Investment Company Cross Trading
Key claim: The SEC wants to let mutual funds and similar registered funds trade a wider range of securities with affiliated funds, while updating the conditions for those trades and requiring more reporting of them.
Abstract
(Proposed Rule · Securities and Exchange Commission) The Securities and Exchange Commission (the “Commission”) is proposing to amend the rule under the Investment Company Act of 1940 (the “Investment Company Act”) that permits securities transactions between a registered investment company and certain affiliates (referred to as “cross trades”), subject to conditions. The proposed amendments are designed to expand the scope of securities that are eligible for cross trading, modernize the rule’s conditions, and enhance investor protection. The Commission also proposes to require aggregated reporting of trading activity and cross trades in Form N- PORT and Form N-MFP.
Why this matters
Cross trades between affiliated funds let fund complexes move securities internally without paying market spreads, but they also raise conflict-of-interest concerns that current Investment Company Act rules address by limiting eligible instruments and imposing pricing conditions. The SEC’s proposal would modernize that regime — widening the universe of securities that can be crossed while tightening disclosure and recordkeeping — reshaping how mutual fund advisers manage affiliated inventory.