[Federal Register Volume 86, Number 46 (Thursday, March 11, 2021)]
[Notices]
[Pages 13922-13927]
[FR Doc No: 2021-05028]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-91265; File No. SR-CboeBZX-2020-053]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing of Amendment Nos. 2 and 4 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 2 and
4, To List and Trade Shares of the 2x Long VIX Futures ETF Under BZX
Rule 14.11(f)(4) (Trust Issued Receipts)

March 5, 2021.

I. Introduction

    On June 23, 2020, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'')
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 2x Long VIX Futures ETF
(``Fund''), a series of VS Trust (``Trust''), under BZX Rule
14.11(f)(4) (Trust Issued Receipts). On June 26, 2020, the Exchange
filed Amendment No. 1 to the proposed rule change. The proposed rule
change, as modified by Amendment No. 1, was published for comment in
the Federal Register on July 10, 2020.\3\ On August 13, 2020, 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
disapprove the proposed rule change.\5\ On October 7, 2020, the
Commission instituted

proceedings pursuant to Section 19(b)(2)(B) of the Act \6\ to determine
whether to approve or disapprove the proposed rule change.\7\ On
December 15, 2020, the Commission designated a longer period for
Commission action on the proposed rule change.\8\ On February 1, 2021,
the Exchange filed Amendment No. 2 to the proposed rule change, which
replaced and superseded the proposed rule change as modified by
Amendment No. 1.\9\ On February 19, 2021, filed partial Amendment No. 4
to the proposed rule change.\10\ The Commission is publishing this
notice to solicit comments on Amendment Nos. 2 and 4 from interested
persons, and is approving the proposed rule change, as modified by
Amendment Nos. 2 and 4, on an accelerated basis.
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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. 89234 (July 6,
2020), 85 FR 41644. Comments on the proposed rule change can be
found at: https://www.sec.gov/comments/sr-cboebzx-2020-053/srcboebzx2020053.htm.
    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 89545, 85 FR 51124
(August 19, 2020). The Commission designated October 8, 2020, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to disapprove, the
proposed rule change.
    \6\ 15 U.S.C. 78s(b)(2)(B).
    \7\ See Securities Exchange Act Release No. 90118, 85 FR 64563
(October 13, 2020) (``OIP'').
    \8\ See Securities Exchange Act Release No. 90671, 85 FR 83136
(December 21, 2020) (designating March 7, 2021 as the date by which
the Commission shall approve or disapprove the proposal).
    \9\ In Amendment No. 2, the Exchange: (i) Updated the
information regarding the Fund's registration statement; (ii)
clarified that the Index (defined below) seeks to reflect the
returns that are potentially available from holding an unleveraged
long position in first- and second- month VIX Futures Contracts
(defined below) by measuring its daily performance from the weighted
average price of VIX Futures Contracts; (iii) stated that the
Sponsor (defined below) will seek to minimize the market impact of
rebalances across all exchange traded products based on VIX Futures
Contracts (``VIX ETPs'') that it sponsors (``Funds'') on the price
of VIX Futures Contracts by limiting such Funds' participation, on
any given day, in VIX Futures Contracts to no more than ten percent
(10%) of the contracts traded on Cboe Futures Exchange during any
Rebalance Period (defined below); (iv) stated that, in the event the
Funds expect to hit this 10% threshold during the primary Rebalance
Period from 3:45 p.m. to 4:00 p.m. E.T., the Funds would extend
their respective rebalances into additional Rebalance Periods and
the Trade At Settlement (``TAS'') market; (v) stated that, to limit
participation during periods of market illiquidity, the Sponsor may
vary the manner and period over which all funds it sponsors are
rebalanced, including the Fund, and that Funds will be allocated
executions based on their percentage of notional transaction volume
required; (vi) stated that the Index's use of a weighted average
price reference and the Sponsor's commitment to cap participation in
the VIX futures market during any Rebalance Period to no more than
10% for all Funds should, among other things, help reduce the market
impact of all exposure to the VIX futures market; (vii) stated that,
in reviewing VIX Futures Contracts trading back to March 26, 2004,
the Fund expects that it would have participated in an Extended
Rebalance Period (defined below) on one or more days only in
February 2018 and March 2020; and (viii) made technical, clarifying,
and conforming changes. Amendment No. 2 is available at: https://www.sec.gov/comments/sr-cboebzx-2020-053/srcboebzx2020053-8324963-228603.pdf.
    \10\ On February 16, 2021, the Exchange submitted Amendment No.
3 to the proposed rule change, and on February 19, 2021, the
Exchange withdrew Amendment No. 3 to the proposed rule change. In
Amendment No. 4, the Exchange added a representation that the Fund
will notify both the Exchange and the Commission in the event that
the Fund participates in an Extended Rebalance Period as soon as
practicable, but no later than 9:00 a.m. E.T. on the trading day
following the event. Amendment No. 4 is available at: https://www.sec.gov/comments/sr-cboebzx-2020-053/srcboebzx2020053-8393734-229405.pdf.
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II. Description of the Proposed Rule Change, as Modified by Amendment
Nos. 2 and 4 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. 2,
supra note 9.
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    The Exchange proposes to list and trade Shares of the Fund \12\
under BZX Rule 14.11(f)(4), which governs the listing and trading of
Trust Issued Receipts \13\ on the Exchange. Volatility Shares LLC
(``Sponsor''), a Delaware limited liability company and a commodity
pool operator, serves as the Sponsor of the Trust.\14\ Tidal ETF
Services LLC serves as the administrator; U.S. Bank National
Association serves as custodian of the Fund and the Shares; U.S.
Bancorp Fund Services, LLC serves as the sub-administrator and transfer
agent; and Wilmington Trust Company is the sole trustee of the Trust.
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    \12\ The Fund has submitted a registration statement on Form S-1
under the Securities Act of 1933, dated July 13, 2020 (File No. 377-
03292) (``Registration Statement''). The Registration Statement for
the Fund is not yet effective, and the Fund will not trade on the
Exchange until such time that the Registration Statement is
effective.
    \13\ Rule 14.11(f)(4) applies to Trust Issued Receipts that
invest in ``Financial Instruments,'' defined in Rule
14.11(f)(4)(A)(iv) as 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 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 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.
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    The Fund seeks to provide a return that is 200% of the return of
its benchmark index for a single day. The benchmark for the Fund is the
Long VIX Futures Index (LONGVOL) (``Index'').\15\ The Index measures
the daily performance of a theoretical portfolio of first- and second-
month futures contracts on the Cboe Volatility Index (``VIX'').\16\ The
Index is comprised of VIX futures contracts (``VIX Futures
Contracts'').\17\ 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, resulting in a constant weighted average maturity of
approximately one month.\18\ 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 by measuring
its daily performance from the weighted average price of VIX Futures
Contracts.\19\
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    \15\ The Index is sponsored by Cboe Global Indexes (``Index
sponsor''). The Index sponsor is not a registered broker-dealer, but
is affiliated with a broker-dealer and has implemented and will
maintain a fire wall with respect to the broker-dealer affiliate
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.
    \16\ The Exchange states that 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.
    \17\ The Exchange states that 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. 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).
    \18\ The Exchange states that the roll period usually begins on
the Wednesday falling 30 calendar days before the S&P 500 option
expiration for the following month (``Cboe VIX Monthly Futures
Settlement Date'') and runs to the Tuesday prior to the subsequent
month's Cboe VIX Monthly Futures Settlement Date.
    \19\ The Exchange states that 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 over all
periods of time. Further, unlike the Index, the VIX, which is not a
benchmark for the Fund, is calculated based on the prices of certain
put and call options on the S&P 500. According to the Exchange,
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.
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    To pursue its investment objective, the Fund will primarily invest
in VIX Futures Contracts based on components of the Index. The Fund
will primarily acquire 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.\20\ However, in the event that the Fund is
unable to meet its investment objective solely through investment in
VIX

Futures Contracts, it may invest in over-the-counter (``OTC'') swaps
referencing the Index or referencing particular VIX Futures Contracts
comprising the Index (``VIX Swap Agreements'') \21\ or in listed VIX
options contracts (``VIX Options Contracts,'' and, together with VIX
Futures Contracts and VIX Swap Agreements, ``VIX Derivative
Products''). The Fund may also invest in Cash or Cash Equivalents \22\
that may serve as collateral to the Fund's investments in VIX
Derivative Products.\23\
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    \20\ The Exchange states the Fund's NAV will be calculated at
4:00 p.m. E.T.
    \21\ The Exchange states the VIX Swap Agreements in which the
Fund may invest may or may not be cleared. The Exchange states that
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 collateral as required
by the counterparty. The Exchange further states that the Fund will
seek, where possible, to use counterparties, as applicable, whose
financial status is such that the risk of default is reduced and
that the Sponsor will evaluate the creditworthiness of
counterparties on a regular basis. The Exchange states that, 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. According to the Exchange, the Fund may use various
techniques to minimize OTC counterparty credit risk including
entering into arrangements with counterparties whereby both sides
exchange collateral on a mark-to-market basis. The Exchange states
that 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.
    \22\ For purposes of the proposal, ``Cash and Cash Equivalents''
are short-term instruments with maturities of less than 3 months,
including the following: (i) U.S. Government securities, including
bills, notes, and bonds differing as to maturity and rates of
interest, which are either issued or guaranteed by the U.S. Treasury
or by U.S. Government agencies or instrumentalities; (ii)
certificates of deposit issued against funds deposited in a bank or
savings and loan association; (iii) bankers' acceptances, which are
short-term credit instruments used to finance commercial
transactions; (iv) repurchase agreements and reverse repurchase
agreements; (v) bank time deposits, which are monies kept on deposit
with banks or savings and loan associations for a stated period of
time at a fixed rate of interest; (vi) commercial paper, which are
short-term unsecured promissory notes; and (vii) money market funds.
    \23\ According to the Exchange, the Fund will collateralize its
obligations with Cash and Cash Equivalents consistent with the
Investment Company Act of 1940 and interpretations thereunder.
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    The Fund will seek to remain fully invested in VIX Derivative
Products (and Cash and Cash Equivalents as collateral) that provide
exposure to the Index consistent with its investment objective without
regard to market conditions, trends or direction. The Fund's investment
objective is a daily investment objective; that is, the Fund seeks to
track the Index on a daily basis, not over longer periods.\24\
Accordingly, each day, the Fund will position its portfolio so that it
can seek to track the Index. The direction and extent of the Index's
movements each day will dictate the direction and extent of the Fund's
portfolio rebalancing. For example, if the level of the Index falls on
a given day, net assets of the Fund would fall. As a result, exposure
to the Index, through futures positions held by the Fund, would need to
be decreased. The opposite would be the case if the level of the Index
rises on a given day.
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    \24\ The Exchange states that 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 would differ in amount
and possibly even direction from the Fund's multiple times the
return of the Fund's benchmark for the same period.
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    The time and manner in which the Fund will rebalance its portfolio
is defined by the Index methodology but may vary from the Index
methodology depending upon market conditions and other circumstances
including the potential impact of the rebalance on the price of the VIX
Futures Contracts. The Sponsor will seek to minimize the market impact
of rebalances across all Funds \25\ on the price of VIX Futures
Contracts by limiting the Funds' participation, on any given day, in
VIX Futures Contracts to no more than ten percent (10%) of the VIX
Futures Contracts traded on Cboe Futures Exchange, Inc. (``CFE'')
during any ``Rebalance Period,'' defined as any fifteen minute period
of continuous market trading.\26\ To limit participation during periods
of market illiquidity, the Sponsor, on any given day, may vary the
manner and period over which all funds it sponsors are rebalanced, and
as such, the manner and period over which the Fund is rebalanced. The
Sponsor believes that the Fund will enter an Extended Rebalance Period
most often during periods of extraordinary market conditions or
illiquidity in VIX Futures Contracts. In the event that the Fund
participates in an Extended Rebalance Period, the Fund represents that
it will notify the Exchange and the Commission of such participation as
soon as practicable, but no later than 9:00 a.m. E.T. on the trading
day following the event.
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    \25\ For purposes of the filing, the Exchange states that the
Funds include the Fund and the -1x Short VIX Futures ETF as proposed
in SR-CboeBZX-2020-070, but may in the future include additional VIX
ETPs sponsored by the Sponsor or its affiliates. See Securities
Exchange Act Release No. 89901 (September 17, 2020), 85 FR 59843
(September 23, 2020).
    \26\ In the event that the Funds expect to hit the ten percent
threshold during the primary Rebalance Period from 3:45 p.m. to 4:00
p.m. E.T., the Funds will extend their respective rebalances into
additional Rebalance Periods and the TAS market. It is expected that
this extension will provide the Funds with the flexibility to: begin
rebalancing in an earlier period, end rebalancing in a later period,
and execute contracts in TAS (each an ``Extended Rebalance Period''
and collectively the ``Extended Rebalance Period'') while remaining
below the ten percent cap during any fifteen minute period of
continuous market trading. The Funds will be allocated executions
based on their percentage of notional transaction volume required.
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III. Discussion and Commission Findings

    After careful review of the proposed rule change, as modified by
Amendment Nos. 2 and 4, as well as the comment received, the Commission
finds that the proposed rule change, as modified by Amendment Nos. 2
and 4, is consistent with the Act and the rules and regulations
thereunder applicable to a national securities exchange.\27\ In
particular, the Commission finds that the proposed rule change, as
modified by Amendment Nos. 2 and 4, is consistent with Section 6(b)(5)
of the Act,\28\ 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.
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    \27\ 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).
    \28\ 15 U.S.C. 78f(b)(5).
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A. Market Impact Considerations

    In the OIP, the Commission sought additional comment to assess
whether the proposal is consistent with the requirements in Section
6(b)(5) of the Act, and, specifically requested comment on the Fund's
operation during periods with large percentage increases in volatility
and the potential market impact of the Fund's daily rebalance.\29\ As
discussed below, the Commission finds that the Exchange's proposal
regarding the rebalancing methodology of the Fund, as amended, is
designed to protect investors and the public interest.
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    \29\ See OIP, supra note 7, 85 FR at 64565.
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    An exchange-traded product (``ETP'') like the Fund would need to
rebalance its holdings daily. For an ETP that tracks a benchmark index,
like the Fund, the greater the movement in the reference index, the
more demand would be associated with its daily rebalance. Because of
the potential for large, sudden moves in VIX levels, there is a
potential for large spikes in rebalancing demand for VIX ETPs.

Following the OIP, the Exchange amended its proposal to state that the
Sponsor will seek to minimize the market impact of rebalances across
all Funds on the price of VIX Futures Contracts by limiting the Funds'
participation, on any given day, in VIX Futures Contracts to no more
than ten percent of the VIX Futures Contracts traded on CFE during any
Rebalance Period.\30\
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    \30\ See Amendment No. 2, supra note 9, at 11. In its original
proposal, the Exchange did not include a participation limitation.
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    In support of its amended proposal, the Exchange states that the
Sponsor's proposed methodology for the Funds seeks to reduce the
dependence of VIX ETPs on TAS by seeking to execute part of the Funds'
daily rebalance outside of TAS and believes that this approach will
spread VIX futures trading activity over a longer period of time each
day and should help to reduce market impact during periods of market
turmoil or disruption.\31\ In addition, the Exchange states that the
Sponsor expects that allowing the Funds to participate in an Extended
Rebalance Period will minimize the impact of the Funds' rebalance on
the price of VIX Futures Contracts, and particularly minimize any
impact of large rebalances during periods of market illiquidity.\32\
The Exchange states that defining an explicit rebalancing methodology
and limiting the Funds' participation in the VIX Futures Contracts
should reduce the impact of the Fund's rebalancing on the price of VIX
Futures Contracts.\33\ The Exchange further represents that in the
event that the Fund participates in an Extended Rebalance Period, the
Fund will notify the Exchange and the Commission of such participation
as soon as practicable, but no later than 9:00 a.m. E.T. on the trading
day following the event.\34\
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    \31\ See id. at 12-13.
    \32\ See id. at 13.
    \33\ Id.
    \34\ See Amendment No. 4, supra note 10.
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    In addition, the Exchange states that the Index's use of a weighted
average price of VIX Futures Contracts to measure its daily
performance, as described above, is expected to shift part of the
present dependence of VIX ETPs on the TAS market, and reduce the
potential impact of very short-term mispricing or manipulation on the
daily price of the Funds.\35\ The Exchange states that the weighted
average price reference will also offer the Sponsor a larger window of
time to rebalance the Fund, and the option to expand the Rebalance
Period to limit market impact.\36\
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    \35\ See Amendment No. 2, supra note 9, at 12.
    \36\ See id.
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    The Commission believes that the Exchange's proposal regarding the
rebalancing methodology of the Fund is reasonably designed to help
mitigate the potential market impact of the Fund's daily rebalance
demand during periods when there are large percentage increases in
volatility.\37\ The Fund's proposed rebalancing process, including the
Sponsor's commitment to cap participation in the VIX Futures Contracts
market during any Rebalance Period to no more than 10% for all Funds,
should help to temper the impact of the Funds' rebalances on the price
of VIX Futures Contracts, particularly during periods of market
volatility or illiquidity. The Commission believes the 10%
participation cap strikes an appropriate balance between allowing the
Funds to rebalance within a reasonably short period of time and
managing the potential market impact of a large rebalance. Therefore,
the Commission believes the Exchange's proposal is adequately designed
to address the market impact concern articulated in the OIP. The
Commission finds that the proposal is consistent with Section 6(b)(5)
of the Act, including the protection of investors and the public
interest.
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    \37\ The Commission's findings in this order are based on the
specific proposed rule change filed with the Commission, including
how the proposed rule operates under the current market conditions
discussed in this order. The Commission recognizes that, over time,
market conditions in VIX ETP markets, and the related VIX futures
market, may change.
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B. Other Considerations

    A commenter opposes the proposal, predicting that a long position
in the Shares will lose money during long bull markets.\38\ The
commenter presents annual returns for an exchange-traded note with a
similar leverage ratio, and asserts that it is ``almost impossible to
make money long side, even for short-term.'' \39\ The commenter also
states that a 2x long product like the Fund does not ``make sense as a
product'' because of the volatility of volatility and that the
Commission should instead approve an inverse leveraged ETP.\40\ The
Commission is not persuaded by the commenter's contentions and
continues to believe that the Exchange has demonstrated, as explained
elsewhere in this order, that the proposal is consistent with Section
6(b)(5) of the Act. In particular, the Commission does not believe that
an assessment of whether another exchange-traded product was a
profitable investment is relevant to a decision of whether the proposal
to list and trade the Shares is consistent with the Act. The Commission
believes that the Exchange's proposal adequately addresses the
commenter's concerns, including those relating to investor
understanding or suitability. As described below,\41\ the Exchange
states, that, prior to the commencement of trading, it will issue an
Information Circular detailing the special characteristics and risks
associated with trading the Shares, which will also, among other
things, detail the Exchange's rules regarding suitability obligations
and the duty of due diligence for Members \42\ recommending
transactions in the Shares to customers.
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    \38\ See letter from John Motson dated July 10, 2020.
    \39\ See id.
    \40\ See id.
    \41\ See infra note 46 and accompanying text. In addition, as
discussed below, the Exchange also states the Financial Industry
Regulatory Authority (``FINRA'') has implemented increased sales
practice and customer margin requirements for FINRA members
applicable to inverse, leveraged and inverse leveraged securities
(which include the Shares).
    \42\ As defined in BZX Rule 1.5(n), the term ``Member'' means
any registered broker or dealer that has been admitted to membership
in the Exchange.
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    The Commission believes that 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
and, as such, finds that the proposal is designed to prevent fraudulent
and manipulative acts and practices and protect investors and the
public interest. Specifically, the Exchange will obtain a
representation from the Sponsor 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. On each Business
Day,\43\ before commencement of trading in Shares during Regular
Trading Hours,\44\ 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. 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 will be
provided portfolio composition information at the same time, and the
same portfolio 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 BZX
Rule 14.11(f)(4), an updated Intraday Indicative Value (``IIV'') will
be calculated and widely disseminated by one or more major market data
vendors every 15 seconds throughout Regular Trading Hours. The IIV will
be published on the Exchange's website and will be available through
on-line information services such as Bloomberg and Reuters. 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. In addition, the level of the Index will be published at
least every 15 seconds in real time from 9:30 a.m. to 4:00 p.m. E.T.
and at the close of trading on each Business Day by Bloomberg and
Reuters.
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    \43\ 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.
    \44\ As defined in BZX Rule 1.5(w), the term ``Regular Trading
Hours'' means the time between 9:30 a.m. and 4:00 p.m. E.T.
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    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. Pricing information regarding Cash Equivalents in
which the Fund may invest is generally available through nationally
recognized data services providers, such as Reuters and Bloomberg,
through subscription agreements. The closing prices and settlement
prices of the Index Components (i.e., the first- and second-month VIX
Futures Contracts) will 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. The CFE also provides delayed futures information on
current and past trading sessions and market news free of charge on its
website. Complete real-time data for component VIX Futures Contracts
underlying the Index, including the specific contract specifications of
Index Components (i.e., first-month and second-month VIX Futures
Contracts), is available by subscription from Reuters and Bloomberg.
    The Commission believes that 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. In addition, the Exchange will halt trading in the Shares
under the conditions specified in BZX Rule 11.18 (Trading Halts Due to
Extraordinary Market Volatility). BZX Rule 14.11(f)(4)(c)(ii)
enumerates additional circumstances under which the Exchange will
consider the suspension of trading in and will commence delisting
proceedings for the Shares.
    The Commission finds that the Exchange's proposal regarding
safeguarding material non-public information relating to the Fund's
portfolio is designed to prevent fraudulent and manipulative acts and
practices and to protect investors and the public interest.
Specifically, the Exchange states that 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
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 BZX Rule 14.11(f)(4)(D), which sets forth certain
restrictions on Members acting as registered Market Makers \45\ 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.
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    \45\ As defined in BZX Rule 1.5(l), the term ``Market Maker''
means a Member that acts as a Market Maker pursuant to Chapter XI of
the BZX Rules.
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    Furthermore, the Commission finds that the Exchange's proposal
regarding surveillance of the Shares and the underlying investments is
designed to prevent fraudulent and manipulative acts and practices and
to protect investors and the public interest. The Exchange or FINRA, on
behalf of the Exchange, or both, will communicate and may obtain
information regarding trading in the Shares and the underlying listed
instruments, including listed derivatives held by the Fund, with the
Intermarket Surveillance Group (``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. The
Exchange states that trading of the Shares through the Exchange will be
subject to the Exchange's surveillance procedures for derivative
products, and these procedures are adequate to properly monitor
Exchange trading of the Shares during all trading sessions and to deter
and detect violations of Exchange rules and applicable federal
securities laws. In addition, 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.
    The Commission finds that the Exchange's rules relating to trading
of the Shares on the Exchange are 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. Specifically,
the Exchange states that:

    (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 BZX Rule 14.11(f);
    (3) Pursuant to BZX Rule 14.11(a), all statements and
representations made in the filing regarding the Index composition,
description of the portfolio or reference

assets, limitations on portfolio holdings or reference assets,
dissemination and availability of the Index, reference assets, and
IIV, or the applicability of Exchange listing rules specified in the
filing shall 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 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.
    (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 Members in an Information Circular of the special
characteristics and risks associated with trading the Shares; \46\
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    \46\ The Exchange states that the Information Circular will
discuss the following: (a) The procedures for purchases and
redemptions of Shares in Creation Units (and that Shares are not
individually redeemable); (b) BZX Rule 3.7, which imposes
suitability obligations on Members with respect to recommending
transactions in the Shares to customers; (c) 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, and specifically provides that ``[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;'' (d) how information regarding the IIV and
the Fund's holdings is disseminated; (e) the risks involved in
trading the Shares during the Pre-Opening and After Hours Trading
Sessions (as such terms are defined in BZX Rules) when an updated
IIV will not be calculated or publicly disseminated; (f) the
requirement that Members deliver a prospectus to investors
purchasing newly issued Shares prior to or concurrently with the
confirmation of a transaction; and (g) trading information.
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    (6) FINRA has implemented increased sales practice and customer
margin requirements for FINRA members applicable to inverse,
leveraged and inverse 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). Members that carry customer accounts will be
required to follow the FINRA guidance set forth in these notices;
    (7) For initial and continued listing, the Fund and the Trust
must be in compliance with Rule 10A-3 under the Act; \47\ and
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    \47\ 17 CFR 240.10A-3.
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    (8) 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 Nos. 2 and 4, is consistent with Section 6(b)(5)
of the Act \48\ and the rules and regulations thereunder applicable to
a national securities exchange.
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    \48\ 15 U.S.C. 78f(b)(5).
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IV. Solicitation of Comments on Amendment Nos. 2 and 4 to the Proposed
Rule Change

    Interested persons are invited to submit written views, data, and
arguments concerning whether Amendment Nos. 2 and 4 are 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-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 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 April 1, 2021.

V. Accelerated Approval of the Proposed Rule Change, as Modified by
Amendment Nos. 2 and 4

    The Commission finds good cause to approve the proposed rule
change, as modified by Amendment Nos. 2 and 4, prior to the thirtieth
day after the date of publication of notice of the filing of Amendment
Nos. 2 and 4 in the Federal Register. In Amendment No. 2, among other
things,\49\ the Exchange represents that the Funds' participation, on
any given day, in VIX Futures Contracts, will be limited to no more
than ten percent of the VIX Futures Contracts traded on CFE during any
Rebalance Period, and in the event that the Funds expect to hit the ten
percent threshold during the primary Rebalance Period, the Funds would
extend their respective rebalances into an Extended Rebalance Period.
In Amendment No. 4, the Exchange represents that the Fund will notify
both the Exchange and the Commission in the event that the Fund
participates in an Extended Rebalance Period as soon as practicable,
but no later than 9:00 a.m. E.T. on the trading day following the
event. The changes to the proposal and additional information in
Amendment Nos. 2 and 4 assist the Commission in evaluating the
Exchange's proposal and in determining that it is consistent with the
Act. Accordingly, the Commission finds good cause, pursuant to Section
19(b)(2) of the Act,\50\ to approve the proposed rule change, as
modified by Amendment Nos. 2 and 4, on an accelerated basis.
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    \49\ See supra note 9.
    \50\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\51\ that the proposed rule change (SR-CboeBZX-2020-053), as
modified by Amendment Nos. 2 and 4, be, and hereby is, approved on an
accelerated basis.
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    \51\ Id.
    \52\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\52\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-05028 Filed 3-10-21; 8:45 am]
BILLING CODE 8011-01-P