SEC Moves Closer to Approving ETF Share Classes for Mutual Funds

• SEC clears pilot for ETF share classes, starting with Dimensional Fund Advisors.
• Mutual funds may now trade as ETFs, adding liquidity and tax efficiency.
• Over 80 asset managers await approval to launch ETF share classes.

A key SEC notice would soon allow asset managers to add ETF share classes to existing mutual funds, using a multi-share class structure. As a result, mutual fund managers could offer ETF versions of their funds without launching entirely new ETFs.

The first firm to test this model is Dimensional Fund Advisors (DFA), which has filed for exemptive relief to permit its mutual funds to also issue ETF share classes alongside traditional mutual fund shares. 

How ETF Share Classes Work

In this new model, a single mutual fund holds one set of underlying assets but issues two types of shares. One class trades intraday on the exchange like any ETF. Th…

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