Large Trader Reporting (SEC Rule 13h-1)


Key Dates:


  • Aug 3, 2011: Large Trader Reporting approved filing published in the Federal Register.
  • October 3, 2011: Effective Date of Rule.
    • Action: Buy- and sell-side firms should begin, if not have already done so, the process of obtaining a Large Trader ID via Form 13 H on EDGAR (see additional detail below).
  • December 1, 2011: Compliance Date for the requirement on large traders to identify to the SEC.
    • Action: All large traders should have transmission of 13H completed with the SEC.
  • April 30, 2012: Compliance Date for broker-dealers to maintain records, report, and monitor large trader activity.
    • Action: Broker-dealers must have process in place to extract large trader transaction information and provide to the SEC immediately upon request.

Basic Info:


What is the rule's purpose?


  • The rule will assist regulators in both identifying and obtaining trading information on market participants that conduct a substantial amount of trading activity, as measured by volume or market value, in the U.S. securities markets.

Who does the rule cover?


  • The rule defines large trader as a person or entity whose transactions in NMS securities equal or exceed:
    • 2 million shares or $20 million during any calendar day.
    • 20 million shares or $200 million during any calendar month.

Changes?


What changes for buy-side traders?


  • All buy-side traders that qualify as large traders MUST register with the SEC to obtain a large trader ID.

What changes for brokers?


  • Beyond the addition of two new fields (large trader ID and time of execution) to the current EBS form, rule 13h-1 changes the response timeframe in which brokers must comply and respond to the SEC’s request for information. Under 13h-1, broker-dealers must respond immediately following an inquiry, which in most cases is defined as end of day or next day, instead of days following the request.
  • Whereas the SEC previously allowed most broker-dealers touching, but not executing, a given transaction to pass through EBS information directly to the clearing broker for submission, under 13h-1, all broker-dealers must be ready and able to submit EBS forms directly to the SEC (instead of by way of the clearing broker).

What is Required?


  • Registration by all large traders regardless of entity:
    • Qualifying traders must identify themselves to the SEC and make certain disclosures by filling out Form 13H and filing via the SEC EDGAR System. EDGAR (Electronic Data Gathering, Analysis and Retrieval System) can be accessed via the SEC website at: http://www.sec.gov/edgar.shtml
    • You must have a CIK (Central Index Key) to file 13H.
      • What is a CIK (Central Index Key)?
        • The CIK is a unique identifier used by the SEC's computer systems to identify corporations and individual people who have filed disclosure with the SEC.
      • What if my firm does not have a CIK or I don’t know if we have a CIK?
  • After Submission: Upon receipt of Form 13H, the SEC will assign each large trader a unique ID number that the large trader must then provide to its registered broker-dealers.
  • Registered broker-dealers will then be required to maintain additional records for large traders including both the large trader ID number, and the time at which transactions in the account (relating to large trades) are executed.
  • Additionally, broker-dealers will be required to report large trader transaction information on request to the SEC through the existing Electronic Blue Sheets systems (EBS).
  • Registered broker-dealers subject to Rule 13h-1 will be required to perform limited monitoring of all of their customers’ accounts for activity that may qualify them as large traders. These broker-dealers are further required to implement policies and procedures reasonably designed to inform persons of their obligations to file Form 13H and disclose their large trader status.

For more information, email us at LTID@ften.com