Cross Trading in the Corporate Bond Market

We examine cross trading by mutual funds in corporate bonds. We find that cross trading is relatively common in the 2009 to 2022 period, with substantial variation across fund families and greater activity for illiquid and hard-to-obtain bonds. Cross trading is particularly elevated around maturity cutoffs, credit rating changes, and periods of extreme fund flows, suggesting that it can be beneficial in times of pressure. High-fee funds tend to cross with lower-fee funds, but we find no evidence that crossing transfers performance from low- to high-value funds. We document large transaction cost savings, although these savings have diminished following a regulatory change that significantly limits cross trading.

Keywords: Mutual funds, Corporate bonds, Cross trading, Transaction Costs

JEL Classification: G10, G18, G23, G28

Suggested Citation: Suggested Citation

Han, Lina and Jacobsen, Stacey E. and Nam, Jayoung and Pool, Veronika Krepely, Cross Trading in the Corporate Bond Market (May 21, 2025). SMU Cox School of Business Research Paper No. 25-15, Available at SSRN: https://ssrn.com/abstract=5263491 or http://dx.doi.org/10.2139/ssrn.5263491