What is cross trading?

Cross trading, also known as cross dealing or cross transactions, refers to the practice of buying and selling securities, commodities, or other financial instruments between two or more accounts that are under the control or management of the same entity or individual. This can include transactions between different clients of the same financial institution, accounts managed by the same investment advisor, or accounts held by a single individual in different brokerage firms.

Cross trading can be a way for market participants to execute trades without having to go through the open market, typically resulting in lower transaction costs and potentially better execution prices. However, cross trading can also raise concerns about conflicts of interest, market manipulation, and unfair treatment of clients.

Regulators in many jurisdictions have established rules and guidelines to govern cross trading activities, in order to ensure that they are conducted fairly and transparently. This may include requirements for disclosure, reporting, and documentation of cross trades, as well as restrictions on the types of securities that can be traded in this manner.

Overall, while cross trading can be a useful tool for certain types of market participants, it is important for investors to be aware of the potential risks and regulatory considerations associated with this practice.