SEC Proposes Amendments to Expand Cross-Trading Rule for Registered Funds
The Securities and Exchange Commission (SEC) has introduced proposed amendments to Rule 17a-7 of the Investment Company Act of 1940. The proposal aims to modernize and expand the existing cross-trading rule, which governs transactions between registered funds and their affiliates. By updating these regulations, the SEC intends to allow funds to reduce trading costs and pass those savings to investors, while simultaneously implementing enhanced investor protection measures and new transparency requirements.
Key points
- The SEC proposed amendments to Rule 17a-7 to modernize cross-trading between registered funds and affiliates.
- The proposal aims to restore the ability to cross-trade most fixed-income securities, which were restricted by a 2020 valuation rule.
- New requirements include aggregated reporting of trading activity to improve market transparency.
- The proposal is subject to a 60-day public comment period following its publication in the Federal Register.
What happened
On October 9, 2026, the SEC announced proposed amendments to the Investment Company Act's cross-trading rule. The initiative seeks to modernize the regulatory framework to better align with current market conditions and improve efficiency for registered funds.
Market move
The proposed changes would permit registered funds to engage in cross-trades for a broader range of securities, specifically targeting the restoration of fixed-income security trading. This capability was largely curtailed following the implementation of the fund valuation rule in 2020.
Why it moved
SEC Chairman Paul S. Atkins stated that the amendments are designed to help funds avoid costs associated with open market trades. By modernizing pricing and oversight conditions, the SEC aims to leverage more verifiable and transparent market developments to benefit shareholders.
Key numbers
The SEC has established a 60-day window for public comment on the proposal, which will commence once the text is published in the Federal Register.
Why it matters
This proposal represents a significant shift in regulatory policy that could lower transaction costs for registered funds and their investors by facilitating more efficient internal trading of fixed-income assets.
What we know
- The SEC proposed amendments to the Investment Company Act cross-trading rule to modernize and expand the types of securities eligible for cross trading between registered funds and affiliates.
- The proposed amendments would restore the ability to cross trade most fixed-income securities, which had been restricted since the 2020 fund valuation rule.
- The proposal includes requirements for aggregated reporting of trading activity to increase transparency.
- The comment period for the proposal will remain open for 60 days after publication in the Federal Register.
