SEC Proposes Rule 17a-7 Overhaul Restoring Cross Trading in Fixed Income
SEC's proposed amendments would restore most fixed-income securities to cross-trading eligibility, rewrite pricing rules, add best-interest and CCO reviews, and expand N-PORT reporting, with comments due 14 December 2026.
The SEC has proposed amendments to Rule 17a-7 that would reopen cross trading for registered investment companies, most consequentially by restoring most fixed-income securities that fell out of scope once the Rule 2a-5 valuation standard made "readily available" quotations a Level 1 requirement effective 8 September 2022. The proposal would allow pricing either at the price used in the fund's next NAV calculation (NAV Pricing) or at a price reasonably representing current market value drawn from unaffiliated pricing sources, including pricing vendors, broker-dealer quotes and electronic platforms, subject to periodic reasonableness reviews. It would also permit de minimis payments to unaffiliated parties for clearing, settlement, custody, recording and reporting, and require a pre-trade, best-interest determination by the adviser for each participating fund, separate from price adequacy.
Oversight would shift from the board to the CCO: quarterly compliance reviews reported to the board, plus a new annual review of whether individual crosses or trading patterns may have disadvantaged the fund, expressly addressing parking, dumping and cherry-picking through disposition analysis. New Form N-PORT and Form N-MFP items would report cross-trade purchases and sales against total trading activity over a 12-month lookback. Advisers should assess pricing, policy and recordkeeping gaps now and comment on unresolved points — GAAP eligibility, illiquid investments and additional control affiliations — before the 14 December 2026 deadline.