Mutual Fund to ETF Conversions

February 09, 2024
  • Investor Services
We’ve partnered with K&L Gates to revisit the current state of mutual funds to ETF conversions and identify the next step for the industry.

As actively managed ETFs continue to gain industry and investor interest, BBH and Peter Shea, Partner and Co-Head of ETF Practice at K&L Gates, have partnered up to discuss the lessons learned on mutual fund to ETF conversions and what’s ahead for the ETF industry.

Lessons Learned - ETF Conversions

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Mutual Fund to ETF Conversion - Quick Facts

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1See NYSE and trackinsight’s joint website, ETF Central, “ETF Industry KPIs – 11/6/23” by ETF Think Tank (https://www.etfcentral.com/etf-u/news/this-week-the-industry-experienced-14-etf-launches).
2Rule 6c-11 (the “ETF Rule”) promulgated under the Investment Company Act of 1940 (“1940 Act”). Rule 6c 11(a)(2) provides: “Notwithstanding the definition of exchange-traded fund . . . of this section, an exchange-traded fund is not prohibited from selling (or redeeming) individual shares on the day of consummation of a reorganization, merger, conversion or liquidation, and is not limited to transactions with authorized participants under these circumstances.”
3See Final Rule Adopting Release, SEC Nos. 33-10695 & IC-33646, “Exchange-Traded Funds” at 121-125 (Sept. 25, 2019) (https://www.sec.gov/rules/2019/09/exchange-traded-funds#33-10695). The ETF Rule’s adopting release noted that the rule did not provide regulatory relief to permit share class ETFs, although the SEC expressed an interest in leveling the playing field once share class policy considerations were adequately addressed through the SEC’s exemptive relief application and order process.
4See, for example, Perpetual US Services, LLC, Application for Exemptive Relief (Feb. 8, 2023) (https://www.sec.gov/Archives/edgar/data/1965046/000121390023009034/s149241_40app.htm); and Dimensional Fund Advisors LP, et al., Application for Exemptive Relief (July 12, 2023) (https://www.sec.gov/Archives/edgar/data/355437/000168035923000216/dimensional40app07122023.htm) (ETF class of a mutual fund); and F/m Investment LLC, et al., Application for Exemptive Relief (Aug. 22, 2023) (https://www.sec.gov/Archives/edgar/data/831114/000089418923006022/rbb-fm_40-app.htm) (Mutual fund class of an ETF).
5See Vanguard Index Funds, Rel. Nos. IC-24680 (Oct. 6, 2000) (notice) and IC-24789 (Dec. 12, 2000) (order); Vanguard Index Funds, Rel. Nos. IC-26282 (Dec. 2, 2003) (notice) and IC-26317 (Dec. 29, 2003) (order); Vanguard International Equity Index Funds, Rel. Nos. IC-26246 (Nov. 3, 2003) (notice) and IC-26281 (Dec. 1, 2003) (order); Vanguard Bond Index Funds, Rel. Nos. IC-27750 (Mar. 9, 2007) (notice) and IC-27773 (Apr. 25, 2007) (order).

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