The U.S. Securities and Exchange Commission has allowed Dimensional Fund Advisors to launch an exchange-traded fund (ETF) share class of an existing mutual fund, and the regulator is expected to quickly allow other fund managers to do the same.

The ETF share class allows a share class of an existing mutual fund to trade as an ETF. This is already authorised in Europe, but had not been approved by the SEC.

Nate Geraci, president of NovaDius Wealth Management, said:

SEC issues notice indicating they're moving forward w/ approval of multi-share class structure…

Will allow fund cos to launch ETF share classes of existing mutual funds.

This order is specific to Dimensional, but expect approval for other asset managers to quickly follow. pic.twitter.com/phI4jCYCI2

— Nate Geraci (@NateGeraci) September 29, 2025

State Street’s 2025 Global ETF Megatrends Midyear Review highlighted that 70 U.S managers had filed to launch an actively managed ETF share class which is an efficient way of adding new investors. The portfolio management team only needs to manage one pool of assets with different share classes, while managing an active mutual fund and launching an active ETF for that strategy involves two different pools of assets.

Frank Koudelka, global head of ETF solutions at State Street, told Markers Media in August this year that the firm  was expecting the SEC to approve the ETF share class this year.

“We are also bullish on the amount of products that we are going to see as a result,” Koudelka added. “We are excited as it will bring in new participants.”

Eric Pan, president and chief executive of The Investment Company Institute (ICI) said in a statement: “ICI previously called on the SEC to prioritize approval of such exemptive relief, and we have been working closely with our members, intermediaries, service providers, and other key stakeholders to prepare the industry for this moment.”

A paper from ICI in March this year, Reimagining the 1940 Act, encouraged the SEC to enable new or existing funds to offer both mutual fund and ETF share classes to promote efficiency and economies of scale and provide optionality for fund investors. At ICI’s ETF Conference in September, Kaitlin Bottock, assistant director in the Division of Investment Management at the SEC said that regulator was “on the one-yard line” on its approval of exemptive relief. ICI said it is actively developing new resources with key considerations for industry to implement this innovation.

Todd Rosenbluth, head of research at TMX VettaFi said in an email to Markets Media that the index provider was also expecting SEC approval of ETF share classes of mutual funds and vice versa to occur in the fourth quarter of this year. He described the approval as a “key milestone” for the industry.

Rosenbluth said a few firms such as Dimensional Funds were expected to be the first to move forward as they appear to have done the preparatory work to position their products to a new audience. While many other asset managers have filed to bring ETF share classes to existing mutual fund portfolios, TMX VettaFi expects  the vast majority to take a wait and see approach.

“This is not like the approval of spot bitcoin ETFs in early 2024 when many firms raced out of the gate,” Rosenbluth added. “Once the seal is removed there is no turning back.”

He expects many more firms to look to embrace the ETF share class in 2026.

Amrita Nandakumar, president of Vident Asset Management, said in an email to Markets Media that, despite the demand for this relief, it will be interesting to see which mutual fund sponsors actually avail themselves of this and how many will hang on to it as a nice to have.

While getting regulatory approval for multi-share class is a huge step forward, Nandakumar said there is still quite a lot to be done. For example, broker-dealers will need  to manage the operational processes and technology that would allow for two different share class structures of the same fund to exist on the same platform.

“There also has not been enough attention paid for the Regulation BI concerns that broker-dealers will face, i.e. do they have an obligation to move all clients invested in the mutual fund share class into the ETF share class if that would indeed be in their clients’ best interest?,” added Nandakumar. “Finally, given that ETFs do not have 12b-1 and other fees associated with them, what is the incentive for a broker-dealer to allow an additional ETF share class of the mutual funds that are already on the B/D’s platform?”