Cboe Pushes for Simpler Multi-Class ETF Rules Under SEC Scrutiny
Published Date: 3/17/2025
Notice
Summary
Cboe BZX Exchange wants to update its rules to allow the easy listing and trading of Multi-Class ETF shares, which are special investment funds with different types of shares. This change affects investors and fund managers by making these ETFs more accessible and tradable on the exchange. The SEC is reviewing the update and asking for public feedback before making a final decision, so keep an eye out for upcoming deadlines!
Analyzed Economic Effects
5 provisions identified: 3 benefits, 2 costs, 0 mixed.
Generic Listing Allowed for Multi‑Class ETFs
Cboe BZX proposes new Rule 14.11(n) to allow Multi‑Class ETF Shares that meet SEC Rule 6c-11 and any applicable exemptive relief to be listed and traded on the Exchange generically. A series could be listed and traded without a separate Commission approval order immediately upon the Commission's order granting the applicable exemptive relief.
Potential Trading, Tax, and Cost Benefits
Applicants state that Multi‑Class ETF structures could let mutual‑fund and ETF classes share cash flows to support portfolio rebalancing, permit tax‑free conversion from a Mutual Fund class to an ETF class, and may improve secondary‑market trading (smaller spreads) and cost efficiencies for ETF shareholders.
Delisting Trigger: 50‑Holder Threshold
If, after the initial 12‑month period following commencement of trading, a series of Multi‑Class ETF Shares has fewer than 50 beneficial holders for 30 or more consecutive trading days, the Exchange will consider suspending trading and commencing delisting proceedings for that series.
Trading Halts If Valuation Info Missing
The Exchange will halt trading in a Multi‑Class ETF if required disclosures—such as net asset value or daily portfolio disclosure—are not available to all market participants at the same time, if the index or reference value dissemination is interrupted, or if trading in underlying securities is halted.
Exemption From Certain Board Governance Rules
The proposal would treat Multi‑Class ETF Shares as 'Derivative Securities' for certain Exchange rules, exempting those issuers from Exchange requirements on Independent Directors, Compensation Committees, Director Nominations, Code of Conduct, Meetings of Shareholders, and exempting Audit Committee rules except for compliance with SEC Rule 10A‑3.
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