Notice2025-03617
Fidelity Covington Trust, et al.
Primary source
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
March 6, 2025
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 90 Issue 43 (Thursday, March 6, 2025)</title>
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[Federal Register Volume 90, Number 43 (Thursday, March 6, 2025)]
[Notices]
[Pages 11445-11447]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2025-03617]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 35486; File No. 812-15606]
Fidelity Covington Trust, et al.
March 3, 2025.
AGENCY: Securities and Exchange Commission (``Commission'').
ACTION: Notice of an application to amend a prior order for exemptive
relief.
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SUMMARY OF APPLICATION: Applicants request an order (``Amended
Order'') that would amend a Prior Order (as defined below) to expand
the universe of instruments in which a Fund (as defined below) is
permitted to invest.
APPLICANTS: Fidelity Covington Trust (``Trust''), Fidelity Management
& Research Company LLC, and Fidelity Distributors Company LLC
(collectively, ``Applicants'').
FILING DATES: The application was filed on July 30, 2024, and amended
on November 22, 2024, January 16, 2025 and February 24, 2025.
Hearing or Notification of Hearing: An order granting the requested
relief will be issued unless the Commission orders a hearing.
Interested persons may request a hearing by emailing the Commission's
Secretary at <a href="/cdn-cgi/l/email-protection#0b586e68796e7f6a79727826446d6d62686e4b786e68256c647d"><span class="__cf_email__" data-cfemail="184b7d7b6a7d6c796a616b35577e7e717b7d586b7d7b367f776e">[email protected]</span></a> and serving Applicants
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with a copy of the request by email, if an email address is listed for
the relevant Applicant below, or personally or by mail, if a physical
address is listed for the relevant Applicant below. Hearing requests
should be received by the Commission by 5:30 p.m. on March 28, 2025 and
should be accompanied by proof of service on the Applicants in the form
of an affidavit, or, for lawyers, a certificate of service. Pursuant to
rule 0-5 under the Investment Company Act of 1940 (``Act''), hearing
requests should state the nature of the writer's interest, any facts
bearing upon the desirability of a hearing on the matter, the reason
for the request, and the issues contested. Persons who wish to be
notified of a hearing may request notification by emailing to the
Commission's Secretary.
ADDRESSES:
The Commission: <a href="/cdn-cgi/l/email-protection#3360565041564752414a401e7c55555a5056734056501d545c45"><span class="__cf_email__" data-cfemail="30635553425544514249431d7f5656595355704355531e575f46">[email protected]</span></a>.
Applicants: Nicole Macarchuk, Esq., at <a href="/cdn-cgi/l/email-protection#b3dddad0dcdfd69dded2d0d2c1d0dbc6d8f3d5dec19dd0dcde"><span class="__cf_email__" data-cfemail="c9a7a0aaa6a5ace7a4a8aaa8bbaaa1bca289afa4bbe7aaa6a4">[email protected]</span></a>,
and Margaret Carey, Esq., at <a href="/cdn-cgi/l/email-protection#e08d81928781928594ce8381928599a0868d92ce838f8d"><span class="__cf_email__" data-cfemail="a8c5c9dacfc9dacddc86cbc9dacdd1e8cec5da86cbc7c5">[email protected]</span></a>.
FOR FURTHER INFORMATION CONTACT: Kris Easter Guidroz, Senior Counsel;
Thomas Ahmadifar, Branch Chief; Daniele Marchesani, Assistant Chief
Counsel, at (202) 551-6825 (Division of Investment Management, Chief
Counsel's Office).
SUPPLEMENTARY INFORMATION: For Applicants' representations, legal
analysis, and conditions, please refer to Applicants' third amended and
restated application, dated February 24, 2025, which may be obtained
via the Commission's website by searching for the file number at the
top of this document, or for an Applicant using the Company name search
field on the SEC's EDGAR system. The SEC's EDGAR system may be searched
at <a href="https://www.sec.gov/edgar/searchedgar/companysearch">https://www.sec.gov/edgar/searchedgar/companysearch</a>. You may also
call the SEC's Office of Investor Education and Advocacy at (202) 551-
8090.
I. Introduction
1. On December 10, 2019, the Commission issued an order,\1\ as
subsequently amended on August 5, 2021,\2\ under section 6(c) of the
Act for an exemption from sections 2(a)(32), 5(a)(1), 22(d) and 22(e)
of the Act and rule 22c-1 under the Act, under sections 6(c) and 17(b)
of the Act for an exemption from sections 17(a)(1) and 17(a)(2) of the
Act, and under section 12(d)(1)(J) of the Act for an exemption from
sections 12(d)(1)(A) and 12(d)(1)(B) of the Act (the ``Prior
Order'').\3\ The Prior Order permits Applicants to operate actively-
managed exchange-traded funds (``ETFs'') that are not required to
disclose their full portfolio holdings on a daily basis (each, a
``Fund''). Rather, pursuant to the Prior Order, each Business Day \4\ a
Fund publishes a basket of securities and cash that, while different
from the Fund's portfolio, is designed to track closely its daily
performance (``Tracking Basket'').\5\
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\1\ See Fidelity Beach Street Trust, et al., Investment Company
Act Release No. 33683 (Nov. 14, 2019) (notice) and Investment
Company Act Release No. 33712 (Dec. 10, 2019) (order).
\2\ See Fidelity Beach Street Trust, et al., Investment Company
Act Release No. 34326 (Jul. 9, 2021) (notice) and Investment Company
Act Release No. 34350 (Aug. 5, 2021) (order).
\3\ Except as specifically noted in the application for the
Amended Order, all representations and conditions contained in the
application first submitted with the Commission (File No. 812-
14364), as amended and restated, and filed with the Commission on
November 8, 2019 (the ``Original Application''), as modified
according to the application for an amended order subsequently
submitted with the Commission (File No. 812-15175), as amended and
restated, and filed with the Commission on June 30, 2021 (``Custom
Basket Application''), remain applicable to the operation of the
Funds and will apply to any Funds relying on the Amended Order.
The relief granted under section 12(d)(1)(J) of the Act for an
exemption from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act (the
``Section 12(d)(1) Relief''), and relief under sections 6(c) and
17(b) of the Act for an exemption from sections 17(a)(1) and
17(a)(2) of the Act relating to the Section 12(d)(1) Relief, expired
on January 19, 2022, except as necessary to allow a Fund's receipt
of Representative ETFs included in its Tracking Basket solely for
purposes of effecting transactions in Creation Units, in accordance
terms and conditions in the Prior Order and notwithstanding the
limits of Rule 12d1-4(b)(3). See Fund of Funds Arrangements,
Investment Company Act Rel. No. 10871 (Oct. 7, 2020), at III. See
also Original Application at note 73, and Custom Basket Application
at note 6.
\4\ All capitalized terms not otherwise defined in this notice
have the meanings ascribed to them in the Original Application, as
amended by the Custom Basket Application.
\5\ See Original Application at 4 and 8.
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2. Under the Prior Order, a Fund is permitted to invest only in
certain enumerated instruments (``Prior Order Investments'').\6\
Applicants now seek to amend the Prior Order to permit a Fund to invest
in securities and instruments in addition to Prior Order Investments,
including but not limited to fixed income securities, foreign
investments that do not trade contemporaneously with Shares, and
derivatives (``Amended Order Investments''). As part of Applicants'
request, the Funds would comply with additional requirements, including
disclosing additional information about their portfolio.
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\6\ See Original Application at 7.
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II. The Application
A. Applicants' Proposal
3. The Amended Order would give Funds the same investment
flexibility to choose its investments as ETFs relying on rule 6c-11
under the Act (``Rule 6c-11 ETFs'') \7\ subject to the same portfolio
holdings disclosure requirements as Rule 6c-11 ETFs with respect to
Amended Order Investments. Pursuant to the Amended Order, each Fund's
portfolio will be invested in two sleeves. A Fund will invest the first
sleeve solely in Prior Order investments for which the Fund will
disclose a Tracking Basket designed to track closely the daily
performance of the sleeve (the ``Semi-Transparent Sleeve''). A Fund
will invest the second sleeve solely in Amended Order Investments and
will publicly disclose all such investments daily in accordance with
the requirements of rule 6c-11(c) under the Act (the ``Fully-
Transparent Sleeve''). Applicants represented that the Funds do not
intend to use Amended Order Investments to hedge or otherwise offset
exposure to Prior Order Investments.
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\7\ The Funds are not able to operate in reliance on rule 6c-11
and will not be able to do so under the Amended Order, because they
do not and will not disclose all of their portfolio holdings daily
as required by the rule. See rule 6c-11(c)(1)(i) (requiring an ETF
to disclose prominently on its website, publicly available and free
of charge, the portfolio holdings that will form the basis for the
Fund's calculation of per share NAV).
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4. Under the Amended Order, the published Tracking Basket for a
Fund that invests in Amended Order Investments will consist of two
distinct portions: (i) a first portion corresponding to the Semi-
Transparent Sleeve of the Fund's portfolio, constructed in accordance
with the terms and conditions of the Prior Order; and (ii) a second
portion corresponding to the Fully-Transparent Sleeve of the Fund's
portfolio, disclosing all Amended Order Investments in accordance with
the portfolio holdings disclosure requirements of rule 6c-11(c)(1)
under the Act. The ratio of the Fully-Transparent Sleeve portion of the
Tracking Basket to the total Tracking Basket will correspond to the
ratio of the Amended Order Investments to the ETF's aggregate portfolio
holdings. The ratio of the Semi-Transparent Sleeve portion of the
Tracking Basket to the total Tracking Basket will correspond to the
ratio of all investments other than Amended Order Investments to the
ETF's aggregate portfolio holdings.
5. Under the Prior Order, for at least the first three years after
a Fund's launch, the Adviser must monitor the Fund's Tracking Error,
Premiums/Discounts, and trading spreads and promptly call a Board
meeting if any of these surpass Board-approved thresholds (the ``Three-
Year Requirement''). Under the Amended Order, a Fund will be subject to
a new
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Three-year Requirement on the date the Fund first acquires Amended
Order Investments, to enable the Adviser and Board to evaluate the
Fund's arbitrage processes and trading performance.
B. Considerations Relating to the Requested Relief
6. Applicants represented that, given the Funds will disclose all
Amended Order Investments in accordance with rule 6c-11, allowing a
Fund to have the requested investment flexibility does not give rise to
any new policy concerns and will not cause any negative impacts to the
Funds' arbitrage processes, bid-ask spreads, premiums/discounts, or
otherwise adversely affect the Funds' operations. Further, Applicants
stated that they anticipate a Fund's daily disclosure of a Tracking
Basket that includes all Amended Order Investments in its portfolio in
their actual weights, along with periodic disclosure of full portfolio
holdings in accordance with the Funds' portfolio holdings disclosure
policies, will allow market participants to understand the relationship
between the performance of a Fund and its Tracking Basket and will
facilitate the arbitrage process that keeps a Fund's per share market
price close to its NAV.
7. Further, Applicants stated they do not expect a Fund's
investments in Amended Order Investments to cause investor confusion
because the Fund's prospectus, market materials, and website will
describe the semi-transparent nature of the Fund and will explain the
differences between the Semi-Transparent Sleeve and the Fully-
Transparent Sleeve, including the investment types that may be included
in each sleeve.
II. Requested Exemptive Relief
Applicants believe that the Prior Order, as amended, continues to
meet the relevant standards for relief pursuant to section 6(c) of the
Act for an exemption from sections 2(a)(32), 5(a)(1), 22(d), and 22(e)
of the Act and rule 22c-1 under the Act, and under sections 6(c) and
17(b) of the Act for an exemption from sections 17(a)(1) and 17(a)(2)
of the Act, and under section 12(d)(1)(J) of the Act for an exemption
from sections 12(d)(1)(A) and 12(d)(1)(B) of the Act.\8\
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\8\ See supra note 3.
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III. Applicants' Conditions
Applicants agree that any Order of the Commission granting the
requested relief will be subject to all of the conditions in the Prior
Order and will be subject to new conditions as follows:
11. To the extent a Fund invests in Amended Order Investments, the
Fund will publish a new Tracking Basket that consists of two distinct
portions: (i) a first portion corresponding to the Semi-Transparent
Sleeve; and (ii) a second portion corresponding to the Fully-
Transparent Sleeve that fully discloses all Amended Order Investments
in a manner consistent with Rule 6c-11(c)(1). The ratio of the Fully-
Transparent Sleeve portion of the Tracking Basket to the total Tracking
Basket will correspond to the ratio of the Amended Order Investments to
the ETF's aggregate portfolio holdings. The ratio of the Semi-
Transparent portion of the Tracking Basket to the total Tracking Basket
will correspond to the ratio of all investments other than Amended
Order Investments to the ETF's aggregate portfolio holdings.
12. Each Fund that invests in Amended Order Investments will
publish prominently on its website, which is publicly available and
free of charge, on a daily basis, all Amended Order Investments held in
its portfolio as of the end of the prior Business Day in accordance
with the requirements of Rule 6c-11(c)(1)(i).
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2025-03617 Filed 3-5-25; 8:45 am]
BILLING CODE 8011-01-P
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