SEC Proposes Expanding Securities Eligible for Cross Trading by Registered Funds

For compliance and investment management teams, this is a potentially meaningful development: it could increase flexibility in executing fund transactions, reduce market impact and transaction costs, and streamline affiliate trading workflows. However, cross-trades remain subject to strict conditions designed to prevent conflicts of interest, overreaching, and unfair treatment. Firms would need to revisit policies and procedures for affiliate transactions, best execution, valuation, and trade allocation.

Fund boards, particularly independent directors, may face heightened scrutiny when approving or overseeing cross-trading arrangements. Operational teams should assess whether existing order management, compliance surveillance, and reporting systems can support an expanded universe of eligible securities and associated review thresholds. Legal and compliance functions should monitor the rulemaking timeline, prepare for potential comment letters, and consider scenario planning for implementation.

The proposal is not final; until adopted, existing restrictions continue. Investment managers with fund complexes, broker-dealer affiliates, and in-house trading desks should map affected entities and assess whether expanded cross-trading eligibility would alter current execution strategies. Private equity, hedge funds, and wealth managers with registered fund products may also see indirect effects.

Key action: inventory current cross-trades, confirm all conditions are met, and update conflicts-of-interest and affiliate transaction controls. This is a moderate-to-significant regulatory change requiring proactive compliance attention.