Key takeaways:
- Cboe Global Markets has requested that the US SEC approve a rule modification enabling issuers to merge mutual funds with ETFs.
- If the SEC grants Cboe’s request, the quantity of “ETFs and ETF assets could soar,” according to Todd Sohn, an ETF analyst at Strategas LLC, who spoke with Reuters.
Cboe Global Markets has requested that the US Securities and Exchange Commission (SEC) approve a rule modification enabling issuers to merge mutual funds with Exchange Traded Funds (ETFs).
A Reuters report from Thursday states that Cboe filed a 19b-4 form seeking approval to add an ETF share class to already-existing mutual funds, enabling a fund structure with several share classes. If the rule is passed, issuers will be able to offer comparable ETFs and mutual funds as part of a single investment vehicle.
If the SEC grants Cboe’s request, the quantity of “ETFs and ETF assets could soar,” according to Todd Sohn, an ETF analyst at Strategas LLC, who spoke with Reuters.
There are distinct operational and legal distinctions between mutual funds and ETFs. Usually, at the end of the trading day, mutual funds are bought and sold at a price determined by their net asset value, which is determined following the market close.
On the other hand, ETFs are subject to fluctuations and trade on exchanges at market prices throughout the trading day, much like stocks. If the regulation change is granted, shares of a Bitcoin ETF may be added to a mutual fund’s portfolio to provide exposure to the digital asset.
The suggested system will not be unique. The Vanguard Group has offered its ETFs with a distinctive “share class” structure since 2001 because of a patented investment method.
This structure enabled Vanguard to offer ETFs as a share class of its current mutual funds, with both funds sharing the same underlying portfolio. The patent for this idea of a share class held by Vanguard expired in May 2023.
As per Reuters, eight asset managers, such as Dimensional Fund Advisors, Fidelity, and Morgan Stanley, have reportedly applied for regulatory clearance to duplicate the approach. A similar strategy has also piqued the curiosity of T. Rowe Price and JPMorgan.
The SEC has 240 days to decide whether to accept or deny Cboe’s application. According to Bloomberg ETF analyst Eric Balchunas, the filing allows issuers to compel the SEC to reply to their applications.
The North American ETF market is expected to surpass $8 trillion in 2024 and increase at a 14% compound annual growth rate to $15.52 trillion by 2029, according to Mordor Intelligence.
