[Federal Register Volume 87, Number 52 (Thursday, March 17, 2022)]
[Notices]
[Pages 15296-15298]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[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 (http://markets.cboe.com/us/equities/regulation/rule_filings/bzx/), 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

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2022-018 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-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 (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549 on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-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