On July 26, 2011, the Securities and Exchange Commission (“SEC”) adopted Rule 13h-1 under the Securities Exchange Act of 1934 to require large trader registration, reporting and monitoring. The SEC stated that the large trader reporting regime will assist in identifying and obtaining certain baseline trading information about traders that conduct a substantial amount of trading activity, as measured by volume or market value, in the U.S. securities markets.

Specifically, the large trader reporting regime according to the SEC will facilitate (1) its ability to assess the impact of large trader activity on the securities markets, (2) the reconstruction of trading activity following periods of unusual market volatility, and (3) the analysis of significant market events for regulatory purposes.

Who is a large trader?

Under Rule 13h-1, a large trader is defined as “any person that: (i) directly or indirectly, including through other persons controlled by such person, exercises investment discretion over one or more accounts and effects transactions for the purchase or sale of any NMS security for or on behalf of such accounts, by or through one or more registered broker-dealers, in an aggregate amount equal to or greater than the identifying activity level; or (ii) voluntarily registers as a large trader by filing electronically with the Commission Form 13H.” NMS securities are those securities as covered in the SEC's Regulation NMS, or National Market System.

“Identifying activity level” is defined as transactions in NMS securities that equal or exceed:

• 2 million shares or $20 million during any calendar day; or
• 20 million shares or $200 million during any calendar month.

What are the registration requirements?

Those individuals who meet the definition of a large trader must register with the SEC by filing Form 13H, obtain unique identification numbers, and provide them to broker-dealers through whom they trade.

How does this impact registered broker-dealers?

Registered broker-dealers, if they meet the definition of a large trader, must comply with the new regulatory requirements that pertain to large traders. If they are not themselves considered large traders, they may be required to comply with the new monitoring, recordkeeping, and reporting requirements associated with the activities of large traders. Specifically, broker-dealers are required to maintain records regarding all NMS transactions effected directly or indirectly by or through: (1) an account such broker-dealer carries for a large trader or an Unidentified Large Trader, or (2) if the broker-dealer is a large trader, any proprietary or other account over which such broker-dealer exercises investment discretion. In addition, upon request, broker-dealers may need to report by the next business day such trading activity to the SEC. Further, Rule 13h-1 imposes monitoring requirements on registered broker-dealers, including the monitoring of customers’ accounts to determine if they are compliant with the large trader reporting requirements.

Timeline