SEC Proposed Amendments to Fund Cross Trading Rule

The proposed rule change would restore the ability for registered funds to cross trade most fixed-income securities.

Updated on Oct. 9, 2026 in Investing

SEC Proposed Amendments to Fund Cross Trading Rule

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The Securities and Exchange Commission has proposed amendments to Rule 17a-7, potentially expanding the scope of cross trading for registered funds. If adopted, the proposal would reverse a 2020 restriction on trading most fixed-income securities.

Why it matters

Cross trading allows registered funds to avoid costs linked to open market transactions, potentially passing savings on to investors. The Commission aims to modernize these regulatory frameworks to align with current market realities.

Registered funds have engaged in cross trading since 1966, though Rule 17a-7 conditions have not been substantively updated since the 1980s. A 2020 valuation rule subsequently prohibited cross trading in most fixed-income securities.

The players

Securities and Exchange Commission

The agency is the primary federal regulator responsible for protecting investors and maintaining fair, orderly, and efficient markets.

The details

The proposed amendments to Rule 17a-7 would modernize and expand rule conditions for cross trading between registered funds and affiliates. To ensure transparency, the proposal requires registered funds to provide aggregated reporting of their cross trades and related trading activities.

1966: Registered funds began engaging in cross trading.
1980s: The last substantive update to Rule 17a-7 occurred.
2020: The fund valuation rule prohibited cross trading fixed-income securities.
October 9, 2026: The Securities and Exchange Commission proposed the new amendments.

Market Dynamics

The proposal marks a modern regulatory update to the existing frameworks established under the Investment Company Act of 1940. This shift represents the latest effort by regulators to balance market efficiency against historical safeguards for fund investors.

Retail investors may see reduced fund costs if the proposal is adopted, as funds could avoid the transaction fees associated with open market trades. However, funds will be required to meet new aggregated reporting standards for their trading activities.

The takeaway

The proposed SEC amendments highlight the ongoing tension between reducing operational fund costs and maintaining transparent market rules. Investors should monitor how these changes might influence fund expense ratios and overall portfolio transaction efficiency.