[Federal Register Volume 83, Number 47 (Friday, March 9, 2018)]
[Notices]
[Pages 10530-10533]
[FR Doc No: 2018-04713]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82804; File No. SR-NYSE-2017-53]

Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Instituting Proceedings To Determine Whether To Approve or Disapprove a
Proposed Rule Change To Amend the Listed Company Manual for Special
Purpose Acquisition Companies To Lower the Initial Holders Requirement
From 300 to 150 Round Lot Holders and To Eliminate Completely the 300
Public Stockholders Continued Listing Requirement, To Require at Least
$5 Million in Net Tangible Assets for Initial and Continued Listing,
and To Impose a 30-Day Deadline To Demonstrate Compliance With Certain
Initial Listing Requirements Following a Business Combination

March 5, 2018.

I. Introduction

    On November 16, 2017, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend the listing requirements for Special
Purpose Acquisition Companies (``SPACs'') \3\ by reducing the number of
round lot holders required for initial listing from 300 to 150 and
eliminating the continued listing requirement for a minimum number of
holders, which is also currently 300, that applies until a SPAC
completes one or more business combinations.\4\ NYSE also proposes to
require that a SPAC maintain at least $5 million in net tangible assets
for initial and continued listing. NYSE is proposing to allow companies
30 days to demonstrate compliance with the applicable holder
requirements of Section 102.01A in the Listed Companies Manual
(``Manual'') following a business combination.\5\ Finally, the NYSE
proposes to eliminate certain alternative initial listing distribution
criteria for SPACs that list in connection with a transfer or
quotation.\6\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ The Commission notes that throughout this order we have used
the term ``SPAC'' or ``SPACs.'' These terms have the same meaning as
an ``Acquisition Company'' or ``AC'' which is the term used by NYSE
in its current rules and the proposed rule filing.
    \4\ See Section 102.06 of the Listed Company Manual, and infra
note 11, and accompanying text, which describes the requirements for
the value of the business combination(s).
    \5\ Id.
    \6\ See Section 102.06 of the Manual.
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    The proposed rule change was published for comment in the Federal
Register on December 6, 2017.\7\ On January 18, 2018, the Commission
extended the time period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to approve or disapprove the proposed rule change,
to March 6, 2018.\8\ The Commission received two comments on the
proposal.\9\ This order institutes proceedings under Section
19(b)(2)(B) of the Act to determine whether to approve or disapprove
the proposal.
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    \7\ See Securities Exchange Act Release No. 82180 (November 30,
2017), 82 FR 57632 (``Notice'').
    \8\ See Securities Exchange Act Release No. 82531, (January 19,
2018), 83 FR 3371 (``Extension'').
    \9\ See Letters to Brent J. Fields, Secretary, Commission, from
Michael Kitlas, dated November 30, 2017 (``Kitlas Letter'') and
Jeffrey P. Mahoney, General Counsel, Council of Institutional
Investors, dated December 20, 2017 (``CII Letter'').
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II. Description of Proposal

A. Background on SPACs

    A SPAC is a special purpose company whose business plan is to raise
capital in an initial public offering (``IPO'') and, within a specific
period of time, engage in a merger or acquisition with one or more
unidentified companies. Among other things, a SPAC must keep 90% of the
gross proceeds of its IPO in an escrow account through the date of a
business combination.\10\ The SPAC must complete one or more business
combinations, having an aggregate market value of at least 80% of the
value of the deposit account at the time of the agreement to enter into
the initial combination, within 36 months of the effectiveness of the
IPO registration statement.\11\ Additionally, shareholders who object
to a business combination have the right to convert their common stock
into a pro rata share of the funds held in escrow.\12\ Following each
business combination the combined company must meet the Exchange's
requirements for initial listing of an operating company, including the
requirement to maintain a minimum of 300 holders.\13\
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    \10\ See Section 102.06 of the Manual.
    \11\ Id. Amounts disbursed to management for working capital
purposes and any deferred underwriter fees are excluded when
calculating the 80% value of the deposit account.
    \12\ See Sections 102.06(b) and 102.06(c) of the Manual. If a
shareholder vote is taken however, under Section 102.06(b) of the
Manual, the right of shareholders voting against a business
combination to redeem their shares for cash may be subject to a
limit established by the SPAC (that can be set no lower than 10% of
the shares sold in the IPO).
    \13\ See Sections 102.06 and 802.01B(ii) of the Manual.
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B. Description of Proposed Changes to SPAC Listing Standards

    The Exchange has proposed to reduce the number of round lot holders
required for SPACs initially listing on the Exchange from 300 to
150.\14\ The Exchange also proposed to completely eliminate the current
continued listing requirement that there be a minimum of 300 holders
until such time as the SPAC completes one or more business
combinations.\15\ In support of this proposal, as set forth in more
detail in the Notice, the Exchange states that SPACs often have
difficulty demonstrating compliance with these initial and continued
listing standards. Based on conversations with market participants,
NYSE believes this is due to the unique nature of SPACs which limits
the number of interested retail investors and encourages owners to hold
their shares until an acquisition is announced, which can be as long as

three years after the IPO.\16\ NYSE believes that these same features
limit the benefit to investors of having a holder requirement, the
purpose of which, according to NYSE, is ``to help ensure that a
security has a sufficient number of investors to provide a liquid
trading market.'' \17\ Among other things, NYSE asserted that because
``the price of [a SPAC] is based primarily on the value of the funds it
holds in trust, and the [SPAC] shareholders have the right to redeem
their shares for a pro rata share of that trust in conjunction with the
Business Combination, the impact of the number of shareholders on [a
SPAC] security's price is less relevant than is the case for operating
company common stocks.'' \18\ For these reasons, NYSE states that
``[SPACs] historically trade close to the value in the trust, even when
they have had few shareholders'' and that these ``trading patterns
suggest that [SPACs'] low number of shareholders has not resulted in
distorted prices.'' \19\ NYSE also notes, that ``it can be difficult
for a company, once listed, to obtain evidence demonstrating the number
of its shareholders because many accounts are held in street name'' and
that this process ``is particularly burdensome for [SPACs] because most
operating expenses are typically borne by the [SPAC's] sponsors due to
the requirement that the gross proceeds of the initial public offering
remain in the trust account until the closing of the business
combination.'' \20\
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    \14\ See proposed Section 102.06 of the Manual, in Exhibit 5 to
NYSE-2017-53.
    \15\ See proposed Section 802.01B(ii) of the Manual in Exhibit 5
to NYSE-2017-53. Section 802.01B of the Manual currently requires at
least 300 public stockholders for continued listing. ``Public
stockholders'' are defined to exclude holders that are directors,
officers, or their immediate families and holders of other
concentrated holdings of 10% or more. See Section 802.01B(ii) of the
Manual.
    \16\ See Notice at 57633.
    \17\ Id.
    \18\ Id. See also, supra note 12, and accompanying text, that
refer to possible limits on the amount of shares that can be
redeemed on a pro rata basis.
    \19\ Id.
    \20\ Id.
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    The Exchange also proposed to add a new requirement for SPACs to
list, and remain listed, that would require SPACs to maintain at least
$5 million in net tangible assets.\21\ This requirement is being
proposed by NYSE as an alternative exception to the Commission's penny
stock rule, Rule 3a51-1 under the Act, because NYSE's proposed changes
to the minimum number of holders would result in SPACs listed on NYSE
no longer qualifying for the current penny stock rule exception that
requires listed companies to have 300 round lot holders.\22\ The $5
million net tangible assets requirement is an alternative exception to
the penny stock rule. As of the date the Exchange filed its proposal,
(November 16, 2017) the Exchange stated that ``all [SPACs] currently
listed satisfy this alternative.'' \23\ If a SPAC does not meet the net
tangible assets requirement then it would be subject to immediate
suspension and the delisting procedures set forth in Section 804 of the
Manual and would not be eligible to follow the procedures outlined in
Sections 802.02 and 802.03 of the Manual.\24\
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    \21\ Net Tangible Assets is defined as total assets less
intangible assets and liabilities. See proposed Section 102.06 of
the Manual.
    \22\ Rule 15g-1 through 15-9 under the Act impose certain
disclosure and additional requirements on brokers and dealers when
effecting transactions in penny stocks. See 17 CFR 240.15g-1 to 15g-
9. Rule 3a51-1 includes an exception from the definition of penny
stock for securities registered on a national securities exchange
that has initial listing standards, among others, that requires at
least 300 round lot holders. Rule 3a51-1 also has an exception from
the penny stock definition if a company has $5 million in net
tangible assets. See 17 CFR 240.3a51-1(a) and 17 CFR 240.3a51-1(g).
    \23\ See Notice at 57634.
    \24\ Id.
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    Finally, the Exchange proposed to allow a company 30 days to
demonstrate that it is has met the holder requirement following a
business combination. The Exchange noted that, under its existing
rules, following a SPAC business combination, the resulting company
must satisfy all initial listing requirements, including the minimum
number of shareholders as set forth in Section 102.01A of the
Manual.\25\ According to the Exchange, the proposed additional 30 days
for a post business combination SPAC to demonstrate compliance with the
holder requirement is intended to address delays related to obtaining
information about the number of shareholders holding shares in `street
name' accounts.\26\ If the SPAC has not demonstrated that it meets the
holder requirement within 30 days following a business combination,
then the SPAC would be subject to immediate suspension and delisting
procedures set forth in Section 804 of the Manual.\27\
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    \25\ See Notice at 57634. See also Section 802.01B(iv) of the
Manual.
    \26\ See Notice at 57634
    \27\ A SPAC not meeting this requirement would not be eligible
to follow the procedures outlined in Sections 802.02 and 802.03 of
the Manual. See Notice at 57634.
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III. Summary of Comments

    The Commission received two comment letters on the proposal.\28\
One commenter stated that the proposed rule change is consistent with
the Act.\29\ The other commenter stated that it did not support the
proposed rule change, noting that ``it does not provide sufficient
information for us to make a determination as to whether our members
and the capital markets would benefit from the proposed rule changes.''
\30\
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    \28\ See supra note 9.
    \29\ See Kitlas Letter (stating, in full, ``[t]he proposed rule
change is consistent with the Act.'').
    \30\ See CII Letter at 1.
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    This commenter believed more evidence was necessary in several
areas to support the proposed changes including: (1) The assertion that
price distortions or illiquidity are a lesser concern for SPACs; (2)
the assertion that SPACs trade close to the redemption value of the
assets held in trust; (3) the number of companies constrained by
existing listing standards; (4) the difficulties demonstrating
compliance with determining the number of shareholders, including the
frequency and length of delays; and (5) why having more listed SPACs
would benefit investors or the capital markets.\31\
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    \31\ See CII Letter at 2-3.
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    Further, the commenter raised questions regarding the necessity and
operation of the proposed $5 million net tangible assets requirement
and the lack of monitoring SPACs that no longer meet the penny stock
rules.\32\ The commenter also raised speculation that the lack of
evidence in support of this proposal closely mirrors a similar proposal
by NASDAQ Stock Market LLC (``Nasdaq'').\33\ This commenter stated
that, ``we believe it is a mistake for NYSE to follow the actions of
other exchanges in an effort to compete based on reduced standards
around public listings.'' \34\
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    \32\ See CII Letter at 3.
    \33\ See CII Letter at 4. See also Securities Exchange Act
Release No. 81816 (October 4, 2017), 82 FR 47269 (October 11, 2017)
(``Nasdaq Proposal'') and Securities Exchange Act Release No. 82478
(January 9, 2018), 83 FR 2278 (January 16, 2018) (``Nasdaq Order
Instituting Proceedings'').
    \34\ See CII Letter at 4.
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IV. Proceedings To Determine Whether To Approve or Disapprove SR-NYSE-
2017-53 and Ground for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act to determine whether the proposal should be
approved or disapproved.\35\ Institution of such proceedings is
appropriate at this time in view of the legal and policy issues raised
by the proposal, as discussed below. Institution of disapproval
proceedings does not indicate that the Commission has reached any
conclusions with respect to any of the issues involved.
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    \35\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act, the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis and input

concerning the proposed rule change's consistency with the Act \36\
and, in particular, with Section 6(b)(5) of the Act, which requires,
among other things, that the rules of a national securities exchange be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, to remove impediments
to and perfect the mechanism of free and open market and a national
market system, and, in general, to protect investors and the public
interest.\37\
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    \36\ 15 U.S.C. 78f(b)(5).
    \37\ Id.
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    The Commission has consistently recognized the importance of the
minimum number of holders and other similar requirements in exchange
listing standards.\38\ Among other things, such listing standards help
ensure that exchange listed companies have sufficient public float,
investor base, and trading interest to provide the depth and liquidity
necessary to promote fair and orderly markets.\39\
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    \38\ For example, the Commission has repeatedly stated in
approving exchange listing requirements, including NYSE's original
SPAC listing standards, that the development and enforcement of
adequate standards governing the listing of securities on an
exchange is an activity of critical importance to financial markets
and the investing public. See e.g., Securities Exchange Act Release
No. 57785 (May 6, 2008), 73 FR 27597 (May 13, 2008) (stating also
that the distribution standards, which include exchange holder
requirements, ``. . . should help to ensure that the [SPACs]
securities have sufficient public float, investor base, and
liquidity to promote fair and orderly markets''); Securities
Exchange Act Release No. 58228 (July 25, 2008), 73 FR 44794 (July
31, 2008).
    \39\ Id. The Commission has further stated that once a security
has been approved for initial listing, maintenance criteria allow an
exchange to monitor the status and trading characteristics of that
issue to ensure that it continues to meet the exchange's standards
for market depth and liquidity so that fair and orderly markets can
be maintained. See e.g., Securities Exchange Act Release No. 57785
(May 6, 2008), 73 FR 27597 (May 13, 2008) also stating that the
continued listing standards for SPACs, which include the holder
requirements, protect investors and promote fair and orderly
markets.
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    NYSE proposes to lower the minimum number of holders required for
initial listing of a SPAC from 300 to 150, and to eliminate the
continued listing requirement to have a minimum number of holders until
the SPAC completes a business combination. In support of its proposal,
NYSE asserts that SPACs often have difficulty demonstrating compliance
with the minimum number of holders requirements because many accounts
are held in street name, so that this information must be obtained from
broker-dealers and other third parties. NYSE states that this effort is
particularly burdensome for SPACs because most of the expenses incurred
in determining the number of holders must be borne by the SPAC's
sponsors. The Commission notes that the vast majority of shares of most
listed companies are held in street name, and it is not clear from
NYSE's proposal how the burdens on SPACs in determining the number of
holders are different than for listed companies generally, other than
the fact that the SPAC's sponsor bears most of the costs. In addition,
as noted by a commenter, it is not clear from NYSE's proposal the
extent to which SPACs actually have had difficulties complying with the
existing minimum number of holders requirements.\40\
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    \40\ See CII Letter at 2.
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    NYSE also takes the position that the benefits of the minimum
number of holders requirements are less with SPACs because their value
is based primarily on the value of the funds held in trust. NYSE notes
that SPACs historically have traded close to the value of the funds
held in trust, and concludes that a lack of shareholders has not
resulted in distorted prices and the associated concerns. The
Commission, however, does not believe it is clear from NYSE's proposal
how these historic trading patterns bear on the role of the minimum
number of holders requirements in maintaining fair and orderly markets,
particularly since NYSE's observations were made while the current
minimum number of holder requirements were in place.
    Finally, NYSE proposes to allow a listed SPAC 30 days following a
business combination to demonstrate compliance with the initial holder
requirement. NYSE states that, following a SPAC's business combination,
the resulting company must meet all initial listing requirements for
operating companies, including the requirement to have a minimum of 300
holders. The Commission notes that initial listing standards, absent an
explicit exception, apply upon initial listing. Further, the Commission
notes that, because the same number of holders today (i.e., 300)
applies to SPACs listed on NYSE before and after a business
combination,\41\ the issue of a post-combination transition period has
not been raised. NYSE proposes to eliminate the continued listing
requirement for SPACs, so that a listed SPAC with very few holders may
need to have at least 300 holders a short time after a business
combination. The Commission does not believe it is clear from NYSE's
proposal that such a structure is workable, or how a listed SPAC would
ensure it is in a position to sufficiently increase its number of
holders.
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    \41\ The Commission recognizes that the initial holder
requirement is 300 round lot holders while the continued listing
requirement is 300 public shareholders. Therefore, when a SPAC
transitions to listing as an operating company after a business
combination, it should have at least 300 public shareholders, many
of which may also be round lot holders.
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V. Commission's Solicitation of Comments

    The Commission requests that interested persons provide written
submissions of their views, data, and arguments with respect to the
issues identified above, as well as any other concerns they may have
with the proposal. In particular, the Commission invites the written
views of interested persons concerning whether the proposal is
consistent with Section 6(b)(5), or any other provision of the Act, or
the rules and regulations thereunder. Although there do not appear to
be any issues relevant to approval or disapproval that would be
facilitated by an oral presentation of views, data, and arguments, the
Commission will consider, pursuant to Rule 19b-4, any request for an
opportunity to make an oral presentation.\42\
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    \42\ Section 19(b)(2) of the Exchange Act, as amended by the
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975),
grants the Commission flexibility to determine what type of
proceeding--either oral or notice and opportunity for written
comments--is appropriate for consideration of a particular proposal
by a self-regulatory organization. See Securities Act Amendments of
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No.
75, 94th Cong., 1st Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and
arguments regarding whether the proposal should be approved or
disapproved by March 30, 2018. Any person who wishes to file a rebuttal
to any other person's submission must file that rebuttal by April 13,
2018. The Commission asks that commenters address the sufficiency of
the Exchange's statements in support of the proposal which are set
forth in the Notice, in addition to any other comments they may wish to
submit about the proposed rule change. In particular, the Commission
seeks comment, including where relevant, any specific data, statistics,
or studies, on the following:
    1. Would the proposal ensure that a sufficient liquid market exists
for the shares of SPACs on the Exchange? Why or why not?
    2. Without any continued listing holder requirement, would the
shares of SPACs still trade close to their redemption value, as the
Exchange has

stated? If yes, would that trading pattern continue after an
announcement of a business combination?
    3. Without any continued listing holder requirement, could shares
of SPACs be more prone to manipulation, either post-IPO or at the time
of the business combination announcement (but before consummation of
the business combination)?
    4. Has the Exchange demonstrated with specific data, analysis, and
studies that the shares of SPACs trade consistently as stated in the
proposal, and does the analysis support the proposed reductions in the
holder initial and continued listing standards? If not, what data
should be reviewed and analyzed? How many SPACs have not been able to
meet the Exchange's initial or continued listing applicable holder
requirements? In the Exchange's examination of SPACs that were below
the continued public holder listing requirement, if any, how few
holders did these SPACs have?
    5. The Exchange asserted that it is time consuming and burdensome
for a SPAC to obtain a list of holders to demonstrate the number of
holders, because many shares are held in street name with broker-
dealers. The Commission notes that the process of obtaining number of
holders is similar for all listed companies. Do commenters think SPACs
are particularly burdened by this process and the costs? Is the fact
the costs are usually borne by the sponsors relevant?
    6. Under its proposal, should the Exchange monitor SPACS that fall
below the $5 million net tangible assets standard to assist broker-
dealers in complying with the penny stock rules, including during any
period when immediate suspension under Section 804.00 of the Manual has
not been imposed?
    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 [email protected]. Please include
File Number SR-NYSE-2017-53 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-NYSE-2017-53. 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 such 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-NYSE-2017-53 and should be submitted on
or before March 30, 2018.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\43\
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    \43\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-04713 Filed 3-8-18; 8:45 am]
 BILLING CODE 8011-01-P


[Federal Register Volume 87, Number 18 (Thursday, January 27, 2022)]
[Notices]
[Pages 4314-4317]
[FR Doc No: 2022-01562]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94025; File No. SR-NYSEArca-2021-29]

Self-Regulatory Organizations; NYSE Arca, Inc.; Order Granting
Approval of a Proposed Rule Change, as Modified by Amendment No. 1, To
List and Trade Shares of ConvexityShares 1x SPIKES Futures ETF Under
NYSE Arca Rule 8.200-E (Trust Issued Receipts)

January 21, 2022.

I. Introduction

    On May 13, 2021, NYSE Arca, Inc. (``NYSE Arca'' or ``Exchange'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
list and trade shares (``Shares'') of the ConvexityShares 1x SPIKES
Futures ETF (``Fund''), a series of the ConvexityShares Trust
(``Trust''), under NYSE Arca Rule 8.200-E, Commentary .02 (``Trust
Issued Receipts''). The proposed rule change was published for comment
in the Federal Register on May 26, 2021.\3\ On July 2, 2021, pursuant
to Section 19(b)(2) of the Act,\4\ the Commission designated a longer
period within which to approve the proposed rule change, disapprove the
proposed rule change, or institute proceedings to determine whether to
approve or disapprove the proposed rule change.\5\ On July 26, 2021,
the Exchange filed Amendment No. 1 to the proposed rule change, which
replaced and superseded the proposed rule change as originally
filed.\6\ On August 12, 2021, the Commission published notice of
Amendment No. 1 and instituted proceedings under Section 19(b)(2)(B) of
the Act \7\ to determine whether to approve or disapprove the proposed
rule change.\8\ On November 15, 2021, pursuant to Section 19(b)(2) of
the Act,\9\ the Commission designated a longer period within which to
issue an order approving or disapproving the proposed rule change.\10\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 91952 (May 20,
2021), 86 FR 28410. The comment letter received on the proposed rule
change is available on the Commission's website at: https://www.sec.gov/comments/sr-nysearca-2021-29/srnysearca202129.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 92321, 86 FR 36173
(July 8, 2021).
    \6\ Amendment No. 1 is available at: https://www.sec.gov/comments/sr-nysearca-2021-29/srnysearca202129.htm.
    \7\ 15 U.S.C. 78s(b)(2)(B).
    \8\ See Securities Exchange Act Release No. 92650, 86 FR 46287
(August 18, 2021).
    \9\ 15 U.S.C. 78s(b)(2).
    \10\ See Securities Exchange Act Release No. 93574, 86 FR 64975
(November 19, 2021). The Commission designated January 21, 2022, as
the date by which the Commission shall either approve or disapprove
the proposed rule change.
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    The Commission is approving the proposed rule change, as modified
by Amendment No. 1.

II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1 \11\
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    \11\ Additional information regarding the Fund, the Trust, and
the Shares, including investment strategies, creation and redemption
procedures, and portfolio holdings can be found in Amendment No. 1,
supra note 6.
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    The Exchange proposes to list and trade Shares of the Fund \12\
under NYSE Arca Rule 8.200-E, Commentary .02 which governs the listing
and trading of Trust Issued Receipts \13\ on the Exchange. The Fund
will be managed and controlled by ConvexityShares, LLC (``Sponsor''), a
commodity pool operator.\14\ Teucrium Trading, LLC, a commodity trading
adviser registered with the Commodity Futures Trading Commission, will
be the Sub-Adviser for the Fund (``Sub-Adviser'') and will manage the
Fund's commodity futures investment strategy.\15\ U.S. Bank will
provide custody and fund accounting to the Trust and the Fund; U.S.
Bancorp Fund Services will be the transfer agent for the Shares and
administrator for the Fund; and Foreside will serve as the distributor
for the Fund.
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    \12\ The Fund has filed a registration statement on Form S-1
under the Securities Act of 1933, dated May 25, 2021 (``Registration
Statement''). The Registration Statement for the Fund is not yet
effective and the Exchange will not commence trading in Shares of
the Fund until the Registration Statement becomes effective.
    \13\ Commentary .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.
    \14\ The Sponsor is not registered as a broker-dealer or
affiliated with a broker-dealer. In the event (a) the Sponsor
becomes registered as a broker-dealer or becomes newly affiliated
with a broker-dealer, or (b) any new sponsor becomes registered as a
broker-dealer or becomes newly affiliated with a broker-dealer, it
will implement and maintain a fire wall with respect to its relevant
personnel of the broker-dealer or 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.
    \15\ The Sub-Adviser is not registered as a broker-dealer or
affiliated with a broker-dealer. In the event (a) the Sub-Adviser
becomes registered as a broker-dealer or becomes newly affiliated
with a broker-dealer, or (b) any new Sub-Adviser becomes registered
as a broker-dealer or becomes newly affiliated with a broker-dealer,
it will implement and maintain a fire wall with respect to its
relevant personnel of the broker-dealer or 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 Fund will seek investment results, before fees and expenses,
that correspond to the performance of its benchmark index, the T3 SPIKE
Front 2 Futures Index (``Index''), an investable index of SPIKES
futures contracts.\16\ The Fund will seek to track the Index over time,
not just for a single day. The Index is intended to reflect the returns
that are potentially available through an unleveraged investment in a
theoretical portfolio of first- and second-month futures contracts on
the SPIKES Volatility Index (``SPIKES Index'').\17\
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    \16\ The Index is sponsored by Triple Three Partners Pty Ltd,
which licenses the use of the Index to its affiliated company, T3i
Pty Ltd (Triple Three Partners Pty Ltd and T3i Pty Ltd. are
collectively referred to herein as ``T3 Index'' or ``Index
Sponsor''). The Index Sponsor is affiliated with the Sponsor. The
Index Sponsor has implemented and will maintain a fire wall
regarding access to information concerning the composition of 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. The Index Sponsor is not registered as an investment adviser
or broker-dealer and is not affiliated with any broker-dealers. The
Index is calculated and published by Solactive AG, which is not
affiliated with T3 Index.
    \17\ The Exchange states that the SPIKES Index is a non-
investable index that measures the implied volatility of the SPDR
S&P 500 ETF Trust (``SPY'') over 30 days in the future. SPY is a
unit investment trust that holds a portfolio of common stocks that
closely tracks the price performance and dividend yield of the S&P
500 Composite Price Index (``S&P 500''). The SPIKES Index does not
represent the actual or the realized volatility of SPY. The SPIKES
Index is calculated based on the prices of a constantly changing
portfolio of SPY put and call options. The SPIKES Index is
reflective of the premium paid by investors for certain options
linked to the level of the S&P 500. The SPIKES Index is a
theoretical calculation and cannot be traded on a spot basis. T3
Index is the owner, creator and licensor of the SPIKES Index. The
SPIKES Index is calculated, maintained and published by Miami
International Securities Exchange, LLC via the Options Price
Reporting Authority.
---------------------------------------------------------------------------

    The Index is comprised solely of SPIKES futures contracts.\18\ The
Index

employs rules for selecting the SPIKES futures contracts comprising the
Index and a formula to calculate a level for the Index from the prices
of these SPIKES futures contracts. Currently, the SPIKES futures
contracts comprising the Index represent the prices of two near-term
SPIKES futures contracts, replicating a position that rolls the nearest
month SPIKES futures contracts to the next month SPIKES futures
contracts at or close to the daily settlement price via a Trade-At-
Settlement \19\ program towards the end of each business day in equal
fractional amounts. This results in a constant weighted average
maturity of one month.
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    \18\ According to the Exchange, SPIKES futures contracts were
launched for trading by the Minneapolis Grain Exchange, LLC
(``MGEX'') on December 14, 2020. While the SPIKES Index represents a
measure of the expected 30-day volatility of SPY, the prices of
SPIKES futures contracts are based on the current expectation of the
expected 30-day volatility of SPY on the expiration date of the
futures contract.
    \19\ According to the Exchange, a Trade at Settlement (``TAS'')
transaction is a transaction at a price equal to the daily
settlement price, or at a specified differential above or below the
daily settlement price. The TAS transaction price will be determined
following execution and based upon the daily settlement price of the
respective SPIKES futures contracts month. The permissible price
range for permitted TAS transactions is from 0.50 index points below
the daily settlement price to 0.50 index points above the daily
settlement price. The permissible minimum increment for a TAS
transaction is 0.01 index points. See MGEX Rule 83.15 at http://www.mgex.com/documents/20210318-Rulebook.pdf.
---------------------------------------------------------------------------

    The Fund will invest primarily in SPIKES futures contracts to gain
the appropriate exposure to the Index. Under certain circumstances
(described below), the Fund may also invest in futures contracts and
swap contracts (``VIX Related Positions'') on the Cboe Volatility Index
(``VIX'').\20\ The Exchange states that the VIX is an index that tracks
volatility and would be expected to perform in a substantially similar
manner as the SPIKES Index.
---------------------------------------------------------------------------

    \20\ According to the Exchange, the VIX is a measure of
estimated near-term future volatility based upon the weighted
average of the implied volatilities of near-term put and call
options on the S&P 500.
---------------------------------------------------------------------------

    The Fund seeks to achieve its investment objective through the
appropriate amount of exposure to the SPIKES futures contracts included
in the Index. The Sponsor or Sub-Adviser determines the type, quantity
and mix of investments that the Sponsor or Sub-Adviser believes, in
combination, should provide exposure to the Index to seek investment
results equal to the performance of the Index. In the event
accountability rules, price limits, position limits, margin limits or
other exposure limits are reached with respect to SPIKES futures
contracts, or if the market for a specific 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 or Sub-Adviser deems it impractical or
inadvisable to buy or sell SPIKES futures contracts (such as during
periods of market volatility or illiquidity, or when trading in SPY is
halted), the Sponsor or Sub-Adviser may cause the Fund to invest in VIX
Related Positions. The Sponsor expects the Fund's positions in VIX
Related Positions to consist primarily of VIX futures contracts, which
are traded on the Cboe Futures Exchange. However, in the event
accountability rules, price limits, position limits, margin limits or
other exposure limits are reached with respect to VIX futures
contracts, or if the market for a specific VIX futures contract
experiences emergencies or disruptions or in situations where the
Sponsor or Sub-Adviser deems it impractical or inadvisable to buy or
sell VIX futures contracts, the Fund would hold VIX swap
agreements.\21\ The Fund will also hold cash or cash equivalents such
as U.S. Treasury securities or other high credit quality, short-term
fixed-income or similar securities (such as shares of money market
funds) as collateral for investments and pending investments.
---------------------------------------------------------------------------

    \21\ The Fund will attempt to limit counterparty risk in
uncleared swap agreements by entering into such agreements only with
counterparties the Sponsor and Sub-Adviser believe are creditworthy
and by limiting the Fund's exposure to each counterparty. The
Exchange represents that the Sponsor and Sub-Adviser will monitor
the creditworthiness of each counterparty and the Fund's exposure to
each counterparty on an ongoing basis.
---------------------------------------------------------------------------

III. Discussion and Commission Findings

    After careful review of the proposed rule change, as modified by
Amendment No. 1, as well as the comment received, the Commission finds
that the proposed rule change, as modified by Amendment No. 1, is
consistent with the Act and the rules and regulations thereunder
applicable to a national securities exchange.\22\ In particular, the
Commission finds that the proposed rule change, as modified by
Amendment No. 1, is consistent with Section 6(b)(5) of the Act,\23\
which requires, among other things, that the Exchange's rules be
designed to prevent fraudulent and manipulative acts and practices, to
promote just and equitable principles of trade, 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.
---------------------------------------------------------------------------

    \22\ In approving this proposed rule change, the Commission has
considered the proposed rule's impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
    \23\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Sponsor submitted a comment in support of the proposed rule
change.\24\ The Sponsor states that the Fund employs no leverage and
only seeks to track the performance of the Index.\25\ The Sponsor
states that because the Fund will likely be net buying SPIKES futures
contracts when the stock market is steady or rising, and market
volatility is steady or declining, and net selling SPIKES futures
contracts when the stock market declines and market volatility is
rising, the Fund is likely a supplier of liquidity, which is a
desirable characteristic in an environment where liquidity is in high
demand but short supply.\26\ Further, the Sponsor asserts approval of
the proposal would increase competition in the market and provide a
lower cost hedge against the effects of volatility than buying futures
contracts.\27\
---------------------------------------------------------------------------

    \24\ See letter from Eric Simanek, Partner, Sullivan & Worcester
LLP, on behalf of the Sponsor, to Vanessa Countryman, Secretary,
Commission, dated September 8, 2021.
    \25\ See id. at 2.
    \26\ See id. at 9.
    \27\ See id. at 8-10.
---------------------------------------------------------------------------

    The proposal is reasonably designed to promote fair disclosure of
information that may be necessary to price the Shares appropriately and
to prevent trading in the Shares when a reasonable degree of certain
pricing transparency cannot be assured. Specifically, the Exchange will
obtain a representation from the issuer of the Shares that the net
asset value (``NAV'') per Share will be calculated and disseminated
daily and will be made available to all market participants at the same
time. Each day before 9:30 a.m., E.T., the daily holdings of the Fund
will be available on the Fund's website, www.convexityshares.com, which
will be publicly accessible at no charge.\28\ This website disclosure
of the Fund's daily holdings will occur at approximately the same time
as the disclosure by the Trust of the daily holdings to authorized
participants, so that all market participants will be provided daily
holdings information at approximately the same time, and the

same holdings information will be provided on the public website as in
electronic files provided to authorized participants. Quotation and
last-sale information regarding the Shares will be disseminated through
the facilities of the Consolidated Tape Association. As required by
NYSE Arca Rule 8.200-E, Commentary .02, an updated Intraday Fund Value
(``IFV'') will be calculated and widely disseminated by one or more
major market data vendors every 15 seconds during the Exchange's Core
Trading Session (9:30 a.m., E.T., to 4:00 p.m., E.T.). The IFV will be
readily available from the Fund's website, automated quotation systems,
published or other public sources, or major market data vendors'
website or on-line information services. Information regarding market
price and trading volume of the Shares will be continually available on
a real-time basis throughout the day on brokers' computer screens and
other electronic services. The Fund's website will include a form of
the prospectus for the Fund and additional data relating to NAV and
other applicable quantitative information. The level of the Index will
be published at least every 15 seconds, both in real time from 9:30
a.m. to 4 p.m., E.T., and at the close of trading on each business day
by Bloomberg and Reuters. The Fund's website will also provide
information regarding the SPIKES futures contracts constituting the
Index and the Index methodology. In addition, the level of the SPIKES
Index and the VIX is available from Bloomberg and Reuters.
---------------------------------------------------------------------------

    \28\ The daily website disclosure of portfolio holdings will
include, as applicable, (i) the composite value of the total
portfolio, (ii) the quantity and type of each holding (including the
ticker symbol, maturity date or other identifier, if any) and other
descriptive information including, in the case of a swap, the type
of swap, its notional value and the underlying instrument, index or
asset on which the swap is based, (iii) the market value of each
investment held by the Fund, (iv) the type (including maturity,
ticker symbol, or other identifier) and value of each Treasury
security and cash equivalent, and (v) the amount of cash held in the
Fund's portfolio.
---------------------------------------------------------------------------

    Complete real-time data for SPIKES futures contracts, which trade
on MGEX, is available by subscription through on-line information
services. MGEX also provides delayed futures information on current and
past trading sessions and market news free of charge on its website.
Price information regarding cleared VIX swap contracts is available
from major market data vendors and price information for non-exchange-
traded VIX swap contracts may be obtained from brokers and dealers who
make markets in such instruments. Price information regarding VIX
futures is available from the Cboe Futures Exchange and from major
market data vendors. Price information for cash equivalents is
available from major market data vendors.
    The Exchange's rules regarding trading halts further help to ensure
the maintenance of fair and orderly markets for the Shares, which is
consistent with the protection of investors and the public interest.
Trading in the Shares 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 in Shares of the Fund will be
halted if the circuit breaker parameters in NYSE Arca Rule 7.12-E
(Trading Halts Due to Extraordinary Market Volatility) have been
reached. The Exchange may halt trading during the day in which an
interruption to the dissemination of the IFV or the value of the Index
occurs. If the interruption to the dissemination of the IFV or the
value of the Index persists past the trading day in which it occurred,
the Exchange will halt trading no later than the beginning of the
trading day following the interruption. In addition, if the Exchange
becomes aware that the NAV with respect to the Shares or disclosure of
the Fund's daily holdings is not disseminated to all market
participants at the same time, it will halt trading in the Shares until
such time as the NAV and the Fund's daily holdings is available to all
market participants. NYSE Arca Rule 8.200-E, Commentary .02, enumerates
additional circumstances under which the Exchange will consider the
suspension of trading in and will commence delisting proceedings for
the Shares.
    The Exchange's proposal is designed to safeguard material non-
public information relating to the Fund's portfolio. Specifically, as
the Exchange states, neither the Sponsor nor the Sub-Adviser is
registered as a broker-dealer or affiliated with a broker-dealer. In
the event that (a) either the Sponsor or the Sub-Adviser becomes
registered as a broker-dealer or newly affiliated with a broker-dealer,
or (b) any new sponsor or sub-adviser is registered as 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
personnel of the broker-dealer affiliate, as applicable, regarding
access to information concerning the composition of 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. Moreover, trading of the Shares will be subject to NYSE
Arca Rule 8.200-E, Commentary .02(e), which sets forth certain
restrictions on Equity Trading Permit Holders (``ETP Holders'') acting
as registered Market Makers \29\ in Trust Issued Receipts to facilitate
surveillance. In addition, the Exchange has a general policy
prohibiting the distribution of material, non-public information by its
employees.
---------------------------------------------------------------------------

    \29\ As defined in NYSE Arca Rule 1.1(z) the term ``Market
Maker'' means an ETP Holder that acts as a Market Maker pursuant to
NYSE Arca Rule 7-E.
---------------------------------------------------------------------------

    Furthermore, the Exchange or the Financial Industry Regulatory
Authority (``FINRA''), on behalf of the Exchange, or both, will
communicate as needed, and may obtain information, regarding trading in
the Shares, SPIKES futures, VIX futures and other underlying exchange-
listed instruments with other markets and entities that are members of
the Intermarket Surveillance Group (``ISG''). In addition, the Exchange
may obtain information regarding trading in the Shares, SPIKES futures,
VIX futures and other underlying exchange-listed instruments from
markets and other entities with which the Exchange has in place a
comprehensive surveillance sharing agreement (``CSSA''). All futures
contracts in which the Fund invests shall consist of futures contracts
whose principal market is a member of the ISG or is a market with which
the Exchange has a CSSA. The Exchange states that trading in the Shares
will be subject to existing trading surveillances administered by the
Exchange, as well as cross-market surveillances administered by FINRA
on behalf of the Exchange, and these procedures are adequate to
properly monitor Exchange trading of the Shares in all trading sessions
and to deter and detect violations of Exchange rules and federal
securities laws applicable to trading on the Exchange.
    The Exchange has demonstrated there is an appropriate regulatory
framework to support listing and trading of the Shares, including
trading rules, surveillance, and listing standards. Moreover, the
trading of the Shares on the Exchange will be subject to the Exchange's
and other rules listed below. Specifically:
    (1) 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;
    (2) The Shares will conform to the initial and continued listing
criteria under NYSE Arca Rule 8.200-E;
    (3) Pursuant to NYSEArca Rule 8.200-E(a), all statements and
representations made in the filing regarding (a) the description of the
Index, portfolio, or reference asset, (b) limitations on Index or
portfolio holdings or reference assets, or (c) the applicability of
Exchange

listing rules specified in the filing will constitute continued listing
requirements for the Shares. The issuer will advise the Exchange of any
failure by the Fund to comply with the continued listing requirements,
and, pursuant to its obligations under Section 19(g)(1) of the Act, the
Exchange will monitor \30\ for compliance with the continued listing
requirements. If the Fund is not in compliance with the applicable
listing requirements, the Exchange will commence delisting procedures
under NYSE Arca Rule 5.5-E(m).
---------------------------------------------------------------------------

    \30\ Certain proposals for the listing and trading of exchange-
traded products include a representation that the exchange will
``surveil'' for compliance with the continued listing requirements.
See, e.g., Securities Exchange Act Release No. 77499 (April 1,
2016), 81 FR 20428, 20432 (April 7, 2016) (SR-BATS-2016-04). In the
context of this representation, it is the Commission's view that
``monitor'' and ``surveil'' both mean ongoing oversight of
compliance with the continued listing requirements. Therefore, the
Commission does not view ``monitor'' as a more or less stringent
obligation than ``surveil'' with respect to the continued listing
requirements.
---------------------------------------------------------------------------

    (4) The Exchange has the appropriate rules to facilitate
transactions in the Shares during all trading sessions;
    (5) Prior to the commencement of trading, the Exchange will inform
its ETP Holders in an Information Bulletin of the special
characteristics and risks associated with trading the Shares; \31\
---------------------------------------------------------------------------

    \31\ The Exchange states that the Information Bulletin will
discuss the following: (1) The risks involved in trading the Shares
during the Opening and Late Trading Sessions when an updated IFV
will not be calculated or publicly disseminated; (2) the procedures
for purchases and redemptions of Shares in Creation Units and
Redemption Units (and that Shares are not individually redeemable);
(3) NYSE Arca Rule 9.2-E(a), which imposes a duty of due diligence
on its ETP Holders to learn the essential facts relating to every
customer prior to trading the Shares; (4) how information regarding
the IFV is disseminated; (5) how information regarding portfolio
holdings is disseminated; (6) the requirement that ETP Holders
deliver a prospectus to investors purchasing newly issued Shares
prior to or concurrently with the confirmation of a transaction; and
(7) trading information.
---------------------------------------------------------------------------

    (6) For initial and continued listing, the Fund will be in
compliance with Rule 10A-3 under the Act; \32\ and
---------------------------------------------------------------------------

    \32\ 17 CFR 240.10A-3.
---------------------------------------------------------------------------

    (7) A minimum of 100,000 Shares of the Fund will be outstanding at
the commencement of trading on the Exchange.
    Accordingly, the Commission finds that the proposed rule change, as
modified by Amendment No. 1, is consistent with Section 6(b)(5) of the
Act \33\ and the rules and regulations thereunder applicable to a
national securities exchange.
---------------------------------------------------------------------------

    \33\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\34\ that the proposed rule change (SR-NYSEArca-2021-29), as
modified by Amendment No. 1, be, and hereby is, approved.
---------------------------------------------------------------------------

    \34\ Id.
    \35\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\35\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-01562 Filed 1-26-22; 8:45 am]
BILLING CODE 8011-01-P


[Federal Register Volume 80, Number 166 (Thursday, August 27, 2015)]
[Notices]
[Pages 52073-52075]
[FR Doc No: 2015-21208]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-75749; File No. SR-Phlx-2015-71]

Self-Regulatory Organizations; NASDAQ OMX PHLX LLC; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Amend the
Options Regulatory Fee

August 21, 2015.
    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 August 17, 2015, NASDAQ OMX PHLX LLC (``Phlx'' or
``Exchange'') filed with the Securities and Exchange Commission
(``SEC'' or ``Commission'') the proposed rule change as 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.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    The Exchange proposes to make adjustments to its Options Regulatory
Fee (``ORF'') by amending Section IV, Part D of the Pricing Schedule.
    While changes to the Pricing Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated these changes to be
operative September 1, 2015 and February 1, 2016, as noted herein.
    The text of the proposed rule change is available on the Exchange's
Web site at http://nasdaqomxphlx.cchwallstreet.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 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 purpose of the proposed rule change is to: (1) Decrease the ORF
from $0.0045 per to $0.0035 as of September 1, 2015 and increase the
ORF from $0.0035 to $0.0040 as of February 1, 2016 to account for
additional fine revenue, cost reductions and to balance the Exchange's
regulatory revenue against the anticipated costs and potential fines;
and (2) remove the requirement that the ORF may only be modified semi-
annually.
Background
    The ORF is assessed to each member for all options transactions
executed or cleared by the member that are cleared at The Options
Clearing Corporation (``OCC'') in the Customer range (i.e., that clear
in the Customer account of the member's clearing firm at OCC). The
Exchange monitors the amount of revenue collected from the ORF to
ensure that it, in combination with other regulatory fees and fines,
does not exceed regulatory costs. The ORF is imposed upon all
transactions executed by a member, even if such transactions do not
take place on the Exchange.\3\ The ORF also includes options
transactions that are not executed by an Exchange member but are
ultimately cleared by an Exchange member.\4\ The ORF is not charged for
member proprietary options transactions because members incur the costs
of owning memberships and through their memberships are charged
transaction fees, dues and other fees that are not applicable to non-
members. The dues and fees paid by members go into the general funds of
the Exchange, a portion of which is used to help pay the costs of
regulation. The ORF is collected indirectly from members through their
clearing firms by OCC on behalf of the Exchange.
---------------------------------------------------------------------------

    \3\ The ORF applies to all ``C'' account origin code orders
executed by a member on the Exchange. Exchange Rules require each
member to record the appropriate account origin code on all orders
at the time of entry in order to allow the Exchange to properly
prioritize and route orders and assess transaction fees pursuant to
the Rules of the Exchange and report resulting transactions to OCC.
See Exchange Rule 1063, Responsibilities of Floor Brokers, and
Options Floor Procedure Advice F-4, Orders Executed as Spreads,
Straddles, Combinations or Synthetics and Other Order Ticket Marking
Requirements. The Exchange represents that it has surveillances in
place to verify that members mark orders with the correct account
origin code.
    \4\ In the case where one member both executes a transaction and
clears the transaction, the ORF is assessed to the member only once
on the execution. In the case where one member executes a
transaction and a different member clears the transaction, the ORF
is assessed only to the member who executes the transaction and is
not assessed to the member who clears the transaction. In the case
where a non-member executes a transaction and a member clears the
transaction, the ORF is assessed to the member who clears the
transaction.
---------------------------------------------------------------------------

    The ORF is designed to recover a portion of the costs to the
Exchange of the supervision and regulation of its members, including
performing routine surveillances, investigations, examinations,
financial monitoring, and policy, rulemaking, interpretive, and
enforcement activities. The Exchange believes that revenue generated
from the ORF, when combined with all of the Exchange's other regulatory
fees, will cover a material portion, but not all, of the Exchange's
regulatory costs. The Exchange will continue to monitor the amount of
revenue collected from the ORF to ensure that it, in combination with
its other regulatory fees and fines, do not exceed regulatory costs. If
the Exchange determines regulatory revenues exceed regulatory costs,
the Exchange will adjust the ORF by submitting a fee change filing to
the Commission.
ORF Adjustments
    The Exchange is proposing to decrease the ORF from $0.0045 to
$0.0035 as of September 1, 2015 and increase the ORF from $0.0035 to
$0.0040 as of February 1, 2016 in order to account for regulatory
revenue from disciplinary actions taken by the Exchange. The Exchange
regularly reviews its ORF to ensure that the ORF, in combination with
its other regulatory fees and fines, do not exceed regulatory costs.
The Exchange believes that decreasing the ORF by $0.0010 from September
1, 2015 through January 31, 2016 and then adjusting the ORF as of
February 1, 2016 to $.0040 (a $0.0005 reduction from the current
rates), will permit the Exchange to cover a material portion of its
regulatory costs, while not exceeding regulatory costs.
Semi-Annual Changes to ORF
    The Exchange previously filed a rule change to Section IV, Part D
of the Pricing Schedule to specify the frequency with which the
Exchange may change the ORF.\5\ At that time, the

Exchange amended the Pricing Schedule to specify that the Exchange may
only increase or decrease the ORF semi-annually, and any such fee
change will be effective on the first business day of February or
August.\6\ The Exchange stated in that filing, ``[i]n addition to
submitting a proposed rule change to the Securities and Exchange
Commission (``Commission'') as required by the Act to increase or
decrease the ORF, the Exchange will notify participants via an Options
Trader Alert of any anticipated change in the amount of the fee at
least 30 calendar days prior to the effective date of the change.'' \7\
---------------------------------------------------------------------------

    \5\ See Securities Release No. 71569 (February 19, 2014), 79 FR
10593 (February 25, 2014) (SR-Phlx-2014-12).
    \6\ Id.
    \7\ Id.
---------------------------------------------------------------------------

    The Exchange is proposing to eliminate the requirement that its ORF
may be only increased or decreased semi-annually because the Exchange
believes it requires the flexibility to amend its ORF as needed to meet
its regulatory requirements and adjust its ORF to account for the
regulatory revenue that it receives and the costs that it incurs, as
evidenced by the adjustments proposed in this rule change. While the
Exchange is eliminating the requirement to adjust only semi-annually,
it will continue to submit a rule proposal with the Commission for each
modification to the ORF and notify participants via an Options Trader
Alert of any anticipated change in the amount of the fee at least
thirty (30) calendar days prior to the effective date. The Exchange
believes that the prior notification to market participants will
provide guidance on the timing of any changes to the ORF and ensure
market participants are prepared to configure their systems to properly
account for the ORF.
    While changes to the Pricing Schedule pursuant to this proposal are
effective upon filing, the Exchange has designated these changes to be
operative September 1, 2015 and February 1, 2016, as noted herein.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent
with the provisions of Section 6 of the Act,\8\ in general, and with
Section 6(b)(4) and 6(b)(5) of the Act,\9\ in particular, in that it
provides for the equitable allocation of reasonable dues, fees and
other charges among members and issuers and other persons using any
facility or system that the Exchange operates or controls, and is not
designed to permit unfair discrimination between customers, issuers,
brokers, or dealers.
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    \8\ 15 U.S.C. 78f.
    \9\ 15 U.S.C. 78f(b)(4) and (5).
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    The Exchange believes that lowering the ORF from $0.0045 to $0.0035
as of September 1, 2015 and then increasing the ORF from $0.0035 to
$0.0040 as of February 1, 2016 is reasonable because the Exchange's
collection of ORF needs to be balanced against the amount of regulatory
revenue collected by the Exchange. The Exchange believes that the
proposed adjustments noted herein will serve to balance the Exchange's
regulatory revenue against the anticipated regulatory costs. It is
further reasonable because both price changes discussed herein
represent a price reduction compared to the current rate of $0.0045.
    The Exchange believes that lowering the ORF from $0.0045 to $0.0035
as of September 1, 2015 and then increasing the ORF from $0.0035 to
$0.0040 as of February 1, 2016 is equitable and not unfairly
discriminatory because these adjustments would be applicable to all
members on all of their transactions that clear as Customer at OCC. In
addition, the ORF seeks to recover the costs of supervising and
regulating members, including performing routine surveillances,
investigations, examinations, financial monitoring, and policy,
rulemaking, interpretive, and enforcement activities. The ORF is not
charged for member proprietary options transactions because members
incur the costs of owning memberships and through their memberships are
charged transaction fees, dues and other fees that are not applicable
to non-members. Moreover, the Exchange believes the ORF ensures
fairness by assessing higher fees to those members that require more
Exchange regulatory services based on the amount of Customer options
business they conduct. Regulating Customer trading activity is more
labor intensive and requires greater expenditure of human and technical
resources than regulating non-Customer trading activity. Surveillance,
regulation and examination of non-Customer trading activity generally
tends to be more automated and less labor intensive. As a result, the
costs associated with administering the Customer component of the
Exchange's overall regulatory program are anticipated to be higher than
the costs associated with administering the non-Customer component of
its regulatory program. As such, the Exchange proposes assessing higher
fees to those members that will require more Exchange regulatory
services based on the amount of Customer options business they
conduct.\10\ Additionally, the dues and fees paid by members go into
the general funds of the Exchange, a portion of which is used to help
pay the costs of regulation.
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    \10\ The ORF is not charged for orders that clear in categories
other than the Customer range at OCC (e.g., Market Maker orders)
because members incur the costs of memberships and through their
memberships are charged transaction fees, dues and other fees that
go into the general funds of the Exchange, a portion of which is
used to help pay the costs of regulation.
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    The Exchange believes that the proposed rule change to remove the
limit to amend the ORF only semi-annually, with advance notice, is
reasonable because the Exchange will continue to provide market
participants with thirty (30) days advance notice of amending its ORF.
Also, the Exchange is required to monitor the amount of revenue
collected from the ORF to ensure that it, in combination with its other
regulatory fees and fines, do not exceed regulatory costs. Therefore,
the Exchange believes it is reasonable to remove the semi-annual limit
to amend its ORF in order to permit the Exchange to make amendments to
its ORF as necessary to comply with the Exchange's obligations.
    The Exchange believes that the proposed rule change to remove the
limit to amend the ORF only semi-annually, with advance notice, is
equitable and not unfairly discriminatory because it will apply in the
same manner to all members that are subject to the ORF. Moreover, the
Exchange believes that the proposed ORF is a small incremental cost for
Customer executions.\11\ The Exchange has in place a regulatory
structure to surveil for, exam [sic] and monitor the marketplace for
violations of Exchange Rules. The ORF assists the Exchange to fund the
cost of this regulation of the marketplace.
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    \11\ The Exchange does not assess a Customer any transaction
fees in Multiply Listed Options, except in SPY, and pays Customer
rebates.
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    Also, all members will continue to receive advance notice of
changes to the ORF.

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 not necessary or appropriate in
furtherance of the purposes of the Act. The Exchange does not believe
that adjusting its ORF creates an undue burden on inter-market or
intra-market competition. The Exchange will adjust its ORF for all
members on all of their transactions that clear as Customer at OCC. The
Exchange is obligated to

ensure that the amount of regulatory revenue collected from the ORF, in
combination with its other regulatory fees and fines, does not exceed
regulatory costs. Additionally, the dues and fees paid by members go
into the general funds of the Exchange, a portion of which is used to
help pay the costs of regulation. The Exchange's members are subject to
ORF on other options markets.\12\
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    \12\ For example, see the Chicago Board Options Exchange,
Incorporated's Fees Schedule and the International Securities
Exchange, LLC's Fee Schedule.
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    The Exchange does not believe that removing the limit to amend the
ORF semi-annually, with advance notice, creates an undue burden on
competition. The Exchange will continue to provide the same advance
notice of changes to the ORF as it does today.

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

    No written comments were either solicited or received.

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

    The foregoing rule change has become effective pursuant to Section
19(b)(3)(A)(ii) of the Act.\13\ 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.
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    \13\ 15 U.S.C. 78s(b)(3)(A)(ii).
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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<EMAIL_ADDRESS>Please include
File Number SR-Phlx-2015-71 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-Phlx-2015-71. 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 Web site (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 Web site 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-Phlx-2015-71 and should be
submitted on or before September 17, 2015.
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    \14\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2015-21208 Filed 8-26-15; 8:45 am]
 BILLING CODE 8011-01-P