SEC Proposes Changes to Interval Fund Exemptive Rules

On September 30, 2026, the SEC proposed the most significant overhaul of the interval fund framework since Rule 23c-3 was adopted in 1993. The proposal aims to increase retail investors’ access to private markets through a regulated structure that offers periodic, rules-based liquidity and facilitates the ability of interval funds to use multiple distribution channels without the need for exemptive relief. Among other things, the proposed amendments would enable all interval funds to offer multiple share classes and liquidity opportunities as frequently as monthly, without the need to obtain exemptive relief. Certain proposed changes would also be available to other continuously offered registered closed-end funds and business development companies (BDCs).

The proposed amendments include the following:

• Longer runway. A new interval fund could defer its first repurchase offer for up to two years, regardless of how frequently it intends to offer liquidity.
  
• Monthly intervals. Monthly repurchase offers, today available only through exemptive orders, would be permitted by Rule 23c-3, with a minimum of 5% of total outstanding shares per offer.
  
• Principles-based liquidity. The requirement to hold 100% of the repurchase offer amount in liquid assets would be replaced by a duty to manage liquidity so repurchases do not force an adviser to sell portfolio holdings at prices that deviate significantly from value.
  
• Multiple share classes by rule. Rules 18f-3 and 17d-3 would be extended to continuously offered, unlisted regulated closed-end funds (including interval funds) and BDCs, ending the need for individual exemptive orders.
  

Background: Why the SEC is acting now

Rule 23c-3, adopted in 1993, lets an interval fund make periodic repurchase offers at NAV pursuant to a board-approved fundamental policy, without running each repurchase as an issuer tender offer. Today, an interval fund can make a repurchase offer at three-, six-, or twelve-month intervals; must offer between 5% and 25% of outstanding shares in each such offer; and is required to hold liquid assets equal to 100% of the repurchase offer amount between notification of the offer and the pricing date. A new interval fund must also start making repurchase offers within two periodic intervals of the fund’s effectiveness.

To date, the existing regulatory structure has been adapted through exemptive relief. As a result, the SEC has routinely granted orders permitting repurchase offers at monthly intervals, the issuance of multiple share classes, and imposition of deferred sales loads for such multiple share class funds. The proposed amendments would codify these exemptive orders.

The proposed amendments also seek to address the perception that the existing 100% liquidity requirement contained in Rule 23c-3 deters interval fund launches. Instead, sponsors investing in less liquid strategies such as private equity often choose to launch tender offer (TO) funds because TO funds are not subject to this portfolio liquidity requirement. The proposed amendments also aim to make the interval structure workable for those strategies while maintaining investor protections that come with predictable repurchase rights.

Key regulatory changes: Summary

Liquidity standard. The proposed amendments would eliminate the current requirement to maintain liquid assets equal to 100% of each repurchase offer and instead require a fund’s board to adopt a principles-based approach under Rules 23c-3 and 38a-1 (the Compliance Rule). The resulting compliance policy would need to be reasonably designed to ensure that the fund can meet repurchase obligations without selling portfolio holdings at a fire sale, taking into account other obligations including any existing senior securities. The release contemplates layered sources of liquidity, including subscriptions, scheduled loan repayments, targeted dispositions, and committed credit facilities. The proposed amendments would also eliminate the existing rule’s requirement that the board act on a liquidity failure.

Ramp-up. The two-year deferral appears to be aimed at new private credit and private equity strategies that need time to season and build vintage diversification before cash flows can fund repurchases. The release asks whether funds already in their ramp-up period should be able to use the extended period.

Deferred sales loads. Putting interval funds on the same footing as open-end funds would let every interval fund, not just multiple share class funds with orders, charge a contingent deferred sales load.

Multiple share classes for continuously offered regulated closed-end funds and BDCs

Rules 18f-3 and 17d-3 would be amended so continuously offered regulated closed-end funds (including interval funds) and BDCs could issue multiple classes without seeking an exemptive order from the SEC. Funds would have to meet the existing conditions applicable to open-end funds, including adoption of a board-approved written Rule 18f-3 plan, class-specific expense allocations and voting, and the following closed-end fund-specific conditions:

• The fund must offer its common stock continuously.
  
• The fund’s common stock may not be listed, offered, or traded on a secondary market, including a blockchain-based alternative trading system (ATS).
  
• Any offer at a price other than NAV would need to be made to all classes.
  
• Distribution and service fees would need to be charged under a Rule 12b-1-compliant plan, as if the fund were an open-end fund.
  
• Repurchase offers would need to be made equally to all classes, with oversubscription and pro rata calculations done on a fund-wide, not class-specific, basis.
  
• Exchanges between funds would need to comply with Rule 11a-3.
  

The SEC chose not to make FINRA sales charge limits (Rules 2341 and 2310) a condition of Rule 18f-3, although existing orders rely on representations that funds will comply with such rules. Rule 17d-3 would also be amended to permit asset-based distribution and service fees to affiliates.

Rescission of exemptive orders and timing

The SEC proposes rescinding previously granted monthly interval and multiple share class orders (including deferred sales load relief).[1] Rescission would follow a one-year compliance period after the effective date. Funds could elect to use the rules early provided that they satisfy all applicable requirements, including the Form N-2 disclosures.

Challenges and open issues

The proposal widens the door for private-markets products in registered form, and the SEC’s own data show demand: interval funds grew from 58 funds and $38 billion in 2020 to 139 funds and $101 billion at the end of 2025. But the final economics will turn on details that sponsors should scrutinize now.

The requirement to offer to repurchase a minimum of 5% of outstanding shares may make monthly intervals impractical for less-liquid strategies. At least one existing exemptive order allows a fund to offer 2% of outstanding shares monthly if it offers at least 5% across each quarter. Under the proposal, a monthly interval fund must offer at least 5% every month, so existing funds with the 2% relief would face a materially higher minimum. The release asks for comment on whether the monthly floor should be lowered to 2%, as well as whether the 25% cap should rise for monthly funds. Sponsors of private credit, real estate, and private equity strategies should weigh in.

A principles-based liquidity standard shifts risk from a bright line to judgment. Removing the 100% liquid asset requirement eases cash drag, but the replacement standard (no sales at a price that deviates significantly from value) is undefined, and funds will be measured against it through staff examinations of their Rule 38a-1 policies. In a stress period, it seems likely that this standard will be tested in hindsight. An interval fund relying on credit facilities, anticipated distributions, or subscriptions to meet repurchases will need to consider how to document cash flow forecasting, valuation, and credit facility terms, and boards will need to consider how much transparency they will need into these policies. Additionally, nothing in the proposal affects Section 18 leverage limits on senior securities, so these (and related credit facility covenants) will need to be closely monitored.

Funds that have existing exemptive orders will not be able to continue to rely on existing orders. Because the SEC would rescind most monthly interval and multi-class orders after a one-year compliance period, funds must consider if their current policies would need to be revised to comply with the rule. Differences include a 14-day rather than 7-day minimum notice period for monthly repurchase offers and a shorter minimum gap between payment and the next notice (five business days under some exemptive orders and one business day under the proposal). The loss of order-specific FINRA representations is also a change to track.

Multiple share class eligibility is limited to continuously offered, unlisted funds. Listed closed-end funds and funds that mix listed and unlisted classes would still need individual relief. The SEC also proposes to keep one recent exemptive order permitting exchange-traded and tokenized share classes. Rule 12b 1 style plans, class-specific voting and expense allocation, and Rule 11a-3 for exchanges add board and administration burden for closed-end fund complexes that have not run these processes. Repurchases must be offered equally to all classes and pro-rated on a fund basis, so a sponsor will not have the ability to give an institutional or advisory class priority liquidity or cash versus in-kind treatment.

Deferred sales loads and distribution economics. Funds will need to confirm that their selling agreements, break-point and waiver schedules, and FINRA Rule 2341 compliance fit into the proposed rules, particularly since the SEC does not propose to build FINRA caps into Rule 18f-3 itself.

Disclosure changes reach beyond multi-class funds. The proposed rules include a new fees and expenses legend, change the expense example to include a larger $10,000 assumed investment, and amend the shareholder report expense table. These changes would apply to all Form N-2 filers, including listed closed-end funds and TO funds.

Considerations for private fund advisers moving into registered form. The proposal does not change the broader 1940 Act framework, and private fund advisers considering offering a registered fund would still need to evaluate the impact of leverage and senior security limits, affiliated transaction restrictions, board and valuation requirements (including fair value determinations), custody, adviser compensation limits, and distribution through intermediaries when making a decision to offer a retail-facing product. TO funds may remain a competitive alternative for private fund advisers considering whether to seek retail investors, since they are not subject to a portfolio liquidity requirement and give the board discretion over each offer.

We will continue to monitor this proposal and related developments. Please contact your MoFo relationship attorney with questions.

[1] There is one notable exception for a recent order allowing classes that trade on an ATS in tokenized form.