Exchange-Traded Funds (ETFs)

Exchange-Traded Funds (ETFs)

Client Alert

SEC Streamlines Operation of Multi-Class ETFs

March 20, 2026

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The U.S. Securities and Exchange Commission (SEC) issued a March 17 order granting exemptive relief from Section 11(d)(1) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Exchange Act Rules 10b-10 and 14e-5 as well as no-action relief regarding Exchange Act Rules 15c1-5 and 15c1-6 (the multi-class ETF Exchange Act relief) to facilitate the operation of an exchange-traded fund (ETF) share class that is part of a multiple share class fund (multi-class ETF).[1] This relief is substantially similar to the relief the SEC provided in 2019 to single share class ETFs when adopting Rule 6c-11 under the Investment Company Act of 1940 (1940 Act), as amended (the stand-alone ETF Exchange Act order).[2] The multi-class ETF Exchange Act relief removes regulatory obstacles to facilitate trading of ETF shares by broker-dealers in the primary and secondary market.

The multi-class ETF Exchange Act relief, along with an order providing exemptions from certain provisions of the 1940 Act, as amended (multi-class ETF 1940 Act order), provide the key pieces of regulatory relief necessary to permit the operations of multi-class ETFs.[3]

Eligibility

The multi-class ETF Exchange Act relief provides relief for multi-class ETFs that (1) received a multi-class ETF 1940 Act order requiring that the ETF share class operate in compliance with Rule 6c-11 of the 1940 Act, (2) are diversified under the Internal Revenue Code (IRC),[4] and (3) comply with the terms and conditions highlighted in the chart below.[5]

The SEC stated that Rule 6c-11’s transparency requirements, when combined with the conditions in the multi-class ETF Exchange Act relief, will provide customers engaging in creation or redemption transactions an opportunity to identify or inquire about potential conflicts of interest involving a component security a broker-dealer would otherwise be required to disclose. The SEC further stated that compliance with the IRC diversification requirement that forms the basis for the relief from Exchange Act Rule 10b-10 should mitigate any conflicts that a broker-dealer would otherwise be required to disclose under Exchange Act Rules 15c1-5 and 15c1-6 and minimizes the incentive for a broker-dealer to evade the new issue lending restriction in Exchange Act Section 11(d)(1).

Exemptions and Assurances

The multi-class ETF Exchange Act relief provides the following relief:

  • An exemption from Exchange Act Rule 10b-10 that will allow a broker-dealer that is effecting an in-kind creation or redemption transaction with the multi-class ETF on behalf of a customer to confirm the transaction without providing a contemporaneous statement of the identity, price or number of shares or units of each component security tendered to or delivered by the multi-class ETF.[6]
  • An exemption from the new issue lending restriction in Exchange Act Section 11(d)(1) for a broker-dealer acting as an authorized participant (broker-dealer AP) that extends or maintains credit, or arranges for the extension or maintenance of credit, on a multi-class ETF’s shares subject to certain conditions.[7]
  • An exemption from Exchange Act Section 11(d)(1) for a broker-dealer not acting as an authorized participant (non-AP broker-dealer) to offer margin on ETF securities.
  • A conditional exemption from Exchange Act Rule 14e-5 to allow authorized participants who are broker-dealers acting as dealer-managers in tender offers involving an ETF class’s component securities, the ETF and any legal entity of which the ETF is a series to (1) redeem shares of a multi-class ETF in creation unit sizes for a redemption basket that may include a subject security or related security, (2) engage in secondary market transactions with respect to shares of a multi-class ETF after the first public announcement of the tender offer and during such tender offer, and (3) make purchases of, or arrangements to purchase, subject securities or related securities in the secondary market for the purpose of transferring such securities to purchase one or more creation units of the shares of a multi-class ETF.[8]
  • Assurances that the staff of the SEC’s Division of Trading and Markets will not recommend enforcement action to the SEC under Exchange Act Rules 15c1-5 and 15c1-6 against a broker-dealer that effects an in-kind creation or redemption transaction on behalf of a customer involving ETF shares without providing disclosure regarding a control relationship with an issuer or participation in a distribution of a component security tendered to or delivered by the multi-class ETF.[9]

Terms and Conditions

The terms and conditions of the multi-class ETF Exchange Act relief are detailed below:

Authority

Conditions

Exchange Act Rule 10b-10
  • Confirmation statements of issuance and redemption transactions in multi-class ETFs will contain all the information specified in Rule 10b-10(a) other than identity, price and number of shares or units (or principal amount) of each component security tendered or received by the customer in the transaction.
  • Any confirmation statement of an issuance or redemption transaction in multi-class ETFs that omits the identity, price or number of shares or units (or principal amount) of component securities will contain a statement that such omitted information will be provided to the customer upon request.
  • All such requests will be fulfilled in a timely manner in accordance with Rule 10b-10(c).

Exchange Act Rule 14e-5
  • No purchases of subject securities or related securities made by broker-dealers acting as dealer-managers of a tender offer would be effected for the purpose of facilitating a tender offer.
  • If there is a change in the composition of a multi-class ETF’s portfolio of component securities and a broker-dealer acting as a dealer-manager of a tender offer is unable to rely on the exception found in Rule 14e-5(b)(5) for basket transactions because (1) the basket of subject securities or related securities contains fewer than 20 securities or (2) the subject securities and related securities make up more than 5% of the value of the basket, then any purchases of a multi-class ETF’s component security by such dealer-manager during a tender offer will be effected for the purpose of adjusting a basket of securities in the ordinary course of its business and not for the purpose of facilitating a tender offer.
  • Any broker-dealer acting as a dealer-manager of a tender offer otherwise will comply with Rule 14e-5.

Exchange Act Section 11(d)(1)
  • Broker-dealer APs and non-AP broker-dealers, including any natural person associated with such broker-dealer APs and non-AP broker-dealers, may not directly or indirectly receive from the “fund complex”[10] any payment, compensation or other economic incentive to promote or sell ETF shares other than certain non-cash compensation.
  • Broker-dealer APs may not extend, maintain or arrange for the extension or maintenance of credit to or for a customer on shares of the ETF within 30 days of the initial commencement of the trading of the ETF’s shares.

Exchange Act Rules 15c1-5 and 15c1-6
  • The multi-class ETF has received a multi-class ETF 1940 Act order requiring that the ETF class operate in compliance with Rule 6c-11.
  • The multi-class ETF is diversified under the IRC.
  • A broker-dealer must provide any information to which a customer is entitled under Rules 15c1-5 or 15c1-6 upon request and fulfill such requests in a timely manner.

[3] The SEC began granting exemptive orders under the 1940 Act to permit multi-class ETFs on November 17, 2025. See In the Matter of DFA Investment Dimensions Group, Investment Company Act Release No. 35786 (November 17, 2025). As of March 17, 2026, the SEC has approved exemptive orders for 47 additional applicants. See U.S. Securities and Exchange Commission, Investment Company Act Notices and Orders (last visited March 17, 2026).

[4] The relevant diversification requirements under the IRC are those applicable to a regulated investment company in IRC Section 851(b)(3)(B), which generally requires not more than 25% of the value of an investment company’s total assets be invested in (1) the securities of any one issuer, (2) any two or more issuers engaged in the same or similar business and controlled by the same taxpayer, and (3) one or more qualified publicly traded partnerships. See IRC Section 851(b)(3)(B).

[5] These conditions and requirements are substantially similar to those in the stand-alone ETF Exchange Act order.

[6] Exchange Act Rule 10b-10 generally requires a broker or dealer that effects a securities transaction for a customer to send to the customer a written notification at or before the completion of the transaction disclosing certain information. This information includes, among other things, the capacity in which the broker or dealer is acting (e.g., principal or agent), certain remuneration received by the broker or dealer in connection with the transaction and the security’s identity, price and quantity.

[7] Exchange Act Section 11(d)(1) generally prohibits a person that is both a broker and a dealer from extending or maintaining credit, or arranging for the extension or maintenance of credit, to or for a customer on any security (other than an exempted security) which was part of a distribution of a new issue of securities in which the broker-dealer participated. The SEC explained that because ETFs are in continuous distribution, broker-dealers effecting creation and redemption transactions on behalf of customers are participating in the distribution of new issue securities with respect to shares of ETFs, and thus are continuously subject to the restrictions of Section 11(d)(1).

[8] Exchange Act Rule 14e-5 prohibits certain “covered persons” from directly or indirectly purchasing or arranging to purchase any securities that are the subject of a tender offer or any securities that are immediately convertible into, exchangeable for, or exercisable for such securities except as part of such tender offer.

[9] Exchange Act Rule 15c1-5 requires a broker or dealer effecting a transaction to disclose any control relationship with an issuer of a security that it purchases for or sells to a customer. Similarly, Rule 15c1-6 generally requires a broker or dealer to disclose its participation or interest in a primary or secondary distribution of a security that it purchases for or sells to a customer.

[10] “Fund complex” refers to the issuer of the ETF shares; any other issuer of ETF shares that holds itself out to investors as a related company for purposes of investment or investor services; any investment adviser, distributor, sponsor or depositor of any such issuer; or any “affiliated person” (as defined in 1940 Act Section 2(a)(3)) of any such issuer or any such investment adviser, distributor, sponsor or depositor.

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