SEC Proposes Broader Cross-Trading Eligibility for Registered Funds

The Securities and Exchange Commission has put forward changes to a longstanding rule governing how registered funds trade securities with affiliated parties. The proposal targets the so-called cross-trading rule under the Investment Company Act, which currently permits those transactions only when specific conditions are met.

Under the existing framework, a registered fund may engage in cross trades with an affiliate if safeguards are satisfied. The agency now wants to expand the categories of securities eligible for such transactions, according to the proposal released by the SEC. The scope of the changes was not fully detailed in the initial announcement.

Cross trading allows a fund to buy and sell securities directly with an affiliated account rather than going through an external counterparty or market venue. Supporters say it can reduce transaction costs and limit market impact, while critics emphasize potential conflicts of interest. The rule's conditions are meant to address those concerns.

The SEC's proposal marks another step in its review of asset management regulations. Registered funds, their advisers and industry groups are likely to assess how the expanded eligibility would affect compliance and trading operations. The agency published the item on its website. Further specifics, including any next steps, were not immediately available.