Nasdaq Expands ETP Definition to Include Class ETF Shares in New Rule Filing

Nasdaq filed a rule change on April 7 seeking to broaden its Exchange-Traded Product definition to encompass Class ETF Shares — a hybrid investment structure that combines features of traditional mutual funds and exchange-traded funds. The amendment targets Equity 1, Section 1(a)(15) and opens the door for issuers of these products to utilize Nasdaq's optional Initial ETP Open process on their first trading day.

Class ETF Shares are exchange-listed shares issued by open-end funds that simultaneously offer conventional mutual fund share classes. The SEC greenlighted Nasdaq's generic listing standards for these hybrid products in November 2025 under Rule 5703, while the Initial ETP Open mechanism received approval in May 2025. That process allows issuers to postpone a security's opening from pre-market hours at 4:00 a.m. ET to the regular market open at 9:30 a.m. ET, enabling the Nasdaq Halt Cross to establish an orderly opening price. Previously, this functionality was unavailable to products listed under Rule 5703 — a gap the new filing directly addresses.

The timing is significant. Asset managers are moving aggressively to launch dual-class funds, with the SEC having approved approximately 48 firms for multi-class ETF exemptive relief out of nearly 100 applications submitted as of March 2026. Industry heavyweights BlackRock, Fidelity, JPMorgan, and Morgan Stanley are among those in the pipeline. However, operational infrastructure continues to trail regulatory momentum. The DTCC's automated system for processing mutual fund-to-ETF share exchanges is not expected to launch until May 18, 2026, with full custodian and market maker readiness potentially stretching into late 2026 or 2027.

Nasdaq's rule took immediate effect under Section 19(b)(3)(A)(iii) of the Securities Exchange Act. The exchange has also requested the SEC waive the standard 30-day operative delay, characterizing the update as a straightforward definitional clarification. The SEC retains authority to suspend the rule within 60 days if investor protection concerns arise.