The US Securities and Exchange Commission has proposed amendments to Rule 17a-7 under the Investment Company Act of 1940 to modernise and expand the cross-trading framework for registered funds.
Restoring Fixed-Income Securities to Cross Trading
Rule 17a-7 was initially adopted in 1966, enabling registered funds to cross trade both equity and fixed-income securities with affiliates.
The adoption of the fund valuation rule in 2020 effectively restricted cross trading for most fixed-income securities, even though the Commission noted at the time that potential revisions to the rule were under consideration.
The newly proposed amendments seek to restore the ability to cross trade most fixed-income securities while updating the conditions governing pricing and oversight.
Modernised Pricing Oversight and Aggregated Reporting
The proposed updates recognise market developments that have resulted in more verifiable and transparent pricing mechanisms.
When executed appropriately, cross trades allow registered funds to bypass costs linked to open market transactions and pass those savings on to fund shareholders.
To provide additional transparency, the proposal requires registered funds that participate in cross trading to provide aggregated reporting of their overall trading activity and cross trades.
Publication and Public Comment Window
The proposal will be made available on SEC.gov and published in the Federal Register.
A public comment period will remain open for 60 days following its publication in the Federal Register.
