Nasdaq's Class ETF Push Heads to SEC Scrutiny
Published Date: 8/26/2025
Notice
Summary
Nasdaq wants to make it easier to list and trade a new type of exchange-traded fund (ETF) called Class ETFs by creating a new rule. This change could affect investors and fund managers by opening up more trading options, but the SEC is still deciding if it’s a good idea. The decision is expected by August 25, 2025, and could impact how ETFs are bought and sold on Nasdaq.
Analyzed Economic Effects
5 provisions identified: 2 benefits, 3 costs, 0 mixed.
Generic Listing of Class ETF Shares
Nasdaq proposes a new Rule 5703 to allow the generic listing and trading of Class Exchange-Traded Fund (Class ETF) Shares, which would let eligible ETF share classes be listed and traded on Nasdaq without a separate SEC order under Rule 19b-4(e). The SEC set August 25, 2025 as the date by which it will approve, disapprove, or institute proceedings about this proposed change.
Delisting Risk for Small Class ETF Holders
After the first 12 months of trading, Nasdaq may consider suspending trading or initiating delisting proceedings for a Class ETF if there are fewer than 50 beneficial holders for 30 or more consecutive trading days. If the Multi-Class Fund or ETF Class no longer meets required conditions, the Exchange may also remove the Class ETF Shares from listing.
Trading Halt Triggers for Class ETFs
Nasdaq would apply trading halt rules to Class ETF Shares if problems occur, for example if net asset value or the daily portfolio disclosure is not disseminated to all market participants at the same time, if an index or reference value stops being calculated, or if trading in underlying securities is halted. These halt rules would be applied under Nasdaq Rules 4120 and 4121 to protect fair and orderly markets.
Limited Liability for Index/NAV Reporting Errors
Nasdaq's proposed Rule 5703 states that neither the Exchange nor the designated Reporting Authority (nor their agents) will have liability for losses caused by errors, omissions, or delays in calculating or disseminating index values, net asset value, portfolio values, or distribution amounts, including events beyond their control (e.g., acts of God, power failures, software malfunctions).
Issuer Notification and Compliance Duty
Issuers of Class ETF Shares would be required to notify Nasdaq promptly if they fail to comply with Rule 5703, the Multi-Class Fund Exemptive Relief, or Rule 6c-11, and failure to notify the Exchange would itself be treated as non-compliance and could trigger trading halts or delisting. The Exchange will also require a representation from issuers that Rule 6c-11 and any applicable exemptive relief will be continuously satisfied.
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