PGIM joins firms seeking green light for ETF mutual fund share class

By Thomson Reuters Apr 22, 2024 | 5:10 PM

By Suzanne McGee

(Reuters) – PGIM has become the latest in a rapidly-growing list of asset management firms seeking approval from the U.S. Securities and Exchange Commission to offer a share class of existing mutual funds in the form of an exchange-traded fund (ETF).

PGIM filed a formal request to be allowed to issue ETF share classes late on Friday, joining firms like Dimensional Fund Advisors, Morgan Stanley Investment Management and Fidelity Investments in seeking to bridge the gap that currently divides mutual funds from ETFs.

Most recently, Cboe Global Markets threw its own weight behind their efforts, asking the SEC to approve a rule change permitting the exchange to list and oversee trading in ETF share classes.

“The pace is accelerating,” said Bryan Armour, ETF analyst at Morningstar, referring to the flurry of applications to regulators since Vanguard’s 20-year patent on the concept expired last summer. That opened the door to competitors if they can win SEC approval.

Brian McCabe, asset management partner at Ropes & Gray LLP, said his firm had already filed an application for one client and was working on three or four others.

Regulators must either approve or reject Cboe’s request by the end of this year. They do not face similar firm deadlines regarding the requests by issuers.

If approved, issuers would be able to roll out new ETF share classes of existing mutual funds more rapidly and cost-effectively since those products would simply rank alongside existing share classes aimed at institutional or retail investors or financial advisors. Operating and distribution costs could be pooled, and would-be issuers argue there would be greater tax efficiencies.

The latter approach offers shared back-end operating costs, distribution costs and better tax efficiency for fund shareholders. It might also open up the 401(k) retirement plan market to ETFs, though the SEC in the past has voiced concern that linking the two kinds of products might have unexpected tax consequences and costs.

(Reporting by Suzanne McGee; Editing by Jamie Freed)