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 specified conditions.
The proposed changes would expand the range of securities eligible for such cross trades, potentially allowing fund managers greater flexibility to execute transactions internally rather than routing them through open markets. Cross trading, when properly regulated, can reduce transaction costs for fund investors by eliminating certain broker commissions and minimizing market impact.
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Current rules impose strict conditions on when and how registered funds may engage in cross trades with affiliates, requirements designed to prevent conflicts of interest and ensure that both parties to a transaction receive fair pricing. The SEC's proposal would modify those eligibility boundaries while preserving the core investor-protection framework that underpins the existing rule.
The proposal reflects broader regulatory attention to the operational mechanics of the asset management industry, where affiliated transactions have historically drawn scrutiny over potential self-dealing risks. 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 scope and structure of the changes.
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