The Securities and Exchange Commission on October 9, 2026 proposed amendments to Rule 17a-7 under the Investment Company Act of 1940 that would restore the ability of registered funds to cross trade most fixed-income securities and would require aggregated reporting of cross-trading activity. The comment period will run for 60 days after the proposal appears in the Federal Register.

Rule 17a-7, adopted in 1966, permits transactions in securities between a registered fund and certain affiliates under specified conditions. For decades, funds used the rule to trade both equities and fixed income internally. That changed in 2020, when the Commission adopted the fund valuation rule under the Investment Company Act. The valuation rule effectively restricted cross trading in most fixed-income securities, even though the Commission acknowledged at the time that revisions to the cross-trading rule were under consideration.

The new proposal picks up that deferred work. It would restore fixed-income cross trades and modernize the rule's conditions, including those governing pricing and oversight of cross trades.

What does the proposal change for trading desks?

The Commission frames the amendments as a cost question. Cross trades, when executed appropriately, let registered funds avoid the costs of open-market execution — spread capture, brokerage commissions, market impact — and pass those savings to investors.

SEC Chairman Paul S. Atkins said in a statement: "Today, the Commission took another step toward modernizing our regulatory frameworks to meet the realities of today's markets by proposing amendments to Rule 17a-7 under the Investment Company Act of 1940, which permits trades in securities between registered funds and certain affiliates."

Atkins added: "When executed appropriately, cross trades allow registered funds to avoid costs associated with open market trades and to then pass those savings on to investors. The amendments we are proposing today would modernize and expand the cross-trading rule, helping to deliver additional cost savings to those investors."

For buy-side desks running fund complexes, the practical effect is straightforward. A bond that one affiliate fund wants to sell and another wants to buy could again move internally at a compliant price, rather than crossing the market twice.

What is mandated versus proposed?

Nothing in the October 9 document changes current practice today. The amendments are a proposal, not a final rule. Three elements sit inside it:

• Restoration of fixed-income eligibility. Most fixed-income securities would regain cross-trading eligibility, reversing the effective restriction in place since the 2020 valuation rule.
• Modernized conditions. Pricing and oversight requirements would be updated. The Commission points to market developments that have made pricing "more verifiable and transparent" — a reference to the post-2020 expansion of evaluated pricing, portfolio pricing services and observable fixed-income data.
• Aggregated reporting. Funds that engage in cross trading would report their trading activity and cross trades in aggregated form, giving the Commission and the public visibility into volumes that currently lack a dedicated disclosure channel.

The investor-protection measures — pricing standards, oversight and the new reporting layer — are the conditions the Commission attaches to the expanded permissions.

Why did fixed income lose eligibility in the first place?

The mechanism matters for anyone pricing compliance costs. The 2020 fund valuation rule tightened how funds must value portfolio holdings, and cross trades require a defensible independent price at the moment of execution. For fixed income, where executable prices are quoted over the counter rather than printed on a central tape, the valuation rule's requirements effectively took most bond cross trades off the table. The Commission recognized the gap then and deferred the fix. The October 9 proposal is that fix.

The pricing rationale also explains the timing. The proposal cites market developments that have made pricing more verifiable and transparent since 2020 — the same data infrastructure improvements that, in the Commission's view, now make internal bond trades compliantly priceable.

What happens next?

The proposal will be published on SEC.gov and in the Federal Register. The comment period stays open for 60 days after Federal Register publication. Fund complexes, broker-dealers that route affiliate flow and valuation vendors all hold a stake in how the final rule defines compliant pricing and the shape of the aggregated reporting requirement. A final rule, and its compliance timeline, will follow the Commission's review of the comment file.