Cross trades are permitted in very selective situations such as when both the buyer and the seller are clients of the same asset manager. The portfolio manager can effectively “swap out” a stock, bond, or other fixed income product from one client to another and eliminate the brokerage commissions and the spreads on both the bid and ask side of the trade. The broker and manager must prove a fair market price for the transaction and record the trade as a cross for proper regulatory classification.
The key point is that the asset manager must be able to prove to the SEC that the trade was beneficial to both parties before executing a cross trade. 
The Employee Benefits Security Administration (EBSA), in the final rule for Statutory Exemption for Cross-Trading of Securities [02/12/2007] states:
Among other requirements... the investment manager must adopt, and effect cross-trades in accordance with, written cross-trading policies and procedures that are fair and equitable to all accounts participating in the cross-trading program. This interim final rule would affect employee benefit plans, investment managers, plan fiduciaries and plan participants and beneficiaries. 
- 17 CFR 270.17a-7, section of the Investment Company Act of 1940, Legal Information Institute
- Investopedia: Cross trade
- Statutory Exemption for Cross-Trading of Securities