AWS Transit Gateway supports security group referencing across VPCs, but this feature must be explicitly enabled on each transit gateway attachment. Once enabled, security groups in one VPC can reference security groups in another VPC attached to the same transit gateway, simplifying rule management and improving security posture.

Enabling the feature on the transit gateway itself is not sufficient; it must be enabled per attachment to allow traffic evaluation based on security group IDs. This approach avoids brittle CIDR-based rules and allows dynamic scaling without rule updates.

Option A removes the transit gateway, which contradicts the existing architecture. Option B is incomplete. Option D does not address security group referencing.

Thus, enabling security group referencing on each transit gateway attachment is the correct solution.