WASHINGTON, D.C. — The Securities and Exchange Commission proposed amendments on October 2, 2026, to allow registered closed-end management investment companies and business development companies to issue multiple share classes. The agency filed the proposed rule on that date to modify existing regulatory frameworks governing these investment vehicles.

If the amendments are adopted, the Securities and Exchange Commission proposes to rescind existing related exemptive orders. The proposed rule is identified as Release No. 33-11444; 34-106534; IC-36351 and File No. S7-2026-34. The rule amends 17 CFR Parts 239, 249, 270, and 274.

The proposal requires certain disclosures in funds’ prospectuses related to multiple share class structures. It also requires disclosures in all regulated closed-end fund shareholder reports. A legend must appear in prospectuses of regulated closed-end funds under the new rules. The proposal increases the dollar amount used for the prospectus expense example to provide investors with information about fund expenses similar to that provided by registered open-end funds. The proposal seeks to increase flexibility in the repurchase offer process and would permit regulated closed-end funds to issue multiple share classes.

Under current rules, repurchase offer amounts must be between five percent and 25 percent of common stock outstanding. Funds must maintain at least 100 percent of the repurchase offer amount in liquid assets during the repurchase offer period. These requirements define the operational constraints the amendments seek to adjust.

Why It Matters

The Investment Company Act of 1940 governs the proposed amendments and was enacted to address abuses in the investment company industry during the 1920s, including excessive fees and lack of transparency. The act has since been amended to adapt to market changes. It was enacted in response to the 1929 stock market crash, aiming to protect investors by regulating investment companies and ensuring transparency in their operations.

The SEC’s Division of Investment Management, which oversees the Investment Company Act of 1940, has been responsible for reviewing and approving exemptive applications for multiple share class structures since the 1980s. In 1982, the SEC issued a Staff Position (SEC Release No. IC-12274) clarifying the regulatory framework for business development companies (BDCs), establishing their unique flexibility under the Investment Company Act of 1940, which the 2026 proposal builds upon. The proposal formalizes practices that have evolved through individual exemptive orders.

Timeline

Approximately $1.0 trillion of new capital was raised through registered offerings in 2022. On March 12, 2025, the Securities and Exchange Commission (SEC) approved multiple applications for multi-share class exemptive relief for private business development companies (BDCs) and certain registered closed-end funds, permitting them to have multiple share classes with varying sales loads. On March 12, 2025, the Securities and Exchange Commission (SEC) issued a notice on Ares Core Infrastructure Fund's application for multi-class exemptive relief, which allowed certain continuously offered closed-end management investment companies, including BDCs, to issue multiple classes of shares.

Securities and Exchange Commission published notice titled "Self-Regulatory Organizations; National Securities Clearing Corporation; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend the Clearing Agency Risk Management Framework" on 2026-10-02. The Securities and Exchange Commission filed the proposed rule on October 2, 2026. Securities and Exchange Commission published rule titled "Commission Quorum Requirement" on 2026-10-02. The Securities and Exchange Commission proposed amendments to allow registered closed-end management investment companies and business development companies to issue multiple share classes.

What's New

The Investment Company Act of 1940, which governs the proposed amendments, was enacted to address abuses in the investment company industry during the 1920s, including excessive fees and lack of transparency, and has since been amended to adapt to market changes. The Investment Company Act of 1940 was enacted in response to the 1929 stock market crash, aiming to protect investors by regulating investment companies and ensuring transparency in their operations.