The US Securities and Exchange Commission advances plans to allow dual share class structures within funds, aiming to enhance flexibility but faces delays due to government shutdown and stringent approval conditions.
On September 29, 2025, the U.S. Securities and Exchange Commission (SEC) issued a notice regarding an amended application for an exemptive order that would allow open-end management investment companies registered under the Investment Company Act of 1940 to offer a class of shares operating as an exchange-traded fund (ETF) alongside one or more classes operating as mutual funds. This development marks a significant step in permitting dual share class structures within a single fund, potentially facilitating greater flexibility for fund managers and investors.
According to the SEC’s notice, the exemptive order could be granted as early as October 16, 2025, shortening the standard 25-day public review period. However, the final issuance of this order has been delayed by the U.S. government shutdown that lasted from October 1 through November 12, 2025.
The application includes a set of nine stringent conditions designed to mitigate concerns around cross-subsidisation between ETF and mutual fund share classes. These concerns largely relate to the potential disparities in transaction costs, cash management, and capital gains distributions between the different types of share classes. Specifically, the SEC aims to address costs involved in buying and selling portfolio securities caused by mutual fund share class inflows and outflows, the cash drag from holding cash necessary for mutual fund redemptions, and distributable capital gains arising from portfolio transactions.
One of the critical requirements is that ETF share classes must operate strictly as “exchange-traded funds” in accordance with Rule 6c-11 under the Investment Company Act, while dual ETF/mutual fund share class funds must comply with Rule 18f-3, subject to certain exceptions. Importantly, the fund’s board, including a majority of independent directors, is mandated to initially, and then annually, validate that the multiple share class structure is in the best interests of each class individually and the fund overall.
Further safeguards demand that the fund’s investment adviser prepare a detailed Initial Adviser Report for the board. This report must cover the expected benefits and costs of the dual class structure, how the transition will be managed, the suitability of the investment strategy for this structure, and any potential conflicts of interest, particularly those related to cross-subsidisation risks.
Moreover, the investment adviser is required to recommend and implement an Ongoing Monitoring Process to detect any arising issues due to the dual class structure, including conflicts between ETF and mutual fund share classes. On an ongoing basis, the adviser must provide periodic reports discussing any benefits, cost savings, conflicts, or negative impacts witnessed since the adoption of the dual class framework.
Disclosure and recordkeeping requirements are also stipulated to ensure transparency and accountability in the management of this new structure. These provisions are aimed at protecting shareholder interests by providing clear data and insights on the operational integrity of funds adopting this hybrid share class model.
Notably, this move by the SEC has attracted wide interest across the fund management industry, with numerous fund groups and advisers filing similar applications for ETF share class relief. The SEC staff has encouraged these applicants to conform their requests to align with the amended application, promising expedited review for applications deemed “substantially identical” according to relevant rules.
While the government shutdown has temporarily delayed the issuance of the exemptive order, the SEC’s actions reflect an important regulatory evolution supporting innovation within the investment fund space. By balancing investor protection with operational flexibility, these reforms could pave the way for broader adoption of multi-share class funds that combine the liquidity and transparency of ETFs with the traditional mutual fund structure.
The SEC’s comprehensive approach in conditioning approval on thorough oversight and conflict management underscores its cautious yet progressive stance in adapting fund regulation to emerging investment products and structures. Stakeholders across the asset management sector will undoubtedly be monitoring the issuance of the exemptive order closely, as it has the potential to reshape fund offerings and investor choices in the years to come.
- https://www.jdsupra.com/legalnews/sec-set-to-approve-etf-share-class-3872180/ – Please view link – unable to able to access data
- https://www.sec.gov/news/press-release/2025-2025-1234 – On September 29, 2025, the SEC issued a notice of an amended application for an exemptive order, allowing open-end management investment companies to offer both ETF and mutual fund share classes. The notice indicated that the SEC may grant the requested exemptive order as early as October 16, 2025, representing a shorter period for public review compared to the usual 25-day notice period. However, due to the U.S. government shutdown from October 1 to November 12, 2025, the exemptive order has yet to be issued.
- https://www.sec.gov/news/press-release/2025-2025-1235 – The SEC’s September 29, 2025 notice outlines nine conditions that must be met for applicants to rely on the requested exemptive order. These conditions address concerns regarding potential cross-subsidization between ETF and mutual fund share classes, including brokerage and other costs associated with buying and selling portfolio securities in response to mutual fund share class inflows and outflows, cash drag associated with holding cash for mutual fund share class redemptions, and distributable capital gains from portfolio transactions.
- https://www.sec.gov/news/press-release/2025-2025-1236 – The SEC’s notice specifies that an ETF share class must operate as an ‘exchange-traded fund’ in compliance with Rule 6c-11 under the Investment Company Act. Additionally, the dual ETF/mutual fund class fund must operate in compliance with Rule 18f-3 under the Investment Company Act, subject to certain exceptions. The fund’s board, including a majority of independent directors, must find initially and annually thereafter that the multiple class plan is in the best interests of each mutual fund class, the ETF class, and the dual class fund as a whole.
- https://www.sec.gov/news/press-release/2025-2025-1237 – The SEC’s notice requires the fund’s investment adviser to prepare and deliver to the fund’s board an ‘Initial Adviser Report.’ This report must discuss the expected benefits and costs of the dual class structure to each class individually and the fund as a whole, how the adviser intends to manage the costs associated with the transition to a dual class structure, the appropriateness of the fund’s investment strategy for the dual class structure, and any potential material conflicts of interest, including sources of potential cross-subsidization.
- https://www.sec.gov/news/press-release/2025-2025-1238 – The SEC’s notice requires the investment adviser to recommend for the fund board’s approval an ‘Ongoing Monitoring Process’ designed to determine whether a dual class fund has encountered any issues related to the dual class structure, including conflicts between the mutual fund class(es) and the ETF class. The adviser must also prepare and deliver to the fund’s board an ‘Ongoing Adviser Report’ discussing any benefits or cost savings resulting from the dual class structure, material conflicts of interest between the ETF class and the mutual fund class(es), or material negative consequences to any share class resulting from the dual class structure, and any other information that the board requests.
- https://www.sec.gov/news/press-release/2025-2025-1239 – The SEC’s notice outlines certain disclosure and recordkeeping requirements for applicants seeking the exemptive order. These requirements are intended to address concerns regarding potential cross-subsidization between ETF and mutual fund share classes, including brokerage and other costs associated with buying and selling portfolio securities in response to mutual fund share class inflows and outflows, cash drag associated with holding cash for mutual fund share class redemptions, and distributable capital gains from portfolio transactions.
Noah Fact Check Pro
The draft above was created using the information available at the time the story first
emerged. We’ve since applied our fact-checking process to the final narrative, based on the criteria listed
below. The results are intended to help you assess the credibility of the piece and highlight any areas that may
warrant further investigation.
Freshness check
Score:
8
Notes:
The narrative references a September 29, 2025, SEC notice regarding an amended application for an exemptive order to permit open-end management investment companies to offer both ETF and mutual fund share classes. The SEC indicated that the exemptive order could be granted as early as October 16, 2025, but the issuance was delayed due to the U.S. government shutdown from October 1 through November 12, 2025. This timeline aligns with the article’s content, suggesting the information is current. However, the article was published on November 19, 2025, which is more than seven days after the latest event mentioned, slightly reducing its freshness score. Additionally, the article appears to be based on a press release, which typically warrants a higher freshness score.
Quotes check
Score:
9
Notes:
The article includes direct quotes from the SEC’s notice and other sources. A search for these quotes reveals no earlier usage, indicating they are original to this narrative. This suggests the content is exclusive and not recycled from other sources.
Source reliability
Score:
7
Notes:
The narrative originates from JD Supra, a platform that republishes content from various law firms and professionals. While JD Supra itself is not a primary news source, the content is authored by professionals from Vedder Price, a reputable law firm. This association lends credibility to the information presented.
Plausability check
Score:
8
Notes:
The claims made in the narrative are consistent with other reputable sources. For instance, Reuters reported on the SEC’s approval of Dimensional Fund Advisors to launch ETF share classes for 13 mutual funds, indicating that the SEC is actively granting such approvals. ([reuters.com](https://www.reuters.com/markets/wealth/sec-approves-dimensional-fund-advisors-launch-etf-share-class-13-mutual-funds-2025-11-17/?utm_source=openai)) Additionally, the Investment Company Institute (ICI) released a statement supporting the SEC’s initiative to grant exemptive relief for ETF share classes. ([ici-dev.ici.org](https://ici-dev.ici.org/news-release/ici-statement-on-sec%E2%80%99s-etf-share-class-application-notice?utm_source=openai)) These corroborations suggest that the narrative’s claims are plausible and supported by other reputable outlets.
Overall assessment
Verdict (FAIL, OPEN, PASS): PASS
Confidence (LOW, MEDIUM, HIGH): HIGH
Summary:
The narrative provides current and original information regarding the SEC’s initiative to approve ETF share class exemptive relief. The quotes used are unique to this piece, and the source, Vedder Price, is a reputable law firm. The claims made are consistent with information from other reputable sources, indicating a high level of credibility.