DOL ISSUES FINAL RULE ON CROSS-TRADING
The Department of Labor recently issued its final rule on cross-trading with large ERISA plans. The Rule allows an investment manager to plans with over $100 Million in assets to effect cross trades with other accounts if it satisfies the conditions of the Rule. To take advantage of the exemption, an investment manager must (a) adopt “fair and equitable” policies and procedures that describe the manager’s pricing and allocation polices, (b) designate an individual to annually review and report on compliance with the policies and procedures to affected plans, and (c) provide advance separate disclosure about the cross-trading program. Pricing should utilize the methodology described in Rule 17a-7(b) of the Investment Company Act. The DoL indicated that the exemption would not apply to pooled investment vehicles just because investors in the vehicle included eligible plans.
OUR TAKE: Cross-trading can benefit clients by reducing brokerage costs. By requiring full disclosure, compliance, and fair allocation, the DoL seeks to minimize the inherent conflict of interest.