Executive Summary
On September 30, 2026, the SEC proposed significant rulemaking[1] that would modernize the regulatory framework governing interval funds and expand the ability of closed-end funds to issue multiple share classes. The proposal would do the following:
- Modernize interval fund operations. Offer interval funds greater flexibility in launch timing, repurchase frequency, repurchase mechanics and liquidity management.
- Provide rule-based multiple-class relief. Allow eligible continuously offered, non-listed closed-end funds and BDCs to establish multiple share classes without obtaining individual exemptive orders.
- Shift implementation demands rather than eliminate them. Reduce several prescriptive constraints but place greater weight on board review, adviser systems, compliance controls, disclosure and documented decision-making.
Interval Fund Modernization
Proposed changes. The SEC would substantially amend Rule 23c-3 under the Investment Company Act of 1940, the rule that allows registered closed-end funds and BDCs to offer shareholders periodic liquidity through repurchase offers at NAV. Rule 23c-3 operates as an exception to Section 23(c) of the 1940 Act, which otherwise prohibits a closed-end fund from repurchasing its own shares except on an exchange or other designated market, through a tender offer open to all holders or as the Commission permits by rule or order. These would be the first substantive changes to the rule’s repurchase mechanics since its adoption. The proposal would do the following:
- permit monthly repurchase intervals;
- permit a newly launched fund to defer its first repurchase offer for up to two years;[2]
- permit discretionary repurchase offers annually rather than once every two years;[3]
- permit deferred sales loads to be deducted from repurchase proceeds;[4]
- simplify certain repurchase timing and pricing requirements; and
- replace the existing asset-coverage approach to provide liquidity for repurchases with a more principles-based requirement.
Potential Industry Implications
Why it matters. The proposal could give interval funds greater flexibility over launch timing, repurchase cadence and sources of repayment. A new fund could defer its first repurchase offer for up to two years, and a fund could rely on cash flows, maturities, subscriptions, credit facilities and asset sales rather than a prescribed pool of qualifying liquid assets.
Compliance implications. The proposal would not reduce the need for liquidity oversight, but it would change its form. The current rule imposes a 100% liquid-asset requirement; the proposal would remove that specific requirement. Instead, funds would need to adopt reasonably designed policies and procedures for satisfying repurchase requests without selling investments at prices that deviate significantly from their value. Independent directors would need sufficient reporting and stress analysis to understand and oversee the fund’s liquidity methodology, including any reliance on portfolio cash flows, maturing investments, subscriptions, committed credit facilities and asset sales.
Multiple Share Classes for Closed-End Funds and BDCs
Proposed change. The SEC would establish a rules-based framework permitting multiple share classes for registered closed-end funds and BDCs (“regulated closed-end funds”) whose common shares are continuously offered and neither exchange-listed nor traded on a secondary market. It would do so by extending Rule 18f-3, available to open-end funds since 1995, to these funds, and by extending Rule 17d-3 to provide an exemption from the Section 17(d) and Rule 17d-1 prohibition on affiliated joint transactions with respect to asset-based distribution and service fee arrangements with the fund.
The proposal would permit the following:
- multiple share classes with differing fee and distribution arrangements;
- asset-based distribution and service fees and related distribution and servicing arrangements, subject to specified conditions; and
- reliance on revised versions of Rules 18f-3 and 17d-3.
The SEC also proposes enhanced disclosure for multiple-class structures, expanded Form N-2 expense disclosure, a new shareholder report expense table for all closed-end funds that file on Form N-2 and related Form N-CEN amendments. Notably, and unlike the existing exemptive orders, the rule-based relief would not condition multiple-class relief on compliance with the FINRA distribution-fee rules—a difference most consequential for privately offered BDCs, which are not otherwise subject to those rules.
Potential Industry Implications
Why it matters. Rule-based relief could reduce the cost and timing associated with obtaining individual exemptive orders and make differentiated distribution and servicing arrangements easier to incorporate into product design.
Compliance implications. The proposed amendments are not expected to generate incremental compliance burdens for regulated closed-end funds.[5] Allowing such funds to offer multiple classes of shares in reliance on Rule 18f-3 and to compensate affiliates in connection with the distribution of fund shares in reliance on Rule 17d-3 would be conditioned on compliance with Rule 12b-1 and the prohibition on joint sharing of distribution costs among affiliated registered management investment companies and BDCs—i.e., as if the fund were a registered open-end fund.
Next Steps
Comment period. Comments on the proposal are due December 4, 2026.
What firms should assess now. Asset managers and boards should consider whether the proposal would affect planned products or existing structures—including any fund operating under an exemptive order the SEC proposes to rescind—and identify the governance, valuation, liquidity, disclosure, systems and compliance changes that implementation could require. Firms considering comments may wish to focus on the workability of the principles-based liquidity standard, the two-year deferral and monthly-interval provisions, the proposed board findings for multiple-class plans and the conditions for multiple-class relief.
If you have any questions about this article, please contact Debby Eades at deades@vedder.com, Nate Segal at nsegal@vedder.com or any other Vedder attorney with whom you have worked.
1. Interval Fund Modernization; Expansion of Multiple Share Class to Registered Closed-End Management Investment Companies and Business Development Companies, Investment Company Act Release No. 36351 (Sept. 30, 2026) (“Proposing Release”), available here.
2. Currently, Rule 23c-3(a)(7) requires interval funds to start the repurchase process with an initial repurchase request deadline no later than two periodic intervals after the effective date of the fund’s registration statement.
3. Notably, non-interval closed-end funds also would be provided with additional flexibility to offer to repurchase investors’ shares more frequently using the proposed discretionary repurchase provision. Proposing Release at 48. As the Proposing Release explains, “The ability to offer discretionary repurchases, while at the fund’s discretion, expands the toolkit available to the fund to address market events or unique circumstances.” Id. at 49.
4. As noted in the Proposing Release, “This change would put interval funds on the same footing as registered open-end funds, which may impose deferred sales loads subject to these same conditions, and permit broader distribution financing approaches for interval funds.” Id. at 65.
5. Id. at 185.
