Notice2022-05599
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Permit Certain Series of Tracking Fund Shares Issued by Fidelity Covington Trust, Which Are Listed and Traded on the Exchange Pursuant to Rule 14.11(m), To Use Custom Baskets
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Published
March 17, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 52 (Thursday, March 17, 2022)</title>
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[Federal Register Volume 87, Number 52 (Thursday, March 17, 2022)]
[Notices]
[Pages 15296-15298]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-05599]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-94401; File No. SR-CboeBZX-2022-018]
Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of
Filing and Immediate Effectiveness of Proposed Rule Change To Permit
Certain Series of Tracking Fund Shares Issued by Fidelity Covington
Trust, Which Are Listed and Traded on the Exchange Pursuant to Rule
14.11(m), To Use Custom Baskets
March 11, 2022.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on March 9, 2022, Cboe BZX Exchange, Inc. filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I and II below, which Items have been prepared by
the Exchange. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
Cboe BZX Exchange, Inc. (the ``Exchange'' or ``BZX'') proposes to
permit the Fidelity Blue Chip Growth ETF, Fidelity Blue Chip Value ETF,
Fidelity New Millennium ETF, Fidelity Growth Opportunities ETF,
Fidelity Magellan ETF, Fidelity Real Estate Investment ETF, and
Fidelity Small-Mid Cap Opportunities ETF (collectively referred to as
the ``Funds''), shares of which are listed and traded on the Exchange
pursuant to BZX Rule 14.11(m), to use Custom Baskets.
The text of the proposed rule change is also available on the
Exchange's website (<a href="http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/">http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/</a>), at the Exchange's Office of the Secretary, and at
the Commission's Public Reference Room.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the Exchange included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The Exchange has prepared summaries, set forth in
sections A, B, and C below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
The Exchange adopted BZX Rule 14.11(m) for the purpose of
permitting the listing and trading, or pursuant to unlisted trading
privileges (``UTP''), of Tracking Fund Shares, which are securities
issued by an actively managed open-end management investment
company.\3\ Exchange Rule 14.11(m)(2)(A) requires the Exchange to file
separate proposals under Section 19(b) of the Act before listing and
trading any series of Tracking Fund Shares on the Exchange. Pursuant to
this provision, the Exchange submitted proposals to list and trade
shares (``Shares'') of Tracking Fund Shares of the Fidelity Blue Chip
Growth ETF, Fidelity Blue Chip Value ETF, Fidelity New Millennium
ETF,\4\ Fidelity Growth
[[Page 15297]]
Opportunities ETF, Fidelity Magellan ETF, Fidelity Real Estate
Investment ETF, and Fidelity Small-Mid Cap Opportunities ETF
(collectively referred to as the ``Funds'').\5\
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\3\ Rule 14.11(m)(3)(A) provides that ``[t]he term ``Tracking
Fund Share'' means a security that (i) represents an interest in an
investment company registered under the Investment Company Act of
1940 (``Investment Company'') organized as an open-end management
investment company, that invests in a portfolio of securities
selected by the Investment Company's investment adviser consistent
with the Investment Company's investment objectives and policies;
(ii) is issued in a specified aggregate minimum number in return for
a deposit of a specified Tracking Basket and/or a cash amount with a
value equal to the next determined net asset value; (iii) when
aggregated in the same specified minimum number, may be redeemed at
a holder's request, which holder will be paid a specified Tracking
Basket and/or a cash amount with a value equal to the next
determined net asset value; and (iv) the portfolio holdings for
which are disclosed within at least 60 days following the end of
every fiscal quarter. Rule 14.11(m)(3)(E) provides that ``[t]he term
``Tracking Basket'' means the identities and quantities of the
securities and other assets included in a basket that is designed to
closely track the daily performance of the Fund Portfolio, as
provided in the exemptive relief under the Investment Company Act of
1940 applicable to a series of Tracking Fund Shares.''
\4\ See Securities Exchange Act No. 88887 (May 15, 2020) 85 FR
30990 (May 21, 2020) (SR-CboeBZX-2019-107) (Order Granting Approval
of Proposed Rule change, as Modified by Amendment No. 5, to Adopt
Rule 14.11(m) and to List and Trade Shares of the Fidelity Blue Chip
Growth ETF, Fidelity Blue Chip Value ETF, and Fidelity New
Millennium ETF) (the ``Original Order''). See also Securities
Exchange Act No. 92946 (September 13, 2021) 86 FR 51941 (September
17, 2021) (SR-CboeBZX-2021-060) (Notice of Filing and Immediate
Effectiveness of a Proposed Rule Change To Reflect an Amendment to
the Application and Exemptive Order Governing the Following Funds,
Shares of Which Are Listed and Traded on the Exchange Under BZX Rule
14.11(m): Fidelity Growth Opportunities ETF, Fidelity Magellan ETF,
Fidelity Real Estate Investment ETF, Fidelity Small-Mid Cap
Opportunities ETF, Fidelity Blue Chip Value ETF, Fidelity Blue Chip
Growth ETF, and Fidelity New Millennium ETF) (the ``Subsequent
Notice'').
\5\ See Securities Exchange Act No. 90530 (November 30, 2020) 85
FR 78366 (December 4, 2020) (SR-CboeBZX-2020-085) (Notice of Filing
and Immediate Effectiveness of a Proposed Rule Change Relating to
List and Trade Shares of the Fidelity Growth Opportunities ETF,
Fidelity Magellan ETF, Fidelity Real Estate Investment ETF, and
Fidelity Small-Mid Cap Opportunities ETF Under Rule 14.11(m)) (the
``Original Notice'', and together with the Original Order and
Subsequent Notice the ``Prior Filings''). See also Securities
Exchange Act No. 51943 (September 13, 2021) 86 FR 51941 (September
17, 2021) (SR-CboeBZX-2021-060) (the Subsequent Notice).
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The Funds are actively-managed exchange-traded funds for which
Fidelity Covington Trust (the ``Issuer''), among others, submitted an
application for exemptive relief (the ``Application'') which was
granted under an exemptive order (the ``Exemptive Order'', and the
Exemptive Order together with the Application the ``Exemptive Relief'')
issued on December 10, 2019.\6\ Pursuant to the Exemptive Order, the
Funds create shares in return for a deposit by the purchaser of, and
redeem shares at a holder's request in return for, a Tracking Basket or
cash. Furthermore, the Original Notice and Original Order to list and
trade shares of the Funds provided that each of the Funds would create
and redeem their shares using the Tracking Basket or cash.
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\6\ See also Investment Company Act Release No. 33683 (November
14, 2019), 84 FR 64140 (November 20, 2019) (the Application) and
33712 (December 10, 2019) (the Exemptive Order) (File No. 812-
14364).
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On August 5, 2021, the Exemptive Order was amended to, among other
things, permit the Issuer to allow the Funds to create and redeem their
shares using cash, a Tracking Basket or a ``Custom Basket'', which is a
creation or redemption unit that differs from a fund's Tracking
Basket.\7\ Additionally, on September 28, 2021 the Commission approved
the Exchange's proposal to amend Exchange Rule 14.11(m) to provide for
the use of Custom Baskets consistent with the Funds amended Exemptive
Order.\8\
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\7\ See Investment Company Act Release No. 34326 (July 9, 2021)
86 FR 37391 (July 15, 2021) (the notice of application to amend the
Exemptive Order) and 34350 (August 5, 2021) (the order granting the
amendment to the Exemptive Order) (File No. 812-15175).
\8\ See Securities and Exchange Act No. 93147 (September 28,
2021) 86 FR 54772 (October 4, 2021) (SR-CboeBZX-2021-053) (Order
granting approval of a proposed rule to change to amend Rule
14.11(m) (Tracking Fund Shares) to provide the use of Custom Baskets
consistent with the exemptive relief issued pursuant to the
Investment Company Act of 1940 applicable to a series of Tracking
Fund Shares).
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Now, the Exchange is submitting this proposal to modify
representations made in the Original Notice and Original Order of each
Fund that provided that creation and redemption units will occur using
the Tracking Basket or cash. Specifically, the proposal permits the
Funds to use a Custom Basket, in addition to a Tracking Basket or cash,
to create or redeem their shares in accordance with their amended
Exemptive Relief and amended Exchange Rule 14.11(m). Accordingly, the
Issuer represents that it and any person acting on behalf of such fund
will comply with Regulation Fair Disclosure under the Act,\9\ including
with respect to any Custom Basket. The Issuer also represents that for
each Custom Basket utilized by each Fund, each business day, before the
opening of trading in Regular Trading Hours (as defined in Rule
1.5(w)), the investment company shall make publicly available on its
website the composition of any Custom Basket transacted on the previous
business day, except a Custom Basket that differs from the applicable
Tracking Basket only with respect to cash. Finally, the adviser and
sub-adviser to each of the Funds each represent that a fire wall exists
and will be maintained between the respective personnel at each of (i)
the adviser and sub-adviser, and (ii) their respective affiliated
broker-dealers with respect to access to information concerning the
composition and/or changes to the applicable fund's portfolio, Tracking
Basket, and/or the Custom Basket, as applicable. Specifically, the
adviser and the sub-adviser each represent that the personnel who make
decisions on the applicable fund's portfolio composition, Tracking
Basket, and/or Custom Basket or who have access to nonpublic
information regarding the Fund Portfolio,\10\ Tracking Basket, and/or
Creation Basket or changes thereto are subject to procedures designed
to prevent the use and dissemination of material non-public information
regarding such portfolio, Tracking Basket, and/or Creation Basket. In
the event that (a) the adviser or a sub-adviser becomes registered as a
broker-dealer or newly affiliated with a broker-dealer; or (b) any new
adviser or sub-adviser is a registered broker-dealer or becomes newly
affiliated with a broker-dealer; it will implement and maintain a fire
wall with respect to its relevant personnel or such broker-dealer
affiliate, as applicable, regarding access to information concerning
the composition and/or changes to the Fund Portfolio, Tracking Basket,
and/or Creation Basket, and will be subject to procedures designed to
prevent the use and dissemination of material nonpublic information
regarding such portfolio, Tracking Basket, and/or Creation Basket. Any
person or entity, including any service provider for any of the Funds,
who has access to nonpublic information regarding the Fund Portfolio,
Tracking Basket, and/or Creation Basket or changes thereto for the
Custom Basket Fund will be subject to procedures designed to prevent
the use and dissemination of material nonpublic information regarding
the Fund Portfolio, Tracking Basket or Creation Basket or changes
thereto. Further, any such person or entity that is registered as a
broker-dealer or affiliated with a broker-dealer, must have erected and
will maintain a ``fire wall'' between the person or entity and the
broker-dealer with respect to access to information concerning the
composition and/or changes to such Fund Portfolio, Tracking Basket, or
Creation Basket.
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\9\ 17 CFR 243.100-243.103. Regulation Fair Disclosure provides
that whenever an issuer, or any person acting on its behalf,
discloses material nonpublic information regarding that issuer or
its securities to certain individuals or entities--generally,
securities market professionals, such as stock analysts, or holders
of the issuer's securities who may well trade on the basis of the
information--the issuer must make public disclosure of that
information.
\10\ As defined in Rule 14.11(m)(3)(B), the term ``Fund
Portfolio'' means the identities and quantities of the securities
and other assets held by the Investment Company that will form the
basis for the Investment Company's calculation of net asset value at
the end of the business day.
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Each of the Funds will comply with the above-described conditions
as well as the conditions of the Exemptive Order, as amended, and the
Exchange is updating the listing rule for the Shares accordingly.
Except for the changes noted above, all other representations made in
the Prior Filings for each of the Funds \11\ remain unchanged and will
continue to constitute continued listing requirements for each of the
Shares. The Funds will also continue to comply with the requirements of
Rule 14.11(m).
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\11\ Supra notes 4 and 5.
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2. Statutory Basis
The Exchange believes the proposed rule change is consistent with
Act and the rules and regulations thereunder applicable to the Exchange
and, in particular, the requirements of Section 6(b) of the Act.\12\
Specifically, the Exchange believes the proposed rule change is
consistent with the Section 6(b)(5) \13\ requirements that the rules of
an exchange be designed to prevent fraudulent and manipulative acts and
[[Page 15298]]
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and, in general, to protect investors and the public interest.
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\12\ 15 U.S.C. 78f(b).
\13\ 15 U.S.C. 78f(b)(5).
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The proposed rule change is designed to perfect the mechanism of a
free and open market and, in general, to protect investors and the
public interest. The proposed amendment would permit each of the Funds
the use of Custom Baskets, as provided in the amended Exemptive Order.
The Exchange believes the proposal to permit the Funds the use of
Custom Baskets is consistent with and contemplated by Rule 14.11(m), as
amended, which the Commission found to be consistent with the Act.\14\
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\14\ Supra note 8. See also SR-CboeBZX-2022-016 (filed March 4,
2022) (Notice of Filing and Immediate Effectiveness of a Proposed
Rule Change to allow certain series of Tracking Fund shares to
include select securities from the universe from which a Fund's
investments are selected in the Fund's Tracking Basket and utilize
Custom Baskets).
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Except for the changes noted above, all other representations made
in the prior proposed rule changes \15\ remain unchanged and, as noted,
will continue to constitute continuing listing requirements for the
Funds.
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\15\ Supra notes 4 and 5.
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition that is not necessary or appropriate
in furtherance of the purpose of the Act. As noted, the proposed
amendment is intended to permit each of the Funds the use of Custom
Baskets, as provided in the amended Exemptive Order. The Exchange
believes that these changes will not impose any burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
The Exchange neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
Significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-
4(f)(6) \17\ thereunder.\18\
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\16\ 15 U.S.C. 78s(b)(3)(A).
\17\ 17 CFR 240.19b-4(f)(6).
\18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change, along
with a brief description and text of the proposed rule change, at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange satisfied this requirement.
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A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally
does not become operative prior to 30 days after the date of the
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\20\ the Commission
may designate a shorter time if such action is consistent with the
protection of investors and the public interest. The Exchange has asked
the Commission to waive the 30-day operative delay so that the proposed
rule change may take effect upon filing. The Exchange represents that
the Funds will continue to comply with the requirements of BZX Rule
14.11(m). The Commission believes that waiver of the 30-day operative
delay is consistent with the protection of investors and the public
interest because the proposed rule change does not raise any new or
novel issues.\21\ Accordingly, the Commission waives the 30-day
operative delay and designates the proposal operative upon filing.\22\
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\19\ 17 CFR 240.19b-4(f)(6).
\20\ 17 CFR 240.19b-4(f)(6)(iii).
\21\ See Securities Exchange Act Release No. 93147, supra note
8.
\22\ For purposes only of waiving the 30-day operative delay,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule change should be approved or
disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is 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#c7b5b2aba2eaa4a8aaaaa2a9b3b487b4a2a4e9a0a8b1"><span class="__cf_email__" data-cfemail="1c6e697079317f7371717972686f5c6f797f327b736a">[email protected]</span></a>. Please include
File Number SR-CboeBZX-2022-018 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.
All submissions should refer to File Number SR-CboeBZX-2022-018. 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-CboeBZX-2022-018 and should be submitted
on or before April 7, 2022.
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\23\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\23\
Eduardo Aleman,
Assistant Secretary.
[FR Doc. 2022-05599 Filed 3-16-22; 8:45 am]
BILLING CODE 8011-01-P
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