On October 9, the SEC proposed amendments to broaden the categories of securities eligible for cross‑trading by registered funds, aiming to modernize rulemaking that has become restrictive following changes to valuation requirements in 2020. The revisions are intended to better align the cross‑trading framework with current fixed‑income markets, where pricing data is easier to observe and verification practices have improved. The proposal also includes corresponding updates to Form N‑PORT and Form N‑MFP so that funds may report cross‑trading activity in a more consistent and transparent manner.
The SEC notes that restoring flexibility for funds to engage in cross trades under updated conditions could support more efficient portfolio management and reduce trading conflicts. The proposed reporting requirements are designed to ensure that regulators and investors have greater visibility into how funds use cross‑trading and how these transactions affect execution quality and costs.
Should the amendments be adopted, they would:
- allow registered funds to cross‑trade most fixed‑income securities again under a modernized rule
- expand eligibility for fixed‑income securities previously restricted under the 2020 valuation rule
- update pricing conditions to require observable, verifiable market data
- strengthen safeguards to prevent affiliated parties from influencing trade prices
- implement new reporting requirements, including aggregated cross‑trade disclosures and revised items on Form N‑PORT and Form N‑MFP
- introduce a more flexible framework to reduce trading costs, improve execution quality, and maintain investor protections
For more information on the rule proposal, click here. The comment period will remain open for 60 days following publication in the Federal Register.
Sources:
SEC Proposes Expanding Securities Eligible for Cross Trading by Registered Funds (sec.gov)
Proposed Rule (sec.gov)
