The U.S. Securities and Exchange Commission proposed amending its cross trading rule to allow registered funds and certain affiliates to cross trade most fixed income securities, potentially reducing the costs associated with open market transactions. The proposal would reverse the practical restriction created by the SEC’s 2020 fund valuation rule, which made most fixed income securities ineligible for cross trading, while updating conditions that have not been substantively revised since the 1980s. Eligible securities would expand to those valued using directly or indirectly observable inputs. Trades could be priced using the security’s value in the fund’s next net asset value calculation or a price that the adviser determines reasonably represents the current market price using unaffiliated sources. Advisers would have to make a pretrade best interest determination, while chief compliance officers would conduct quarterly compliance reviews and at least annual back testing and report the results to fund boards. Funds engaging in cross trading would also report aggregate monthly trading and cross trading activity by asset class on Forms N-PORT and N-MFP.
U.S. Securities and Exchange Commission proposes restoring fund cross trading for most fixed income securities with modernized safeguards
The U.S. Securities and Exchange Commission proposed restoring cross trading for most fixed income securities between registered funds and certain affiliates. The amendments would modernize pricing, best interest and compliance oversight requirements and require aggregate reporting by asset class.