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ARTICLE · 30 OCTOBER 2026

Long Awaited SEC Proposal Would Restore Fixed-Income Cross Trading For Registered Funds

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The SEC has proposed amendments to Rule 17a-7 that would permit registered funds to cross trade fixed-income securities with affiliates using flexible pricing methods based on observable market inputs. The proposal introduces two alternative pricing approaches and shifts oversight responsibilities from fund boards to chief compliance officers, aiming to restore cost-effective cross-trading practices that have been unavailable since 2021.

United StatesFinance and Banking
Amy R. Doberman
Amy R. Doberman
Timothy Silva
Timothy Silva
Natasha Vij Greiner
Natasha Vij Greiner
Reid Carroll
Reid Carroll
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I. Introduction

On October 9, 2026, the Securities and Exchange Commission (“SEC” or “Commission”) at long last proposed amendments to Rule 17a-7 under the Investment Company Act of 1940 (the “1940 Act”) that would once again permit registered funds to cross trade most fixed-income securities with their affiliates.1 The proposal is a welcome development that would, if adopted, provide clarity and appropriate controls around cross-trading requirements along with substantial cost savings for fund shareholders. 

While permitted through no-action letter since 1995, the ability to cross trade fixed-income securities has been effectively foreclosed since the adoption of Rule 2a-5 under the 1940 Act (the valuation rule) in 2021,2 and fund shareholders have paid the price ever since, as trades that could have been matched internally at a fair price between two affiliated funds (or other advisory clients) now have to be routed to dealers instead, incurring bid-ask spreads and other

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