Cboe seeks SEC approval for mutual fund ETF share classes

Cboe Global Markets said Thursday it has sought SEC approval for a rule change that would allow issuers to add an exchange-traded fund (ETF) share class to existing mutual funds. If approved, asset managers could offer exposure to existing mutual fund portfolios through ETFs, similar to how they currently offer mutual fund share classes with different fees and other features. “Adding an ETF share class provides more options for investors,” said Rob Marrocco, global head of Cboe’s ETP listing business. Analysts said SEC approval would allow issuers to more easily add ETF products that are identical to existing mutual fund records without having to launch new funds. If the SEC approves Cboe’s application, “the number of ETFs and ETF assets could increase significantly,” said Todd Sohn, an ETF analyst at Strategas LLC. Vanguard Group’s patent on the share class concept expires in May 2023. Since then, eight other asset managers have applied to the SEC for permission to replicate the model, including Dimensional Fund Advisors, Morgan Stanley, OpenNew Tab, and Fidelity. Other firms, including T. Rowe Price and JP Morgan, have also expressed interest in this approach. Morningstar ETF strategist Bryan Armour said Cboe's filing "provides an avenue for issuers to force the SEC to respond and engage" with its application. The SEC must approve or deny Cboe's application within 240 days. It's important to note that there's no guarantee the SEC will approve the application. Armour noted that the SEC has already made a high-profile decision to approve a spot bitcoin ETF, and puts the odds of Cboe's application being approved this year at "just under 50 percent." (Reuters)