The U.S. Securities and Exchange Commission (SEC) is contemplating changes to its rules for inter-fund trading.
The regulator has issued a staff statement on the practice of “cross trading” between investment funds, and it’s seeking feedback on ways to enhance the regulatory regime for that sort of activity.
Since the SEC first adopted rules on cross trading in 1966, funds now invest in a much wider range of securities, which may face significant valuation challenges and carry novel conflicts of interest, the regulator said.
Additionally, the SEC said that it now has “considerable experience” with the rule and the kinds of enforcement activity oversight has generated.
“We believe that funds’ cross trading practices have evolved over the last several decades and, accordingly, we believe it is once again appropriate to assess what, if any, [rule] changes may be warranted,” the SEC said.
Among other things, it seeks feedback on: funds’ current cross trading practices; the eligibility of securities for cross trading; conflicts of interest and other risks; the controls firms use to govern cross trading; and the impact on market transparency.
This initiative follows changes to the rules on fund valuation practices and the oversight of fair value assessments, which were adopted in December 2020. Firms have until September 2022 before they must comply with those new requirements.
The consultation period runs for 30 days.