Document ID: SEC-2020-0089-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2020-01-23T05:00Z

[Federal Register Volume 85, Number 15 (Thursday, January 23, 2020)]
[Notices]
[Pages 4023-4028]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-01036]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-87992; File No. SR-CboeBZX-2020-003]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change To List and Trade Shares of the -1x 
Short VIX Futures ETF, a Series of VS Trust, Under Rule 14.11(f)(4) 
(Trust Issued Receipts)

January 16, 2020
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on January 3, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change described in Items I, II, and III below, which 
Items have been prepared by the Exchange. The Commission is publishing 
this notice to solicit comments on the proposed rule change from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') is filing 
with the Securities and Exchange Commission (``Commission'') a proposed 
rule change to list and trade shares of the -1x Short VIX Futures ETF, 
a series of VS Trust, under Rule 14.11(f)(4) (``Trust Issued 
Receipts'').
    The text of the proposed rule change is also available on the 
Exchange's website (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), at the Exchange's Office of the Secretary, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the Exchange included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The Exchange has prepared summaries, set forth in 
sections A, B, and C below, of the most significant aspects of such 
statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to list and trade Shares of the -1x Short VIX 
Futures ETF (the ``Fund'') under Rule 14.11(f)(4), which governs the 
listing and trading of Trust Issued Receipts \3\ on the Exchange.\4\
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    \3\ Rule 14.11(f)(4) applies to Trust Issued Receipts that 
invest in ``Financial Instruments.'' The term ``Financial 
Instruments,'' as defined in Rule 14.11(f)(4)(A)(iv), means any 
combination of investments, including cash; securities; options on 
securities and indices; futures contracts; options on futures 
contracts; forward contracts; equity caps, collars and floors; and 
swap agreements.
    \4\ The Commission approved BZX Rule 14.11(f)(4) in Securities 
Exchange Act Release No. 68619 (January 10, 2013), 78 FR 3489 
(January 16, 2013) (SR-BZX-2012-044).
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    The Fund seeks to provide daily investment results (before fees and 
expenses), as further described below, that correspond to the 
performance of a benchmark that seeks to offer short exposure to market 
volatility through publicly traded futures markets. The benchmark for 
the Fund is the Short VIX Futures Index (the ``Index'' or ticker symbol 
SHORTVOL).\5\ The Index measures the daily inverse (i.e., the opposite) 
performance of a portfolio of first- and second-month futures contracts 
on the Cboe Volatility Index (``VIX'').\6\
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    \5\ The index is sponsored by Cboe Global Indexes (the ``Index 
Sponsor''). The Index Sponsor is not a registered broker-dealer, but 
is affiliated with a broker-dealer. The Index Sponsor has 
implemented and will maintain a fire wall with respect to its 
relevant personnel regarding access to information concerning the 
composition and/or changes to the Index. In addition, the Index 
Sponsor has implemented and will maintain procedures around the 
relevant personnel that are designed to prevent the use and 
dissemination of material, non-public information regarding the 
Index.
    \6\ The VIX is an index designed to measure the implied 
volatility of the S&P 500 over 30 days in the future. The VIX is 
calculated based on the prices of certain put and call options on 
the S&P 500. The VIX is reflective of the premium paid by investors 
for certain options linked to the level of the S&P 500.

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[[Page 4024]]

    The Fund will primarily invest in VIX futures contracts traded on 
the Cboe Futures Exchange, Inc. (``CFE'') (hereinafter referred to as 
``VIX Futures Contracts'') based on the Index to pursue its investment 
objective. In the event accountability rules, price limits, position 
limits, margin limits or other exposure limits are reached with respect 
to VIX Futures Contracts, the Sponsor may cause the Fund to obtain 
exposure to the Index through Over-the-Counter (OTC) swaps referencing 
the Index or particular VIX Futures Contracts comprising the Index 
(hereinafter referred to as ``VIX Swap Agreements''). The Fund may also 
invest in VIX Swap Agreements if the market for a specific VIX Futures 
Contract experiences emergencies (e.g., natural disaster, terrorist 
attack or an act of God) or disruptions (e.g., a trading halt or a 
flash crash) or in situations where the Sponsor deems it impractical or 
inadvisable to buy or sell VIX Futures Contracts (such as during 
periods of market volatility or illiquidity).
    The VIX Swap Agreements in which the Fund may invest may be cleared 
or non-cleared. The Fund will collateralize its obligations with liquid 
assets consistent with the 1940 Act and interpretations thereunder.
    The Fund will only enter into VIX Swap Agreements with 
counterparties that the Sponsor reasonably believes are capable of 
performing under the contract and will post as collateral as required 
by the counterparty. The Fund will seek, where possible, to use 
counterparties, as applicable, whose financial status is such that the 
risk of default is reduced; however, the risk of losses resulting from 
default is still possible. The Sponsor will evaluate the 
creditworthiness of counterparties on a regular basis. In addition to 
information provided by credit agencies, the Sponsor will review 
approved counterparties using various factors, which may include the 
counterparty's reputation, the Sponsor's past experience with the 
counterparty and the price/market actions of debt of the counterparty.
    The Fund may use various techniques to minimize OTC counterparty 
credit risk including entering into arrangements with its 
counterparties whereby both sides exchange collateral on a mark-to-
market basis. Collateral posted by the Fund to a counterparty in 
connection with uncleared VIX Swap Agreements is generally held for the 
benefit of the counterparty in a segregated tri-party account at the 
custodian to protect the counterparty against non-payment by the Fund. 
In addition to VIX Swap Agreements, if the fund is unable to meet its 
investment objective through investments in VIX Futures Contracts, the 
Fund may also obtain exposure to the Index through listed VIX options 
contracts traded on the Cboe Exchange, Inc. (``Cboe'') (hereinafter 
referred to as ``VIX Options Contracts'').
    The Fund may also invest in Cash and Cash Equivalents \7\ that may 
serve as collateral in the above referenced VIX Futures Contracts, VIX 
Swap Agreements, and VIX Option Contracts (collectively referred to as 
the ``VIX Derivative Products'').
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    \7\ For purposes of this proposal, the term ``Cash and Cash 
Equivalents'' shall have the definition provided in Exchange Rule 
14.11(i)(4)(C)(iii), applicable to Managed Fund Shares.
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    Volatility Shares LLC (the ``Sponsor''), a Delaware limited 
liability company, serves as the Sponsor of VS Trust (the ``Trust''). 
The Sponsor is a commodity pool operator.\8\ Tidal ETF Services LLC 
serves as the administrator (the ``Administrator'') and U.S. Bank 
National Association serves as custodian of the Fund and its Shares. 
U.S. Bancorp Fund Services, LLC serves as the sub-administrator (the 
``Sub-Administrator'') and transfer agent. Wilmington Trust Company, a 
Delaware trust company, is the sole trustee of the Trust.
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    \8\ The Fund has filed a draft registration statement on Form S-
1 under the Securities Act of 1933, dated December 6, 2019 (File No. 
377-02945) (``Draft Registration Statement''). The description of 
the Fund and the Shares contained herein are based on the 
Registration Statement.
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    If the Sponsor to the Trust issuing the Trust Issued Receipts is 
affiliated with a broker-dealer, such Sponsor to the Trust shall erect 
a ``fire wall'' between the Sponsor and the broker-dealer with respect 
to access to information concerning the composition and/or changes to 
such Trust portfolio. The Sponsor is not affiliated with a broker-
dealer. In the event that (a) the Sponsor becomes a broker-dealer or 
newly affiliated with a broker-dealer, or (b) any new sponsor is a 
broker-dealer or becomes affiliated with a broker-dealer, it will 
implement a fire wall with respect to its relevant personnel or such 
broker-dealer affiliate, as applicable, regarding access to information 
concerning the composition and/or changes to the portfolio, and will be 
subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding such portfolio.
    If the Fund is successful in meeting its objective, its value 
(before fees and expenses) on a given day should gain approximately as 
much on a percentage basis as the level of the Index when it rises. 
Conversely, its value (before fees and expenses) should lose 
approximately as much on a percentage basis as the level of the Index 
when it declines. The Fund primarily acquires short exposure through 
VIX Futures Contracts, such that the Fund has exposure intended to 
approximate the benchmark at the time of the net asset value (``NAV'') 
calculation of the Fund. However, as discussed above, in the event that 
the Fund is unable to meet its investment objective solely through the 
investment of VIX Futures Contracts, it may invest in VIX Swap 
Agreements or VIX Options Contracts. The Fund may also invest in Cash 
or Cash Equivalents that may serve as collateral to the Fund's 
investments in VIX Derivative Products.
    The Fund is not actively managed by traditional methods, which 
typically involve effecting changes in the composition of a portfolio 
on the basis of judgments relating to economic, financial and market 
considerations with a view toward obtaining positive results under all 
market conditions. Rather, the Fund seeks to remain fully invested at 
all times in VIX Derivative Products (and Cash and Cash Equivalents as 
collateral) \9\ that provide exposure to the Index consistent with its 
investment objective without regard to market conditions, trends or 
direction.
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    \9\ Supra note 7.
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    In seeking to achieve the Fund's investment objective, the Sponsor 
uses a mathematical approach to investing. Using this approach, the 
Sponsor determines the type, quantity and mix of investment positions 
that the Sponsor believes in combination should produce daily returns 
consistent with the Fund's objective. The Sponsor relies upon a pre-
determined model to generate orders that result in repositioning the 
Fund's investments in accordance with its investment objective.
VIX Futures Contracts
    The Index is comprised of, and the value of the Fund will be based 
on, VIX Futures Contracts. VIX Futures Contracts are measures of the 
market's expectation of the level of VIX at certain points in the 
future, and as such will behave differently than current, or spot, VIX, 
as illustrated below.
    While the VIX represents a measure of the current expected 
volatility of the S&P 500 over the next 30 days, the prices of VIX 
Futures Contracts are based on the current expectation of what the 
expected 30-day volatility will

[[Page 4025]]

be at a particular time in the future (on the expiration date). For 
example, a VIX Futures Contract purchased in March that expires in May, 
in effect, is a forward contract on what the level of the VIX, as a 
measure of 30-day implied volatility of the S&P 500, will be on the May 
expiration date. The forward volatility reading of the VIX may not 
correlate directly to the current volatility reading of the VIX because 
the implied volatility of the S&P 500 at a future expiration date may 
be different from the current implied volatility of the S&P 500. As a 
result, the Index and the Fund should be expected to perform very 
differently from the inverse of the VIX over all periods of time. To 
illustrate, on December 4, 2019, the VIX closed at a price of 14.8 and 
the price of the February 2020 VIX Futures Contracts expiring on 
February 19, 2020 was 18.125. In this example, the price of the VIX 
represented the 30-day implied, or ``spot,'' volatility (the volatility 
expected for the period from December 5, 2019 to January 5, 2020) of 
the S&P 500 and the February VIX Futures Contracts represented forward 
implied volatility (the volatility expected for the period from 
February 19 to March 19, 2020) of the S&P 500.
Short VIX Futures Index
    The Index is designed to express the daily inverse performance of a 
theoretical portfolio of first- and second-month VIX Futures Contracts 
(the ``Index Components''), with the price of each VIX Futures Contract 
reflecting the market's expectation of future volatility. The Index 
seeks to reflect the returns that are potentially available from 
holding an unleveraged short position in first- and second- month VIX 
Futures Contracts. While the Index does not correspond to the inverse 
of the VIX, as it seeks short exposure to VIX, the value of the Index, 
and by extension the Fund, will generally rise as the VIX falls and 
fall as the VIX rises. Further, as described above, because VIX Futures 
Contracts correlate to future volatility readings of VIX, while the VIX 
itself correlates to current volatility, the Index and the Fund may 
perform significantly different from the inverse of the VIX.
    Unlike the Index, the VIX, which is not a benchmark for the Fund, 
is calculated based on the prices of put and call options on the S&P 
500, which are traded exclusively on Cboe.
    The Short VIX Futures Index employs rules for selecting the Index 
Components and a formula to calculate a level for the Index from the 
prices of these components. Specifically, the Index Components 
represent the prices of the two near-term VIX futures months, 
replicating a position that rolls the nearest month VIX Futures 
Contract to the next month VIX Futures Contract on a daily basis in 
equal fractional amounts. This results in a constant weighted average 
maturity of approximately one month. The roll period usually begins on 
the Wednesday falling 30 calendar days before the S&P 500 option 
expiration for the following month (the ``Cboe VIX Monthly Futures 
Settlement Date''), and runs to the Tuesday prior to the subsequent 
month's Cboe VIX Monthly Futures Settlement Date.
Calculation of the Index
    The level of the Index will be published at least every 15 seconds 
both in real time from 9:30 a.m. to 4:00 p.m. ET and at the close of 
trading on each Business Day \10\ by Bloomberg and Reuters.
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    \10\ A ``Business Day'' means any day other than a day when any 
of BZX, Cboe, CFE or other exchange material to the valuation or 
operation of the Fund, or the calculation of the VIX, options 
contracts underlying the VIX, VIX Futures Contracts or the Index is 
closed for regular trading.
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    The Index Components comprising the Index represent the prices of 
first- and second-month VIX Futures Contracts. The Index takes a daily 
rolling short position in such VIX Futures Contracts and is intended to 
reflect the returns that are potentially available through an 
unleveraged investment in those contracts. The Index measures the 
return from a rolling short position in the first- and second-month VIX 
Futures Contracts. The Index rolls continuously throughout each month 
from the first-month VIX Futures Contracts into the second-month VIX 
Futures Contracts.
    The Index rolls on a daily basis. One of the effects of daily 
rolling is to maintain a constant weighted average maturity for the 
underlying VIX Futures Contracts. Unlike equities, which typically 
entitle the holder to a continuing stake in a corporation, futures 
contracts normally specify a certain date for the delivery of the 
underlying asset or financial instrument or, in the case of futures 
contracts relating to indices such as the VIX, a certain date for 
payment in cash of an amount determined by the level of the underlying 
index. The Index operates by buying back, on a daily basis, Index 
Components with a nearby settlement date and selling Index Components 
with a longer-dated settlement date. The roll for each contract occurs 
on each Business Day according to a pre-determined schedule that has 
the effect of keeping constant the weighted average maturity of the 
relevant futures contracts. This process is known as ``rolling'' a 
futures position, and the Index is a ``rolling index''. The constant 
weighted average maturity for the VIX Futures Contracts underlying the 
Index is approximately one month.
Purchases and Redemptions of Creation Units
    The Fund will create and redeem Shares from time to time only in 
large blocks of a specified number of Shares or multiples thereof 
(``Creation Units''). A Creation Unit is a block of at least 10,000 
Shares. Except when aggregated in Creation Units, the Shares are not 
redeemable securities.
    On any Business Day, an authorized participant may place an order 
with the Sub-Administrator to create one or more Creation Units.\11\ 
The total cash payment required to create each Creation Unit is the NAV 
of at least 10,000 Shares of the Fund on the purchase order date plus 
the applicable transaction fee.
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    \11\ Authorized participants have a cut-off time of 2:00 p.m. ET 
to place creation and redemption orders.
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    The procedures by which an authorized participant can redeem one or 
more Creation Units mirror the procedures for the purchase of Creation 
Units. On any Business Day, an authorized participant may place an 
order with the Sub-Administrator to redeem one or more Creation Units. 
The redemption proceeds from the Fund consist of the cash redemption 
amount. The cash redemption amount is equal to the NAV of the number of 
Creation Unit(s) of the Fund requested in the authorized participant's 
redemption order as of the time of the calculation of a Fund's NAV on 
the redemption order date, less transaction fees.
Availability of Information Regarding the Shares
    The NAV for the Fund's Shares will be calculated by the Sub-
Administrator once each Business Day and will be disseminated daily to 
all market participants at the same time.\12\ Pricing information will 
be available on the Fund's website including: (1) The prior Business 
Day's reported NAV, the closing market price or the Bid/Ask Price, 
daily trading volume, and a calculation of the premium and discount of 
the closing market price or Bid/Ask Price against the NAV; and (2) data 
in chart format displaying the

[[Page 4026]]

frequency distribution of discounts and premiums of the daily closing 
price against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters.
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    \12\ NAV means the total assets of the Fund including, but not 
limited to, all cash and cash equivalents or other debt securities 
less total liabilities of the Fund, consistently applied under the 
accrual method of accounting. The Fund's NAV is calculated at 4:00 
p.m. ET.
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    The closing prices and settlement prices of the Index Components 
(i.e., the first- and second-month VIX Futures Contracts) will also be 
readily available from the websites of CFE (http://www.cfe.cboe.com), 
automated quotation systems, published or other public sources, or on-
line information services such as Bloomberg or Reuters. Complete real-
time data for component VIX Futures Contracts underlying the Index is 
available by subscription from Reuters and Bloomberg. Specifically, the 
level of the Index will be published at least every 15 seconds both in 
real time from 9:30 a.m. to 4:00 p.m. ET and at the close of trading on 
each Business Day \13\ by Bloomberg and Reuters.
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    \13\ A ``Business Day'' means any day other than a day when any 
of BZX, Cboe, CFE or other exchange material to the valuation or 
operation of the Fund, or the calculation of the VIX, options 
contracts underlying the VIX, VIX Futures Contracts or the Index is 
closed for regular trading.
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    The CFE also provides delayed futures information on current and 
past trading sessions and market news free of charge on its website. 
The specific contract specifications of Index Components (i.e., first-
month and second-month VIX Futures Contracts) underlying the Index are 
also available on such websites, as well as other financial 
informational sources.
    Quotation and last-sale information regarding the Shares will be 
disseminated through the facilities of the Consolidated Tape 
Association (``CTA''). Information relating to VIX Futures Contracts 
and VIX Options Contracts will be available from the exchange on which 
such instruments are traded. Information relating to VIX Options 
Contracts will also be available via the Options Price Reporting 
Authority. Quotation information from brokers and dealers or pricing 
services will be available for VIX Swap Agreements for which the Fund 
may invest. Pricing information regarding each asset class in which the 
Fund will invest is generally available through nationally recognized 
data services providers through subscription agreements.
    In addition, the Fund's website at www.volatilityshares.com will 
display the end of day closing Index level, and NAV per share for the 
Fund. The Fund will provide website disclosure of portfolio holdings 
daily and will include, as applicable, the notional value (in U.S. 
dollars) of VIX Derivative Products, and characteristics of such 
instruments, as well as Cash and Cash Equivalents held in the portfolio 
of the Fund. This website disclosure of the portfolio composition of 
the Fund will occur at the same time as the disclosure by the Fund of 
the portfolio composition to authorized participants so that all market 
participants are provided portfolio composition information at the same 
time. The same portfolio information will be provided on the public 
website as well as in electronic files provided to authorized 
participants.
    In addition, in order to provide updated information relating to 
the Fund for use by investors and market professionals, an updated 
Intraday Indicative Value (``IIV'') will be calculated. The IIV is an 
indicator of the value of the Fund's holdings, which includes the value 
of the VIX Derivative Products (which, as stated above, includes VIX 
Futures Contracts, VIX Swap Agreements, and VIX Options Contracts) and 
Cash and Cash Equivalents less liabilities of the Fund at the time the 
IIV is disseminated. The IIV is calculated and widely disseminated by 
one or more major market data vendors every 15 seconds throughout 
Regular Trading Hours.\14\
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    \14\ As defined in Rule 1.5(w), the term ``Regular Trading 
Hours'' means the time between 9:30 a.m. and 4:00 p.m. ET.
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    In addition, the IIV is published on the Exchange's website and is 
available through on-line information services such as Bloomberg and 
Reuters.
    The IIV disseminated during Regular Trading Hours should not be 
viewed as an actual real time update of the NAV, which is calculated 
only once a day. The IIV also should not be viewed as a precise value 
of the Shares.
    Additional information regarding the Fund and the Shares, including 
investment strategies, risks, creation and redemption procedures, fees, 
portfolio holdings, disclosure policies, distributions and taxes is 
included in the Registration Statement.
Initial and Continued Listing
    The Shares of the Fund will conform to the initial and continued 
listing criteria under BZX Rule 14.11(f)(4). The Exchange represents 
that, for initial and continued listing, the Fund and the Trust must be 
in compliance with Rule 10A-3 under the Act. A minimum of 100,000 
Shares of the Fund will be outstanding at the commencement of trading 
on the Exchange. The Exchange will obtain a representation from the 
Sponsor of the Shares that the NAV per Share for the Fund will be 
calculated daily and will be made available to all market participants 
at the same time.
Trading Halts
    With respect to trading halts, the Exchange may consider all 
relevant factors in exercising its discretion to halt or suspend 
trading in the Shares of the Fund. The Exchange will halt trading in 
the Shares under the conditions specified in BZX Rule 11.18. Trading 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
securities and/or the financial instruments composing the daily 
disclosed portfolio of the Fund; or (2) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. The Exchange will 
allow trading in the Shares from 8:00 a.m. until 8:00 p.m. ET and has 
the appropriate rules to facilitate transactions in the Shares during 
all trading sessions. As provided in BZX Rule 11.11(a), the minimum 
price variation for quoting and entry of orders in securities traded on 
the Exchange is $0.01, with the exception of securities that are priced 
less than $1.00, for which the minimum price variation for order entry 
is $0.0001.
Surveillance
    Trading of the Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products, including 
Trust Issued Receipts. All of the VIX Futures Contracts and VIX Options 
Contracts held by the Fund will trade on markets that are a member of 
ISG or affiliated with a member of ISG or with which the Exchange has 
in place a comprehensive surveillance sharing agreement.\15\ The 
Exchange, FINRA, on behalf of the Exchange, or both will communicate 
regarding trading in the Shares and the underlying listed instruments, 
including listed derivatives held by the Fund, with the ISG, other 
markets or entities who are members or affiliates of the ISG,

[[Page 4027]]

or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, the Exchange or FINRA may 
obtain information regarding trading in the Shares and the underlying 
listed instruments, including listed derivatives, held by the Fund from 
markets and other entities that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing agreement. 
All statements and representations made in this filing regarding the 
description of the portfolio or reference assets, limitations on 
portfolio holdings or reference assets, dissemination and availability 
of reference asset, and IIVs, and the applicability of Exchange rules 
specified in this filing shall constitute continued listing 
requirements for the Fund. The issuer has represented to the Exchange 
that it will advise the Exchange of any failure by the Fund or the 
Shares to comply with the continued listing requirements, and, pursuant 
to its obligations under Section 19(g)(1) of the Act, the Exchange will 
surveil for compliance with the continued listing requirements. If the 
Fund or the Shares are not in compliance with the applicable listing 
requirements, the Exchange will commence delisting procedures under 
Exchange Rule 14.12.
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    \15\ For a list of the current members and affiliate members of 
ISG, see www.isgportal.com. The Exchange notes that not all 
components of the Fund's holdings may trade on markets that are 
members of ISG or with which the Exchange has in place a 
comprehensive surveillance sharing agreement.
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Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) BZX Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the IIV and the Fund's holdings is disseminated; (4) the risks involved 
in trading the Shares during the Pre-Opening \16\ and After Hours 
Trading Sessions \17\ when an updated IIV will not be calculated or 
publicly disseminated; (5) the requirement that members deliver a 
prospectus to investors purchasing newly issued Shares prior to or 
concurrently with the confirmation of a transaction; and (6) trading 
information.
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    \16\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. ET.
    \17\ The After Hours Trading Session is from 4:00 p.m. to 8:00 
p.m. ET.
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    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    In addition, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV calculation time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund's 
website.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \18\ in general and Section 6(b)(5) of the Act \19\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
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    \18\ 15 U.S.C. 78f.
    \19\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in Exchange Rule 14.11(f). The 
Exchange believes that its surveillance procedures are adequate to 
properly monitor the trading of the Shares on the Exchange during all 
trading sessions and to deter and detect violations of Exchange rules 
and the applicable federal securities laws. If the Sponsor to the Trust 
issuing the Trust Issued Receipts is affiliated with a broker-dealer, 
such Sponsor to the Trust shall erect a ``fire wall'' between the 
Sponsor and the broker-dealer with respect to access to information 
concerning the composition and/or changes to such Trust portfolio. The 
Sponsor is not affiliated with a broker-dealer. In the event that (a) 
the Sponsor becomes a broker-dealer or newly affiliated with a broker-
dealer, or (b) any new sponsor is a broker-dealer or becomes affiliated 
with a broker-dealer, it will implement a fire wall with respect to its 
relevant personnel or such broker-dealer affiliate, as applicable, 
regarding access to information concerning the composition and/or 
changes to the portfolio, and will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding such portfolio. The Exchange may obtain information regarding 
trading in the Shares and the underlying VIX Futures Contracts and VIX 
Options Contracts via the ISG from other exchanges who are members or 
affiliates of the ISG or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement.
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
that the Exchange will obtain a representation from the issuer of the 
Shares that the NAV will be calculated daily and that the NAV and the 
Fund's holdings will be made available to all market participants at 
the same time. In addition, a large amount of information is publicly 
available regarding the Fund and the Shares, thereby promoting market 
transparency. Moreover, the IIV will be disseminated by one or more 
major market data vendors at least every 15 seconds during Regular 
Trading Hours. On each Business Day, before commencement of trading in 
Shares during Regular Trading Hours, the Fund will disclose on its 
website the holdings that will form the basis for the Fund's 
calculation of NAV at the end of the Business Day. Pricing information 
will be available on the Fund's website including: (1) The prior 
Business Day's reported NAV, the closing market price or the Bid/Ask 
Price, daily trading volume, and a calculation of the premium and 
discount of the closing market price or Bid/Ask Price against the NAV; 
and (2) data in chart format displaying the frequency distribution of 
discounts and premiums of the daily closing price against the NAV, 
within appropriate ranges, for each of the four previous calendar 
quarters. Additionally, information regarding market price and trading 
of the Shares will be continually available on a real-time basis 
throughout the day on brokers' computer screens and other electronic 
services, and quotation and last sale information for the Shares will

[[Page 4028]]

be available on the facilities of the CTA. The websites for the Fund 
will include a form of the prospectus for the Fund and additional data 
relating to NAV and other applicable quantitative information. Trading 
in Shares of the Fund will be halted under the conditions specified in 
Exchange Rule 11.18. Trading may also be halted because of market 
conditions or for reasons that, in the view of the Exchange, make 
trading in the Shares inadvisable. Finally, trading in the Shares will 
be subject to 14.11(f)(4)(C)(ii), which sets forth circumstances under 
which Shares of the Fund may be halted. In addition, as noted above, 
investors will have ready access to information regarding the Fund's 
holdings, the IIV, and quotation and last sale information for the 
Shares.
    Intraday price quotations on VIX Derivative Products held by the 
Fund are available from major broker-dealer firms and from third-
parties, which may provide prices free with a time delay, or ``live'' 
with a paid fee. Major broker-dealer firms will also provide intraday 
quotes on swaps of the type held by the Fund. Pricing information 
related to exchange-listed instruments, including exchange-listed VIX 
Futures Contracts and VIX Options Contracts, will be available directly 
from the listing exchange. For VIX Futures Contracts and VIX Options 
Contracts, such intraday information is available directly from CFE and 
Cboe, respectively. Intraday price information is also available 
through subscription services, such as Bloomberg and Thomson Reuters, 
which can be accessed by authorized participants and other investors.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of exchange-traded product that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace. As noted above, the Exchange has in place surveillance 
procedures relating to trading in the Shares and may obtain information 
via ISG from other exchanges that are members of ISG or with which the 
Exchange has entered into a comprehensive surveillance sharing 
agreement. In addition, as noted above, investors will have ready 
access to information regarding the Fund's holdings, the IIV, and 
quotation and last sale information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change, rather will facilitate the listing of an 
additional exchange-traded product on the Exchange, which will enhance 
competition among listing venues, to the benefit of issuers, investors, 
and the marketplace more broadly.

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

    The Exchange neither solicited nor received comments on the 
proposed rule change.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period up to 90 days (i) as the 
Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will:
    A. By order approve or disapprove such proposed rule change, or
    B. institute proceedings to determine whether the proposed rule 
change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2020-003 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2020-003. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2020-003 and should be submitted 
on or before February 12, 2020.
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    \20\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-01036 Filed 1-22-20; 8:45 am]
 BILLING CODE 8011-01-P