SEC Proposes Expanding Permitted Cross Trading Under Fund Rule 17a-7
The SEC's October 9, 2026 proposal would broaden when registered funds and BDCs may cross trade with affiliates, reopening compliance analysis for asset managers, advisers and broker-dealers.
The SEC proposed amendments to Rule 17a-7 under the Investment Company Act of 1940 on October 9, 2026, according to a Skadden client alert. The rule governs cross trading between registered investment companies and business development companies and their affiliates, and the proposal would expand the universe of transactions that qualify for the exemption from Section 17(a) affiliate dealing restrictions, with attendant conditions and disclosure.
Why sophisticated counsel should care: Rule 17a-7 has been the main pathway for internal liquidity, securities lending and portfolio rebalancing between fund complexes and affiliated trading desks. Broadening permitted cross trading could unlock new efficiencies for large fund sponsors and their affiliated broker-dealers, but it also resets the documentation posture for trading arrangements, agency and best-execution analysis, allocation among participating funds, and the disclosures investors receive. The compliance burden lands unevenly across complexes depending on current affiliate-trading practices and existing exemptive relief.
What to watch: the comment period and any accompanying exemptive applications, the specific conditions the SEC attaches to expanded transactions, and the final adopting release. Because this is a proposal, outcomes and timing remain uncertain. Comment letters from SIFMA and other trade associations are likely to shape the final text, and firms with live cross-trading arrangements may want to assess which transactions would qualify under the amended framework versus require separate relief.