Large Trader Reporting Rules: SEC Adopts Rules Requiring Large Traders to File a New Form 13H and Broker-Dealers to Identify Transactions Executed by Large Traders

Sullivan & Cromwell LLP - August 10, 2011
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On July 26, 2011, the SEC adopted a new reporting system for “large traders” that will provide the SEC access to detailed trading information about large market participants and help the SEC analyze market disruptions. The new large trader reporting system is intended to enhance the SEC’s ability to identify and collect information on the trading activity of the most significant participants in the U.S. markets.

The new rules require a person that is a large trader to register with the SEC by filing a new Form 13H. The new rules define a “large trader” as a person that effects transactions, or exercises investment discretion over an account that effects transactions, in listed equity securities or exchange-traded options equal to or greater than:

  • two million shares or shares with a fair market value of $20 million during a calendar day; or
  • twenty million shares or shares with a fair market value of $200 million during a calendar month.

These tests are calculated on a “gross basis”, and not on a “net basis”, and “disaggregation” of accounts is not permitted.

A large trader must file a new Form 13H, which requests information about a large trader’s business and relationships with registered broker-dealers, and must identify itself and provide its SEC-assigned LTID (or large trader identification number) to the registered broker-dealers that effect transactions on its behalf.

Under the new rules, a registered broker-dealer must:

  • keep records and report large trader transaction information to the SEC upon request;
  • monitor the securities transactions of account holders that are not registered as, and have not identified themselves to the registered broker-dealer as, large traders but that the registered broker-dealer knows or has reason to know are large traders (so-called “Unidentified Large Traders”); and
  • notify Unidentified Large Traders of the requirement to register with the SEC.

The compliance date for large traders to register with the SEC by filing Form 13H and identify themselves as large traders to registered broker-dealers is December 1, 2011. The deadline for registered broker-dealers to comply with the recordkeeping, reporting and monitoring requirements of the new rules is April 30, 2012.