Document ID: SEC-2022-0358-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2022-03-17T04:00Z

[Federal Register Volume 87, Number 52 (Thursday, March 17, 2022)]
[Notices]
[Pages 15283-15286]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-05601]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-94402; File No. SR-CboeBZX-2022-016]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing and Immediate Effectiveness of Proposed Rule Change To Reflect a 
Modification to the Permitted Components of the Tracking Basket of the 
Hartford Large Cap Growth ETF, and To Permit the Use of Custom Baskets 
by the Hartford Large Cap Growth ETF, the Invesco US Large Cap Core 
ETF, and the Invesco Real Assets ESG ETF

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 4, 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 
(i) permit the Hartford Large Cap Growth ETF (the ``Fund''), shares of 
which are listed and traded on the Exchange under BZX Rule 14.11(m), to 
include select securities from which a Fund's investments are selected 
such as a broad-based market index (``Investment Universe'') in the 
Fund's Tracking Basket, and (ii) permit the Fund and certain other 
series of Tracking Fund Shares that are listed and traded on the 
Exchange 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

[[Page 15284]]

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 Fund.
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    \3\ See Securities Exchange Act Release No. 93273 (October 7, 
2021), 86 FR 57237 (October 14, 2021) (SR-CboeBZX-2021-063) (Notice 
and Immediate Effectiveness of a Proposed Rule Change To List and 
Trade Shares of Hartford Large Cap Growth ETF, a Series of Hartford 
Funds Exchange-Traded Trust, Under Rule 14.11(m), Tracking Fund 
Shares (the ``Original Filing'')). 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.''
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    The Fund is an actively-managed exchange-traded fund for which the 
Hartford Funds Exchange-Traded Trust (the ``Issuer'') 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 August 5, 2021.\4\ The Fund's Application incorporated the 
conditions and requirements to an exemptive order from the SEC under 
the 1940 Act (15 U.S.C. 80a-1) (the ``Reference Order'') \5\ to 
Fidelity Management & Research Company and FMR Co., Inc., Fidelity 
Beach Street Trust, and Fidelity Distributors Corporation (collectively 
referred to as ``Fidelity''). Moreover, the relief in the Exemptive 
Order incorporates by reference terms and conditions of the same relief 
of the Reference Order, as that order may be amended from time to time.
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    \4\ See Investment Company Release No. 34324 (July 7, 2021) 86 
FR 36839 (July 13, 2021) (the Application) and 34351 (August 5, 
2021) (the Exemptive Order) (File No. 812-15232).
    \5\ See Investment Company Act Release No. 33683 (November 14, 
2019), 84 FR 64140 (November 20, 2019) (the Fidelity notice of 
application) and 33712 (December 10, 2019) (the Reference Order) 
(File No. 812-14364).
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    Pursuant to the Reference Order, funds operating under such 
Reference Order are required to publish a basket of securities and cash 
that, while different from the fund's portfolio, is designed to closely 
track its daily performance (i.e., the Tracking Basket). Further, it 
provided that the Tracking Basket will solely consist of a combination 
of (i) select recently disclosed portfolio holdings (``Strategy 
Components''); (ii) liquid U.S. exchange-traded funds (``ETFs'') that 
convey information about the types of instruments (that are not 
otherwise fully represented by the Strategy Components) in which a fund 
invests (``Representative ETFs''); and (iii) cash and cash equivalents.
    On August 5, 2021, the Reference Order, and by incorporation the 
Exemptive Relief, was amended to, among other things, permit the Issuer 
to include select securities from which a Fund's investments are 
selected such as a broad-based market index (``Investment Universe'') 
in the Fund's Tracking Basket.\6\ Based on this change, the Exchange is 
submitting this proposal to permit the Fund to include select 
securities from the Investment Universe in the Fund's Tracking Basket. 
Such an amendment will allow the Fund to utilize such provision in 
accordance with the amended Reference Order and its Exemptive Relief 
and the Exchange is updating the listing rule for the Shares 
accordingly.
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    \6\ See Investment Company Act Release No. 34326 (July 9, 2021) 
86 FR 37391 (July 15, 2021) (the Fidelity notice of application to 
amend the Reference Order) and 34350 (August 5, 2021) (the order 
granting the amendment to the Reference Order).
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    Pursuant to the Reference Order, the Fund and the Invesco US Large 
Cap Core ETF and Invesco Real Assets ESG ETF \7\ (collectively, the 
``Fidelity Model 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 filings to list and 
trade shares of the Fidelity Model Funds provided that each of the 
Fidelity Model Fund would create and redeem their shares using the 
Tracking Basket or cash. The August 5, 2021 amendments to the Reference 
Order allow the Fidelity Model 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.\8\ 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 each of the Fidelity Model 
Funds respective exemptive relief.\9\
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    \7\ Similar to the Fund, the exemptive relief provided Invesco 
US Large Cap Core ETF and Invesco Real Assets ESG ETF incorporates 
by reference the terms and conditions of the same relief of the 
Reference Order, as that order may be amended from time to time. See 
Investment Company Act Release No. 34041 (October 1, 2020) 85 FR 
63325 (October 7, 2020) (the application for exemptive relief) and 
34076 (October 27, 2020) (the exemptive order, together with the 
application for exemptive relief referred to as the ``Invesco 
Exemptive Relief'') (File No. 812-15141). Further, the shares of the 
Invesco US Large Cap Core ETF and Invesco Real Assets ESG ETF are 
listed and traded on the Exchange. See Securities and Exchange Act 
No. 90686 (December 16, 2020) 85 FR 83657 (December 22, 2020) (SR-
CboeBZX-2020-090) (Notice of filing and immediate effectiveness of a 
proposed rule to list and trade shares of the Invesco Real Assets 
ESG ETF and the Invesco US Large Cap Core ESG ETF, each a series of 
the Invesco Actively Managed Exchange-Traded Fund Trust, under Rule 
14.11(m) (Tracking Fund Shares)).
    \8\ Supra note 6.
    \9\ 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 filing of each Fidelity Model Fund 
that provided that creation and redemption will occur using the 
Tracking Basket or cash. Specifically, the proposal would permit the 
Fidelity Model Funds to use a Custom Basket, in addition to a Tracking 
Basket or cash, to create or redeem their shares in accordance with 
their respective exemptive relief and amended Exchange Rule 
14.11(m).\10\ Accordingly, the issuers of each of the Fidelity Model 
Funds each represent that it and any person acting on behalf of such 
fund will comply with Regulation Fair Disclosure under the Act,\11\ 
including with respect to any Custom Basket. Each issuer also 
represents that for each Custom Basket utilized by each Fidelity Model 
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

[[Page 15285]]

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 
Fidelity Model 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,\12\ 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 Fidelity Model 
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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    \10\ BZX has already modified the listing rules for the Invesco 
US Large Cap Core ESG ETF and Invesco Real Assets ESG ETF to permit 
each of the funds to include select securities from its respective 
Investment Universe in the fund's Tracking Basket. See Securities 
Exchange Act No. 93546 (November 9, 2021) 86 FR 63429 (November 16, 
2021) (SR-CboeBZX-2021-075) (Notice of filing and immediate 
effectiveness of a proposed rule change to reflect a modification to 
the permitted components of the Tracking Baskets of the Invesco Real 
Assets ESG ETF and Invesco US Large Cap Core ESG ETF).
    \11\ 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.
    \12\ 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 Fidelity Model Funds will comply with the above-
described conditions as well as the conditions of the Reference 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 prior filings for each Fidelity Model Fund \13\ 
remain unchanged and will continue to constitute continued listing 
requirements for each of the Fidelity Model Funds. The Fidelity Model 
Funds will also continue to comply with the requirements of Rule 
14.11(m).
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    \13\ Supra notes 3 and 6.
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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.\14\ 
Specifically, the Exchange believes the proposed rule change is 
consistent with the Section 6(b)(5) \15\ requirements that the rules of 
an exchange be designed to prevent fraudulent and manipulative acts and 
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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    \14\ 15 U.S.C. 78f(b).
    \15\ 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 amendments would (i) permit the Issuer to 
include select securities from the Fund's Investment Universe in the 
Fund's Tracking Basket, and (ii) permit each of the Fidelity Model 
Funds the use of Custom Baskets, as provided in the amended Reference 
Order. The proposed rule change would permit the Fidelity Model Funds 
to operate consistent with their respective exemptive relief, which 
incorporates the Reference Order that may be amended from time to time. 
The Exchange believes that the proposal to permit the Issuer to include 
select securities from the Fund's Investment Universe in the Fund's 
Tracking Basket raises no novel issues under the Act.\16\ Further, the 
Exchange believes the proposal to permit the Fidelity Model 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.\17\
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    \16\ See Securities and 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). See also supra note 10.
    \17\ Supra note 9.
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    Except for the changes noted above, all other representations made 
in the prior filings for each of the Fidelity Model Funds \18\ remain 
unchanged and, as noted, will continue to constitute continuing listing 
requirements for the Funds.
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    \18\ Supra notes 3 and 6.
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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 
amendments are intended to (i) permit the Issuer to include select 
securities from the Fund's Investment Universe in the Fund's Tracking 
Basket, and (ii) permit each of the Fidelity Model Funds the use of 
Custom Baskets, as provided in the amended Reference 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

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19(b)(3)(A) of the Act \19\ and Rule 19b-4(f)(6) \20\ thereunder.\21\
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    \19\ 15 U.S.C. 78s(b)(3)(A).
    \20\ 17 CFR 240.19b-4(f)(6).
    \21\ 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) \22\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\23\ 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.\24\ Accordingly, the Commission waives the 30-day 
operative delay and designates the proposal operative upon filing.\25\
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    \22\ 17 CFR 240.19b-4(f)(6).
    \23\ 17 CFR 240.19b-4(f)(6)(iii).
    \24\ See Securities Exchange Act Release Nos. 93147, supra note 
9, and 93546, supra note 10.
    \25\ 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-2022-016 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-2022-016. 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-2022-016 and should be submitted 
on or before April 7, 2022.
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    \26\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\26\
Eduardo Aleman,
Assistant Secretary.
[FR Doc. 2022-05601 Filed 3-16-22; 8:45 am]
BILLING CODE 8011-01-P