What rules govern cross-trading between client accounts?

Cross-trading between client accounts is subject to fiduciary standards that require advisers to act in the best interests of their clients. This principle is foundational in the investment advisory profession, emphasizing that advisers must prioritize their clients' interests ahead of their own when making investment decisions.

When an adviser engages in cross-trading—where securities are bought and sold between different client accounts—it is crucial to ensure that the transaction does not disadvantage one client for the benefit of another. Thus, compliance with fiduciary standards necessitates full transparency, proper disclosure, and ensuring that the trade is fair to both parties involved.

In addition, fiduciary duties require that any transaction, including cross-trading, must be justifiable in terms of its benefits to clients. This means that advisers must have a clear rationale for executing the trade and must demonstrate that it aligns with each client's investment objectives. By adhering to these standards, investment advisers can mitigate potential conflicts of interest and maintain the trust of their clients.

The other options suggest either permissive behavior without necessary checks or insufficient accountability, which would conflict with the fundamental fiduciary duty that governs the investment advising profession.