Cboe Futures Exchange, LLC v. Securities and Exchange Commission

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued October 28, 2022 Decided July 28, 2023
No. 21-1038
CBOE FUTURES EXCHANGE, LLC,
PETITIONER
v.
SECURITIES AND EXCHANGE COMMISSION,
RESPONDENT
MINNEAPOLIS GRAIN EXCHANGE, LLC,
INTERVENOR
On Petition for Review of a Final Order
of the Securities and Exchange Commission
Paul E. Greenwalt III argued the cause for petitioner.
With him on the briefs was Michael K. Molzberger.
Rachel M. McKenzie, Senior Litigation Counsel,
Securities and Exchange Commission, argued the cause for
respondent. With her on the brief were Michael A. Conley,
Solicitor, and Dominick V. Freda, Assistant General Counsel.
Mark T. Stancil argued the cause for intervenor
Minneapolis Grain Exchange, LLC in support of respondent.

-- 1 of 19 --

2
With him on the brief were Jeffrey B. Korn and Patricia O.
Haynes.
Before: SRINIVASAN, Chief Judge, and WILKINS and RAO,
Circuit Judges.
Opinion for the Court filed by Chief Judge SRINIVASAN.
SRINIVASAN, Chief Judge: A futures contract calls for the
purchase or sale of an underlying asset on a specific future date
at a specific price. When the underlying asset is a security (or
a security index), the futures contract may constitute a “security
future” under federal law. A security future is subject to more
stringent regulatory treatment and less favorable tax treatment
than other futures.
This case involves futures contracts based on the so-called
SPIKES Index, which measures the volatility of the S&P 500
stock market index. In 2020, the Securities and Exchange
Commission issued an order directing treatment of SPIKES
futures as futures rather than security futures for purposes of
the Securities Exchange Act. The SEC’s aim was to promote
competition with futures that are based on another index that
measures S&P 500 volatility, known as the VIX Index. For
years, VIX futures have been regulated as futures, not security
futures.
The petition in this case challenges the SEC’s 2020 order
treating SPIKES futures as futures. We grant the petition. The
SEC did not adequately explain why SPIKES futures must be
regulated as futures to promote competition with VIX futures.
While we thus vacate the Commission’s order, we will
withhold issuance of our mandate for three calendar months to
allow market participants sufficient time to wind down existing
SPIKES futures transactions with offsetting transactions.

-- 2 of 19 --

3
I.
A.
A futures contract is an “agreement[] to buy or sell a
specified quantity” of a specified asset “at a particular price for
delivery at a set future date.” Dunn v. Commodity Futures
Trading Comm’n, 519 U.S. 465, 470 (1997). The assets
underlying futures are often physical commodities, like oil,
corn, or aluminum. After enactment of the Commodity Futures
Modernization Act of 2000, Pub. L. No. 106-554, 114 Stat.
2763A-365 (CFMA), futures contracts can also provide for the
future delivery of financial securities, like shares of a stock or
the value of a stock index. Depending on the particulars, such
a futures contract may be treated as a “security future” under
federal law.
Both the Securities Exchange Act and the Commodity
Exchange Act define a “security future” as a “contract of sale
for future delivery of a single security or of a narrow-based
security index, including any interest therein or based on the
value thereof,” with certain exceptions. 7 U.S.C. § 1a(44)
(Commodity Exchange Act); 15 U.S.C. § 78c(a)(55)(A)
(Securities Exchange Act). The two Acts also contain an
identical definition of a “narrow-based security index.” 7
U.S.C. § 1a(35)(A); 15 U.S.C. § 78c(a)(55)(B). Roughly
speaking, that term refers to an index based on, or heavily
weighted towards, a small number of constituent securities.
See 7 U.S.C. § 1a(35)(A)(i)–(iv); 15 U.S.C.
§ 78c(a)(55)(B)(i)–(iv). In contrast, more diversified indexes
that track broader market segments—like the S&P 500—are
considered “broad-based” indexes. Futures contracts based on
broad-based indexes are not security futures. See 7 U.S.C.
§ 1a(44); 15 U.S.C. § 78c(a)(55)(A).

-- 3 of 19 --

4
Because security futures reflect characteristics of both
securities (normally regulated by the Securities and Exchange
Commission, or SEC) and futures contracts (normally
regulated by the Commodity Futures Trading Commission, or
CFTC), Congress directed the SEC and the CFTC to jointly
administer a bespoke regulatory regime for security futures. As
a general matter, security futures are subject to more stringent
regulation than other futures. The distinct regulatory regime
applicable to security futures thus requires, for instance, that
exchanges for trading security futures register with and submit
proposed rules to both the SEC and the CFTC. Those rules
include listing standards, such as the amount of collateral or
“margin” necessary for a trader to secure and maintain credit
for use in trading security futures. See, e.g., 7 U.S.C. § 7b-1(a);
15 U.S.C. §§ 78f(g), 78f(h)(2), 78f(h)(3)(C), 78f(h)(3)(L),
78g(c)(2)(B), 78s(b)(7)(A)–(B).
The National Futures Association and the Financial
Industry Regulatory Authority (FINRA)—self-regulatory
bodies within the financial industry—further require that
market participants dealing in security futures (but not futures
contracts) provide a “Security Futures Risk Disclosure
Statement” before investors may trade those products. See
Security Futures, FINRA, https://www.finra.org/rules-
guidance/key-topics/security-futures (last visited July 10,
2023) [https://perma.cc/RC8B-D642]. The Disclosure
Statement is a standardized document that “discusses the
characteristics and risks of standardized security futures
contracts traded on regulated U.S. exchanges.” FINRA & Nat’l
Futures Ass’n, Security Futures Risk Disclosure Statement 1
(2020), https://www.finra.org/sites/default/files/2020-08
/Security_Futures_Risk_Disclosure_Statement_2020.pdf
[https://perma.cc/LF4S-ADJY] (Disclosure Statement).

-- 4 of 19 --

5
By contrast, futures contracts—such as those based on
physical commodities—are subject to more relaxed regulation,
by the CFTC alone. For instance, a market that enables futures
trading can implement proposed rules after ten business days—
without any need to notify the SEC—unless the CFTC acts to
stay the certification. See 7 U.S.C. § 7a-2(c)(2); 17 C.F.R.
§ 40.6(b). Futures contracts also may be subject to more
lenient margin requirements and capital gains tax treatment
than security futures. See SEC Br. 11–14; 26 U.S.C.
§§ 1234B(b), 1256(a)(3).
In sum, security futures are more heavily regulated and
taxed than other futures.
B.
1.
In 2003, petitioner Cboe Futures Exchange (CFE)
announced plans to list futures contracts based on the Cboe
Volatility Index, more commonly known as the “VIX Index.”
See Joint Order Excluding Indexes Comprised of Certain Index
Options From the Definition of Narrow-Based Security Index
Pursuant to Section 1a(25)(B)(vi) of the Commodity Exchange
Act and Section 3(a)(55)(C)(vi) of the Securities Exchange Act
of 1934, 69 Fed. Reg. 16,900, 16,900 & n.6 (Mar. 31, 2004)
(2004 Order). The VIX Index measures the 30-day expected
volatility of the widely-used S&P 500 stock market index.
The following year, the SEC and the CFTC issued a joint
order “exclud[ing] certain indexes comprised of options on
broad-based security indexes”—including the VIX—“from the
definition of the term narrow-based security index.” Id. at
16,900; see 7 U.S.C. § 1a(35)(B)(vi); 15 U.S.C.
§ 78c(a)(55)(C)(vi). The effect was to exempt VIX futures
from treatment as security futures. CFE then began listing

-- 5 of 19 --

6
futures based on the VIX. See Joint Order To Exclude Indexes
Composed of Certain Index Options From the Definition of
Narrow-Based Security Index Pursuant to Section
1a(25)(B)(vi) of the Commodity Exchange Act and Section
3(a)(55)(C)(vi) of the Securities Exchange Act of 1934, 74 Fed.
Reg. 61,116, 61,116 n.7 (Nov. 23, 2009).
2.
The SPIKES Index is similar, but not identical, to the VIX.
Both indexes measure the 30-day expected volatility of the
S&P 500. But whereas the VIX is derived from the prices of
options on the S&P 500 itself, the SPIKES is derived from the
prices of options on the SPDR S&P 500 ETF Trust (known as
the SPY), an index fund that aims to replicate the price and
yield of the S&P 500. See Self-Regulatory Organizations;
Miami International Securities Exchange, LLC; Order
Granting Approval of a Proposed Rule Change To List and
Trade Options on the SPIKESTM Index, 83 Fed. Reg. 52,865,
52,865 (Oct. 18, 2018) (SPIKES Options Order).
Intervenor Minneapolis Grain Exchange, LLC (MGEX) is
a subsidiary of a company that holds a license to the SPIKES.
In March 2019, MGEX, hoping to list futures based on the
SPIKES, began working with the CFTC to determine whether
the SPIKES is a narrow-based or broad-based index. After
CFTC staff indicated to MGEX that the SPIKES, like the VIX,
is a broad-based index, MGEX self-certified to the CFTC
proposed rules for the listing and trading of SPIKES futures.
See Letter from Lindsay Hopkins, Clearing House Counsel,
MGEX, to Christopher J. Kirkpatrick, Sec’y of the Comm’n,
CFTC (Sept. 20, 2019), https://www.mgex.com/documents
/MGEXSPIKES40.2Submission_redacted_000.pdf [https://
perma.cc/EW82-6BSW]. The CFTC did not stay MGEX’s

-- 6 of 19 --

7
self-certification, and on November 18, 2019, MGEX began
listing SPIKES futures for trading.
But less than two weeks later, on November 29, 2019,
MGEX, at the request of SEC staff, notified market participants
that it would halt trading in SPIKES futures later that day. In
its memorandum announcing the trading halt, MGEX stated
that its decision was “in the best interests of the market and
market participants until the Exchange determines whether it
can work with [the SEC and the CFTC] to resolve certain
issues.” Memorandum from Minneapolis Grain Exch. to
MGEX Mkt. Participants (Nov. 29, 2019), J.A. 32.
3.
In ensuing discussions with regulators, MGEX proposed
that the SEC and the CFTC issue a joint order—akin to the
2004 Order covering the VIX—excluding the SPIKES from the
definition of narrow-based security index and thereby
exempting SPIKES futures from treatment as security futures.
MGEX submitted various materials to the two Commissions in
support of that request. The Commissions did not issue the
joint order requested by MGEX.
In December 2020, the SEC unilaterally issued the order
under review here, which we will call the Exemptive Order.
See Order Granting Conditional Exemptive Relief, Pursuant to
Section 36 of the Securities Exchange Act of 1934 (“Exchange
Act”) With Respect to Futures Contracts on the SPIKES™
Index, 85 Fed. Reg. 77,297 (Dec. 1, 2020). The Exemptive
Order concludes that a futures contract based on the SPIKES
satisfies the definition of a security future under the Securities
Exchange Act. Id. at 77,298 & n.20. But the Order then
invokes section 36 of the Securities Exchange Act, which
authorizes the SEC to “exempt any person, security, or
transaction . . . from any provision” of the Securities Exchange

-- 7 of 19 --

8
Act “to the extent that such exemption is necessary or
appropriate in the public interest, and is consistent with the
protection of investors.” 15 U.S.C. § 78mm(a)(1). Exercising
that authority, the Order generally exempts “futures contracts
on the SPIKES from the definition of ‘security future’ under
the Exchange Act,” with certain specified exceptions. 85 Fed.
Reg. at 77,298. As a result of that grant of exemptive relief,
market participants can trade SPIKES futures “as . . . future[s]
(and not as . . . security future[s])” as far as the Securities
Exchange Act goes; MGEX need not submit its proposed rule
changes to the SEC for approval; and MGEX need not “comply
with listing standard requirements,” “including with respect to
margin,” “that are specific to security futures.” Id. at 77,300.
The Exemptive Order sets certain conditions on its grant
of exemptive relief, including conditions aimed to ensure that
the SPDR S&P 500 ETF Trust closely tracks the performance
of the S&P 500. Id. The failure of any of those conditions to
hold, the Order explains, “could potentially undermine the
basis for providing relief.” Id. So, “[t]o the extent that one or
more of these conditions is no longer satisfied,” the Order “will
no longer apply three calendar months after the end of the
month in which any condition is no longer satisfied.” Id. The
Order explains that “three calendar months is a sufficient
amount of time to allow for” market participants to “take the
necessary steps to wind down their existing transactions in an
orderly fashion.” Id.
The Exemptive Order contains a brief statement of the
rationale for granting exemptive relief: it states that allowing
SPIKES futures to trade as futures contracts, rather than
security futures, “should foster competition as [SPIKES
futures] could serve as an alternative to the only comparable
incumbent volatility product in the market,” i.e., VIX futures.
Id. at 77,298–99. The Order then lists some benefits of

-- 8 of 19 --

9
“[f]acilitating greater competition among these types of
products,” including “provid[ing] market participants with
access to a wider range of financial instruments to trade on and
hedge against volatility in the markets, particularly the S&P
500,” and “lower[ing] transaction costs for market
participants.” Id. at 77,299.
CFE filed a petition for review of the Exemptive Order.
We consider CFE’s petition in this case.
II.
We review the Exemptive Order under the familiar
standard of the Administrative Procedure Act, which requires
us to “hold unlawful and set aside agency action, findings, and
conclusions found to be . . . arbitrary” or “capricious.” 5
U.S.C. § 706(2)(A). To satisfy that standard, an agency must
“examine the relevant data and articulate a satisfactory
explanation for its action including a rational connection
between the facts found and the choice made.” Encino
Motorcars, LLC v. Navarro, 579 U.S. 211, 221 (2016) (quoting
Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co.,
463 U.S. 29, 43 (1983)). The agency’s explanation must be
clear enough that the agency’s “path may reasonably be
discerned.” Id. (quoting Bowman Transp., Inc. v. Ark.–Best
Freight Sys., Inc., 419 U.S. 281, 286 (1974)). And the agency
may not “entirely fail[] to consider an important aspect of the
problem.” State Farm, 463 U.S. at 43.
We conclude that the Exemptive Order is arbitrary and
capricious because the SEC failed adequately to explain its
rationale and failed to consider an important aspect of the
problem. Because those deficiencies require vacatur of the
Order, we have no need to consider CFE’s additional
contention that the SEC failed to consider the possibility that

-- 9 of 19 --

10
its grant of exemptive relief would lead to confusion among
market participants.
A.
We begin with CFE’s contention that the Exemptive Order
fails to give an adequate explanation of why exemptive relief
is necessary to achieve the goal of enhancing competition.
CFE relatedly argues that the Order provides no basis for its
apparent assumption that existing products do not already
afford sufficient competition. We agree with CFE.
The Exemptive Order succinctly identifies the objective of
enabling SPIKES futures to “trade as . . . futures contract[s], as
opposed to as . . . security future[s],” through the grant of
exemptive relief: to “foster competition,” such that SPIKES
futures “could serve as an alternative to” VIX futures, “the only
comparable incumbent volatility product in the market.” 85
Fed. Reg. at 77,298–99. The Order then lists certain “benefits
to the market” yielded by enhanced competition, such as
“lower transaction costs for market participants.” Id. at 77,299.
Critically, however, the Order contains no explanation
whatsoever of how the grant of exemptive relief relates to the
goal of promoting competition in the first place. Instead, the
Order simply identifies that goal and asserts without
elaboration that, to achieve it, SPIKES futures “will need to
trade, clear, and settle as . . . futures contract[s],” rather than as
security futures. Id.
That assertion does not adequately “explain why [the SEC]
decided to act as it did.” Butte Cnty. v. Hogen, 613 F.3d 190,
194 (D.C. Cir. 2010). The Order must articulate a “rational
connection” between the treatment of SPIKES futures as
futures (rather than security futures) and the promotion of
competition. Encino Motorcars, 579 U.S. at 221 (quotation
marks and citation omitted). Yet the Exemptive Order gives

-- 10 of 19 --

11
no reason why exempting SPIKES futures from requirements
applicable to security futures is likely to—let alone necessary
to—promote competition. To be sure, VIX futures have been
regulated as futures rather than security futures for some time
(although the Exemptive Order never expressly says even that).
Still, the Order needs to contain some explanation of why
SPIKES futures, to provide meaningful competition, must also
be regulated as futures rather than security futures. Without
some account of the competitive import of the differences
between those two regulatory regimes, the Order does nothing
to address the possibility that SPIKES futures could provide
meaningful competition even if treated as security futures.
Relatedly, the Exemptive Order fails to explain why no
existing products meaningfully compete with “the only
comparable incumbent volatility product in the market.” 85
Fed. Reg. at 77,299. Indeed, the Exemptive Order does not
even identify the “incumbent volatility product” by its name or
characteristics, although all parties acknowledge that the
phrase refers to VIX futures. And the Order likewise fails to
explain what it means for a product to be “comparable” to that
incumbent or what characteristics a product must have to
compete effectively with that incumbent. To the extent the
Order could be read to consider the relevant market of
“comparable” products to be volatility futures (as opposed to
all volatility products, including volatility security futures), it
still invites the question: why is that the relevant market? That
is, why is it that only volatility futures, and not other volatility
products (including security futures), can meaningfully
compete with other volatility futures? In short, the Order
leaves too many key questions unanswered to satisfy the APA.
See, e.g., Susquehanna Int’l Grp., LLP v. SEC, 866 F.3d 442,
446–47 (D.C. Cir. 2017); Select Specialty Hosp.-Bloomington,
Inc. v. Burwell, 757 F.3d 308, 309, 312–14 (D.C. Cir. 2014).

-- 11 of 19 --

12
The SEC maintains that certain materials MGEX
presented to the SEC and the CFTC in connection with its
request for a joint exemptive order adequately identified a
connection between exemptive relief and competition.
Regardless of the content of the cited analyses, which are under
seal, they cannot rescue the SEC’s otherwise inadequate
explanation in the Exemptive Order.
We have previously rejected an attempt by the SEC to
substitute “unquestioning reliance” on a regulated entity’s
submissions for the “reasoned analysis” the APA requires.
Susquehanna, 866 F.3d at 447. Such submissions, we
explained, have “‘little’ supporting value” because they
express “the ‘self-serving views of the regulated entit[y].’” Id.
(alteration in original) (quoting NetCoalition v. SEC, 615 F.3d
525, 541 (D.C. Cir. 2010), superseded by statute on other
grounds as stated in NetCoalition v. SEC, 715 F.3d 342 (D.C.
Cir. 2013)). If the SEC wanted to rely on MGEX’s analyses to
connect the grant of exemptive relief with the goal of
promoting competition, it needed to “critically review[]” and
adopt MGEX’s submissions or “perform[] its own”
comparable analysis. In re NTE Conn., LLC, 26 F.4th 980, 988
(D.C. Cir. 2022) (alterations in original) (quoting
Susquehanna, 866 F.3d at 447). But the SEC nowhere in the
Exemptive Order—or anywhere else in the record—explains
“why [it] found” MGEX’s analyses “persuasive” or
independently makes the same points. Id.
The SEC’s brief in our court ultimately relies on the notion
that “there are competitive advantages to trading as a future,
rather than a security future”—specifically, more lenient tax
treatment and lower margin requirements. SEC Br. 35.
MGEX’s brief makes similar points. See MGEX Br. 16, 19.
But we of course base our review on the “grounds invoked by
the agency” in the administrative record, Calcutt v. FDIC, 143

-- 12 of 19 --

13
S. Ct. 1317, 1318 (2023) (per curiam) (quoting SEC v. Chenery
Corp., 332 U.S. 194, 196 (1947)), not later rationales contained
in briefing in our court. Even if a need to equalize the tax
treatment and margin requirements applicable to SPIKES
futures and VIX futures could, in theory, justify the grant of
exemptive relief, the record contains no indication that the SEC
in fact relied on that rationale in the Exemptive Order.
The Order simply contains no mention at all of taxation.
And although it references margin requirements once in
passing, it merely observes that, as a result of the relief granted,
SPIKES futures will be subject to the listing standards
applicable to futures rather than security futures, “including
with respect to margin.” 85 Fed. Reg. at 77,300. Nothing in
the Order suggests that exemptive relief will foster competition
because of the effect on margin requirements. Tellingly, the
SEC’s brief in our court, apart from its references to MGEX’s
submissions (which, again, the SEC never itself adopted),
relies entirely on sources outside the administrative record—
from a law review article to Internal Revenue Service
publications—to support the notion that equalization of tax and
regulatory treatment is necessary to promote competition. See
SEC Br. 12–14. There is no indication in the administrative
record that the grant of exemptive relief is based on the
reasoning the SEC now offers in its brief. That kind of “post
hoc litigation rationalization pressed by agency counsel”
cannot save the Exemptive Order. Gulf Restoration Network
v. Haaland, 47 F.4th 795, 804 (D.C. Cir. 2022).
Finally, the SEC posits that, because the Order is an
exercise of informal adjudication—“the administrative law
term for agency action that is neither the product of formal
adjudication or a rulemaking,” Am. Bioscience, Inc. v.
Thompson, 269 F.3d 1077, 1084 (D.C. Cir. 2001)—the Order
need not set forth fulsome explanations on all material points.

-- 13 of 19 --

14
But even though “[w]e have what is known as informal agency
adjudication,” the SEC still must “explain why it decided to act
as it did” by providing a “statement . . . of reasoning” rather
than a mere “conclusion.” Butte Cnty., 613 F.3d at 194
(quotation marks and citation omitted). The SEC, for the
reasons explained, fails to clear that minimal bar here.
B.
We turn next to CFE’s argument that the SEC did not
adequately address potential harms to investors arising from
the Exemptive Order’s implications for the Security Futures
Risk Disclosure Statement. Recall that the Order, before
granting exemptive relief, concludes that SPIKES futures meet
the statutory definition of security futures. 85 Fed. Reg. at
77,298. That determination would ordinarily require securities
dealers to provide investors seeking to trade SPIKES futures
with the Disclosure Statement, which describes security futures
and the risks associated with trading them. See Self Regulatory
Organizations; Order Granting Approval to Proposed Rule
Change by the National Association of Securities Dealers, Inc.
Relating to the Security Futures Risk Disclosure Statement, 67
Fed. Reg. 70,993, 70,994 (Nov. 27, 2002) (Disclosure
Statement Order). CFE argues that, while the Exemptive Order
effectively jettisoned that requirement for SPIKES futures, the
SEC failed adequately to examine the potential resulting harms
to SPIKES futures investors. We agree.
An agency need not address every conceivable implication
of its decision. But a “statutorily mandated factor, by
definition, is an important aspect of any issue before an
administrative agency.” United Parcel Serv., Inc. v. Postal
Regul. Comm’n, 955 F.3d 1038, 1050–51 (D.C. Cir. 2020)
(quotation marks and citation omitted). And with respect to the
exemptive relief granted here, the Securities Exchange Act

-- 14 of 19 --

15
required the SEC to consider the public interest and the
protection of investors. See 15 U.S.C. § 78mm(a)(1).
The SEC considered the same two factors two decades ago
when it approved a rule requiring securities dealers to provide
the Disclosure Statement to security futures investors. At that
time, the SEC found that requirement “consistent” with its
statutory mandates to “protect investors and the public
interest.” Disclosure Statement Order, 67 Fed. Reg. at 70,994;
see 15 U.S.C. § 78o-3(b)(6). In light of that prior finding, the
SEC needed to “acknowledge” and “offer a reasoned
explanation” for its evident change of perspective in the
Exemptive Order—which, in contrast with the previous order,
effectively discarded the Disclosure Statement requirement for
a product meeting the statutory definition of a security future.
Am. Wild Horse Pres. Campaign v. Perdue, 873 F.3d 914, 923
(D.C. Cir. 2017). Neither the Exemptive Order nor the record,
however, contains any mention of the Disclosure Statement.
The SEC does not dispute that it needed to consider the
harms that could result from dispensing with the general
requirement to provide the Disclosure Statement to investors in
security futures. Instead, the SEC maintains that the Order
adequately addresses those potential harms, albeit implicitly.
The Order does so, the SEC reasons, by establishing exceptions
to and conditions on exemptive relief that serve to protect
investors from fraud and market manipulation and to ensure
that SPIKES futures trade in a way that minimizes risk.
At least with respect to the Exemptive Order’s exceptions,
however, they do nothing to undercut the rationale for
providing the Disclosure Statement to SPIKES futures
investors. The Order’s exceptions preserve the application to
SPIKES futures of anti-fraud, anti-manipulation,
recordkeeping, and inspection requirements that generally

-- 15 of 19 --

16
apply to security futures. See 85 Fed. Reg. at 77,297, 77,299–
300. So even if the Order’s exceptions, by preserving those
requirements, serve to limit risks associated with fraud and
manipulation, those requirements would apply to precisely the
same extent even absent the grant of exemptive relief. Yet in
that situation, securities dealers still would have been obligated
to provide SPIKES futures investors with the Disclosure
Statement: that obligation applies to all security futures,
regardless of their risk level.
It is far from clear, moreover, that the Exemptive Order’s
exceptions and conditions in fact minimize the risks addressed
in the Disclosure Statement. The SEC’s brief points only to the
risk that “prices of security futures contracts may not maintain
their customary or anticipated relationships to the prices of the
underlying . . . index.” SEC Br. 49 (quoting Disclosure
Statement at 6). The Exemptive Order may plausibly minimize
that risk—it “contains a number of conditions designed to
protect investors should a tracking error between the SPY and
its underlying index materialize.” 85 Fed. Reg. at 77,302. But
it is hard to see—and the SEC does not explain—how the
Order’s exceptions and conditions address myriad other risks
discussed in the Disclosure Statement’s forty-plus pages. To
take just one example, the exceptions and conditions do
nothing to mitigate the general need for an investor in SPIKES
futures to have “knowledge of both the securities and the
futures markets,” nor the risks associated with trading without
such knowledge. Disclosure Statement at 6.
The SEC falls back on separate disclosures that SPIKES
futures investors will receive under the CFTC regulations that
“will govern every aspect of [SPIKES futures] on a day-to-
[day] basis.” Exemptive Order, 85 Fed. Reg. at 77,300. The
suggestion is that those required disclosures for futures, see 17
C.F.R. § 1.55(b), fill any void left by the Disclosure

-- 16 of 19 --

17
Statement’s absence. For instance, the futures disclosures
provide warnings about the risk of loss and the difficulty of
liquidating a position, comparable to similar warnings in the
Disclosure Statement. Compare id. § 1.55(b)(1), (b)(9), with
Disclosure Statement at 4–5.
The Exemptive Order, however, never mentions the
futures disclosures. And at any rate, those disclosures only
partially fill the void left by the absence of the Disclosure
Statement. As with the Exemptive Order’s exceptions and
conditions, the futures disclosures do not address any number
of matters covered by the Disclosure Statement. And even
when the two sets of disclosures overlap, the Disclosure
Statement tends to provide much greater detail than the futures
disclosures. Compare, e.g., 17 C.F.R. § 1.55(b)(11) (“The high
degree of leverage (gearing) that is often obtainable in futures
trading because of the small margin requirements can work
against you as well as for you. Leverage (gearing) can lead to
large losses as well as gains.”), with Disclosure Statement at
25–28 (making the same basic point over the course of several
paragraphs, including an explanation of margin requirements
and numerical examples).
For those reasons, we conclude that the Exemptive Order’s
failure adequately to consider the potential harms to investors
from discarding the obligation to provide the Disclosure
Statement was arbitrary and capricious.
III.
The Exemptive Order’s shortfalls require its vacatur. In
general, “vacatur is the normal remedy,” although we can
remand to the agency without vacatur in certain circumstances.
Allina Health Servs. v. Sebelius, 746 F.3d 1102, 1110 (D.C.
Cir. 2014). “The decision whether to vacate depends on ‘the
seriousness of the order’s deficiencies (and thus the extent of

-- 17 of 19 --

18
doubt whether the agency chose correctly) and the disruptive
consequences of an interim change that may itself be
changed.’” Susquehanna, 866 F.3d at 451 (quoting Allied-
Signal, Inc. v. U.S. Nuclear Regul. Comm’n, 988 F.2d 146,
150–51 (D.C. Cir. 1993)). The SEC and MGEX urge us to
exercise our discretion to remand without vacatur. We decline
to do so because they have not shown that vacatur would be so
disruptive as to justify a departure from our normal course.
In contending that vacatur would be unduly disruptive, the
SEC and MGEX point to the Exemptive Order’s recognition
that, “to the extent that the exemptions in this order are no
longer effective, market participants will need time to take the
necessary steps to wind down their existing transactions in an
orderly fashion, which typically requires entering into
offsetting transactions.” 85 Fed. Reg. at 77,300. To that end,
the Order provides that, “[t]o the extent that one or more of”
the Order’s conditions “is no longer satisfied,” the Order “will
no longer apply three calendar months after the end of the
month in which any condition is no longer satisfied.” Id. In
the SEC’s judgment, that “is a sufficient amount of time to
allow for such activity to occur.” Id. Notably, Congress made
essentially the same judgment in the CFMA, which provides
for a similar three-month grace period when changes to a
broad-based security index’s composition cause it to become
narrow-based (thereby causing futures based on that index to
be reclassified as security futures). See 15 U.S.C.
§ 78c(a)(55)(E).
The concerns with assuring adequate time for investors to
unwind transactions do not counsel against ordering vacatur
altogether. Rather, they are consistent with granting vacatur
but building in a grace period akin to the one established by the
SEC and Congress. Accordingly, we will vacate the
Exemptive Order but will withhold issuance of our mandate,

-- 18 of 19 --

19
pursuant to Rule 41(b) of the Federal Rules of Appellate
Procedure, to provide a three-month period during which
market participants can wind down their open transactions. See
Chamber of Com. v. SEC, 443 F.3d 890, 909 (D.C. Cir. 2006)
(withholding issuance of mandate for ninety days pursuant to
Rule 41(b)). Our mandate will issue three calendar months
after the end of the calendar month in which we enter judgment,
except that, if a timely petition for rehearing or motion for stay
of mandate is filed, the mandate will issue three calendar
months after the end of the calendar month in which we may
deny such a petition or motion.
* * * * *
For the foregoing reasons, we grant the petition for review
and vacate the Exemptive Order. We withhold issuance of our
mandate as set forth in this opinion.
So ordered.

-- 19 of 19 --