The Securities and Exchange Commission proposed changes on October 9 that would expand the securities registered funds may trade directly with affiliated funds. The SEC cross-trading rule proposal would restore most fixed-income securities to the framework while adding pricing, oversight and reporting requirements.

Key Insights

  • The SEC cross-trading rule proposal would restore most fixed-income securities to transactions between registered funds and certain affiliates.
  • The proposal would modernize pricing and oversight conditions after a 2020 valuation rule restricted many bond cross trades.
  • Funds using the exemption would face aggregated reporting requirements intended to increase transparency for investors and regulators.

SEC cross-trading rule would reopen bond transactions

Rule 17a-7 under the Investment Company Act allows a registered fund to trade securities with certain affiliated parties when specified safeguards are met. The SEC said its proposed amendments could reduce open-market transaction costs when cross trades benefit funds and their shareholders.

Registered funds historically used the rule for both equity and fixed-income securities after its adoption in 1966. However, the agency said its 2020 fund valuation rule effectively restricted cross trading in most fixed-income securities, creating the gap the new proposal seeks to address.

Pricing and reporting safeguards remain central

The proposal would not create unrestricted dealing between affiliated funds. It would update conditions governing pricing and oversight, with the SEC pointing to more verifiable and transparent pricing across parts of the fixed-income market.

Funds that conduct cross trades would also have to report aggregate trading activity and cross-trade volumes. The SEC said the reporting requirement would give regulators and investors more visibility into how registered funds use the exemption.

The focus on fixed-income pricing follows broader scrutiny of bond-market infrastructure and liquidity. A recent Fusion Market News report found that the FSB identified resolution-funding gaps across roughly half of the jurisdictions it reviewed.

What the proposal means for fund investors

Cross trades can allow one fund to sell a security directly to an affiliate instead of routing both sides through the open market. That structure may lower spreads and transaction expenses, but affiliate relationships make independent pricing and oversight essential.

The amendments remain a proposal and do not change current fund-trading rules immediately. The SEC said the comment period will remain open for 60 days after the proposal appears in the Federal Register, giving fund managers and investors time to address its conditions.

The regulatory debate arrives as investors compare increasingly complex exchange-traded products and market structures. Fusion’s spot Bitcoin ETF guide explains how fees, custody and tracking can shape returns, while the recent CFTC swap-rule report shows how product definitions determine federal oversight.

If adopted, the SEC cross-trading rule amendments could widen the bond inventory available for affiliated fund transactions while keeping valuation and governance controls in place. The final effect will depend on the rule text, industry comments and any revisions the Commission makes before adoption.

Featured image: Fund manager reviewing portfolio documents. Photo by Anastassia Anufrieva via Unsplash.

Sharron Kendi is a seasoned crypto market analyst and writer with over three years of experience decoding blockchain trends, price movements, and market dynamics. She holds a Bachelor’s Degree in Commerce (Finance) from Kenyatta University, blending a solid academic foundation with a sharp eye for technical analysis and a deep understanding of on-chain data. Her work delivers clear, data-driven insights that empower investors to navigate the fast-evolving digital asset space with confidence.