Key Insights from ICI's New Paper on ETF Share Classes

The Investment Company Institute (ICI) has released an informative paper titled "ETF Share Class Operational Considerations," which addresses the essential factors involved in introducing an ETF share class within an existing mutual fund structure. This development comes in light of the anticipated exemptions from the Securities and Exchange Commission (SEC) that would enable funds to offer both ETF and mutual fund classes.

This initiative aims to enhance investor choice, promote operational efficiency, and support competition in the asset management domain. The SEC's recent announcement on September 29, 2025, indicates a shift toward allowing these dual share class structures to flourish, making this an opportune moment for fund managers to consider their strategic options.

ICI has formed working groups comprising asset managers, intermediaries, service providers, and representatives from the Depository Trust and Clearing Corporation (DTCC). These groups are tasked with meticulously analyzing the operational implications required to successfully implement an ETF share class. Given the increasing popularity of ETFs, characterized by their affordability, intraday trading capabilities, transparency, tax efficiency, and targeted market exposure, this transition is anticipated to be significant.

Eric J. Pan, President and CEO of ICI, commented on the potential benefits of this new share class structure, indicating that it symbolizes a major modernization within asset management. He emphasized the importance of recognizing and addressing any operational complexities that may arise from this integration, ensuring that firms can foster innovation while upholding the highest standards of operational efficiency and investor protection.

The ICI's working groups have concentrated on various aspects of the investor experience, which includes potential impacts on intermediaries and reporting requirements. They also addressed operational frameworks for the interclass exchange privilege and the requisite systems and technologies that would facilitate the launch of dual share class offerings.

Jeff Naylor, Chief of Industry Operations at ICI, elaborated on the fundamental differences between ETFs and mutual funds, pointing out that these differences could lead to operational challenges when merging the two structures. He expressed gratitude for the dedication shown by ICI members and the broader industry in anticipating and addressing these concerns as approvals for applications are processed and new products are realized.

The document, "ETF Share Class Operational Considerations," is the result of thorough discussions between ICI and diverse representatives from the mutual fund and ETF worlds. It serves as a comprehensive resource for industry stakeholders evaluating the feasibility of launching or supporting the establishment of an ETF share class.

For further insights and a more detailed examination of the considerations outlined in the paper, you can access the full document here. This invaluable resource is instrumental for anyone involved in or contemplating participation in the evolving landscape of asset management, as they navigate the complexities and opportunities presented by ETF share classes.

In conclusion, the ICI's paper paves the way for a deeper understanding of the mechanisms behind ETF share classes, equipping industry participants with the knowledge needed to adapt to this notable shift in the investment landscape.