(Bloomberg) — The US Securities and Exchange Commission is getting closer to making a decision about whether asset managers can offer ETFs as share classes of mutual funds, according to Kaitlin Bottock, assistant director at the regulator’s division of investment management.
Every major fund firm, including BlackRock Inc. and State Street Corp., is waiting for the SEC’s greenlight on the matter. They had filed for exemptive relief after Vanguard Group’s exclusive patent on the novel fund design expired two years ago.
“We are finalizing our process,” Bottock said on Wednesday at an Investment Company Institute event in Nashville. “We’re at the one yard line,” she said, referring to a football metaphor that denotes closeness to the goal line.
Bottock was speaking in her official capacity as a member of the staff with the SEC. Her views do not necessarily reflect the views of the commission, the commissioners or other members of the staff.
Optimism regarding SEC approval has grown since March, when Mark Uyeda, the regulator’s acting chair at the time, said that he was directing the staff to prioritize a review of the “many applications.” Shortly after, Dimensional Fund Advisors became the first hopeful to file an amendment to its application, signaling further progress on the SEC front.
The regulatory shift — if the SEC approves — could help mutual-fund firms stem outflows and save clients on taxes. But experts are cautioning that it may still take more time before asset managers are able to embrace the design en masse and add ETF share classes to existing mutual funds.
Even with permission from the SEC, asset managers would still need to coordinate with custodians, distribution platforms and traders before they can fully implement the hybrid structure.
“Sometimes when you’re at the one yard line, it still takes four downs to get in,” said Mike Castino of Sound Capital Solutions, a white-label advisory firm for ETFs.
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