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Cboe Seeks SEC Approval to Combine ETFs and Mutual Funds, Potentially Revolutionizing Investment Landscape

Cboe Global Markets has formally requested approval from the United States Securities and Exchange Commission (SEC) for a rule modification that would enable the combination of exchange-traded funds (ETFs) and mutual funds.

In a report by Reuters on April 4, it was disclosed that Cboe submitted a 19b-4 form, seeking permission to introduce an ETF share class to existing mutual funds.

This move aims to establish a multi-share class fund structure, enabling issuers to merge and offer similar mutual funds and ETFs under one investment vehicle.

Todd Sohn, an ETF analyst at Strategas LLC, emphasized to Reuters that if the SEC greenlights Cboe’s proposal, “both the number of ETFs and ETF assets could soar.”

Distinguishing between mutual funds and ETFs, these investment vehicles operate differently, each with its own regulatory framework.

Mutual funds are typically traded at the end of the trading day at a price determined by the fund’s net asset value, computed post-market closure.

Conversely, ETFs trade on exchanges throughout the trading day at market prices akin to stocks, subject to fluctuations at any given moment.

Should the rule alteration be sanctioned, Bitcoin ETF shares might be integrated into a mutual fund’s portfolio, thereby providing exposure to the digital asset.

This prospective system is not without precedent. Vanguard Group has employed a patented investment strategy since 2001, facilitating a distinctive “share class” structure within their ETFs.

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This approach allowed Vanguard to incorporate ETFs as a share class of their existing mutual funds, sharing the same underlying portfolio. Vanguard’s patent on this share class concept lapsed in May 2023.

According to Reuters, eight asset managers, including Dimensional Fund Advisors, Morgan Stanley, and Fidelity, have sought regulatory approval to replicate this model. T. Rowe Price and JPMorgan have also indicated interest in adopting a similar strategy.

Cboe’s application is subject to approval or rejection by the SEC within 240 days. Bloomberg ETF analyst Eric Balchunas observed that the filing provides issuers with an opportunity to prompt the SEC’s response to their applications.

Mordor Intelligence projects that the North American ETF market will surpass $8 trillion in 2024, with a compound annual growth rate of 14% expected to propel it to $15.52 trillion by 2029.


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Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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