Imagine a big fat quant hedge fund named Amalgamated Bureaucratic Conglomerates (ABC) with hundreds of fund managers. They're all trading U.S. equities. Why can't they all just trade with each other instead of going to the exchange; that is, "cross" trades within the firm? Example: Alfred wants to buy 1M shares of IBM, and Benjamin wants to sell 1M. Can Alfred take Benjamin's shares? Why do they have to go to the exchange? Why can't they just swap the trades internally within the company, and change the ownership in the company database? Everything is ultimately owned by ABC. I just got a long lecture from an experienced friend about why this isn't possible. He talked about price discovery, marking to market, tax burdens, and (worst of all) accounting. The whole talk seemed like a big steaming mound of effing B.S. to me. It's the same damn company. Why does it matter who controls the shares within ABC? Why can't the controller of the shares be reassigned internally, while the actual owner remains ABC? A cross trade is really none of their business--neither the tax man nor the exchange.
You just change the subaccount numbers at the clearing/custody firm. The complication comes when there is an attempt to play tax games and shareholder/investor reporting. Your clearing will have a policy as to how to price a trade that would have had a market impact and use a VWAP or some other average. The bigger issue is why would you employ PMs with totally opposite views and how do you account for this action in their compensation.