SEC proposes broader cross-trading for registered funds

The SEC proposed amendments Oct. 9 to Rule 17a-7, the Investment Company Act’s cross-trading rule, which permits transactions between a registered fund and certain affiliates under specified conditions. The SEC’s primary release says the changes would expand the securities eligible for internal transactions while adding investor-protection requirements.

The event was also listed by TradingView. For crypto-related funds already operating as registered funds, the practical question is whether a broader Rule 17a-7 channel could reduce the costs of moving eligible portfolio assets between affiliated vehicles, including when liquidity needs change.

The proposal would restore cross-trading for most fixed-income securities. The SEC says the 2020 adoption of its “fund valuation rule” effectively prohibited those transactions; from 2020 to the proposal on Oct. 9, 2026, that restriction has been in place for roughly six years.

The SEC also proposes expanding eligibility to level 2 securities under GAAP, subject to updated pricing conditions and oversight requirements. Those conditions matter because a cross trade moves the transaction away from an open-market execution, making pricing and supervision central to whether the trade benefits the funds and their shareholders.

SEC Chairman Paul S. Atkins framed the change as a cost measure: “When executed appropriately, cross trades allow registered funds to avoid costs associated with open market trades and to then pass those savings on to investors.” The proposed amendments, the SEC says, would permit cross trades beneficial to funds and shareholders, including by reducing trading costs.

Commissioner Mark T. Uyeda wrote that “Liquidity is essential to well-functioning capital markets,” linking lower transaction costs with faster trading at prices that reflect fundamental value. That is the agency’s strongest case for the proposal: affiliated funds may be able to transact without incurring the full costs of an open-market trade, while still operating under pricing and oversight controls.

The transparency requirement would change too. Registered funds engaging in cross trading would have to report on Form N-PORT or Form N-MFP the aggregate value of portfolio investments purchased or sold under Rule 17a-7, broken out by asset class. The SEC’s release separately describes aggregated reporting of trading activity and cross trades.

The immediate consequence is procedural: the proposal does not change fund operations today. The comment period stays open for 60 days after publication in the Federal Register; until any final action, registered funds remain under the existing rule. For crypto-related funds, any benefit depends on whether their assets and transactions fit the final eligibility, pricing and oversight conditions.