of each such 

Fund’s respective Underlying 

Benchmark declines, and should 

decrease approximately two times as 

much as the respective Underlying 


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