Vanguard’s headquarters in Malvern, Pennsylvania
Vanguard’s US-wide patent on the ‘ETF-as-a-share-class’ structure expired in May 2023 © Bloomberg News

Cboe Global Markets has asked the Securities and Exchange Commission to allow companies to list exchange traded fund shares of their existing US mutual funds, a rule change sought by several large asset managers that could further accelerate the growth of the ETF market.

Cboe’s filing on Thursday came nearly a year after the expiration of Vanguard’s patent on multi-share class funds, which was in effect for more than 20 years.

Since the patent’s expiration last May, several other companies including Fidelity, Morgan Stanley and Dimensional Fund Advisors have asked the SEC for permission to follow suit with ETF share classes of their own mutual fund families, while TCW and F/m Investments have filed to add mutual fund classes to existing ETFs.

Unlike the asset managers’ filings, which have not yet prompted a response from the SEC, Cboe’s request starts a 240-day countdown and sets up a late November deadline for the regulator to respond.

“If approved by the SEC, we believe this advancement will offer numerous benefits, such as enhanced portfolio management efficiency, improved opportunities for secondary market trading, and increased cost efficiencies for investors,” said Rob Marrocco, Cboe’s global head of exchange traded product listings, in a statement.

“Our mission is to provide issuers and investors with choice and access to the products that they need, and we couldn’t be more proud to spearhead this important initiative.”

The structure allows asset managers to bolster their ETF franchises without launching new funds from scratch while preserving existing assets and performance records. US mutual funds sustained more than $1tn in net outflows from 2021 to 2023, while ETFs raked in more than $2tn in that time, according to data from Morningstar Direct. The US ETF industry now has a record $8.9tn of assets under management.

The SEC has in the past expressed worries about potential conflicts of interest between mutual fund and ETF share classes but did not take away Vanguard’s ability to launch and operate multi-share class funds.

Even if it approved Cboe’s request, the commission would still have to grant separate permission to one or more of the asset managers applying for multi-share class structures.

The SEC did not immediately respond to a request for comment.

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