Washington D.C., Oct. 9, 2026 — The Securities and Exchange Commission today proposed amendments to the Investment Company Act “cross-trading rule,” which permits transactions in securities between a registered fund and its affiliates under certain conditions. The proposed amendments would modernize and expand the cross-trading rule and would allow cross trades that are beneficial to registered funds and their shareholders by, for example, reducing a fund’s trading costs, subject to enhanced investor protection measures.
Today, the Commission took another step toward modernizing our regulatory frameworks to meet the realities of today’s markets by proposing amendments to Rule 17a-7 under the Investment Company Act of 1940, which permits trades in securities between registered funds and certain affiliates. When executed appropriately, cross trades allow registered funds to avoid costs associated with open market trades and to then pass those savings on to investors. The amendments we are proposing today would modernize and expand the cross-trading rule, helping to deliver additional cost savings to those investors, said SEC Chairman Paul S. Atkins in a statement.
The regulatory framework governing transactions between registered investment companies and their affiliated persons has long been a critical component of federal securities law. Under the Investment Company Act of 1940, Congress enacted stringent protections to prevent potential conflicts of interest and self-dealing between funds and entities that control, are controlled by, or are under common control with them. However, recognizing that certain affiliated transactions can be entirely benign and economically advantageous for everyday investors, the Commission adopted Rule 17a-7 back in 1966. For decades following its initial adoption, registered funds relied extensively on this cross-trading rule to trade both equity and fixed-income securities efficiently, bypassing public exchanges or dealer networks when matching internal buy and sell orders across different portfolios managed by the same investment adviser.
The operational landscape for registered investment funds shifted significantly with subsequent regulatory developments. Notably, the adoption of the Investment Company Act’s fund valuation rule in 2020 effectively restricted cross trading for most fixed-income securities. Although the Commission recognized at the time that potential revisions to the broader cross-trading framework were worthy of consideration, the practical effect of the 2020 valuation rule changes created a substantial barrier for fixed-income portfolio managers seeking to execute internal crosses. As a result, funds and their shareholders missed out on potential cost efficiencies that could have been achieved by crossing bond transactions internally rather than absorbing brokerage commissions, dealer markups, and market impact costs on the open market.
The proposed amendments unveiled today are designed to address this regulatory gap by restoring the ability of registered funds to cross trade most fixed-income securities. Beyond simply reinstating fixed-income cross trading, the comprehensive proposal aims to modernize the overall rule’s conditions, including those specific requirements related to the pricing and oversight of cross trades. These modernizations take into account decades of market evolution and technological advancements that have fundamentally transformed how financial assets are priced, traded, and monitored. Specifically, the regulatory updates recognize modern market developments that have led to pricing mechanisms that are vastly more verifiable and transparent than those available when the rule was last substantially overhauled.
In tandem with expanding the scope of eligible securities and updating pricing standards, the SEC’s proposal incorporates robust safeguard measures. To ensure that investors remain fully protected against potential abuses or unfair pricing practices, the enhanced investor protection measures accompany the expanded flexibility. Furthermore, the regulatory package proposes to require aggregated reporting of trading activity and cross trades by registered funds that engage in cross trading. This additional reporting requirement is intended to provide regulatory authorities and the public with enhanced transparency regarding the scale, frequency, and nature of internal cross transactions taking place within the registered fund industry.
As part of the standard administrative rulemaking process, the proposal will be published formally on SEC.gov and in the Federal Register. Following its publication in the Federal Register, a public comment period will commence, remaining open for 60 days to allow industry participants, institutional investors, academic experts, and other interested stakeholders to submit feedback, data, and recommendations regarding the proposed regulatory updates.
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