SEC Issues Notice Of Intent To Grant ETF Share Class Relief

Key Takeaways

• On September 29, 2025, the SEC issued notice of an application for ETF share class relief, signaling the SEC's intent to grant the first ETF share class relief since 2007.

ETF Share Class Relief

On September 29, 2025, the SEC issued notice of an application filed by Dimensional Fund Advisors LP and its affiliates ("DFA") to offer an ETF share class ("ETF Class") and mutual fund share classes ("Mutual Fund Class") within the same fund ("ETF Share Class Relief").¹ ETF Share Class Relief is comprised of two parts: (i) ETF operational relief consistent with Rule 6c‑11 under the Investment Company Act of 1940, as amended, and (ii) additional relief to permit a multi‑class ETF/mutual fund structure ("Multi-Class ETF Fund") consistent with Rule 18f‑3 under the 1940 Act, subject to additional safeguards.²

Almost all open-end funds have been unable to offer an ETF share class alongside traditional mutual fund share classes within the same fund. Starting in 2000, the SEC issued several exemptive orders to permit an ETF share class alongside mutual fund share classes, but the SEC staff subsequently declined to advance applications for this relief. More recently, the SEC staff has engaged on new applications as over 80 asset managers, including DFA, have sought ETF Share Class Relief.

On September 26, 2025, DFA filed their third amended and restated application requesting ETF Share Class Relief.³ Notably, DFA's latest application includes discussion regarding the potential for, and related impacts of, a Multi-Class ETF Fund declaring dividends on a daily basis for certain mutual fund shares and on a monthly basis for the ETF shares of those funds. Further, DFA's application provides that a Multi-Class ETF Fund will not permit or facilitate a secondary market for, peer-to-peer trading of, or quotation on any quotation medium of, the Multi-Class ETF Fund's shares (except as described in the application).⁴

DFA's application prescribes a three-part governance framework for advisers and fund boards to oversee Multi-Class ETF Funds. First, the adviser must prepare an initial written report providing the board with a comprehensive overview of: (i) reasonably expected benefits and costs to each class and the fund, (ii) how costs associated with the transition to a multi-class structure will be managed, (iii) appropriateness of the fund's investment strategy for a multi-class structure, and (iv) any potential material conflicts of interest ("Initial Adviser Report"). Second, the adviser will seek board approval for a framework to monitor numerical thresholds (as established by the adviser and the board) related to: (i) portfolio transaction costs, (ii) cash levels and (iii) capital gains distributions, in order to identify material conflicts between classes, and will notify the board within 30 days after the end of the applicable time period during which there was an exceedance of such a threshold and provide an assessment of the cause of such exceedance, as well as recommend remedial actions ("Ongoing Monitoring Process"). Third, at least annually, the board must determine that the multi-class plan pursuant to which a Multi-Class ETF Fund operates remains in the best interests of each class and the fund, based on a report from the adviser ("Ongoing Adviser Report") addressing: (i) observed benefits or cost savings resulting from the Multi-Class ETF Fund structure, (ii) observed material conflicts of interest or negative consequences to the classes resulting from the Multi-Class ETF Fund structure, and (iii) any other information the board requests ("Ongoing Board Approval").

DFA's application also addresses the SEC's concerns regarding leverage, potential conflicts of interest between the share classes, and investor confusion. The ETF Share Class Relief will be subject to nine conditions⁵:

1. A Multi-Class ETF Fund will operate an ETF Class as an ETF in compliance with the requirements of Rule 6c-11, except that a Multi-Class ETF Fund will list only one class of its shares on an exchange and also may offer an exchange privilege (as described in the application), and will comply with the requirements of Form N-1A and reporting forms such as Form N-CEN applicable to ETFs that rely on Rule 6c-11.
2. A Multi-Class ETF Fund will comply with Rule 18f-3, except to the extent that the ETF Class and Mutual Fund Class have different rights and obligations as described in the application. As required by Rule 18f-3, before the first issuance of ETF shares, and before any material amendment of a written plan under Rule 18f-3 to include an ETF Class, a majority of the directors of a fund, and a majority of the independent directors, shall find that the plan is in the best interests of each Mutual Fund Class and the ETF Class individually and of the Multi-Class ETF Fund as a whole.
3. To assist in the initial board consideration of the appropriateness of operating a Multi-Class ETF Fund that has both an ETF Class and Mutual Fund Class(es), the adviser shall prepare and deliver to the board the Initial Adviser Report as described in the application. The Initial Adviser Report will assist the board in its finding pursuant to condition 2 and in evaluating the potential for any conflicts between the Mutual Fund Class(es) and the ETF Class based on current and historical information, as applicable.
4. The adviser will recommend for the board's approval the Ongoing Monitoring Process designed to help determine whether a Multi-Class ETF Fund has encountered any issues relating to the multi-class structure, including any conflicts between the Mutual Fund Class(es) and the ETF Class.
5. Each Multi-Class ETF Fund will be subject to an Ongoing Monitoring Process that is approved by the board, and the board of the Multi-Class ETF Fund periodically, but no less frequently than annually, will evaluate the multiple class plan of the Multi-Class ETF Fund. A majority of the directors of a Multi-Class ETF Fund, and a majority of the independent directors, shall find that the multiple class plan continues to be in the best interests of each Mutual Fund Class and the ETF Class individually and of the Multi-Class ETF Fund as a whole.
6. To inform the board's periodic evaluation, the adviser shall prepare and deliver to the board of the Multi-Class ETF Fund the Ongoing Adviser Report as described in the application. The board will consider whether the Ongoing Adviser Report suggests any issues relating to the multi-class structure, including conflicts between the Mutual Fund Class(es) and the ETF Class, that require additional board action.
7. Each Multi-Class ETF Fund will take the "Disclosure Steps" outlined in the application.
8. In addition to complying with Rule 6c-11(d) under the 1940 Act, each Multi-Class ETF Fund will preserve for a period not less than six years, the first two in an easily accessible place, (i) any documents created pursuant to the requirements in conditions 2, 3, 5, and 6; and (ii) any documents created pursuant to the Ongoing Monitoring Process that evidence a Multi-Class ETF Fund has exceeded or not exceeded an established threshold, as well as any documents provided to the board as part of the Ongoing Monitoring Process.
9. The requested ETF operational relief and ETF Class Relief to operate one or more Multi-Class ETF Funds will expire on the compliance date (or such other date established by the SEC) of any SEC rule under the 1940 Act that provides relief permitting the operation of a Multi-Class ETF Fund structure.

The SEC's publication of notice of application for ETF Share Class Relief marks a significant development in the investment management industry.

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