The Securities and Exchange Commission proposed expanding the range of securities that registered funds can trade directly with affiliated funds, a change the agency says could lower transaction costs while subjecting those trades to updated pricing, oversight and disclosure safeguards.
The proposal, announced Oct. 9, 2026, would amend Rule 17a-7 under the Investment Company Act of 1940. It is not a final rule. The public comment period will remain open for 60 days after the proposal is published in the Federal Register.
What the SEC is proposing
A cross trade is a transaction in which one registered fund sells a security to another fund or affiliated account without first routing the trade through the open market. The arrangement can avoid some brokerage costs and market impact, but it also creates a conflict-of-interest risk because the buyer and seller may share an adviser.
Rule 17a-7 has permitted certain cross trades since 1966. The SEC said funds historically used the rule for both stocks and bonds, but its 2020 fund-valuation rule effectively restricted cross trading in most fixed-income securities. The new proposal would restore eligibility for most of those fixed-income instruments.
- Expand the securities eligible for cross trading, including most fixed-income securities.
- Modernize the rule’s pricing conditions to reflect more verifiable and transparent market data.
- Update oversight requirements intended to protect fund shareholders.
- Require aggregated reporting of trading activity and cross trades by funds that use the rule.
Why the change could matter to investors
The SEC’s stated rationale is that an appropriately priced cross trade can let participating funds avoid costs associated with buying or selling in the open market. Those savings could benefit fund shareholders, but the proposal does not guarantee that every cross trade will reduce costs or that any savings will appear directly in investor returns.
The central policy question is how to preserve potential efficiencies without allowing an adviser to favor one fund or account over another. Pricing requirements are especially important in fixed-income markets, where some securities trade less frequently than widely held stocks and a current market value may be harder to establish.
The proposed aggregated reporting requirement would give regulators and the public more visibility into how often participating funds use cross trades. The details of the pricing, governance and reporting framework will be tested during the comment process before the commission decides whether to adopt a final rule.
What happens next
The proposal will be published on the SEC website and in the Federal Register. Investors, fund managers, advisers and other market participants may submit comments during the 60-day window that begins after Federal Register publication. Until the SEC adopts and sets an effective date for a final rule, the existing Rule 17a-7 framework remains in force.
The action comes as federal regulators continue scrutinizing how financial firms manage conflicts, compliance and consumer costs. AskNovus has also reported on the Federal Reserve’s enforcement action involving American Express and the latest U.S. consumer-sentiment and inflation-expectations data.
Sources
- U.S. Securities and Exchange Commission press release, Oct. 9, 2026
- SEC chair’s statement on the proposed amendments, Oct. 9, 2026
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