Notice2026-05473
Order Under Section 36 of the Securities Exchange Act of 1934 (the “Exchange Act”) Granting Conditional Exemptive Relief From Rules 10b-10, 14e-5, and Section 11(d)(1) of the Exchange Act for Multi-Class ETFs
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
March 20, 2026
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 91 Issue 54 (Friday, March 20, 2026)</title>
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[Federal Register Volume 91, Number 54 (Friday, March 20, 2026)]
[Notices]
[Pages 13675-13680]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-05473]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-105028]
Order Under Section 36 of the Securities Exchange Act of 1934
(the ``Exchange Act'') Granting Conditional Exemptive Relief From Rules
10b-10, 14e-5, and Section 11(d)(1) of the Exchange Act for Multi-Class
ETFs
March 17, 2026.
I. Introduction
The Securities and Exchange Commission (``Commission'') has issued
a series of orders \1\ permitting open-end management investment
companies registered under the Investment Company Act of 1940 (each
such company, a ``Fund'') to offer one class of exchange-traded fund
(``ETF'') shares that operates as an exchange-traded fund (each such
class, an ``ETF Class,'' and such shares, ``ETF Shares'') and one
[[Page 13676]]
or more classes of shares that are not exchange-traded (each such
class, a ``Mutual Fund Class,'' and such shares, ``Mutual Fund
Shares,'' and each such Fund, a ``Multi-Class ETF''). As of March 17,
2026, approximately 100 applications have been filed with the
Commission requesting exemptive relief necessary to operate a Multi-
Class ETF (a ``Multi-Class ETF Order'') under the Investment Company
Act of 1940 (``Investment Company Act'').
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\1\ See, e.g., DFA Investment Dimension Group Inc., et al.,
Investment Company Act Rel. Nos. 35770 (Sep. 29, 2025) (``DFA
Notice'') and 35786 (Nov. 17, 2025) (order); AB Municipal Income
Fund, et al., Investment Company Act Rel. Nos. 35834 (Dec. 17, 2025)
(notice) and 35867 (Jan. 13, 2026) (order). The orders issued by the
Commission are available at <a href="http://SEC.gov">SEC.gov</a> [verbar] Investment Company Act
Notices and Orders.
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On March 17, 2026, the Commission received a request from the
Investment Company Institute (``Requester'') for exemptive relief from
section 11(d)(1) of the Securities Exchange Act of 1934, as amended
(the ``Exchange Act''), and rules 10b-10 and 14e-5 thereunder
(collectively referred to herein as the ``Exchange Act Provisions'') on
behalf of broker-dealers and certain other persons, as applicable, that
engage in certain transactions involving the ETF Shares of a Multi-
Class ETF, as described below.\2\
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\2\ See 15 U.S.C. 78k(d)(1); 17 CFR 240.10b-10; and 17 CFR
240.14e-5. The Requester also requested a staff no-action position
with respect to rules 15c1-5 and 15c1-6.
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The Requester seeks relief from the Exchange Act Provisions
substantially similar to relief previously granted to broker-dealers
and certain other persons engaging in certain transactions in
securities of ETFs that rely on rule 6c-11 \3\ under the Investment
Company Act.\4\ Specifically, the Requester is asking for conditional
exemptive relief from the Exchange Act Provisions on behalf of broker-
dealers and certain other persons that engage in certain creation and
redemption transactions involving the ETF Shares of a Multi-Class ETF
that has received a Multi-Class ETF Order, and certain limited
secondary market transactions in the ETF Shares of such a Multi-Class
ETF.\5\ The Requester states that the operations of a Multi-Class ETF
do not raise policy concerns with respect to the Exchange Act
Provisions other than those that were already raised and resolved by
the Commission in the 2019 Order.
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\3\ See Exchange Traded Funds, Investment Company Act Release
No. 33646 (Sep. 25, 2019) (``Rule 6c-11 Adopting Release''); see
also 17 CFR 270.6c-11.
\4\ See Order Granting a Conditional Exemption from Exchange Act
Section 11(d)(1) and Exchange Act Rules 10b-10, 15c1-5, 15c1-6, and
14e-5 for Certain Exchange Traded Funds, SEC Rel. No. 34-87110
(Sept. 25, 2019) (``2019 Order'').
\5\ The relief requested and provided by this exemption would
apply to such transactions involving the ETF Shares of any Multi-
Class ETF that receives a Multi-Class Order and satisfies the terms
and conditions of this order, even if after the date of this
exemption.
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The Requester seeks relief for a Multi-Class ETF that would operate
under the same terms and conditions as those contained in the 2019
Order, including the conditions and the requirements of rule 6c-11,
with two exceptions consistent with the Multi-Class ETF Orders. First,
the Mutual Fund Shares will not be listed on any national securities
exchange. Second, the Multi-Class ETF may allow shareholders to
exchange Mutual Fund Shares for ETF Shares (``Exchange Privilege'').\6\
However, the Requester is not requesting any relief from the Exchange
Act Provisions for transactions involving either the Mutual Fund Shares
(or the Mutual Fund Class) or the Exchange Privilege. Rather, the
request is only for certain transactions involving the ETF Shares (or
the ETF Class) of the Multi-Class ETF.
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\6\ The Exchange Privilege would permit shareholders in a Mutual
Fund Class to exchange Mutual Fund Shares for ETF Shares. The
Exchange Privilege would not permit shareholders of ETF Shares to
exchange such shares for Mutual Fund Shares, except in situations
where the ETF Class is terminated or where the Multi-Class ETF
merges into a fund with no ETF Class. See DFA Notice at 6; see also
DFA Order (granting exemptive relief to DFA subject to the
conditions contained in its application). The description of the
Exchange Privilege in the DFA Notice is common to all Multi-Class
ETF Orders.
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The Commission has considered the issues raised by Multi-Class ETFs
and believes that it is appropriate to grant relief from the Exchange
Act Provisions for the ETF Class as discussed below. Specifically, the
Commission believes that to the extent the ETF Class of a Multi-Class
ETF complies with the requirements and conditions of rule 6c-11 (with
the exception of the Mutual Fund Shares not being listed on any
national securities exchange and the possible existence of the Exchange
Privilege) and this order, the operational differences between ETFs
that can rely on rule 6c-11 and Multi-Class ETFs do not implicate the
policy concerns that underlie the Exchange Act Provisions, as the
operational differences are unrelated either to the creation and
redemption transactions or to the secondary market transactions that
are the subject of this request for relief.
II. Background
In 2019, the Commission adopted rule 6c-11, which permits ETFs that
satisfy certain conditions to operate without the expense and delay of
obtaining an exemptive order from the Commission under the Investment
Company Act.\7\ Rule 6c-11 was designed to create a consistent,
transparent, and efficient regulatory framework for ETFs and to
facilitate greater competition and innovation among ETFs.\8\
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\7\ Rule 6c-11 Adopting Release at 5.
\8\ Id.
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Contemporaneously with the adoption of rule 6c-11, the Commission
granted conditional exemptive relief from the Exchange Act Provisions
to broker-dealers and certain other persons engaging in certain
transactions in securities of ETFs that rely on rule 6c-11.\9\ This
exemptive relief was intended to reduce the complexities and burden
that may otherwise be associated with the ETF creation and redemption
process, subject to appropriate conditions intended to ensure investor
protections.\10\ The exemptive relief was also intended to simplify the
offering and operating process for ETFs.\11\ The 2019 Order provides
relief to broker-dealers from rules 10b-10, 15c1-5, and 15c1-6 \12\ and
Exchange Act section 11(d)(1) when engaging in transactions with ETFs
relying on rule 6c-11. In addition, the 2019 Order provides relief from
Exchange Act rule 14e-5 to ETFs, the legal entities of which each ETF
is a series, and authorized participants (as defined in rule 6c-11) and
any other covered persons, as defined in rule 14e-5I(3), who create and
redeem shares of an ETF in creation units pursuant to contractual
arrangements between such covered persons and the ETF.\13\
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\9\ 2019 Order.
\10\ Id. at 3.
\11\ Id. at 6.
\12\ See supra note 2.
\13\ The prohibition in rule 14e-5(a) from purchasing or
arranging to purchase any securities that are the subject of a
tender offer or any related securities except as part of the tender
offer only applies to ``covered persons.'' See 2019 Order.
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The Commission expressly limited the relief provided by the 2019
Order to ETFs that rely on rule 6c-11 because ``the specific findings
in support of the exemptive order are based, in part, on the conditions
in rule 6c-11.'' \14\ For purposes of rule 6c-11, an ETF is defined as
a registered open-end management company: (1) whose shares are listed
on a national securities exchange and traded at market-determined
prices, and (2) that issues (and redeems) creation units to (and from)
authorized participants in exchange for a basket and a cash balancing
amount if any.\15\ Multi-Class ETFs differ from these ETFs, in relevant
part, because: (1) Multi-Class ETFs offer Mutual Fund Shares that are
neither listed on an exchange nor traded at market-determined prices,
and (2) the Multi-Class ETF would permit a shareholder of Mutual Fund
Shares to acquire individual ETF Shares directly from the Multi-Class
ETF through an Exchange Privilege. Accordingly, Multi-
[[Page 13677]]
Class ETFs may not meet the definition of an ETF under rule 6c-11, and
thus may be unable to rely on rule 6c-11 and the 2019 Order.\16\
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\14\ See 2019 Order at 6.
\15\ Investment Company Act rule 6c-11(a)(1), 17 CFR 270.6c-
11(a)(1).
\16\ See Rule 6c-11 Adopting Release at 122 (``an ETF structured
as a share class of a fund that issues multiple classes of shares
representing interests in the same portfolio cannot operate in
reliance on rule 6c-11''); 2019 Order.
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In explaining the Commission's determination not to provide the
exemptive relief necessary to allow share class ETFs to rely on rule
6c-11, the Commission stated that share class ETFs raise policy
considerations that are different from those that the Commission sought
to address in rule 6c-11.\17\ The Commission highlighted that rule 6c-
11 does not provide relief from Section 18(f)(1) or 18(i) of the
Investment Company Act, which, in large part, were intended to protect
investors from certain abuses associated with complex investment
company capital structures, including conflicts of interest among a
fund's share classes. In the Rule 6c-11 Adopting Release, the
Commission specifically noted that an ETF class that transacts with
authorized participants on an in-kind basis and a mutual fund class
that transacts with shareholders on a cash basis may give rise to
differing costs to the portfolio.\18\ As a result, certain costs may
result from transactions through one class, but all shareholders
generally would bear the costs.\19\ The Commission concluded that it is
appropriate for share class ETFs to request relief from section
18(f)(1) and 18(i) of the Investment Company Act through the exemptive
applications process so that the Commission may assess all relevant
policy considerations in the context of the facts and circumstances of
particular applicants.\20\
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\17\ See Rule 6c-11 Adopting Release at 122-124.
\18\ Id. at 123.
\19\ See id. at 122-123 (noting that ``costs can include
brokerage and other costs associated with buying and selling
portfolio securities in response to mutual fund share class cash
inflows and outflows, cash drag associated with holding the cash
necessary to satisfy mutual fund share class redemptions, and
distributable capital gains associated with portfolio
transactions'').
\20\ See id. at 124.
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As noted above, the Commission has issued Multi-Class ETF Orders to
over 48 registered open-end management investment companies permitting
the operation of a Multi-Class ETF \21\ and is currently reviewing
applications for similar relief from other applicants. The Multi-Class
ETF Orders provide Multi-Class ETFs with two broad categories of
relief: (1) the relief necessary to permit standard ETF operations
consistent with rule 6c-11 under the Investment Company Act and (2) the
relief necessary for a fund to offer an ETF Class and one or more
Mutual Fund Classes.\22\
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\21\ See supra note 1.
\22\ See DFA Notice at 1.
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III. Discussion and Exemptive Relief
The Commission believes it is appropriate in the public interest,
and is consistent with the protection of investors to grant a
conditional exemption from Exchange Act section 11(d)(1) and Exchange
Act rules 10b-10 and 14e-5 for the ETF Class of a Multi-Class ETF that
has received a Multi-Class ETF Order.\23\ This exemption will provide
relief from these provisions to broker-dealers and certain other
persons under substantially the same conditions and requirements as the
2019 Order, except that instead of requiring that the Multi-Class ETFs
fall within the definition of an ETF under rule 6c-11, this exemption
requires that the Multi-Class ETF must operate the ETF Class as an ETF
in compliance with the requirements of rule 6c-11, with certain
exceptions. Specifically, in order for a broker-dealer to rely on this
relief: (1) a Multi-Class ETF must have received a Multi-Class ETF
Order from the Commission subject to a condition to operate its ETF
Class as an ETF in compliance with the requirements of rule 6c-11,
except that the Multi-Class ETF's Mutual Fund Shares will not be listed
on any national securities exchange and the Multi-Class ETF may offer
an Exchange Privilege; (2) other than as provided for in the relief
from rule 14e-5, the ETF Class of the Multi-Class ETF must further
satisfy the diversification requirement as set forth in this order; (3)
the broker-dealer relying on the relief must meet certain conditions
specific to each applicable Exchange Act Provision, as set forth in
this order; and (4) except as provided in Sections III.D.2 and III.E
below, this relief does not apply to purchases or sales of ETF Shares
of a Multi-Class ETF in the secondary market.
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\23\ Section 36(a)(1) of the Exchange Act grants the Commission
the authority, with certain limitations not at issue here, to
``conditionally or unconditionally exempt any person, security, or
transaction . . . from any provision or provisions of [the Exchange
Act] or of any rule or regulation thereunder, to the extent that
such exemption is necessary or appropriate in the public interest,
and is consistent with the protection of investors.'' 15 U.S.C.
78mm(a)(1).
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A. Compliance With Rule 6c-11
The Commission is limiting the relief under this exemption to
transactions in the ETF Shares of a Multi-Class ETF that has received a
Multi-Class ETF Order subject to a condition to operate the ETF Class
as an ETF in compliance with the requirements of rule 6c-11, except
that the Multi-Class ETF: (1) will list only the ETF Shares on a
national securities exchange; and (2) may permit an Exchange Privilege
in addition to traditional creation and redemption transactions with
the ETF Class. As noted above, this condition is generally consistent
with the 2019 Order, except that instead of requiring that the Multi-
Class ETFs fall within the definition of an ETF under rule 6c-11, this
exemption requires that the Multi-Class ETF must operate the ETF Class
as an ETF in compliance with the requirements of Rule 6c-11.\24\
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\24\ See 2019 Order at 7-8.
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As with the 2019 Order, the Commission believes that the portfolio
and other transparency requirements in rule 6c-11, when combined with
the conditions in this order, address the policy concerns underlying
the relevant statutory provisions and rules. For example, rule 6c-11
requires ETFs to disclose their portfolio holdings each day through
their website. This portfolio transparency, along with the availability
of information regarding Multi-Class ETFs, and in particular the ETF
Class, through a variety of sources, including the National Securities
Clearing Corporation (``NSCC''), intermediaries and the Multi-Class
ETFs themselves, should 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. These
requirements should also help customers determine if they should
request that their broker-dealer disclose any omitted information.
The Commission further believes that neither the existence of the
Exchange Privilege nor the introduction of the Mutual Fund Classes has
any adverse effect on the relief granted in this order. The relief
provided is limited to creation and redemption transactions effected by
broker-dealers and certain other persons with the ETF Class of a Multi-
Class ETF, as well as certain limited secondary market transactions in
the ETF Shares of the Multi-Class ETF. These creation and redemption
transactions are separate and distinct from transactions in Mutual Fund
Shares (and the operation of the Mutual Fund Class) where shareholders
can purchase and redeem individual shares directly from the Mutual Fund
Class without the need to engage in creation and redemption
transactions. Similarly, the Exchange Privilege does not involve the
exchange of a creation or redemption basket of securities and
[[Page 13678]]
other assets. Instead, the Exchange Privilege permits a shareholder of
Mutual Fund Shares to acquire individual ETF Shares directly from the
Multi-Class ETF. The Requester has not requested, and relief has not
been granted, for transactions involving the Mutual Fund Shares (or the
Mutual Fund Class) or pursuant to the Exchange Privilege.
B. Minimum Diversification Requirement
Consistent with the relief provided under the 2019 Order, the
exemption provided by this order from Exchange Act section 11(d)(1) and
Exchange Act rule 10b-10 is available only with respect to transactions
involving a Multi-Class ETF that meets the diversification requirement
applicable to a regulated investment company in Internal Revenue Code
(``IRC'') Sec. 851(b)(3)(B), 26 U.S.C. 851(b)(3)(B) (the ``IRC
diversification requirement'').\25\ Creation and redemption
transactions in diversified Multi-Class ETFs involve the exchange of a
basket that contains numerous securities, which in turn implicates
disclosure requirements, as discussed below, under rule 10b-10. At the
same time, the composite nature of a diversified basket means that the
securities of any one issuer will account for a relatively small share
of the basket. Diversification thus should mitigate any conflicts that
a broker-dealer would otherwise be required to disclose and minimize
the incentive for a broker-dealer to seek to use a Multi-Class ETF to
evade the new issue lending restriction in Exchange Act section
11(d)(1).\26\
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\25\ IRC Section 851(b)(3)(B) provides that a ``regulated
investment company'' must have: ``not more than 25 percent of the
value of its total assets is invested in--(i) the securities (other
than Government securities or the securities of other regulated
investment companies) of any one issuer, (ii) the securities (other
than the securities of other regulated investment companies) of two
or more issuers which the taxpayer controls and which are
determined, under regulations prescribed by the Secretary [of the
Treasury], to be engaged in the same or similar trades or businesses
or related trades or businesses, or (iii) the securities of one or
more qualified publicly traded partnerships (as defined in
subsection (h)).''
\26\ See 2019 Order at note 19.
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Diversification, together with the conditions discussed below,
forms the basis for the Commission's conclusion that relief from
section 11(d)(1) and rule 10b-10 is appropriate in the public interest
and consistent with investor protection.
C. Exemption From Exchange Act Rule 10b-10
Exchange Act rule 10b-10 generally requires a broker or dealer that
effects a securities transaction for a customer to send to the
customer, at or before the completion of the transaction, a written
notification (``confirmation'') disclosing certain information,
including among other items, the identity, price, and number of shares
or units (or principal amount) of the security purchased or sold by the
customer.\27\ The confirmation requirement provides basic investor
protections by conveying information that allows investors to verify
the terms of their transactions; alerting investors to potential
conflicts of interest with their broker-dealers; acting as a safeguard
against fraud; and providing investors a means to evaluate the costs of
their transactions and the quality of their broker-dealer's
execution.\28\ When an authorized participant that is a registered
broker-dealer (``Broker-Dealer AP'') engages in creation and redemption
transactions for its customers, each tender or receipt of a component
security as part of a basket is a purchase \29\ or sale \30\ of a
security, and each purchase or sale requires confirmation pursuant to
Exchange Act rule 10b-10.
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\27\ 17 CFR 240.10b-10.
\28\ Exchange Act Release No. 34962 (Nov. 10, 1994), 59 FR
59612, 59613 (Nov. 17, 1994).
\29\ Exchange Act Sec. 3(a)(13).
\30\ Exchange Act Sec. 3(a)(14).
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Consistent with the relief granted in the 2019 Order, the
Commission is granting an exemption from Exchange Act rule 10b-10 with
respect to transactions involving the ETF Shares of the Multi-Class ETF
that will allow a broker-dealer that is effecting an in-kind creation
or redemption transaction on behalf of a customer to confirm the
transaction without providing a contemporaneous statement of the
identity, price or number of shares or units (or principal amount) of
each component security tendered to or delivered by the Multi-Class
ETF, subject to the following conditions:
1. Confirmation statements of issuance and redemption transactions
in ETF Shares will contain all of the information specified in
paragraph (a) of rule 10b-10 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.
2. Any confirmation statement of an issuance or redemption
transaction in ETF Shares 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; and
3. All such requests will be fulfilled in a timely manner in
accordance with paragraph I of rule 10b-10.
The requirement that confirmation statements include all of the
information specified in paragraph (a) of rule 10b-10 other than the
identity, price, and number of shares or units (or principal amount) of
each component security tendered or received in the transaction
preserves a customer's right to receive other important information
from the confirmation about the terms of the customer's transaction at
or before the completion of the transaction. The statement that the
omitted information will be provided upon request informs the customer
of the right to receive the omitted information. The requirement for a
broker-dealer to fulfill such requests in a timely manner in accordance
with paragraph (c) of rule 10b-10 clarifies that a broker-dealer must
fulfill the request within a prescribed period (i.e., within five
business days of receipt of the request, or within 15 business days of
a request pertaining to a transaction effected more than 30 days prior
to the receipt of the request) so that customers can be assured that
they receive the requested information in a timely manner.
The Commission also believes that, in general, information
regarding Multi-Class ETFs, and in particular the ETF Class, is
accessible through a variety of sources, including the NSCC,
intermediaries and the Multi-Class ETFs themselves. The Commission
believes that the conditions above will allow any customers who would
like additional information regarding identity, price, or number of
shares or units (or principal amount) to receive the information in a
timely manner. This exemption reduces the burden that may otherwise be
associated with creation and redemption transactions while preserving a
customer's ability to access the omitted information upon request.
D. Exemption From Section 11(d)(1)
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 within thirty days prior to such
transaction. Because Multi-Class 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 ETF Shares, and thus are
[[Page 13679]]
continuously subject to the restrictions of section 11(d)(1). Section
11(d)(1) issues arise both with Broker-Dealer Aps and with broker-
dealers who effect only secondary market transactions (``Non-AP Broker-
Dealers'').
1. Conditions for Broker-Dealer Authorized Participants
As noted above, a Broker-Dealer AP is a registered broker-dealer
that has entered into a contractual arrangement with a Multi-Class ETF
or one of its service providers that allows the Broker-Dealer AP to
place orders for the creation or redemption of creation units, but the
Broker-Dealer AP is not compensated by the Multi-Class ETF in
connection with the creation or redemption of ETF Shares. Broker-
Dealers may have different reasons for becoming authorized
participants, including for their own proprietary trading, to
facilitate customer trades, to hedge or otherwise manage their own
risk, or to arbitrage differences between the Multi-Class ETF's market
price and its NAV.
Consistent with the relief granted in the 2019 Order, the
Commission is granting an exemption from the new issue lending
restriction in section 11(d)(1) for a Broker-Dealer AP that extends or
maintains credit, or arranges for the extension or maintenance of
credit, on ETF Shares subject to the following two conditions:
1. Neither the Broker-Dealer AP, nor any natural person associated
with such Broker-Dealer AP, directly or indirectly (including through
any affiliate of such Broker-Dealer AP), receives from the ``Fund
Complex'' \31\ any payment, compensation, or other economic incentive
to promote or sell the shares of the Multi-Class ETF to persons outside
the fund complex, other than non-cash compensation currently permitted
under Financial Industry and Regulatory Authority (``FINRA'') rule
2341(l)(5)(A), (B), or (C) (``non-cash compensation'').\32\
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\31\ For purposes of this order, a ``Fund Complex'' is 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 the Investment Company Act
section 2(a)(3)) of any such issuer or any such investment adviser,
distributor, sponsor, or depositor.
\32\ Non-cash compensation currently permitted under FINRA rule
2341(l)(5)(A), (B), or (C) is limited to: (A) Gifts that do not
exceed an annual amount per person fixed periodically by FINRA and
are not preconditioned on achievement of a sales target; (B) An
occasional meal, a ticket to a sporting event or the theater, or
comparable entertainment which is neither so frequent nor so
extensive as to raise any question of propriety and is not
preconditioned on achievement of a sales target; [and] (C) Payment
or reimbursement by offerors in connection with meetings held by an
offeror or by a member for the purpose of training or education of
associated persons of a member, subject to certain conditions. On
February 12, 2026, the Commission approved a proposed change to
FINRA Rule 2341(l)(5)(A), among others. This rule change increased
the annual amount per person fixed periodically by FINRA in
paragraph (A) from $100 to $300. See Exchange Act Release No. 104830
(Feb. 12, 2026) (File No. SR-FINRA-2025-003), 91 FR 7570 (Feb. 18,
2026) (available at: <a href="https://www.federalregister.gov/d/2026-03127">https://www.federalregister.gov/d/2026-03127</a>).
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2. The Broker-Dealer AP does not extend, maintain or arrange for
the extension or maintenance of credit to or for a customer on ETF
Shares before thirty days have passed from the date that the ETF Shares
initially commence trading (except to the extent that such extension,
maintenance, or arranging of credit is otherwise permitted pursuant to
rule 11d1-1).
The exemption permits a Broker-Dealer AP to accept only limited
forms of non-cash compensation that do not present broker-dealers with
the types of potential conflicts of interest in their sale of
securities that section 11(d)(1) addresses.\33\ This absence of any
special compensation to distribute shares mitigates the potential
conflicts of interest that section 11(d)(1) addresses. In addition,
requiring a Broker-Dealer AP to wait thirty days before margining its
customers' ETF Shares is consistent with the section 11(d)(1)
prohibition against a broker-dealer extending credit on securities that
were part of a new issue, if the broker-dealer participated in the
distribution of the new issue securities within the preceding thirty
days. Thus, this condition ensures that Broker-Dealer Aps do not use
credit to induce customers to buy ETF Shares for at least a 30-day
period following launch of the ETF, similar to the prohibition against
extending credit that applies to other types of new issue securities
under section 11(d)(1).
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\33\ See Exchange Act Release No. 21557 (Dec. 18, 1984), 49 FR
50172 at 50173-74 (Dec. 27, 1984) (available at: <a href="https://cdn.loc.gov/service/ll/fedreg/fr049/fr049250/fr049250.pdf">https://cdn.loc.gov/service/ll/fedreg/fr049/fr049250/fr049250.pdf</a>).
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2. Conditions for Non-AP Broker-Dealers
Many broker-dealers effect ETF securities transactions solely on
the secondary market, whether for themselves or as agent for their
customers. They do not enter contractual arrangements to effect
creation or redemption transactions with the ETF or one of its service
providers. Thus, these Non-AP Broker-Dealers have not undertaken to
distribute ETF Shares and generally do not receive any compensation for
selling ETF Shares, other than, in some cases, limited forms of non-
cash compensation. Such Non-AP Broker-Dealers, may reasonably be
considered not to be participating in the distribution of new issue
securities within the meaning of section 11(d)(1). To remove any
ambiguity about the circumstances when Non-AP Broker-Dealers may offer
margin on ETF Shares, however, the Commission is granting this
exemption from section 11(d)(1) consistent with the relief granted in
the 2019 Order.
The Commission believes this relief is appropriate because, as
stated above, Non-AP Broker-Dealers do not engage in creation and
redemption transactions with Multi-Class ETFs and, thus, may reasonably
be considered not to be participating in the distribution of the ETF
Shares. In addition, this relief is subject to the condition that Non-
AP Broker-Dealers do not (and their associated persons who are natural
persons do not), directly or indirectly (including through any
affiliate of such Non-AP Broker-Dealer), receive from the Fund Complex
any payment, compensation or other economic incentive to promote or
sell ETF Shares to persons outside the Fund Complex, other than non-
cash compensation. For the foregoing reasons, the Commission believes
it is appropriate and in the public interest and consistent with
investor protection to grant this exemption.
E. Exemption From Rule 14e-5
Exchange Act rule 14e-5 prohibits ``covered persons'' from directly
or indirectly purchasing or arranging to purchase any securities that
are the subject of a tender offer (``subject securities'') \34\ or any
securities that are immediately convertible into, exchangeable for, or
exercisable for subject securities (``related securities'') \35\ except
as part of such tender offer. Subject to certain exceptions, this
prohibition applies from the time of the public announcement of the
tender offer until the expiration of such offer. The term ``covered
person'' includes, among other persons, a dealer-manager of a tender
offer and any person acting, directly or indirectly, in concert with
other covered persons in connection with any purchase or arrangement to
purchase any subject securities or any related securities.\36\
Therefore, the prohibitions of rule 14e-5 may apply to authorized
participants who are broker-dealers and acting as dealer-managers in
tender
[[Page 13680]]
offers, the Multi-Class ETF, and any legal entity of which the Multi-
Class ETF is a series.
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\34\ Exchange Act rule 14e-5(c)(7).
\35\ Exchange Act rule 14e-5(c)(6).
\36\ Exchange Act rule 14e-5(c)(3).
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Consistent with the relief granted in the 2019 Order, the
Commission is granting a conditional exemption from rule 14e-5 to a
Multi-Class ETF, the legal entity of which the Multi-Class ETF is a
series, and authorized participants and any other covered persons who
create and redeem ETF Shares of a Multi-Class ETF in creation units
pursuant to contractual arrangements between such covered person and
the Multi-Class ETF (``Rule 14e-5 Covered Persons''). The conditional
exemption will allow such persons to: (1) redeem ETF 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 the ETF Shares of a Multi-Class ETF
after the first public announcement of a tender offer involving the ETF
Class's component securities and during such tender offer given that
such transactions could include, or be deemed to include, purchases of,
or arrangements to purchase, subject securities or related securities,
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 ETF Shares of a Multi-Class ETF.
Consistent with the 2019 Order, the exemption from rule 14e-5 is
subject to the following conditions:
1. 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;
2. if there is a change in the composition of an ETF Class's
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 (i) the basket of subject
securities or related securities contains fewer than 20 securities, or
(ii) the subject securities and related securities make up more than 5%
of the value of the basket, then any purchases of an ETF Class'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; and
3. except for the relief specifically granted herein, any broker-
dealer acting as a dealer-manager of a tender offer will comply with
rule 14e-5.
The Commission believes this exemption will facilitate the ability
of authorized participants and other Rule 14e-5 Covered Persons to
engage in creation or redemption transactions between the public
announcement of a tender offer and its expiration, thereby permitting
the ETF Class of a Multi-Class ETF to operate as intended for the
benefit of its holders and as disclosed in publicly filed documents.
The conditions to which the relief is subject will help ensure that
authorized participants and other recipients of the relief do not
effect creation or redemption transactions during the relevant tender
offer period in an effort to facilitate the tender offer. For the
foregoing reasons, the Commission believes it is appropriate and in the
public interest and consistent with investor protection to grant this
exemption.
IV. Conclusion
In light of the above, and in accordance with Exchange Act section
36, the Commission finds that conditionally exempting broker-dealers
and certain other persons that engage in certain transactions involving
the ETF Shares of a Multi-Class ETF that has received a Multi-Class ETF
Order, subject to conditions contained in this order, from the
requirements of section 11(d)(1) of the Exchange Act and Exchange Act
rules 10b-10 and 14e-5 appropriate in the public interest, and
consistent with the protection of investors.
Accordingly, it is hereby ordered, pursuant to section 36 of the
Exchange Act, subject to the conditions described in Sections III. A,
B, and C above, that a broker or dealer is exempt from Exchange Act
rule 10b-10 with respect to creation or redemption transactions on
behalf of customers in ETF Shares of a Multi-Class ETF.
It is further ordered, pursuant to section 36 of the Exchange Act,
subject to the conditions described in Sections III. A, B, and D.1
above, that a Broker-Dealer AP for the ETF Class of a particular Multi-
Class ETF is exempt from section 11(d)(1) of the Exchange Act with
respect to the extension or maintenance of credit, or the arranging of
the extension or maintenance of credit, on such ETF Shares.
It is further ordered, pursuant to section 36 of the Exchange Act,
subject to the conditions described in Sections III. A, B, and D.2
above, that a Non-AP broker-dealer that effects transactions in ETF
Shares of a Multi-Class ETF, exclusively in the secondary market, is
exempt from section 11(d)(1) when it extends or maintains, or arranges
for the extension or maintenance of credit to or for customers on such
ETF Shares.
It is further ordered, pursuant to section 36 of the Exchange Act,
subject to the conditions described in Sections III. A and E above,
that the Rule 14e-5 Covered Persons are exempt from Exchange Act rule
14e-5 with respect to the transactions described in Section III.E
above.
This exemption is subject to modification or revocation at any time
the Commission determines that such action is necessary or appropriate
in furtherance of the purposes of the Exchange Act. In addition,
persons relying on this exemption are directed to the anti-fraud and
anti-manipulation provisions of the federal securities laws,
particularly section 10(b) of the Exchange Act and rule 10b-5
thereunder.
For the Commission, by the Division of Trading and Markets
pursuant to delegated authority \37\ and by the Division of
Corporation Finance pursuant to delegated authority.\38\
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\37\ Regarding the exemption from Exchange Act Rule 10b-10
pursuant to 17 CFR 200.30-3(a)(32) and regarding the exemption from
Exchange Act Section 11(d)(1) pursuant to 17 CFR 200.30.3(a)(62).
\38\ Regarding the exemption from Rule 14e-5 pursuant to 17 CFR
200.30-1(f)(16)(ii).
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Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2026-05473 Filed 3-19-26; 8:45 am]
BILLING CODE 8011-01-P
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</html>Indexed from Federal Register on March 20, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.