CBOE ETF Share for Mutual Funds

Cboe Global Markets has filed a request for a rule change with the SEC that would allow issuers to add an exchange-traded fund share class to currently available mutual funds.

If approved, asset managers would be authorized to provide mutual fund share classes with different fees and features, similar to the current practice of selling exposure to established mutual fund portfolios through an ETF.

"This move to add an exchange-traded share class offers investors greater flexibility," said Rob Marrocco, Cboe's global head of ETP listings.

Analysts suggest that SEC approval could streamline the process for issuers to introduce ETF products that mirror the holdings of an existing mutual fund, rather than launching entirely new funds.

"If the SEC greenlights Cboe's proposal, both the number of ETFs and assets under management could see significant growth," noted Todd Sohn, ETF analyst at Strategas LLC.

Vanguard Group's patent on the share class concept lapsed in May 2023, leading eight other asset managers, including Dimensional Fund Advisors, Morgan Stanley, and Fidelity, to seek SEC approval to adopt a similar model.

Interest in this approach has also been expressed by T. Rowe Price and JP Morgan.

Bryan Armour, ETF strategist at Morningstar, views the Cboe filing as a strategic move by issuers to prompt the SEC's engagement with their applications. The SEC is mandated to respond to or adjudicate Cboe's application within 240 days.

While approval is not assured, Armour observes that the SEC recently sanctioned spot bitcoin ETFs, pegging the likelihood of Cboe's success this year at "slightly less than 50%."

However, Armour believes that Cboe's collaboration with asset managers could enhance the prospects of securing SEC approval in the long term.

"In essence, this development signifies the direction in which the industry is evolving, and Cboe is positioning itself at the forefront," he concluded.

Shayne Heffernan