Notice2021-17669
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 1 and Order Instituting Proceedings To Determine Whether To Approve or Disapprove 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)
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Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 18, 2021
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 86 Issue 157 (Wednesday, August 18, 2021)</title>
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[Federal Register Volume 86, Number 157 (Wednesday, August 18, 2021)]
[Notices]
[Pages 46287-46290]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-17669]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-92650; File No. SR-NYSEArca-2021-29]
Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing
of Amendment No. 1 and Order Instituting Proceedings To Determine
Whether To Approve or Disapprove 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)
August 12, 2021.
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'' or ``Exchange 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\ The
[[Page 46288]]
Commission has received no comments on the proposed rule change. The
Commission is publishing this notice and order to solicit comments on
Amendment No. 1 from interested persons, and to institute proceedings
pursuant to Section 19(b)(2)(B) of the Act \7\ to determine whether to
approve or disapprove the proposed rule change, as modified by
Amendment No. 1.
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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.
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 92321, 86 FR 36173
(July 8, 2021). The Commission designated August 24, 2021, as the
date by which the Commission shall approve or disapprove, or
institute proceedings to determine whether to approve or disapprove,
the proposed rule change.
\6\ In Amendment No. 1, the Exchange: (i) Stated that Teucrium
Trading, LLC will be the Sub-Adviser for the Fund; (ii) represented
that neither the Sponsor nor the Sub-Adviser (as such terms are
defined below) is registered as a broker-dealer or affiliated with a
broker-dealer and made additional representations with respect to
firewalls; (iii) stated that the Fund will seek investment results,
before fees and expenses, that correspond to the performance of the
Index (as defined below) and that the Fund will seek to track the
Index over time, not just for a single day; (iv) stated that 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; (v) stated that the
Sponsor or Sub-Adviser may cause the Fund to invest in VIX Related
Positions (as defined below) if the market for a specific futures
contract experiences emergencies or disruptions or in situations
where the Sponsor or Sub-Adviser deems it impractical or inadvisable
to buy or sell SPIKES futures contracts; (vi) represented that (a)
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 believes are creditworthy and by
limiting the Fund's exposure to each counterparty and (b) the
Sponsor and Sub-Adviser will monitor the creditworthiness of each
counterparty and the Fund's exposure to each counterparty on an
ongoing basis; (vii) stated that, with respect to halting trading in
the Shares, the Exchange may consider (a) 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
(b) whether other unusual conditions or circumstances detrimental to
the maintenance of a fair and orderly market are present; (viii)
represented that information regarding market price and trading
volume for the Shares will be continually available on a real-time
basis throughout the day on brokers' computer screens and other
electronic services; (ix) represented that prior to the commencement
of trading, the Exchange will inform its Equity Trading Permit
Holders in an Information Bulletin of, among other things, the
special characteristics and risks associated with trading the
Shares, the prospectus delivery requirements applicable to the Fund,
and any exemptive, no-action, and interpretive relief granted by the
Commission from any rules under the Act; and (x) made technical,
clarifying, and conforming changes. Amendment No. 1 is available at:
<a href="https://www.sec.gov/comments/sr-nysearca-2021-29/srnysearca202129.htm">https://www.sec.gov/comments/sr-nysearca-2021-29/srnysearca202129.htm</a>.
\7\ 15 U.S.C. 78s(b)(2)(B).
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II. Description of the Proposed Rule Change, as Modified by Amendment
No. 1 \8\
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\8\ 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 \9\
under NYSE Arca Rule 8.200-E, Commentary .02 which governs the listing
and trading of Trust Issued Receipts \10\ on the Exchange. The Fund
will be managed and controlled by ConvexityShares, LLC (``Sponsor''), a
commodity pool operator.\11\ 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.\12\ 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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\9\ On December 15, 2020, the Trust submitted to the Commission
its draft registration statement on Form S-1 (``Registration
Statement'') under the Securities Act of 1933 on a confidential
basis. 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.
\10\ 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.
\11\ 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.
\12\ 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.
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The Fund will seek investment results, before fees and expenses,
that correspond to the performance of its benchmark index. The Fund
will seek to track the Index over time, not just for a single day. The
Fund is benchmarked to the T3 SPIKE Front 2 Futures Index (``Index''),
an investable index of SPIKES futures contracts.\13\ 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'').\14\
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\13\ 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.
\14\ 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.
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The Index is comprised solely of SPIKES futures contracts.\15\ 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 \16\ 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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\15\ 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.
\16\ 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 <a href="http://www.mgex.com/documents/20210318-Rulebook.pdf">http://www.mgex.com/documents/20210318-Rulebook.pdf</a>.
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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'').\17\ 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.
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\17\ 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.
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The Fund seeks to achieve its investment objective through the
appropriate amount of exposure to the SPIKES futures contracts included
in the Index. The Fund will not directly invest in the SPIKES Index.
The Sponsor or Sub-Adviser determines the
[[Page 46289]]
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.\18\ 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.
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\18\ 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 believes 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.
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III. Proceedings To Determine Whether To Approve or Disapprove SR-
NYSEArca-2021-29, as Modified by Amendment No. 1, and Grounds for
Disapproval Under Consideration
The Commission is instituting proceedings pursuant to Section
19(b)(2)(B) of the Act \19\ to determine whether the proposed rule
change, as modified by Amendment No. 1, should be approved or
disapproved. Institution of such proceedings is appropriate at this
time in view of the legal and policy issues raised by the proposal.
Institution of proceedings does not indicate that the Commission has
reached any conclusions with respect to any of the issues involved.
Rather, as described below, the Commission seeks and encourages
interested persons to provide comments on the proposed rule change.
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\19\ 15 U.S.C. 78s(b)(2)(B).
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Pursuant to Section 19(b)(2)(B) of the Act,\20\ the Commission is
providing notice of the grounds for disapproval under consideration.
The Commission is instituting proceedings to allow for additional
analysis of the proposal's consistency 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,'' and ``to protect investors and the public
interest.'' \21\
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\20\ Id.
\21\ 15 U.S.C. 78f(b)(5).
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Under the Commission's Rules of Practice, the ``burden to
demonstrate that a proposed rule change is consistent with the Exchange
Act and the rules and regulations issued thereunder . . . is on the
[SRO] that proposed the rule change.'' \22\ The description of a
proposed rule change, its purpose and operation, its effect, and a
legal analysis of its consistency with applicable requirements must all
be sufficiently detailed and specific to support an affirmative
Commission finding,\23\ and any failure of an SRO to provide this
information may result in the Commission not having a sufficient basis
to make an affirmative finding that a proposed rule change is
consistent with the Act and the applicable rules and regulations.\24\
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\22\ 17 CFR 201.700(b)(3).
\23\ See id.
\24\ See id.
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The Commission is instituting proceedings to allow for additional
consideration and comment on the issues raised herein, including as to
whether the proposal is consistent with the Act.
IV. Procedure: Request for Written 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 proposed rule
change, as modified by Amendment No. 1, 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.\25\
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\25\ Section 19(b)(2) of the 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 proposed rule change, as modified by
Amendment No. 1, should be approved or disapproved by September 8,
2021. Any person who wishes to file a rebuttal to any other person's
submission must file that rebuttal by September 22, 2021.
The Commission asks that commenters address the sufficiency of the
Exchange's statements in support of the proposal, which are set forth
in the Amendment No. 1, in addition to any other comments they may wish
to submit about the proposed rule change. In this regard, the
Commission seeks commenters' views regarding whether the Exchange's
proposal to list and trade the Shares, which seek to provide investment
results that correspond to the return of an index designed to measure
the daily performance of a theoretical portfolio of first- and second-
month SPIKES futures contracts, is adequately designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, and to protect investors and the public
interest, consistent with the Act.
Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#96e4e3faf3bbf5f9fbfbf3f8e2e5d6e5f3f5b8f1f9e0"><span class="__cf_email__" data-cfemail="fb898e979ed6989496969e958f88bb889e98d59c948d">[email protected]</span></a>. Please include
File Number SR-NYSEArca-2021-29 on the subject line.
Paper Comments
<bullet> Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
[[Page 46290]]
All submissions should refer to File Number SR-NYSEArca-2021-29. 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 (<a href="http://www.sec.gov/rules/sro.shtml">http://www.sec.gov/rules/sro.shtml</a>).
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-NYSEArca-2021-29 and should be submitted
by September 8, 2021. Rebuttal comments should be submitted by
September 22, 2021.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\26\
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\26\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2021-17669 Filed 8-17-21; 8:45 am]
BILLING CODE 8011-01-P
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