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U.S. Securities and Exchange Commission

SEC Proposes Large Trader Reporting System


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Washington, D.C., April 14, 2010 — The Securities and Exchange Commission today voted to propose the creation of a large trader reporting system that would enhance its ability to identify large market participants, collect information on their trades, and analyze their trading activity.

The SEC is proposing that large traders be required to identify themselves to the Commission, which would then assign each trader a unique identification number. Large traders would provide this number to their broker-dealers, who would be required to maintain transaction records for each large trader and report that information to the SEC upon request.

The SEC's proposal is the latest in an ongoing effort to promote fairness and efficiency in the markets. Other rules proposed recently to increase fairness and efficiency include a proposed ban on marketable flash orders, a proposal to bring greater transparency to dark pools of liquidity, and a proposal to prohibit unfiltered access to markets.

"This rule is designed to strengthen our oversight of the markets and protect investors in the process," said SEC Chairman Mary L. Schapiro. "It would give us prompt access to trading information from large traders so we can better analyze the data and investigate potentially illegal trading activity."

Under the SEC's proposal, traders who engage in substantial levels of trading activity would be required to identify themselves to the SEC through a filing with the Commission. A "large trader" would be generally defined as a firm or individual whose transactions in exchange-listed securities equal or exceed two million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month.

Public comments on the proposal should be received by the Commission within 60 days after its publication in the Federal Register.

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Rapid technological advances have continued to produce fundamental changes in the securities markets. In fact, the SEC frequently sees new types of market participants, new trading strategies, and new products.

Today, trades are transacted in milliseconds and dispersed among many trading centers. These changes have allowed large market participants to employ sophisticated trading methods to trade electronically in huge volumes at very fast speeds.

In light of these changes, the Commission believes it is now appropriate to consider exercising its authority under Section 13(h) of the Securities Exchange Act of 1934 to establish a large trader reporting system.

Goal of the Proposal

The proposed large trader reporting system is intended to:

  • Help the SEC identify market participants engaged in substantial trading activity.
  • Promptly obtain information needed to monitor more efficiently the impact of those trades on the markets.
  • Analyze market participant's trading activity.

The need for the Commission to consider monitoring these entities is heightened by the fact that large traders, including high-frequency traders, appear to be playing an increasingly prominent role in the securities markets.

Requirements Under the Proposal

The proposed rule provides the following requirements:

Filing a Form: Traders who engage in substantial levels of trading activity would be required to identify themselves to the SEC by filing a form with the Commission. A "large trader" would generally be defined as a person, including a firm or individual, whose transactions in exchange-listed securities equal or exceed (i) two million shares or $20 million during any calendar day, or (ii) 20 million shares or $200 million during any calendar month.

Getting an Identification Number: The SEC then would assign each large trader a unique large trader identification number (LTID), which would allow the agency to efficiently identify and analyze trading activity by the large trader. A large trader would be required to disclose to its broker-dealers its LTID and highlight all of the accounts held by that broker-dealer through which the large trader trades.

Recordkeeping and Reporting: The proposed rule would require broker-dealers to maintain and report data that is largely similar to the information covered by the Commission's Electronic Blue Sheets ("EBS") system — the system the SEC currently uses to collect transaction data from broker-dealers. The only additional items that broker-dealers would be required to maintain and report are the LTID and the time a transaction occurs. The proposed rule contemplates that broker-dealers would use the same technology that they use under the EBS system.

Ready Access to Data: The proposed rule would require transaction data to be available to the SEC upon request the morning after the day on which the transactions were effected. Such next day SEC access could be used to promptly reconstruct market activity and perform other trading analyses, as well as to assist in investigations of potential manipulative, abusive, or otherwise-illegal trading activity.

In addition, the proposed rule would require broker-dealers to monitor whether their customers meet the threshold that define a "large trader" (based on transactions completed at the broker-dealer) in order to facilitate compliance by their customers with the requirement to identify themselves as large traders to the Commission.

Recent SEC Actions on Market Structure

Today's actions are part of a larger effort by the Commission to ensure that the markets are fair, transparent and efficient. Among other things, the Commission already has proposed rules that would:

  • Effectively prohibit all markets from displaying marketable flash orders.

  • Generally require that information about an investor's interest in buying or selling a stock be made publicly available, instead of just to a select group operating with a dark pool.

  • Effectively prohibit broker-dealers from providing their customers with unfiltered access to exchanges and alternative trading systems — and that would assure broker-dealers implement appropriate risk controls.

The Commission also has sought public comment about a concept release on a wide range of topics concerning the equity markets to help facilitate the SEC's ongoing review of market structure issues.

What's Next?

The Commission will seek public comment and data on a broad range of issues relating to the large trader reporting system, including the costs and benefits associated with the proposal. After careful review of comments, the Commission will consider any further action to take on the proposal.



Modified: 04/14/2010