SEC Proposes Broader Cross-Trading Rules for Registered Funds
The SEC has proposed amendments to expand the securities eligible for cross trading between registered funds and their affiliates under the Investment Company Act.
The Securities and Exchange Commission has put forward proposed amendments to the Investment Company Act's cross-trading rule, a regulatory provision that governs securities transactions conducted directly between registered investment funds and their affiliated entities under specific conditions.
The proposed changes would expand the range of securities eligible for such cross trades, potentially broadening the scope of transactions that funds and affiliates can execute without going through open-market intermediaries. Cross trading, when permitted, can reduce transaction costs for fund investors by eliminating broker commissions and minimizing market impact.
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Current SEC rules impose strict conditions on cross trades to guard against conflicts of interest, since affiliated parties on both sides of a transaction could otherwise benefit at the expense of fund shareholders. The proposed amendments signal the agency is revisiting where those boundaries should be drawn as financial markets and instrument types continue to evolve.
The SEC's move reflects ongoing regulatory efforts to modernize Investment Company Act rules that govern how funds interact with affiliated counterparties. Any final rule would be subject to a public comment period before taking effect, giving industry participants and investor advocates an opportunity to weigh in on the proposed framework.
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