SEC proposes expanding cross trading by registered funds to most fixed-income securities

The SEC proposed amendments to Rule 17a-7 that would expand which securities registered funds may cross trade with affiliated accounts. The proposal would also revise the conditions attached to those trades, according to the agency's press release.

In a statement, Chairman Paul S. Atkins said: "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."

Adoption of the fund valuation rule in 2020 effectively restricted cross trading of most fixed-income securities. The rule, first adopted in 1966, had been relied on for both equity and fixed-income securities. The Commission said at the time that revisions to the cross-trading rule were under consideration, and the proposal would restore the ability to cross trade most of those securities.

Funds that cross trade would face a new aggregated reporting requirement covering trading activity and cross trades. The proposal also modernizes the rule's pricing and oversight conditions. The agency says the changes recognize market developments that have made pricing more verifiable and transparent.

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