SEC proposes expanding cross trading by registered funds

The SEC on Oct. 9 proposed amendments to Rule 17a-7 that would expand cross trading between registered funds and their affiliates and restore the practice for most fixed-income securities. The 2020 fund valuation rule effectively restricted most fixed-income cross trades; the Commission says it recognized at the time that revisions to the cross-trading rule were under consideration.

The proposal would modernize the rule's pricing and oversight conditions, subject to enhanced investor protection measures, and would require registered funds that cross trade to report trading activity and cross trades in aggregate. "When executed appropriately, cross trades allow registered funds to avoid costs associated with open market trades and to then pass those savings on to investors," Chairman Paul S. Atkins said in a statement.

A cross trade is executed between a fund and an affiliate rather than on the open market, so the price depends on the fund's valuation process and the conditions the rule attaches.

The proposal will be published on SEC.gov and in the Federal Register, and the comment period will remain open for 60 days after Federal Register publication.