Cboe Seeks SEC Approval for Combining ETFs and Mutual Funds; Significant Market Growth Anticipated
Summary:
Cboe Global Markets has sought approval from the SEC for a regulatory change that could allow the integration of exchange-traded funds (ETFs) and mutual funds. If approved, this could lead to significant growth in both ETF quantity and assets. The Vanguard Group has been using a similar strategy since 2001. The model has drawn interest from several asset managers, including Morgan Stanley and Fidelity. The SEC has 240 days to issue its decision on the application.
Cboe Global Markets has filed a petition to the Securities and Exchange Commission (SEC) for a regulatory modification that would enable the blending of exchange-traded funds (ETFs) with mutual funds. Based on an April 4 Reuters report, Cboe lodged a 19b-4 form requesting approval to introduce an ETF share class to current mutual funds, which would permit a structure encompassing multiple share classes. Should the SEC greenlight this, issuers would then have the capacity to amalgamate and present analogous mutual funds and ETFs in a single financial instrument. Strategas LLC's ETF analyst Todd Sohn informed Reuters that SEC approval might lead to substantial growth in both ETF quantity and assets.
Mutual funds and ETFs are distinct in terms of operation and regulatory environments. Mutual funds are usually traded at the end of a trading day at the fund's net asset value (NAV), determined after market closure. In contrast, ETFs experience fluctuations throughout the trading day on exchanges, much like shares, with their pricing liable to change anytime. If this modification is accepted, the potential exists for Bitcoin (BTC) ETF shares to be incorporated into a mutual fund's portfolio, thereby offering exposure to the digital asset.
This proposed arrangement is not unprecedented. Vanguard Group has, since 2001, /utilised an exclusive investment strategy that permitted the unique "share class" structure within their ETFs. This enabled Vanguard to provide ETFs as a share class of their pre-existing mutual funds, with both funds sharing a common underlying portfolio. Vanguard’s hold on this share class idea is set to expire in May 2023. As reported by Reuters, eight asset managers, Dimensional Fund Advisors, Morgan Stanley, and Fidelity among them, have sought regulatory permission to imitate the model. T. Rowe Price and JP Morgan have also shown interest in adopting a similar tactic.
The SEC has a period of 240 days to either grant or reject Cboe’s application. Bloomberg ETF analyst Eric Balchunas pointed out that filing allows issuers to compel the SEC to respond to their applications. Mordor Intelligence predicts that by 2024, the North American ETF market will exceed $8 trillion and grow at a compound annual rate of 14% to reach $15.52 trillion by 2029.
Published At
4/5/2024 10:19:32 PM
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