SEC Proposes Restoring Fixed Income Cross Trading for Registered Funds
SEC proposes expanding Rule 17a-7 to restore most fixed income cross trades, update pricing and oversight, and require aggregated reporting from funds.
Summary
The SEC’s Oct. 9, 2026, release 2026-104 proposes amending Rule 17a-7 under the Investment Company Act of 1940, which permits securities transactions between registered funds and certain affiliates. Adopted in 1966, the rule supported equity and fixed income cross trades until the 2020 fund valuation rule effectively restricted most fixed income securities. The proposal would restore most of those trades, potentially reducing open market transaction costs that funds could pass on to shareholders.
The amendments would modernize pricing and oversight conditions, reflecting market developments that have made pricing more verifiable and transparent, while adding investor protections. Registered funds using cross trades would also report aggregated trading and cross-trading activity. SEC Chairman Paul S. Atkins said the changes could deliver additional investor savings. The proposal will appear on SEC.gov and in the Federal Register, with comments accepted for 60 days after Federal Register publication.
Positives
- Restoring eligibility for most fixed income securities would reverse restrictions created by the 2020 fund valuation rule.
- Avoiding open market transactions could reduce registered funds’ trading costs and pass savings to shareholders.
- Modernized pricing conditions would recognize market developments that have made securities pricing more verifiable and transparent.
- Aggregated reporting of trading and cross-trading activity would provide additional transparency for funds using the rule.
- Updated oversight and investor protection measures would accompany the expanded cross-trading authority.
Risks & concerns
- The amendments remain a proposal, and the SEC provided no effective date or timetable for final adoption.
- The 60 day comment period begins only after Federal Register publication, leaving the rulemaking schedule dependent on that publication.
- Funds engaging in cross trading would face updated pricing and oversight conditions plus a new aggregated reporting requirement.
- Transactions between registered funds and affiliates would remain conditional because of their potential conflicts and investor protection implications.
