When is an Agency Cross Transaction considered impermissible?

An Agency Cross Transaction is deemed impermissible when the adviser recommends the transaction to both parties involved. In an Agency Cross Transaction, an adviser acts as an intermediary between two clients, facilitating a trade where the adviser does not create a market for the securities. For this type of transaction to be compliant with regulatory standards, the adviser must not make a recommendation to buy or sell the same security to both clients involved.

This requirement ensures that the adviser maintains a clear and impartial role, preventing any conflict of interest that might arise from advising both sides of the transaction. The key concern is that the adviser should not have a vested interest in the outcome of the trade for either party, as this could compromise the fiduciary duty they hold toward their clients.

Other scenarios, such as receiving a commission from either party, obtaining verbal consent from clients, or dealing with an IPO, do not inherently invalidate an Agency Cross Transaction. However, they are subject to specific compliance guidelines and disclosures rather than making the transaction impermissible outright. Thus, the primary focus rests on the adviser’s role in recommending the trade to both parties, which is why this condition is critical to determining the permissibility of the transaction.