The U.S. Securities and Exchange Commission proposed expanding Rule 17a-7 to permit cross trading of level 2 securities between registered funds and their affiliates. The change would restore access to cross trading for many fixed income securities that became ineligible following implementation of the 2020 fund valuation rule, giving funds an alternative to open market sales that may carry high transaction costs or distressed prices during periods of volatility. The proposal would update pricing conditions and require safeguards including an adviser determination that a trade is in the fund’s best interest and review by the chief compliance officer. Registered funds would report on Form N-PORT or Form N-MFP the aggregate value of investments purchased or sold under the rule by asset class. The SEC is also seeking views on whether transaction prices should be reported through post-trade systems such as the Trade Reporting and Compliance Engine or the Real-Time Transaction Reporting System to support price discovery and reinforce compliance oversight.
U.S. Securities and Exchange Commission proposes expanding fund cross trading to level 2 securities with pricing and oversight safeguards
The U.S. Securities and Exchange Commission proposed allowing registered funds to cross trade level 2 securities with affiliates under updated pricing, best interest and compliance safeguards. Funds would report aggregate cross-trading values by asset class, while the SEC is considering whether transaction-level prices should also be reported through post-trade transparency systems.