The SEC’s Division of Investment Management issued a no-action letter regarding fund board oversight of cross trades, or affiliated transactions. According to SEC rules, a fund may engage in certaintransactions with affiliated entities only if it complies with certain exemptive rules which place conditions on the transactions. The conditions include that the board, including a majority of the independent directors, must: adopt procedures that are reasonably designed to provide that the transactions comply with the requirements of the exemptive rules; make and approve changes to those procedures as the board deems necessary; and determine no less frequently than quarterly that all transactions made in reliance on the exemptive rules for the preceding quarter complied with the procedures. The no-action letter stated the IM Division would not recommend enforcement action if a fund board itself did not make the determinations required by the exemptive rules but instead received a written representation from the fund’s CCO every quarter that the transactions effected in reliance on the exemptive rules complied with the procedures adopted by the board. The incoming letter from the Independent Directors Council emphasized that the adoption of Rule 38a-1 in 2003 centralized the compliance function in the role of the CCO and recognized that fund directors’ proper role is to exercise oversight of the fund's compliance program without becoming involved in the day-to-day administration of the program. The IDC noted that the no-action position would be “consistent with the Commission's policy reflected in Rule 38a-l, and would allow fund boards to avoid duplicating certain functions commonly performed by, or under the supervision of fund CCOs.” The IM Division’s letter agreed with the IDC’s position and clarified that boards retained key oversight responsibilities. “Our position would not change the board’s oversight role with respect to a fund’s overall compliance program. However, it will facilitate the directors’ ability to focus on conflict of interest concerns raised by affiliated transactions, including whether a fund engaging in the types of affiliated transactions permitted by the Exemptive Rules is in the best interest of that fund and its shareholders.” The no-action letter comes as the IM Division seeks to modernize director responsibilities and governance requirements in light of technological, industry and regulatory developments.