Document ID: SEC-2020-1087-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2020-07-10T04:00Z

[Federal Register Volume 85, Number 133 (Friday, July 10, 2020)]
[Notices]
[Pages 41644-41650]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14868]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89234; File No. SR-CboeBZX-2020-053]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of a Proposed Rule Change, as Modified by Amendment No. 1, To 
List and Trade Shares of the 2x Long VIX Futures ETF, a Series of VS 
Trust, Under Rule 14.11(f)(4) (``Trust Issued Receipts'')

July 6, 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 June 23, 2020, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. On June 26, 2020, BZX filed 
Amendment No. 1 to the proposed rule change. The Commission is 
publishing this notice to solicit comments on the proposed rule change, 
as modified by Amendment No. 1, 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 2x Long VIX Futures ESTF, 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
    This Amendment No. 1 to SR-CboeBZX-2020-053 amends and replaces in 
its entirety the proposal as originally submitted on June 23, 2020. The 
Exchange submits this Amendment No. 1 in order to clarify certain 
points and add additional details to the proposal.
    The Exchange proposes to list and trade Shares of the 2x Long VIX 
Futures ETF (the ``Fund'') under Rule 14.11(f)(4), which governs the 
listing

[[Page 41645]]

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 will seek to provide a return that is 200% of the return 
of its benchmark index for a single day. As further described below, 
the benchmark index seeks to offer long exposure to market volatility 
through publicly traded futures markets. The benchmark for the Fund is 
the Long VIX Futures Index (the ``Index'' or ticker symbol LONGVOL).\5\ 
The Index measures the daily performance of a theoretical 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 the 
broker-dealer affiliate regarding access to information concerning 
the composition and/or changes to the Index. In addition, the Index 
Sponsor has implemented and will maintain procedures 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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    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 components of 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, Volatility Shares LLC 
(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 Sponsor, a Delaware limited liability company, serves as the 
Sponsor of VS Trust (the ``Trust''). The Sponsor is a commodity pool 
operator.\7\ 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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    \7\ The Fund expects to file a registration statement on Form S-
1 under the Securities Act of 1933 in the very near future. The Fund 
will not be listed on the Exchange until such time as there is an 
effective registration statement for the Fund.
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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 
and maintain a ``fire wall'' between the Sponsor and the broker-dealer 
with respect to access to information concerning the composition and/or 
changes to the Fund's portfolio. The Sponsor is not a broker-dealer or 
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 and maintain 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 the portfolio.
    The VIX Swap Agreements in which the Fund may invest may be cleared 
or non-cleared. The Fund will collateralize its obligations with Cash 
and Cash Equivalents \8\ consistent with the 1940 Act and 
interpretations thereunder.
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    \8\ 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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    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 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'').
    If the Fund is successful in meeting its objective, its value 
(before fees and expenses) on a given day should gain approximately 
200% of the return of its benchmark index for a single day. Conversely, 
its value (before fees and expenses) should lose approximately 200% of 
the return of its benchmark index for a single day when it declines. 
The Fund primarily acquires long exposure to the VIX through VIX 
Futures Contracts, such that the Fund has exposure intended to 
approximate 200% of the return of the Index 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

[[Page 41646]]

with a view toward obtaining positive results under all market 
conditions. Rather, the Fund will seek 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 8.
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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 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 VIX or 200% of the VIX 
Index 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.
Long VIX Futures Index
    The Index is designed to express the daily 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 long position in first- and second- month VIX 
Futures Contracts. While the Index does not correspond to the VIX, the 
value of the Index, and by extension the Fund, will generally rise as 
the VIX rises and fall as the VIX falls. 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 should be expected to perform significantly 
different from 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.
Calculation of the Index
    The 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 Contracts, 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.
    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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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 for 
the Shares will be available on the Fund's website at 
www.volatilityshares.com, 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.
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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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[[Page 41647]]

    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 by Bloomberg and Reuters.
    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 Bloomberg and Reuters.
    Quotation and last-sale information regarding the Shares will be 
disseminated through the facilities of the Consolidated Tape 
Association (``CTA''). Quotation and last-sale information regarding 
VIX Futures Contracts and VIX Options Contracts will be available from 
the exchanges on which such instruments are traded. Quotation and last-
sale information relating to VIX Options Contracts will also be 
available via the Options Price Reporting Authority. Quotation and 
last-sale information for VIX Swap Agreements will be available from 
nationally recognized data services providers, such as Reuters and 
Bloomberg, through subscription agreements or from a broker-dealer who 
makes markets in such instruments. Quotation and last-sale information 
for VIX Swap Agreements will be valued on the basis of quotations or 
equivalent indication of value supplied by a third- party pricing 
service or broker-dealer who makes markets in such instruments. Pricing 
information regarding Cash Equivalents in which the Fund will invest is 
generally available through nationally recognized data services 
providers, such as Reuters and Bloomberg, 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 include the VIX 
Derivative Products and Cash and Cash Equivalents less liabilities of 
the Fund at the time the IIV is disseminated. The IIV will be 
calculated and widely disseminated by one or more major market data 
vendors every 15 seconds throughout Regular Trading Hours.\13\
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    \13\ 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 will be published on the Exchange's website 
and will be 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 will 
be 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.\14\ 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, or with 
which the Exchange has entered into a comprehensive surveillance 
sharing agreement. In addition, the

[[Page 41648]]

Exchange, FINRA, on behalf of the Exchange, or both 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. 
The Exchange also has a general policy prohibiting the distribution of 
material, non-public information by its employees. All statements and 
representations made in this filing regarding the Index composition, 
description of the portfolio or reference assets, limitations on 
portfolio holdings or reference assets, dissemination and availability 
of reference the Index, reference asset, and IIV, 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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    \14\ 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) Interpretation and Policy 
.01 of BZX Rule 3.7 which imposes a duty of due diligence on its 
Members to learn the essential facts relating to every customer prior 
to trading the shares; \15\ (4) how information regarding the IIV and 
the Fund's holdings is disseminated; (5) 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; (6) the requirement that members deliver a prospectus to 
investors purchasing newly issued Shares prior to or concurrently with 
the confirmation of a transaction; and (7) trading information.
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    \15\ Specifically, in part, Interpretation and Policy .01 of 
Rule 3.7 states ``[n]o Member shall recommend to a customer a 
transaction in any such product unless the Member has a reasonable 
basis for believing at the time of making the recommendation that 
the customer has such knowledge and experience in financial matters 
that he may reasonably be expected to be capable of evaluating the 
risks of the recommended transaction and is financially able to bear 
the risks of the recommended position.
    \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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    Further, the Exchange states that FINRA has implemented increased 
sales practice and customer margin requirements for FINRA members 
applicable to inverse, leveraged and inversed leveraged securities 
(which include the Shares) and options on such securities, as described 
in FINRA Regulatory Notices 09-31 (June 2009), 09-53 (August 2009), and 
09-65 (November 2009) (collectively, ``FINRA Regulatory Notices''). 
Members that carry customer accounts will be required to follow the 
FINRA guidance set forth in these notices. As noted above, the Fund 
will seek to provide a return that is 200% of the return of its 
benchmark index for a single day. The Fund does not seek to achieve its 
primary investment objective over a period of time greater than a 
single day. The return of the Fund for a period longer than a single 
day is the result of its return for each day compounded over the period 
and usually will differ in amount and possibly even direction from the 
Fund's multiple times the return of the Fund's Benchmark for the same 
period. These differences can be significant.
    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 Fund's 
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 and maintain a ``fire wall'' 
between the Sponsor and the broker-dealer with respect to access to 
information concerning the composition and/or changes to the Fund's 
portfolio. The Sponsor is not a broker-dealer or 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 and maintain 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 the 
portfolio. The Exchange, FINRA, on behalf of the Exchange, or both 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

[[Page 41649]]

has entered into a comprehensive surveillance sharing agreement. In 
addition, the Exchange also has a general policy prohibiting the 
distribution of material, non-public information by its employees.
    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 
be available on the facilities of the CTA. The website 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.
    Quotation and last-sale information regarding the Shares will be 
disseminated through the facilities of the CTA. Quotation and last-sale 
information regarding VIX Futures Contracts and VIX Options Contracts 
will be available from the exchanges on which such instruments are 
traded. Quotation and last-sale information relating to VIX Options 
Contracts will also be available via the Options Price Reporting 
Authority. Quotation and last-sale information for VIX Swap Agreements 
will be available from nationally recognized data services providers, 
such as Reuters and Bloomberg, through subscription agreements or from 
a broker-dealer who makes markets in such instruments. Quotation and 
last-sale information for VIX Swap Agreements will be valued on the 
basis of quotations or equivalent indication of value supplied by a 
third- party pricing service or broker-dealer who makes markets in such 
instruments. Pricing information regarding Cash Equivalents in which 
the Fund will invest is generally available through nationally 
recognized data services providers, such as Reuters and Bloomberg, 
through subscription agreements.
    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, as modified by Amendment No. 1, 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-2020-053 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-2020-053. 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

[[Page 41650]]

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-2020-053 and should be submitted on or before July 31, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\20\
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    \20\ 17 CFR 200.30-3(a)(12).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-14868 Filed 7-9-20; 8:45 am]
BILLING CODE 8011-01-P