Document ID: SEC-2020-0489-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: Cboe BZX Exchange, Inc.
Posted Date: 2020-04-01T04:00Z

[Federal Register Volume 85, Number 63 (Wednesday, April 1, 2020)]
[Notices]
[Pages 18304-18317]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-06719]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88481; File No. SR- CboeBZX-2019-107]

Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Notice of 
Filing of Amendment No. 1 and Order Instituting Proceedings To 
Determine Whether To Approve or Disapprove a Proposed Rule Change, as 
Modified by Amendment No. 1, To Adopt Rule 14.11(m), Tracking Fund 
Shares, and To List and Trade Shares of the Fidelity Blue Chip Value 
ETF, Fidelity Blue Chip Growth ETF, and Fidelity New Millennium ETF

March 26, 2020.
    On December 12, 2019, Cboe BZX Exchange, Inc. (``Exchange'' or 
``BZX'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'' or ``Exchange Act'') \1\ and Rule 19b-4 
thereunder,\2\ a proposed rule change to adopt BZX Rule 14.11(m), and 
to list and trade shares (``Shares'') of the Fidelity Value ETF, 
Fidelity Growth ETF, and Fidelity Opportunistic ETF (individually, 
``Fund,'' and, collectively, ``Funds''),\3\ each a series of the 
Fidelity Beach Street Trust (``Trust''), under proposed BZX Rule 
14.11(m). The proposed rule change was published for comment in the 
Federal Register on December 31, 2019.\4\
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ In Amendment No. 1, the names of the Funds were changed to 
Fidelity Blue Chip Value ETF, Fidelity Blue Chip Growth ETF, and 
Fidelity New Millennium ETF. See infra note 5.
    \4\ See Securities Exchange Act Release No. 87856 (Dec. 23, 
2019), 84 FR 72414 (``Notice'').
---------------------------------------------------------------------------

    On February 12, 2020, the Exchange filed Amendment No. 1 to the 
proposed rule change, which amended and replaced the proposed rule 
change in its entirety.\5\ On February 13, 2020, pursuant to Section 
19(b)(2) of the Exchange Act,\6\ the Commission designated a longer 
period within which to approve the proposed rule change, disapprove the 
proposed rule change, or institute proceedings to determine whether to 
disapprove the proposed rule change.\7\ The Commission has

[[Page 18305]]

received no comment letters on the proposed rule change.
---------------------------------------------------------------------------

    \5\ Amendment No. 1 is available at: https://www.sec.gov/comments/sr-cboebzx-2019-107/srcboebzx2019107.htm.
    \6\ 15 U.S.C. 78s(b)(2).
    \7\ See Securities Exchange Act Release No. 88195, 85 FR 9888 
(Feb. 20, 2020). The Commission designated March 30, 2020, as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
---------------------------------------------------------------------------

    The Commission is publishing this notice and order to solicit 
comments on the proposed rule change, as modified by Amendment No. 1, 
from interested persons and to institute proceedings pursuant to 
Section 19(b)(2)(B) of the Act \8\ to determine whether to approve or 
disapprove the proposed rule change, as modified by Amendment No. 1.
---------------------------------------------------------------------------

    \8\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

I. Exchange's Description of the Proposed Rule Change, as Modified by 
Amendment No. 1

    The Exchange proposes a rule change to adopt Rule 14.11(m), 
Tracking Fund Shares, and to list and trade shares of the Fidelity Blue 
Chip Value ETF, Fidelity Blue Chip Growth ETF, and Fidelity New 
Millennium ETF, each a series of the Fidelity Beach Street Trust, under 
such proposed Rule 14.11(m).
    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
    This Amendment No. 1 to SR-CboeBZX-2019-107 amends and replaces in 
its entirety the proposal as originally submitted on December 12, 2019. 
The Exchange submits this Amendment No. 1 in order to clarify certain 
points and add additional details to the proposal.
    The Exchange proposes to add new Rule 14.11(m) \9\ for the purpose 
of permitting the listing and trading, or trading pursuant to unlisted 
trading privileges, of Tracking Fund Shares, which are securities 
issued by an actively managed open-end management investment 
company.\10\
---------------------------------------------------------------------------

    \9\ The Exchange notes that it is proposing new Rule 14.11(m) 
because it has also proposed a new Rule 14.11(k) and new Rule 
14.11(l) under two separate proposals. See Securities Exchange Act 
Release Nos. 87062 (September 23, 2019), 84 FR 51193 (September 27, 
2019) (SR-CboeBZX-2019-047) and 87560 (November 18, 2019), 84 FR 
64607 (November 22, 2019) (CboeBZX-2019-097).
    \10\ The basis of this proposal are several applications for 
exemptive relief that were filed with the Commission and for which 
public notice was issued on November 14, 2019 and subsequent order 
granting certain exemptive relief to, among others, Fidelity 
Management & Research Company and FMR Co., Inc., Fidelity Beach 
Street Trust, and Fidelity Distributors Corporation (File No. 812-
14364), issued on December 10, 2019 (the ``Application,'' 
``Notice,'' and ``Order,'' respectively, and, collectively, the 
``Exemptive Order''). See Investment Company Act Release Nos. 33683 
and 33712. The Order specifically notes that ``granting the 
requested exemptions is appropriate in and consistent with the 
public interest and consistent with the protection of investors and 
the purposes fairly intended by the policy and provisions of the 
Act. It is further found that the terms of the proposed 
transactions, including the consideration to be paid or received, 
are reasonable and fair and do not involve overreaching on the part 
of any person concerned, and that the proposed transactions are 
consistent with the policy of each registered investment company 
concerned and with the general purposes of the Act.'' The Exchange 
notes that it also referred to the application for exemptive relief 
orders (collectively, with the Application, the ``Applications'') 
and notices thereof (collectively, with the Notice, the ``Notices'') 
for T. Rowe Price Associates, Inc. and T. Rowe Price Equity Series, 
Inc. (File No. 812-14214 and Investment Company Act Release Nos. 
33685 and 33713), Natixis ETF Trust II, et al. (File No. 812-14870 
and Investment Company Act Release Nos. 33684 and 33711), Blue 
Tractor ETF Trust and Blue Tractor Group, LLC (File No. 812-14625 
and Investment Company Act Release Nos. 33682 and 33710), and 
Gabelli ETFs Trust, et al. (File No. 812-15036 and Investment 
Company Act Release Nos. 33681 and 33708). While there are certain 
differences between the applications, the Exchange believes that 
each would qualify as Tracking Fund Shares under proposed Rule 
14.11(m).
---------------------------------------------------------------------------

Proposed Rule 14.11(m)
    Proposed Rule 14.11(m)(3)(A) provides that the 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 specified 
Proxy Basket securities 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 specified Proxy Basket securities 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.
    Proposed Rule 14.11(m)(1) provides that the Exchange will consider 
for trading, whether by listing or pursuant to unlisted trading 
privileges, Tracking Fund Shares that meet the criteria of this Rule.
    Proposed Rule 14.11(m)(2) provides that this proposed Rule is 
applicable only to Tracking Fund Shares. Except to the extent 
inconsistent with this Rule, or unless the context otherwise requires, 
the rules and procedures of the Board of Directors shall be applicable 
to the trading on the Exchange of such securities. Tracking Fund Shares 
are included within the definition of ``security'' or ``securities'' as 
such terms are used in the Rules of the Exchange.
    Proposed Rule 14.11(m)(2)(A)-(C) provide that the Exchange will 
file separate proposals under Section 19(b) of the Act before the 
listing of Tracking Fund Shares; and that transactions in Tracking Fund 
Shares will occur throughout the Exchange's trading hours; the minimum 
price variation for quoting and entry of orders in Tracking Fund Shares 
is $0.01.
    Proposed Rule 14.11(m)(2)(D) provides that the Exchange will 
implement and maintain written surveillance procedures for Tracking 
Fund Shares and as part of these surveillance procedures, the 
Investment Company's investment adviser will upon request by the 
Exchange or FINRA, on behalf of the Exchange, make available to the 
Exchange or FINRA the daily Fund Portfolio of each series of Tracking 
Fund Shares.
    Proposed Rule 14.11(m)(2)(E) provides that if the investment 
adviser to the Investment Company issuing Tracking Fund Shares is 
registered as a broker-dealer or is affiliated with a broker-dealer, 
such investment adviser will erect and maintain a ``fire wall'' between 
the investment adviser and personnel of the broker-dealer or broker-
dealer affiliate, as applicable, with respect to access to information 
concerning the composition of and/or changes to the Fund Portfolio and/
or the Proxy Basket. Any person related to the investment adviser or 
Investment Company who makes decisions pertaining to the Investment 
Company's Fund Portfolio or has access to information regarding the 
Fund Portfolio or changes thereto or the Proxy Basket must be subject 
to procedures designed to prevent the use and dissemination of material 
nonpublic

[[Page 18306]]

information regarding the Fund Portfolio or changes thereto or the 
Proxy Basket.
    Proposed Rule 14.11(m)(2)(F) provides that a person or entity, 
including a custodian, Reporting Authority, distributor, or 
administrator, who has access to information regarding the Fund 
Portfolio or changes thereto or the Proxy Basket, must be subject to 
procedures designed to prevent the use and dissemination of material 
nonpublic information regarding the applicable Fund Portfolio or 
changes thereto or the Proxy Basket. Moreover, if any such person or 
entity is registered as a broker-dealer or affiliated with a broker-
dealer, such person or entity will erect and 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 or Proxy Basket.
    Proposed Rule 14.11(m)(3)(B) provides that 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.
    Proposed Rule 14.11(m)(3)(C) provides that the term ``Reporting 
Authority'' in respect of a particular series of Tracking Fund Shares 
means the Exchange, an institution, or a reporting service designated 
by the Exchange or by the exchange that lists a particular series of 
Tracking Fund Shares (if the Exchange is trading such series pursuant 
to unlisted trading privileges) as the official source for calculating 
and reporting information relating to such series, including, but not 
limited to, the Proxy Basket; the Fund Portfolio; the amount of any 
cash distribution to holders of Tracking Fund Shares, net asset value, 
or other information relating to the issuance, redemption or trading of 
Tracking Fund Shares. A series of Tracking Fund Shares may have more 
than one Reporting Authority, each having different functions.
    Proposed Rule 14.11(m)(3)(D) provides that the term ``Normal Market 
Conditions'' includes, but is not limited to, the absence of trading 
halts in the applicable financial markets generally; operational issues 
(e.g., systems failure) causing dissemination of inaccurate market 
information; or force majeure type events such as natural or manmade 
disaster, act of God, armed conflict, act of terrorism, riot or labor 
disruption or any similar intervening circumstance.
    Proposed Rule 14.11(m)(3)(E) provides that the term ``Proxy 
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 1940 Act applicable to a series of Tracking Fund 
Shares. The Proxy Basket also serves as the creation and redemption 
basket for a series of Tracking Fund Shares. The Proxy Basket will be 
constructed as provided in the applicable exemptive relief under the 
1940 Act and will be fully described in the proposal required under 
Rule 14.11(m)(2)(A). The website for each series of Tracking Fund 
Shares shall disclose the following information regarding the Proxy 
Basket as required under this Rule 14.11(m), to the extent applicable: 
(i) Ticker symbol; (ii) CUSIP or other identifier; (iii) Description of 
the holding; (iv) Identity of the security, commodity, index, or other 
asset upon which the derivative is based; (v) The strike price for any 
options; (vi) The quantity of each security or other asset held as 
measured by: (a) Par value; (b) Notional value; (c) Number of shares; 
(d) Number of contracts; (e) Number of units; (vii) Maturity date; 
(viii) Coupon rate; (ix) Effective date; (x) Market value; and (xi) 
Percentage weighting of the holding in the portfolio.
    Proposed Rule 14.11(m)(4)(A) provides the initial listing criteria 
for a series of Tracking Fund Shares, which include the following: (A) 
Each series of Tracking Fund Shares will be listed and traded on the 
Exchange subject to application of the following initial listing 
criteria: (i) For each series, the Exchange will establish a minimum 
number of Tracking Fund Shares required to be outstanding at the time 
of commencement of trading on the Exchange; (ii) the Exchange will 
obtain a representation from the issuer of each series of Tracking Fund 
Shares that the net asset value per share for the series will be 
calculated daily and that each of the following will be made available 
to all market participants at the same time when disclosed: The net 
asset value, the Proxy Basket, and the Fund Portfolio; and (iii) all 
Tracking Fund Shares shall have a stated investment objective, which 
shall be adhered to under Normal Market Conditions.
    Proposed Rule 14.11(m)(4)(B) provides that each series of Tracking 
Fund Shares will be listed and traded on the Exchange subject to 
application of the following continued listing criteria: (i)(a) The 
Proxy Basket will be disseminated at least once daily and will be made 
available to all market participants at the same time; and (b) the 
Reporting Authority that provides the Proxy Basket must implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the actual 
components of the Proxy Basket; (ii)(a) the Fund Portfolio will at a 
minimum be publicly disclosed within at least 60 days following the end 
of every fiscal quarter and will be made available to all market 
participants at the same time; and (b) the Reporting Authority that 
provides the Fund Portfolio must implement and maintain, or be subject 
to, procedures designed to prevent the use and dissemination of 
material non-public information regarding the actual components of the 
Fund Portfolio; (iii) upon termination of an Investment Company, the 
Exchange requires that Tracking Fund Shares issued in connection with 
such entity be removed from listing on the Exchange; and (iv) voting 
rights shall be as set forth in the applicable Investment Company 
prospectus or Statement of Additional Information.
    Additionally, proposed Rule 14.11(m)(4)(B)(iii) provides that the 
Exchange will consider the suspension of trading in and will commence 
delisting proceedings for a series of Tracking Fund Shares pursuant to 
Rule 14.12 under any of the following circumstances: (a) If, following 
the initial twelve-month period after commencement of trading on the 
Exchange of a series of Tracking Fund Shares, there are fewer than 50 
beneficial holders of the series of Tracking Fund Shares for 30 or more 
consecutive trading days; (b) if either the Proxy Basket or Fund 
Portfolio is not made available to all market participants at the same 
time; (c) if the Investment Company issuing the Tracking Fund Shares 
has failed to file any filings required by the Commission or if the 
Exchange is aware that the Investment Company is not in compliance with 
the conditions of any exemptive order or no-action relief granted by 
the Commission or the Commission Staff under the 1940 Act to the 
Investment Company with respect to the series of Tracking Fund Shares; 
(d) if any of the requirements set forth in this rule are not 
continuously maintained; (e) if any of the applicable Continued Listing 
Representations for the issue of Tracking Fund Shares are not 
continuously met; or (f) if such other event shall occur or condition 
exists which, in the opinion of the Exchange, makes further dealings on 
the Exchange inadvisable.
    Proposed Rule 14.11(m)(5) provides that Neither the Exchange, the 
Reporting Authority, when the Exchange is acting in the capacity of a 
Reporting Authority,

[[Page 18307]]

nor any agent of the Exchange shall have any liability for damages, 
claims, losses or expenses caused by any errors, omissions, or delays 
in calculating or disseminating any current portfolio value; the 
current value of the portfolio of securities required to be deposited 
to the open-end management investment company in connection with 
issuance of Tracking Fund Shares; the amount of any dividend equivalent 
payment or cash distribution to holders of Tracking Fund Shares; net 
asset value; or other information relating to the purchase, redemption, 
or trading of Tracking Fund Shares, resulting from any negligent act or 
omission by the Exchange, the Reporting Authority when the Exchange is 
acting in the capacity of a Reporting Authority, or any agent of the 
Exchange, or any act, condition, or cause beyond the reasonable control 
of the Exchange, its agent, or the Reporting Authority, when the 
Exchange is acting in the capacity of a Reporting Authority, including, 
but not limited to, an act of God; fire; flood; extraordinary weather 
conditions; war; insurrection; riot; strike; accident; action of 
government; communications or power failure; equipment or software 
malfunction; or any error, omission, or delay in the reports of 
transactions in one or more underlying securities.
    Proposed Rule 14.11(m)(6) provides that the provisions of this 
subparagraph apply only to series of Tracking Fund Shares that are the 
subject of an order by the Commission exempting such series from 
certain prospectus delivery requirements under Section 24(d) of the 
Investment Company Act of 1940 (the ``1940 Act'') and are not otherwise 
subject to prospectus delivery requirements under the Securities Act of 
1933. The Exchange will inform its members regarding application of 
these provisions of this subparagraph to a particular series of 
Tracking Fund Shares by means of an information circular prior to 
commencement of trading in such series. The Exchange requires that 
members provide to all purchasers of a series of Tracking Fund Shares a 
written description of the terms and characteristics of those 
securities, in a form prepared by the open-end management investment 
company issuing such securities, not later than the time a confirmation 
of the first transaction in such series is delivered to such purchaser. 
In addition, members shall include such a written description with any 
sales material relating to a series of Tracking Fund Shares that is 
provided to customers or the public. Any other written materials 
provided by a member to customers or the public making specific 
reference to a series of Tracking Fund Shares as an investment vehicle 
must include a statement in substantially the following form: ``A 
circular describing the terms and characteristics of (the series of 
Tracking Fund Shares) has been prepared by the (open-end management 
investment company name) and is available from your broker. It is 
recommended that you obtain and review such circular before purchasing 
(the series of Tracking Fund Shares).'' A member carrying an omnibus 
account for a non-member broker-dealer is required to inform such non-
member that execution of an order to purchase a series of Tracking Fund 
Shares for such omnibus account will be deemed to constitute agreement 
by the non-member to make such written description available to its 
customers on the same terms as are directly applicable to members under 
this rule. Upon request of a customer, a member shall also provide a 
prospectus for the particular series of Tracking Fund Shares.
    Proposed Rule 14.11(m)(7) provides that if the investment adviser 
to the Investment Company issuing Tracking Fund Shares is affiliated 
with a broker-dealer, such investment adviser shall erect and maintain 
a ``fire wall'' between the investment adviser and the broker-dealer 
with respect to access to information concerning the composition and/or 
changes to such Investment Company portfolio and Proxy Basket. 
Personnel who make decisions on the Investment Company's portfolio 
composition and/or Proxy Basket must be subject to procedures designed 
to prevent the use and dissemination of material nonpublic information 
regarding the applicable Investment Company portfolio and/or Proxy 
Basket.
Policy Discussion--Proposed Rule 14.11(m)
    The purpose of the structure of Tracking Fund Shares is to provide 
investors with the traditional benefits of ETFs \11\ while protecting 
funds from the potential for front running or free riding of portfolio 
transactions, which could adversely impact the performance of a fund. 
While each series of Tracking Fund Shares will be actively managed and, 
to that extent, similar to Managed Fund Shares (as defined in Rule 
14.11(i)), Tracking Fund Shares differ from Managed Fund Shares in one 
key way.\12\ A series of Tracking Fund Shares will disclose the Proxy 
Basket on a daily basis which, as described above, is designed to 
closely track the performance of the holdings of the Investment 
Company, instead of the actual holdings of the Investment Company, as 
provided by a series of Managed Fund Shares.\13\
---------------------------------------------------------------------------

    \11\ For purposes of this filing, the term ETF will include only 
Portfolio Depositary Receipts as defined in Rule 14.11(b), Index 
Fund Shares as defined in Rule 14.11(c), and Managed Fund Shares as 
defined in Rule 14.11(i), along with the equivalent products defined 
in the rules of other national securities exchanges.
    \12\ The Exchange notes that there are two additional 
differences between proposed Rule 14.11(m) and Rule 14.11(i): (i) 
Proposed Rule 14.11(m) would require a rule filing under Section 
19(b) prior to listing any product on the Exchange meaning that no 
series of Tracking Fund Shares could be listed on the Exchange 
pursuant to Rule 19b-4(e) and there are no proposed rules comparable 
to the quantitative portfolio holdings standards from Rule 14.11(i); 
and (ii) proposed Rule 14.11(m) would not require the dissemination 
of an intraday indicative value. The Exchange has submitted a 
proposal to eliminate the requirement for series of Managed Fund 
Shares and generally agrees with the Commission's sentiment that the 
intraday indicative value is not necessary to support the arbitrage 
mechanism. See SR-CboeBZX-2019-104 and Investment Company Act 
Release No. 10695 (October 24, 2019) (84 FR 57162).
    \13\ Proposed Rule 14.11(m)(4)(B)(iii) will, however, require 
each series of Tracking Fund Shares to at a minimum disclose the 
entirety of its portfolio holdings within at least 60 days following 
the end of every fiscal quarter in accordance with normal disclosure 
requirements otherwise applicable to open-end investment companies 
registered under the 1940 Act.
    Form N-PORT requires reporting of a fund's complete portfolio 
holdings on a position-by-position basis on a quarterly basis within 
60 days after fiscal quarter end. Investors can obtain a fund's 
Statement of Additional Information, its Shareholder Reports, its 
Form N-CSR, filed twice a year, and its Form N-CEN, filed annually. 
A fund's SAI and Shareholder Reports are available free upon request 
from the Investment Company, and those documents and the Form N-
PORT, Form N-CSR, and Form N-CEN may be viewed on-screen or 
downloaded from the Commission's website at www.sec.gov.
---------------------------------------------------------------------------

    For the arbitrage mechanism for any ETF to function effectively, 
authorized participants, arbitrageurs, and other market participants 
(collectively, ``Market Makers'') need sufficient information to 
accurately value shares of a fund to transact in both the primary and 
secondary market. The Proxy Basket, constructed as provided in the 
applicable exemptive relief, is designed to closely track the daily 
performance of the Fund Portfolio.
    Given the correlation between the Proxy Basket and the Fund 
Portfolio,\14\

[[Page 18308]]

the Exchange believes that the Proxy Basket would serve as a pricing 
signal to identify arbitrage opportunities when its value and the 
secondary market price of the shares of a series of Tracking Fund 
Shares diverge. If shares began trading at a discount to the Proxy 
Basket, an authorized participant could purchase the shares in 
secondary market transactions and, after accumulating enough shares to 
comprise a creation unit,\15\ redeem them in exchange for a redemption 
basket reflecting the Net Asset Value (``NAV'') per share of the Fund 
Portfolio. The purchases of shares would reduce the supply of shares in 
the market, and thus tend to drive up the shares' market price closer 
to the fund's NAV. Alternatively, if shares are trading at a premium, 
the transactions in the arbitrage process are reversed. Market Makers 
also can engage in arbitrage without using the creation or redemption 
processes. For example, if a fund is trading at a premium to the Proxy 
Basket, Market Makers may sell shares short and take a long position in 
the Proxy Basket securities, wait for the trading prices to move toward 
parity, and then close out the positions in both the shares and the 
securities, to realize a profit from the relative movement of their 
trading prices. Similarly, a Market Maker could buy shares and take a 
short position in the Proxy Basket securities in an attempt to profit 
when shares are trading at a discount to the Proxy Basket.
---------------------------------------------------------------------------

    \14\ As provided in the Notices, funds and their respective 
advisers will take remedial actions as necessary if the funds do not 
function as anticipated. For the first three years after a launch, a 
fund will establish certain thresholds for its level of tracking 
error, premiums/discounts, and spreads, so that, upon the fund's 
crossing a threshold, the adviser will promptly call a meeting of 
the fund's board of directors and will present the board or 
committee with recommendations for appropriate remedial measures. 
The board would then consider the continuing viability of the fund, 
whether shareholders are being harmed, and what, if any, action 
would be appropriate. Specifically, the Applications and Notices 
provide that such a meeting would occur: (1) If the tracking error 
exceeds 1%; or (2) if, for 30 or more days in any quarter or 15 days 
in a row (a) the absolute difference between either the market 
closing price or bid/ask price, on one hand, and NAV, on the other, 
exceeds 2%, or (b) the bid/ask spread exceeds 2%.
    \15\ Tracking Fund Shares will be purchased or redeemed only in 
large aggregations, or ``creation units,'' and the Proxy Basket will 
constitute the names and quantities of instruments for both 
purchases and redemptions of Creation Units.
---------------------------------------------------------------------------

    Overall, the Exchange believes that the arbitrage process would 
operate similarly to the arbitrage process in place today for existing 
ETFs that use in-kind baskets for creations and redemptions that do not 
reflect the ETF's complete holdings but nonetheless produce performance 
that is highly correlated to the performance of the ETF's actual 
portfolio. The Exchange has observed highly efficient trading of ETFs 
that invest in markets where security values are not fully known at the 
time of ETF trading, and where a perfect hedge is not possible, such as 
international equity and fixed-income ETFs. While the ability to value 
and hedge many of these existing ETFs in the market may be limited, 
such ETFs have generally maintained an effective arbitrage mechanism 
and traded efficiently.
    As provided in the Notice, the Commission believes that an 
arbitrage mechanism based largely on the combination of a daily 
disclosed Proxy Basket and at a minimum quarterly disclosure of the 
Fund Portfolio can work in an efficient manner to maintain a fund's 
secondary market prices close to its NAV.\16\ Consistent with the 
Commission's view, the Exchange believes that because the arbitrage 
mechanism for Tracking Fund Shares will be sufficient to keep secondary 
market prices in line with NAV and because the proposed rules are 
except as described above nearly identical to the generic listing 
standards for Managed Fund Shares, proposed Rule 14.11(m) is consistent 
with the Act.
---------------------------------------------------------------------------

    \16\ See Notice at 17. The Commission also notes that as long as 
arbitrage continues to keep the Fund's secondary market price and 
NAV close, and does so efficiently so that spreads remain narrow, 
that investors would benefit from the opportunity to invest in 
active strategies through a vehicle that offers the traditional 
benefits of ETFs.
---------------------------------------------------------------------------

    The Exchange notes that a significant amount of information about 
each fund and its Fund Portfolio is publicly available at all times. 
Each series will disclose the Proxy Basket, which is designed to 
closely track the daily performance of the Fund Portfolio, on a daily 
basis. Each series of Tracking Fund Shares will at a minimum publicly 
disclose the entirety of its portfolio holdings, including the name, 
identifier, market value and weight of each security and instrument in 
the portfolio within at least 60 days following the end of every fiscal 
quarter in a manner consistent with normal disclosure requirements 
otherwise applicable to open-end investment companies registered under 
the 1940 Act. The website will include additional quantitative 
information updated on a daily basis, including, on a per Share basis 
for each Fund, the prior Business Day's NAV and the Closing Price or 
Bid/Ask Price at the time of calculation of such NAV, and a calculation 
of the premium or discount of the Closing Price or Bid/Ask Price 
against such NAV. The website will also disclose any information 
regarding the bid/ask spread for each Fund as may be required for other 
ETFs under Rule 6c-11 under the 1940 Act, as amended.
    While not providing daily disclosure of the Fund Portfolio could 
open the door to potential information leakage and misuse of material 
non-public information, the Exchange believes that proposed Rules 
14.11(m)(2)(E) and (F) provide sufficient safeguards to prevent such 
leakage and misuse of information. The Exchange believes that these 
proposed rules are designed to prevent fraudulent and manipulative acts 
and practices related to the listing and trading of Tracking Fund 
Shares because they provide meaningful requirements about both the data 
that will be made publicly available about the Shares as well as the 
information that will only be available to certain parties and the 
controls on such information. Specifically, the Exchange believes that 
the requirements related to information protection enumerated under 
proposed Rule 14.11(m)(2)(F) will act as a strong safeguard against any 
misuse and improper dissemination of information related to a Fund 
Portfolio, the Proxy Basket, or changes thereto. The requirement that 
any person or entity implement procedures to prevent the use and 
dissemination of material nonpublic information regarding the Fund 
Portfolio or Proxy Basket will act to prevent any individual or entity 
from sharing such information externally and the internal ``fire wall'' 
requirements applicable where an entity is a registered broker-dealer 
or affiliated with a broker-dealer will act to make sure that no entity 
will be able to misuse the data for their own purposes. As such, the 
Exchange believes that this proposal is designed to prevent fraudulent 
and manipulative acts and practices.
Surveillance
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of Tracking Fund Shares on the Exchange 
during all trading sessions and to deter and detect violations of 
Exchange rules and the applicable federal securities laws. Trading of 
Tracking Fund Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products. The 
Exchange will require the issuer of each series of Tracking Fund Shares 
listed on the Exchange to represent to the Exchange that it will advise 
the Exchange of any failure by a Fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Exchange Act, the Exchange will surveil for compliance 
with the continued listing requirements. If a Fund is not in compliance 
with the applicable listing requirements, the Exchange will commence 
delisting procedures under Exchange Rule 14.12. In addition, the 
Exchange also has a general policy prohibiting the distribution of 
material, non-public information by its employees.

[[Page 18309]]

    As noted in proposed Rule 14.11(m)(2)(D), the Investment Company's 
investment adviser will upon request make available to the Exchange 
and/or FINRA, on behalf of the Exchange, the daily portfolio holdings 
of each series of Managed Portfolio Shares. The Exchange believes that 
this is appropriate because it will provide the Exchange or FINRA, on 
behalf of the Exchange, with access to the daily Fund Portfolio of any 
series of Tracking Fund Shares upon request on an as needed basis. The 
Exchange believes that the ability to access the information on an as 
needed basis will provide it with sufficient information to perform the 
necessary regulatory functions associated with listing and trading 
series of Tracking Fund Shares on the Exchange, including the ability 
to monitor compliance with the initial and continued listing 
requirements as well as the ability to surveil for manipulation of the 
shares.
Trading Halts
    As described above, proposed Rule 14.11(m)(4)(B)(iv) provides that 
if the Exchange becomes aware that one of the following is not being 
made available to all market participants at the same time, 
respectively: The net asset value, the Proxy Basket, or the Fund 
Portfolio with respect to a series of Tracking Fund Shares; then the 
Exchange will halt trading in such series until such time as the net 
asset value, the Proxy Basket, or the Fund Portfolio is available to 
all market participants, as applicable.
Availability of Information
    As noted above, Form N-PORT requires reporting of a fund's complete 
portfolio holdings on a position-by-position basis on a quarterly basis 
within 60 days after fiscal quarter end. Investors can obtain a fund's 
Statement of Additional Information, its Shareholder Reports, its Form 
N-CSR, filed twice a year, and its Form N-CEN, filed annually. A fund's 
SAI and Shareholder Reports are available free upon request from the 
Investment Company, and those documents and the Form N-PORT, Form N-
CSR, and Form N-CEN may be viewed on-screen or downloaded from the 
Commission's website at www.sec.gov.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares will be available via the Consolidated Tape Association 
(``CTA'') high-speed line.
Trading Rules
    The Exchange deems Tracking Fund Shares to be equity securities, 
thus rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. As provided in 
proposed Rule 14.11(m)(2)(C), the minimum price variation for quoting 
and entry of orders in securities traded on the Exchange is $0.01.
Information Circular
    Prior to the commencement of trading of a series of Tracking Fund 
Shares, the Exchange will inform its members in an Information Circular 
(``Circular'') of the special characteristics and risks associated with 
trading the Shares. Specifically, the Circular will discuss the 
following: (1) The procedures for purchases and redemptions of Shares; 
(2) BZX Rule 3.7, which imposes suitability obligations on Exchange 
members with respect to recommending transactions in the Shares to 
customers; (3) how information regarding the Proxy Basket is 
disseminated; (4) the requirement that members deliver a prospectus to 
investors purchasing newly issued Shares prior to or concurrently with 
the confirmation of a transaction; (5) trading information; and (6) 
that the Fund Portfolio of the Shares are not disclosed on a daily 
basis.
    In addition, the Circular will reference that Funds are subject to 
various fees and expenses described in the Registration Statement. The 
Circular will discuss any exemptive, no-action, and interpretive relief 
granted by the Commission from any rules under the Act. The Circular 
will also disclose that the NAV for the Shares will be calculated after 
4:00 p.m., E.T. each trading day.
The Shares
    The Shares are offered by the Trust, which is organized as a 
business trust under the laws of The Commonwealth of Massachusetts. The 
Trust is registered with the Commission as an open-end investment 
company and will file a registration statement on behalf of the Funds 
on Form N-1A (``Registration Statement'') with the Commission.\17\ 
Fidelity Management & Research Company or FMR Co., Inc. (the 
``Adviser'') will be the investment adviser to the Funds. The Adviser 
is not registered as a broker-dealer, but is affiliated with numerous 
broker-dealers. The Adviser represents that a fire wall exists and will 
be maintained between the respective personnel at the Adviser and 
affiliated broker-dealers with respect to access to information 
concerning the composition and/or changes to each Fund's portfolio and 
Proxy Basket. Personnel who make decisions on a Fund's portfolio 
composition and/or Proxy Basket shall be subject to procedures designed 
to prevent the use and dissemination of material non-public information 
regarding such portfolio and/or Proxy Basket. The Funds' sub-advisers, 
FMR Investment Management (UK) Limited, Fidelity Management & Research 
(Hong Kong) Limited, and Fidelity Management & Research (Japan) Limited 
(each a ``Sub-Adviser'' and, collectively, the ``Sub-Advisers''), are 
not registered as a broker-dealer but are affiliated with numerous 
broker-dealers. Sub-Adviser personnel who make decisions regarding a 
Fund's portfolio and/or Proxy Basket are subject to procedures designed 
to prevent the use and dissemination of material nonpublic information 
regarding the Fund's portfolio and/or Proxy 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 portfolio and/or Proxy Basket, and will be 
subject to procedures designed to prevent the use and dissemination of 
material non-public information regarding such portfolio and/or Proxy 
Basket. Each Fund intends to qualify each year as a regulated 
investment company under Subchapter M of the Internal Revenue Code of 
1986, as amended.
---------------------------------------------------------------------------

    \17\ The Trust intends to file a post-effective amendment to the 
Registration Statement in the near future. The descriptions of the 
Funds and the Shares contained herein are based, in part, on 
information that will be included in the Registration Statement. The 
Commission has issued an order granting certain exemptive relief to 
the Trust under the Investment Company Act of 1940 (15 U.S.C. 80a-
1).
---------------------------------------------------------------------------

    The Shares will conform to the initial and continued listing 
criteria under Rule 14.11(l) as well as all terms in the Exemptive 
Order. The Exchange represents that, for initial and/or continued 
listing, each Fund will be in compliance with Rule 10A-3 under the 
Act.\18\ A minimum of 100,000 Shares of each Fund will be outstanding 
at the commencement of trading on the

[[Page 18310]]

Exchange. The Exchange will obtain a representation from the issuer of 
the Shares of each Fund that the NAV per share of each Fund will be 
calculated daily and will be made available to all market participants 
at the same time.
---------------------------------------------------------------------------

    \18\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Fidelity Blue Chip Value ETF
    Notwithstanding the following description, the Fund's holdings will 
conform to the permissible investments as set forth in the Application 
and Order. The Fund seeks long-term growth of capital. In order to 
achieve its investment objective, under Normal Market Conditions, the 
Fund will invest at least 80% of its assets in: (i) Blue chip companies 
(companies whose stock is included in the S&P 500[supreg] Index or the 
Dow Jones Industrial AverageSM (DJIASM), and 
companies with market capitalizations of at least $1 billion if not 
included in either index); (ii) companies that the Adviser believes are 
undervalued in the marketplace in relation to factors such as assets, 
sales, earnings, growth potential, or cash flow, or in relation to 
securities of other companies in the same industry (stocks of these 
companies are often called ``value'' stocks) listed on a U.S. national 
securities exchange or a foreign exchange that trade on such exchange 
contemporaneously with the Fund's Shares; and (ii) cash and Cash 
Equivalents.\19\
---------------------------------------------------------------------------

    \19\ For purposes of this proposal and as defined in Rule 
14.11(i)(4)(C)(iii), Cash Equivalents are short-term instruments 
with maturities of less than three months that are: (i) U.S. 
Government securities, including bills, notes, and bonds differing 
as to maturity and rates of interest, which are either issued or 
guaranteed by the U.S. Treasury or by U.S. Government agencies or 
instrumentalities; (ii) certificates of deposit issued against funds 
deposited in a bank or savings and loan association; (iii) bankers 
acceptances, which are short-term credit instruments used to finance 
commercial transactions; (iv) repurchase agreements and reverse 
repurchase agreements; (v) bank time deposits, which are monies kept 
on deposit with banks or savings and loan associations for a stated 
period of time at a fixed rate of interest; (vi) commercial paper, 
which are short-term unsecured promissory notes; and (vii) money 
market funds.
---------------------------------------------------------------------------

    The Fund may also invest the Fund's assets in other securities and 
financial instruments, as summarized below. Under Normal Market 
Conditions, the Fund may invest up to 5% of its assets in U.S. 
exchange-traded index futures. The Fund may invest in ETFs to 
facilitate creations and redemptions using the Proxy Basket, as defined 
above.\20\ Except as described above, the Fund will not invest in 
derivative instruments or enter into short positions.\21\
---------------------------------------------------------------------------

    \20\ Given that the Tracking Basket would normally serve as a 
Fund's Creation Basket, a Fund may acquire Representative ETFs to 
create or redeem Shares. A Fund would not hold Representative ETFs 
for investment purposes. While the Adviser will not hold 
Representative ETFs in a Fund's portfolio for investment purposes, 
Representative ETFs will nonetheless convey accurate information 
about the types of instruments in which the Fund invests given that 
Representative ETFs will themselves invest in the types of 
securities included in the Fund's portfolio.
    \21\ The Adviser notes that the Fund may by virtue of its 
holdings be issued warrants and rights. The Fund will not purchase 
such instruments and will dispose of such holdings as the Adviser 
determines is in the best interest of the Fund's shareholders.
---------------------------------------------------------------------------

    The Exchange notes that the Fund's holdings will meet the generic 
listing standards applicable to series of Managed Fund Shares under 
Rule 14.11(i)(4)(C). While such standards do not apply directly to 
series of Tracking Fund Shares, the Exchange believes that the 
overarching policy issues related to liquidity, market cap, diversity, 
and concentration of portfolio holdings that Rule 14.11(i)(4)(C) is 
intended to address are equally applicable to series of Tracking Fund 
Shares.
Fidelity Blue Chip Growth ETF
    Notwithstanding the following description, the Fund's holdings will 
conform to the permissible investments as set forth in the Application 
and Order. The Fund seeks long-term growth of capital. In order to 
achieve its investment objective, under Normal Market Conditions, the 
Fund will invest at least 80% of its assets in: (i) Blue chip companies 
(companies whose stock is included in the S&P 500[supreg] Index or the 
Dow Jones Industrial AverageSM (DJIASM), and 
companies with market capitalizations of at least $1 billion if not 
included in either index) (ii) companies that the Adviser believes have 
above-average growth potential (stocks of these companies are often 
called ``growth'' stocks) that are listed on a U.S. national securities 
exchange or a foreign exchange that trade on such exchange 
contemporaneously with the Fund's Shares; and (iii) cash and Cash 
Equivalents.
    The Fund may also invest the Fund's assets in other securities and 
financial instruments, as summarized below. Under Normal Market 
Conditions, the Fund may invest up to 5% of its assets in U.S. 
exchange-traded index futures The Fund may invest in ETFs to facilitate 
creations and redemptions using the Proxy Basket, as defined above. 
Except as described above, the Fund will not invest in derivative 
instruments or enter into short positions.\22\
---------------------------------------------------------------------------

    \22\ The Adviser notes that the Fund may by virtue of its 
holdings be issued warrants and rights. The Fund will not purchase 
such instruments and will dispose of such holdings as the Adviser 
determines is in the best interest of the Fund's shareholders.
---------------------------------------------------------------------------

    The Exchange notes that the Fund's holdings will meet the generic 
listing standards applicable to series of Managed Fund Shares under 
Rule 14.11(i)(4)(C). While such standards do not apply directly to 
series of Tracking Fund Shares, the Exchange believes that the 
overarching policy issues related to liquidity, market cap, diversity, 
and concentration of portfolio holdings that Rule 14.11(i)(4)(C) is 
intended to address are equally applicable to series of Tracking Fund 
Shares.
Fidelity New Millennium ETF
    Notwithstanding the following description, the Fund's holdings will 
conform to the permissible investments as set forth in the Application 
and Order. The Fund seeks long-term growth of capital. In order to 
achieve its investment objective, under Normal Market Conditions, the 
Fund will primarily invest in (i) companies that may benefit from 
opportunities created by long-term changes in the marketplace by 
examining technological advances, product innovation, economic plans, 
demographics, social attitudes, and other factors, which can lead to 
investments in small and medium-sized companies; (ii) both ``growth'' 
and ``value'' stocks based on fundamental analysis of factors such as 
each issuer's financial condition and industry position, as well as 
market and economic conditions that are listed on a U.S. national 
securities exchange or a foreign exchange that trade on such exchange 
contemporaneously with the Fund's Shares; and (iii) cash and Cash 
Equivalents.
    The Fund may also invest the Fund's assets in other securities and 
financial instruments, as summarized below. Under Normal Market 
Conditions, the Fund may invest up to 5% of its assets in U.S. 
exchange-traded index futures. The Fund may invest in ETFs to 
facilitate creations and redemptions using the Proxy Basket, as defined 
above. Except as described above, the Fund will not invest in 
derivative instruments or enter into short positions.\23\
---------------------------------------------------------------------------

    \23\ The Adviser notes that the Fund may by virtue of its 
holdings be issued warrants and rights. The Fund will not purchase 
such instruments and will dispose of such holdings as the Adviser 
determines is in the best interest of the Fund's shareholders.
---------------------------------------------------------------------------

    The Exchange notes that the Fund's holdings will meet the generic 
listing standards applicable to series of Managed Fund Shares under 
Rule 14.11(i)(4)(C). While such standards do not apply directly to 
series of Tracking Fund Shares, the Exchange believes that the 
overarching policy issues related to liquidity, market cap, diversity, 
and

[[Page 18311]]

concentration of portfolio holdings that Rule 14.11(i)(4)(C) is 
intended to address are equally applicable to series of Tracking Fund 
Shares.
Proxy Basket for the Proposed Funds
    For the Funds, the Proxy Basket will consist of a combination of 
the Fund's recently disclosed portfolio holdings and representative 
ETFs. ETFs selected for inclusion in the Proxy Basket will be 
consistent with the Fund's objective and selected based on certain 
criteria, including, but not limited to, liquidity, assets under 
management, holding limits and compliance considerations. 
Representative ETFs can provide a useful mechanism to reflect a Fund's 
holdings' exposures within the Proxy Basket without revealing a Fund's 
exact positions.\24\ The Exchange notes that each Fund's NAV will form 
the basis for creations and redemptions for the Funds and creations and 
redemptions will work in a manner substantively identical to that of 
series of Managed Fund Shares. The Adviser expects that the Shares of 
the Funds will generally be created and redeemed in-kind, with limited 
exceptions. The names and quantities of the instruments that constitute 
the basket of securities for creations and redemptions will be the same 
as a Fund's Proxy Basket, except to the extent purchases and 
redemptions are made entirely or in part on a cash basis. In the event 
that the value of the Proxy Basket is not the same as a Fund's NAV, the 
creation and redemption baskets will consist of the securities included 
in the Proxy Basket plus or minus an amount of cash equal to the 
difference between the NAV and the value of the Proxy Basket, as 
further described below.
---------------------------------------------------------------------------

    \24\ The set of ETFs that are ``representative'' to be used in 
the Proxy Basket will depend on certain factors, including the 
Fund's investment objective, past holdings, and benchmark, and may 
change from time to time. For example, a U.S. diversified fund 
benchmarked to a diversified U.S. index would use liquid U.S. 
exchange-traded ETFs to capture size (large, mid or small 
capitalization), style (growth or value) and/or sector exposures in 
the Fund's portfolio. Leveraged and inverse ETFs will not be 
included in the Proxy Basket. ETFs may constitute no more than 50% 
of the Proxy Basket's assets.
---------------------------------------------------------------------------

    The Proxy Basket will be constructed utilizing a covariance matrix 
based on an optimization process to minimize deviations in the return 
of the Proxy Basket relative to the Fund. The proprietary optimization 
process mathematically seeks to minimize three key parameters that the 
Adviser believes are important to the effectiveness of the Proxy Basket 
as a hedge: tracking error (standard deviation of return differentials 
between the Proxy Basket and the Fund), turnover cost, and basket 
creation cost.\25\ Typically, the Proxy Basket is expected to be 
rebalanced on schedule with the public disclosure of the Fund's 
holdings; however, a new optimized Proxy Basket may be generated as 
frequently as daily, and therefore, rebalancing may occur more 
frequently at the Adviser's discretion. In determining whether to 
rebalance a new optimized Proxy Basket, the Adviser will consider 
various factors, including liquidity of the securities in the Proxy 
Basket, tracking error, and the cost to create and trade the Proxy 
Basket.\26\ For example, if the Adviser determines that a new Proxy 
Basket would reduce the variability of return differentials between the 
Proxy Basket and the Fund when balanced against the cost to trade the 
new Proxy Basket, rebalancing may be appropriate. The Adviser will 
periodically review the Proxy Basket parameters and Proxy Basket 
performance and process.
---------------------------------------------------------------------------

    \25\ Tracking error measures the deviations between the Proxy 
Basket and Fund. Turnover cost and basket creation cost are measures 
of the cost to create and maintain the Proxy Basket as a hedge.
    \26\ The Adviser uses a trading cost model to develop estimates 
of costs to trade a new Proxy Basket. There are essentially two 
elements to this cost: (1) The cost to purchase securities 
constituting the Proxy Basket, i.e., the cost to put on the hedge 
for the Authorized Participant, and (2) the cost of any adjustments 
that need to be made to the composition of the Proxy Basket, i.e., 
the cost to the Authorized Participant to change or maintain the 
hedge position. The inclusion of the trading cost model in the 
optimization process is intended to result in a Proxy Basket that is 
cost effective and liquid without compromising its tracking ability.
---------------------------------------------------------------------------

    As noted above, each Fund will also disclose the entirety of its 
portfolio holdings, including the name, identifier, market value and 
weight of each security and instrument in the portfolio, at a minimum 
within at least 60 days following the end of every fiscal quarter. As 
described above, the Exchange notes that the concept of the Proxy 
Basket employed under this structure is designed to provide investors 
with the traditional benefits of ETFs while protecting the Funds from 
the potential for front running or free riding of portfolio 
transactions, which could adversely impact the performance of a Fund.
Policy Discussion--Proposed Funds
    As discussed above, each Fund's holdings will meet the generic 
listing standards applicable to series of Managed Fund Shares under 
Rule 14.11(i)(4)(C). While such standards do not apply directly to 
series of Tracking Fund Shares, the Exchange believes that the 
overarching policy issues related to liquidity, market cap, diversity, 
and concentration of portfolio holdings that Rule 14.11(i)(4)(C) is 
intended to address are equally applicable to series of Tracking Fund 
Shares and, as such, any such concerns related to the portfolio are 
mitigated.
    Separately and in addition to the rationale supporting the 
arbitrage mechanism for Tracking Fund Shares more broadly above, the 
Exchange also believes that the particular instruments that may be 
included in each Fund's portfolio and Proxy Basket do not raise any 
concerns related to the Proxy Baskets being able to closely track the 
NAV of the Funds because such instruments include only instruments that 
trade on an exchange contemporaneously with the Shares. In addition, a 
Fund's Proxy Basket will be optimized so that it reliably and 
consistently correlates to the performance of the Fund. The Notice 
specifically states that ``in order to facilitate arbitrage, each 
Fund's portfolio and Tracking Basket will only include certain 
securities that trade on an exchange contemporaneously with the Fund's 
Shares. Because the securities would be exchange traded, market 
participants would be able to accurately price and readily trade the 
securities in the Tracking Basket for purposes of assessing the 
intraday value of the Fund's portfolio holdings and to hedge their 
positions in the Fund's Shares.'' \27\ The Exchange and Adviser agree 
with the Commission's conclusion.
---------------------------------------------------------------------------

    \27\ The Exchange notes that the instruments enumerated herein 
are consistent with the investable universe contemplated in the 
Notice. Specifically, the Notice provides that ``Each Fund may 
invest only in ETFs, Exchange-traded notes, Exchange-traded common 
stocks, common stocks listed on a foreign exchange that trade on 
such exchange contemporaneously with the Shares, Exchange-traded 
preferred stocks, Exchange-traded American depositary receipts, 
Exchange-traded real estate investment trusts, Exchange-traded 
commodity pools, Exchange-traded metals trusts, Exchange-traded 
currency trusts, and exchange-traded futures that trade 
contemporaneously with the Shares, as well as cash and cash 
equivalents . . . All futures contracts that a Fund may invest in 
will be traded on a U.S. futures exchange. For these purposes, an 
``Exchange'' is a national securities exchange as defined in section 
2(a)(26) of the [1940] Act.'' See Notice at 10.
---------------------------------------------------------------------------

    The Adviser anticipates that the returns between a Fund and its 
respective Proxy Basket will have a consistent relationship and that 
the deviation in the returns between a Fund and its Proxy Basket will 
be sufficiently small such that the Proxy Basket will provide Market 
Makers with a reliable hedging vehicle that they can use to effectuate 
low-risk arbitrage trades in Fund Shares. The Exchange believes that 
the disclosures provided by the Funds will allow Market Makers to 
understand the relationship between the performance of a Fund and its 
Proxy

[[Page 18312]]

Basket. Market Makers will be able to estimate the value of and hedge 
positions in a Fund's Shares, which the Exchange believes will 
facilitate the arbitrage process and help ensure that the Fund's Shares 
normally will trade at market prices close to their NAV. The Exchange 
also believes that competitive market making, where traders are looking 
to take advantage of differences in bid-ask spread, will aid in keeping 
spreads tight.
    The Exchange notes that a significant amount of information about 
each fund and its Fund Portfolio is publicly available at all times. 
Each series will disclose the Proxy Basket, which is designed to 
closely track the daily performance of the Fund Portfolio, on a daily 
basis. Each series of Tracking Fund Shares will at a minimum publicly 
disclose the entirety of its portfolio holdings, including the name, 
identifier, market value and weight of each security and instrument in 
the portfolio within at least 60 days following the end of every fiscal 
quarter in a manner consistent with normal disclosure requirements 
otherwise applicable to open-end investment companies registered under 
the 1940 Act. The website will include additional quantitative 
information updated on a daily basis, including, on a per Share basis 
for each Fund, the prior Business Day's NAV and the Closing Price or 
Bid/Ask Price at the time of calculation of such NAV, and a calculation 
of the premium or discount of the Closing Price or Bid/Ask Price 
against such NAV. The website will also disclose any information 
regarding the bid/ask spread for each Fund as may be required for other 
ETFs under Rule 6c-11 under the 1940 Act, as amended.
Additional Information
    The Exchange represents that the Shares of the Funds will continue 
to comply with all other proposed requirements applicable to Tracking 
Fund Shares, including the dissemination of key information such as the 
Proxy Basket, the Fund Portfolio, and Net Asset Value, suspension of 
trading or removal, trading halts, surveillance, minimum price 
variation for quoting and order entry, the information circular, and 
firewalls as set forth in the proposed Exchange rules applicable to 
Tracking Fund Shares and the orders approving such rules.
    Price information for the exchange-listed instruments held by the 
Funds, including both U.S. and non-U.S. listed equity securities and 
U.S. exchange-listed futures will be available through major market 
data vendors or securities exchanges listing and trading such 
securities. Moreover, U.S.-listed equity securities held by the Funds 
will trade on markets that are a member of Intermarket Surveillance 
Group (``ISG'') or affiliated with a member of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement.\28\ All futures contracts that the Funds may invest in will 
be traded on a U.S. futures exchange. The Exchange or the Financial 
Industry Regulatory Authority (``FINRA''), on behalf of the Exchange, 
or both, will communicate as needed regarding trading in the Shares, 
underlying U.S. exchange-listed equity securities, and U.S. exchange-
listed futures with other markets and other entities that are members 
of the Intermarket Surveillance Group (``ISG''), and the Exchange or 
FINRA, on behalf of the Exchange, or both, may obtain trading 
information regarding trading such instruments from such markets and 
other entities. In addition, the Exchange may obtain information 
regarding trading in the Shares, underlying equity securities, and U.S. 
exchange-listed futures from markets and other entities that are 
members of ISG or with which the Exchange has in place a comprehensive 
surveillance sharing agreement.
---------------------------------------------------------------------------

    \28\ For a list of the current members of ISG, see 
www.isgportal.com. The Exchange notes that not all components of the 
Funds may trade on markets that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement.
---------------------------------------------------------------------------

    All statements and representations made in this filing regarding 
the description of the portfolio or reference assets, limitations on 
portfolio holdings or reference assets, dissemination and availability 
of reference asset and intraday indicative values (as applicable), or 
the applicability of Exchange listing rules specified in this filing 
shall constitute continued listing requirements for the Shares. The 
issuer has represented to the Exchange that it will advise the Exchange 
of any failure by the Funds or Shares to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Act, the Exchange will surveil for compliance with the 
continued listing requirements. FINRA conducts certain cross-market 
surveillances on behalf of the Exchange pursuant to a regulatory 
services agreement. The Exchange is responsible for FINRA's performance 
under this regulatory services agreement. If a Fund is not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures with respect to such Fund under Exchange 
Rule 14.12.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \29\ in general and Section 6(b)(5) of the Act \30\ in 
particular in that it is 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 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.
---------------------------------------------------------------------------

    \29\ 15 U.S.C. 78f.
    \30\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that proposed Rule 14.11(m) is designed to 
prevent fraudulent and manipulative acts and practices in that the 
proposed rules relating to listing and trading of Tracking Fund Shares 
provide specific initial and continued listing criteria required to be 
met by such securities. Proposed Rule 14.11(m)(4)(A) provides the 
initial listing criteria for a series of Tracking Fund Shares, which 
include the following: (A) Each series of Tracking Fund Shares will be 
listed and traded on the Exchange subject to application of the 
following initial listing criteria: (i) For each series, the Exchange 
will establish a minimum number of Tracking Fund Shares required to be 
outstanding at the time of commencement of trading on the Exchange; 
(ii) the Exchange will obtain a representation from the issuer of each 
series of Tracking Fund Shares that the net asset value per share for 
the series will be calculated daily and that each of the following will 
be made available to all market participants at the same time when 
disclosed: The net asset value, the Proxy Basket, and the Fund 
Portfolio.
    Proposed Rule 14.11(m)(4)(B) provides that each series of Tracking 
Fund Shares will be listed and traded on the Exchange subject to 
application of the following continued listing criteria: (i)(a) The 
Proxy Basket will be disseminated at least once daily and will be made 
available to all market participants at the same time; and (b) the 
Reporting Authority that provides the Proxy Basket must implement and 
maintain, or be subject to, procedures designed to prevent the use and 
dissemination of material non-public information regarding the actual 
components of the Proxy Basket; (ii)(a) the Fund Portfolio will at a 
minimum be publicly disclosed within at least 60 days following the end 
of every fiscal quarter and will be made available to all

[[Page 18313]]

market participants at the same time; and (b) the Reporting Authority 
that provides the Fund Portfolio must implement and maintain, or be 
subject to, procedures designed to prevent the use and dissemination of 
material non-public information regarding the actual components of the 
Fund Portfolio; (iii) upon termination of an Investment Company, the 
Exchange requires that Tracking Fund Shares issued in connection with 
such entity be removed from listing on the Exchange; and (iv) voting 
rights shall be as set forth in the applicable Investment Company 
prospectus or Statement of Additional Information.
    Additionally, proposed Rule 14.11(m)(4)(B)(iii) provides that the 
Exchange will consider the suspension of trading in and will commence 
delisting proceedings for a series of Tracking Fund Shares pursuant to 
Rule 14.12 under any of the following circumstances: (a) If, following 
the initial twelve-month period after commencement of trading on the 
Exchange of a series of Tracking Fund Shares, there are fewer than 50 
beneficial holders of the series of Tracking Fund Shares for 30 or more 
consecutive trading days; (b) if either the Proxy Basket or Fund 
Portfolio is not made available to all market participants at the same 
time; (c) if the Investment Company issuing the Tracking Fund Shares 
has failed to file any filings required by the Commission or if the 
Exchange is aware that the Investment Company is not in compliance with 
the conditions of any exemptive order or no-action relief granted by 
the Commission to the Investment Company with respect to the series of 
Tracking Fund Shares; (d) if any of the requirements set forth in this 
rule are not continuously maintained; (e) if any of the applicable 
Continued Listing Representations for the issue of Tracking Fund Shares 
are not continuously met; or (f) if such other event shall occur or 
condition exists which, in the opinion of the Exchange, makes further 
dealings on the Exchange inadvisable.
    Proposed Rule 14.11(m)(4)(B)(iv) provides that if the Exchange 
becomes aware that one of the following is not being made available to 
all market participants at the same time: the net asset value, the 
Proxy Basket, or the Fund Portfolio with respect to a series of 
Tracking Fund Shares; then the Exchange will halt trading in such 
series until such time as the NAV, the Proxy Basket, or the Fund 
Portfolio is available to all market participants, as applicable.
    Proposed Rule 14.11(m)(7) provides that if the investment adviser 
to the Investment Company issuing Tracking Fund Shares is affiliated 
with a broker-dealer, such investment adviser shall erect and maintain 
a ``fire wall'' between the investment adviser and the broker-dealer 
with respect to access to information concerning the composition and/or 
changes to such Investment Company portfolio and Proxy Basket. 
Personnel who make decisions on the Investment Company's portfolio 
composition and/or Proxy Basket must be subject to procedures designed 
to prevent the use and dissemination of material nonpublic information 
regarding the applicable Investment Company portfolio and/or Proxy 
Basket.
    The Exchange believes that these proposed rules are designed to 
prevent fraudulent and manipulative acts and practices related to the 
listing and trading of Tracking Fund Shares because they provide 
meaningful requirements about both the data that will be made publicly 
available about the Shares (the Proxy Basket) as well as the 
information that will only be available to certain parties and the 
controls on such information. Specifically, the Exchange believes that 
the requirements related to information protection enumerated under 
proposed Rule 14.11(m)(7) will act as a strong safeguard against any 
misuse and improper dissemination of information related to the 
securities included in or changes made to the Fund Portfolio and/or the 
Proxy Basket. As such, the Exchange believes that this proposal is 
designed to prevent fraudulent and manipulative acts and practices.
    As noted above, the purpose of the structure of Tracking Fund 
Shares is to provide investors with the traditional benefits of ETFs 
while protecting funds from the potential for front running or free 
riding of portfolio transactions, which could adversely impact the 
performance of a fund. While each series of Tracking Fund Shares will 
be actively managed and, to that extent, similar to Managed Fund Shares 
(as defined in Rule 14.11(i)), Tracking Fund Shares differ from Managed 
Fund Shares in one key way.\31\ A series of Tracking Fund Shares will 
disclose the Proxy Basket on a daily basis which, as described above, 
is designed to closely track the performance of the holdings of the 
Investment Company, instead of the actual holdings of the Investment 
Company, as provided by a series of Managed Fund Shares.\32\
---------------------------------------------------------------------------

    \31\ The Exchange notes that there are two additional 
substantive differences between proposed Rule 14.11(m) and Rule 
14.11(i): (i) Proposed Rule 14.11(m) would require a rule filing 
under Section 19(b) prior to listing any product on the Exchange 
meaning that no series of Tracking Fund Shares could be listed on 
the Exchange pursuant to Rule 19b-4(e) and there are no proposed 
rules comparable to the quantitative portfolio holdings standards 
from Rule 14.11(i); and (ii) proposed Rule 14.11(m) would not 
require the dissemination of an intraday indicative value. The 
Exchange has submitted a proposal to eliminate the requirement for 
series of Managed Fund Shares and generally agrees with the 
Commission's sentiment that the intraday indicative value is not 
necessary to support the arbitrage mechanism. See SR-CboeBZX-2019-
104 and Investment Company Act Release No. 10695 (October 24, 2019) 
(84 FR 57162).
    \32\ Proposed Rule 14.11(m)(4)(B)(ii) will, however, require 
each series of Tracking Fund Shares to at a minimum disclose the 
entirety of its portfolio holdings within at least 60 days following 
the end of every fiscal quarter in accordance with normal disclosure 
requirements otherwise applicable to open-end investment companies 
registered under the 1940 Act.
    Form N-PORT requires reporting of a fund's complete portfolio 
holdings on a position-by-position basis on a quarterly basis within 
60 days after fiscal quarter end. Investors can obtain a fund's 
Statement of Additional Information, its Shareholder Reports, its 
Form N-CSR, filed twice a year, and its Form N-CEN, filed annually. 
A fund's SAI and Shareholder Reports are available free upon request 
from the Investment Company, and those documents and the Form N-
PORT, Form N-CSR, and Form N-CEN may be viewed on-screen or 
downloaded from the Commission's website at www.sec.gov.
---------------------------------------------------------------------------

    For the arbitrage mechanism for any ETF to function effectively, 
Market Makers need sufficient information to accurately value shares of 
a fund to transact in both the primary and secondary market. The Proxy 
Basket, constructed as provided in the applicable exemptive relief, is 
designed to closely track the daily performance of the holdings of a 
series of Tracking Fund Shares.
    Given the correlation between the Proxy Basket and the Fund 
Portfolio,\33\ the Exchange believes that the Proxy Basket would serve 
as a pricing signal to identify arbitrage opportunities when its value 
and the secondary market price of the shares of a series of Tracking 
Fund Shares diverge. If shares began trading at a discount to the Proxy 
Basket, an authorized participant could purchase the shares in 
secondary market

[[Page 18314]]

transactions and, after accumulating enough shares to comprise a 
creation unit,\34\ redeem them in exchange for a redemption basket 
reflecting the NAV per share of the fund's portfolio holdings. The 
purchases of shares would reduce the supply of shares in the market, 
and thus tend to drive up the shares' market price closer to the fund's 
NAV. Alternatively, if shares are trading at a premium, the 
transactions in the arbitrage process are reversed. Market Makers also 
can engage in arbitrage without using the creation or redemption 
processes. For example, if a fund is trading at a premium to the Proxy 
Basket, Market Makers may sell shares short and take a long position in 
the Proxy Basket securities, wait for the trading prices to move toward 
parity, and then close out the positions in both the shares and the 
securities, to realize a profit from the relative movement of their 
trading prices. Similarly, a Market Maker could buy shares and take a 
short position in the Proxy Basket securities in an attempt to profit 
when shares are trading at a discount to the Proxy Basket.
---------------------------------------------------------------------------

    \33\ As provided in the Notices, funds and their respective 
advisers will take remedial actions as necessary if the funds do not 
function as anticipated. For the first three years after a launch, a 
fund will establish certain thresholds for its level of tracking 
error, premiums/discounts, and spreads, so that, upon the fund's 
crossing a threshold, the adviser will promptly call a meeting of 
the fund's board of directors and will present the board or 
committee with recommendations for appropriate remedial measures. 
The board would then consider the continuing viability of the fund, 
whether shareholders are being harmed, and what, if any, action 
would be appropriate. Specifically, the Applications and Notices 
provide that such a meeting would occur: (1) If the tracking error 
exceeds 1%; or (2) if, for 30 or more days in any quarter or 15 days 
in a row (a) the absolute difference between either the market 
closing price or bid/ask price, on one hand, and NAV, on the other, 
exceeds 2%, or (b) the bid/ask spread exceeds 2%.
    \34\ Tracking Fund Shares will be purchased or redeemed only in 
large aggregations, or ``creation units,'' and the Proxy Basket will 
constitute the names and quantities of instruments for both 
purchases and redemptions of Creation Units.
---------------------------------------------------------------------------

    Overall, the Exchange believes that the arbitrage process would 
operate similarly to the arbitrage process in place today for existing 
ETFs that use in-kind baskets for creations and redemptions that do not 
reflect the ETF's complete holdings but nonetheless produce performance 
that is highly correlated to the performance of the ETF's actual 
portfolio. The Exchange has observed highly efficient trading of ETFs 
that invest in markets where security values are not fully known at the 
time of ETF trading, and where a perfect hedge is not possible, such as 
international equity and fixed-income ETFs. While the ability to value 
and hedge many of these existing ETFs in the market may be limited, 
such ETFs have generally maintained an effective arbitrage mechanism 
and traded efficiently.
    As provided in the Notice, the Commission believes that an 
arbitrage mechanism based largely on the combination of a daily 
disclosed Proxy Basket and at a minimum quarterly disclosure of the 
Fund Portfolio can work in an efficient manner to maintain a fund's 
secondary market prices close to its NAV.\35\ Consistent with the 
Commission's view, the Exchange believes that the arbitrage mechanism 
for Tracking Fund Shares will be sufficient to keep secondary market 
prices in line with NAV. This, combined with the fact that the proposed 
rules are, except as described above, nearly identical to the generic 
listing standards for Managed Fund Shares, leads the Exchange to 
believe that the proposed Rule 14.11(m) is consistent with the Act.
---------------------------------------------------------------------------

    \35\ See Fidelity Notice at 17. The Commission also notes that 
as long as arbitrage continues to keep the Fund's secondary market 
price and NAV close, and does so efficiently so that spreads remain 
narrow, that investors would benefit from the opportunity to invest 
in active strategies through a vehicle that offers the traditional 
benefits of ETFs.
---------------------------------------------------------------------------

    The Exchange notes that a significant amount of information about 
each fund and its Fund Portfolio is publicly available at all times. 
Each series will disclose the Proxy Basket, which is designed to 
closely track the daily performance of the Fund Portfolio, on a daily 
basis. Each series of Tracking Fund Shares will at a minimum publicly 
disclose the entirety of its portfolio holdings, including the name, 
identifier, market value and weight of each security and instrument in 
the portfolio within at least 60 days following the end of every fiscal 
quarter in a manner consistent with normal disclosure requirements 
otherwise applicable to open-end investment companies registered under 
the 1940 Act. The website will include additional quantitative 
information updated on a daily basis, including, on a per Share basis 
for each Fund, the prior Business Day's NAV and the Closing Price or 
Bid/Ask Price at the time of calculation of such NAV, and a calculation 
of the premium or discount of the Closing Price or Bid/Ask Price 
against such NAV. The website will also disclose any information 
regarding the bid/ask spread for each Fund as may be required for other 
ETFs under Rule 6c-11 under the 1940 Act, as amended.
    The Exchange believes that its surveillance procedures are adequate 
to properly monitor the trading of Tracking Fund Shares on the Exchange 
during all trading sessions and to deter and detect violations of 
Exchange rules and the applicable federal securities laws. Trading of 
Tracking Fund Shares through the Exchange will be subject to the 
Exchange's surveillance procedures for derivative products. The 
Exchange will require the issuer of each series of Tracking Fund Shares 
listed on the Exchange to represent to the Exchange that it will advise 
the Exchange of any failure by a Fund to comply with the continued 
listing requirements, and, pursuant to its obligations under Section 
19(g)(1) of the Exchange Act, the Exchange will surveil for compliance 
with the continued listing requirements. If a Fund is not in compliance 
with the applicable listing requirements, the Exchange will commence 
delisting procedures under Exchange Rule 14.12. In addition, the 
Exchange also has a general policy prohibiting the distribution of 
material, non-public information by its employees.
    As noted in proposed Rule 14.11(m)(2)(D), the Investment Company's 
investment adviser will upon request make available to the Exchange 
and/or FINRA, on behalf of the Exchange, the daily portfolio holdings 
of each series of Managed Portfolio Shares. The Exchange believes that 
this is appropriate because it will provide the Exchange or FINRA, on 
behalf of the Exchange, with access to the daily Fund Portfolio of any 
series of Tracking Fund Shares upon request on an as needed basis. The 
Exchange believes that the ability to access the information on an as 
needed basis will provide it with sufficient information to perform the 
necessary regulatory functions associated with listing and trading 
series of Tracking Fund Shares on the Exchange, including the ability 
to monitor compliance with the initial and continued listing 
requirements as well as the ability to surveil for manipulation of the 
shares.
    As noted above, Form N-PORT requires reporting of a fund's complete 
portfolio holdings on a position-by-position basis on a quarterly basis 
within 60 days after fiscal quarter end. Investors can obtain a fund's 
Statement of Additional Information, its Shareholder Reports, its Form 
N-CSR, filed twice a year, and its Form N-CEN, filed annually. A fund's 
SAI and Shareholder Reports are available free upon request from the 
Investment Company, and those documents and the Form N-PORT, Form N-
CSR, and Form N-CEN may be viewed on-screen or downloaded from the 
Commission's website at www.sec.gov.
    Information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services. Information 
regarding the previous day's closing price and trading volume 
information for the Shares will be published daily in the financial 
section of newspapers. Quotation and last sale information for the 
Shares will be available via the CTA high-speed line. The Exchange 
deems Tracking Fund Shares to be equity securities, thus rendering 
trading in the Shares subject to the Exchange's existing rules 
governing the trading of equity securities. As provided in proposed

[[Page 18315]]

Rule 14.11(m)(2)(C), the minimum price variation for quoting and entry 
of orders in securities traded on the Exchange is $0.01.
The Funds
    As discussed above, each Fund's holdings will meet the generic 
listing standards applicable to series of Managed Fund Shares under 
Rule 14.11(i)(4)(C). While such standards do not apply directly to 
series of Tracking Fund Shares, the Exchange believes that the 
overarching policy issues related to liquidity, market cap, diversity, 
and concentration of portfolio holdings that Rule 14.11(i)(4)(C) is 
intended to address are equally applicable to series of Tracking Fund 
Shares and, as such, any such concerns related to the portfolio are 
mitigated.
    Separately and in addition to the rationale supporting the 
arbitrage mechanism for Tracking Fund Shares more broadly above, the 
Exchange also believes that the particular instruments that may be 
included in each Fund's portfolio and Proxy Basket do not raise any 
concerns related to the Proxy Baskets being able to closely track the 
NAV of the Funds because such instruments include only instruments that 
trade on an exchange contemporaneously with the Shares. In addition, a 
Fund's Proxy Basket will be optimized so that it reliably and 
consistently correlates to the performance of the Fund. The Notice 
specifically states that ``in order to facilitate arbitrage, each 
Fund's portfolio and Tracking Basket, which is the Proxy Basket under 
proposed Rule 14.11(m)(3)(E) for the purpose of the Funds, will only 
include certain securities that trade on an exchange contemporaneously 
with the Fund's Shares. Because the securities would be exchange 
traded, market participants would be able to accurately price and 
readily trade the securities in the Tracking Basket for purposes of 
assessing the intraday value of the Fund's portfolio holdings and to 
hedge their positions in the Fund's Shares.'' \36\ The Exchange and 
Adviser agree with the Commission's conclusion.
---------------------------------------------------------------------------

    \36\ The Exchange notes that the instruments enumerated herein 
are consistent with the investable universe contemplated in the 
Notice. Specifically, the Notice provides that ``Each Fund may 
invest only in ETFs, Exchange-traded notes, Exchange-traded common 
stocks, common stocks listed on a foreign exchange that trade on 
such exchange contemporaneously with the Shares, Exchange-traded 
preferred stocks, Exchange-traded American depositary receipts, 
Exchange-traded real estate investment trusts, Exchange-traded 
commodity pools, Exchange-traded metals trusts, Exchange-traded 
currency trusts, and exchange-traded futures that trade 
contemporaneously with the Shares, as well as cash and cash 
equivalents . . . All futures contracts that a Fund may invest in 
will be traded on a U.S. futures exchange. For these purposes, an 
``Exchange'' is a national securities exchange as defined in section 
2(a)(26) of the [1940] Act.'' See Notice at 10.
---------------------------------------------------------------------------

    The Adviser anticipates that the returns between a Fund and its 
respective Proxy Basket will have a consistent relationship and that 
the deviation in the returns between a Fund and its Proxy Basket will 
be sufficiently small such that the Proxy Basket will provide Market 
Makers with a reliable hedging vehicle that they can use to effectuate 
low-risk arbitrage trades in Fund Shares. The Exchange believes that 
the disclosures provided by the Funds will allow Market Makers to 
understand the relationship between the performance of a Fund and its 
Proxy Basket. Market Makers will be able to estimate the value of and 
hedge positions in a Fund's Shares, which the Exchange believes will 
facilitate the arbitrage process and help ensure that the Fund's Shares 
normally will trade at market prices close to their NAV. The Exchange 
also believes that competitive market making, where traders are looking 
to take advantage of differences in bid-ask spread, will aid in keeping 
spreads tight.
    The Exchange notes that a significant amount of information about 
each fund and its Fund Portfolio is publicly available at all times. 
Each series will disclose the Proxy Basket, which is designed to 
closely track the daily performance of the Fund Portfolio, on a daily 
basis. Each series of Tracking Fund Shares will at a minimum publicly 
disclose the entirety of its portfolio holdings, including the name, 
identifier, market value and weight of each security and instrument in 
the portfolio within at least 60 days following the end of every fiscal 
quarter in a manner consistent with normal disclosure requirements 
otherwise applicable to open-end investment companies registered under 
the 1940 Act. The website will include additional quantitative 
information updated on a daily basis, including, on a per Share basis 
for each Fund, the prior Business Day's NAV and the Closing Price or 
Bid/Ask Price at the time of calculation of such NAV, and a calculation 
of the premium or discount of the Closing Price or Bid/Ask Price 
against such NAV. The website will also disclose any information 
regarding the bid/ask spread for each Fund as may be required for other 
ETFs under Rule 6c-11 under the 1940 Act, as amended.
    The Exchange represents that the Shares of the Funds will continue 
to comply with all other proposed requirements applicable to Tracking 
Fund Shares, which also generally correspond to the requirements for 
Managed Fund Shares, including the dissemination of key information 
such as the Proxy Basket, the Fund Portfolio, and Net Asset Value, 
suspension of trading or removal, trading halts, surveillance, minimum 
price variation for quoting and order entry, the information circular, 
and firewalls as set forth in the proposed Exchange rules applicable to 
Tracking Fund Shares and the orders approving such rules. Moreover, 
U.S.-listed equity securities held by the Funds will trade on markets 
that are a member of ISG or affiliated with a member of ISG or with 
which the Exchange has in place a comprehensive surveillance sharing 
agreement.\37\ All statements and representations made in this filing 
regarding the description of the portfolio or reference assets, 
limitations on portfolio holdings or reference assets, dissemination 
and availability of reference asset and intraday indicative values (as 
applicable), or the applicability of Exchange listing rules specified 
in this filing shall constitute continued listing requirements for the 
Shares. The issuer has represented to the Exchange that it will advise 
the Exchange of any failure by a Fund or Shares to comply with the 
continued listing requirements, and, pursuant to its obligations under 
Section 19(g)(1) of the Act, the Exchange will surveil for compliance 
with the continued listing requirements. FINRA conducts certain cross-
market surveillances on behalf of the Exchange pursuant to a regulatory 
services agreement. The Exchange is responsible for FINRA's performance 
under this regulatory services agreement. If a Fund is not in 
compliance with the applicable listing requirements, the Exchange will 
commence delisting procedures with respect to such Fund under Exchange 
Rule 14.12.
---------------------------------------------------------------------------

    \37\ For a list of the current members of ISG, see 
www.isgportal.com. The Exchange notes that not all components of the 
Funds may trade on markets that are members of ISG or with which the 
Exchange has in place a comprehensive surveillance sharing 
agreement.
---------------------------------------------------------------------------

    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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. Rather, the Exchange notes 
that the proposed rule

[[Page 18316]]

change will facilitate the listing of a new type of actively-managed 
exchange-traded products, thus enhancing competition among both market 
participants and listing venues, to the benefit of investors and the 
marketplace.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    The Exchange has neither solicited nor received written comments on 
the proposed rule change.

III. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2019-107, as Modified by Amendment No. 1, and Grounds for 
Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Exchange Act \38\ to determine whether the proposed 
rule change, as modified by Amendment No. 1, should be approved or 
disapproved. Institution of such proceedings is appropriate at this 
time in view of the legal and policy issues raised by the proposed rule 
change. Institution of proceedings does not indicate that the 
Commission has reached any conclusions with respect to any of the 
issues involved. Rather, as described below, the Commission seeks and 
encourages interested persons to provide comments on the proposed rule 
change.
---------------------------------------------------------------------------

    \38\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

    Pursuant to Section 19(b)(2)(B) of the Exchange Act,\39\ the 
Commission is providing notice of the grounds for disapproval under 
consideration. The Commission is instituting proceedings to allow for 
additional analysis of the proposed rule change's consistency with 
Section 6(b)(5) of the Exchange Act, which requires, among other 
things, that the rules of a national securities exchange be ``designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, . . . 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.'' \40\
---------------------------------------------------------------------------

    \39\ Id.
    \40\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

IV. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule 
change, as modified by Amendment No. 1, is consistent with Section 
6(b)(5) or any other provision of the Exchange Act, or the rules and 
regulations thereunder. Although there do not appear to be any issues 
relevant to approval or disapproval that would be facilitated by an 
oral presentation of views, data, and arguments, the Commission will 
consider, pursuant to Rule 19b-4, any request for an opportunity to 
make an oral presentation.\41\
---------------------------------------------------------------------------

    \41\ Section 19(b)(2) of the Exchange Act, as amended by the 
Securities Act Amendments of 1975, Public Law 94-29 (June 4, 1975), 
grants the Commission flexibility to determine what type of 
proceeding--either oral or notice and opportunity for written 
comments--is appropriate for consideration of a particular proposal 
by a self-regulatory organization. See Securities Act Amendments of 
1975, Senate Comm. on Banking, Housing & Urban Affairs, S. Rep. No. 
75, 94th Cong., 1st Sess. 30 (1975).
---------------------------------------------------------------------------

    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change, as modified by 
Amendment No. 1, should be approved or disapproved by April 22, 2020. 
Any person who wishes to file a rebuttal to any other person's 
submission must file that rebuttal by May 6, 2020.
    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in Amendment No. 1,\42\ and any other issues raised by the proposed 
rule change, as modified by Amendment No. 1, under the Exchange Act. 
The Commission seeks commenters' views regarding whether the Exchange's 
proposal to list and trade the Funds under proposed BZX Rule 14.11(m) 
(Tracking Fund Shares), which would be actively managed exchange-traded 
products for which the Proxy Basket, rather than the actual portfolio 
holdings, would be disclosed on a daily basis, and for which the actual 
portfolio holdings would be disclosed on a quarterly basis, is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, and to protect investors and 
the public interest, and is consistent with the maintenance of a fair 
and orderly market under the Exchange Act. In particular, the 
Commission seeks commenters' views regarding whether the Exchange's 
proposed listing rule provisions as they relate to foreign securities 
are adequate to prevent fraud and manipulation.
---------------------------------------------------------------------------

    \42\ See supra note 5.
---------------------------------------------------------------------------

    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 rule-comments@sec.gov. Please include 
File Number SR-CboeBZX-2019-107 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-2019-107. 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-2019-107 and should be submitted 
on or before April 22, 2020. Rebuttal comments should be submitted by 
May 6, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\43\
---------------------------------------------------------------------------

    \43\ 17 CFR 200.30-3(a)(12) & 17 CFR 200.30-3(a)(57).

---------------------------------------------------------------------------

[[Page 18317]]

J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-06719 Filed 3-31-20; 8:45 am]
 BILLING CODE 8011-01-P