In a recent move, Cboe Global Markets has approached the SEC with a proposal to amend its regulations, permitting the addition of an exchange-traded fund (ETF, Financial) share class to pre-existing mutual funds. This initiative, announced on Thursday, aims to streamline the process for asset management companies, enabling them to broaden their investment strategies previously limited to mutual funds by introducing an ETF share class.
This change could significantly increase the accessibility to a plethora of new funds for investors, as it simplifies the expansion of existing mutual fund strategies into the ETF space. The potential for a surge in both the variety and assets of ETFs is on the horizon, according to Todd Sohn, an ETF analyst at Strategas LLC, pending the SEC’s approval of Cboe’s request.
The expiration of Vanguard Group's patent on the ETF share class concept in May 2023 has paved the way for other asset managers, such as Dimensional Fund Advisors, Morgan Stanley, and Fidelity, to seek similar approvals from the SEC. Furthermore, T. Rowe Price and JP Morgan are among those showing interest in this innovative method for launching new ETFs, which presents a more economical alternative to converting or duplicating existing mutual fund strategies.
Cboe's filing marks a first from an exchange, setting a regulatory timeline that compels the SEC to address a question it has sidelined for nearly a year. Rob Marrocco, the global head of ETP listings at Cboe, emphasized the company's commitment to aiding issuers in obtaining exemptive relief. He highlighted that approval of their request would enhance cost efficiency and portfolio management for investors while also improving market liquidity.
