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U.S. Securities and Exchange Commission

SEC Adopts Large Trader Reporting Regime


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Chairman Schapiro discusses large trader reporting:
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Washington, D.C., July 26, 2011 – The Securities and Exchange Commission today voted unanimously to adopt a new rule establishing large trader reporting requirements to enhance the agency’s ability to identify large market participants, collect information on their trading, and analyze their trading activity.

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

“May 6 dramatically demonstrated the need to enhance the SEC’s ability to quickly and accurately analyze market events. The large trader reporting rule will significantly bolster our ability to oversee the U.S. securities markets in a time when trades can be transacted in milliseconds or faster,” said SEC Chairman Mary L. Schapiro. “This new rule will enable us to promptly and efficiently identify significant market participants and collect data on their trading activity so that we can reconstruct market events, conduct investigations, and bring enforcement actions as appropriate.”

The new rule has two primary components:

  • First, it requires large traders to register with the Commission through a new form, Form 13H.
  • Second, it imposes recordkeeping, reporting, and limited monitoring requirements on certain registered broker-dealers through whom large traders execute their transactions.

The new rule will be effective 60 days after its publication in the Federal Register.

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Large Trader Reporting


In light of the rapid development in trading technology and strategies, the SEC has been conducting an in-depth review of the structure of the U.S. market.

Unlike years ago, trades today are transacted in milliseconds or faster and dispersed among many trading centers. These changes have allowed large market participants to employ sophisticated trading methods to trade electronically on multiple venues in huge volumes at very fast speeds.

Because of these changes, the SEC believes it is now appropriate to exercise its authority under Section 13(h) of the Securities Exchange Act of 1934 to establish a large trader reporting rule.

The Rule

The large trader reporting rule is intended to:

  • Help the SEC identify market participants engaged in substantial trading activity.
  • Obtain information needed to monitor more efficiently the impact of those trades on the markets.
  • Analyze such market participants’ trading activity.

The need for the SEC to have better access to information on 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.

The rule contains the following requirements:

Filing a Form: Traders who engage in a substantial level of trading activity will be required to identify themselves to the SEC by filing a form, Form 13H, with the Commission. A “large trader” will be defined as a person 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.

The rule provides guidance on certain types of transactions that can be excluded for purposes of calculating trading levels.

Getting an Identification Number: After it files Form 13H to register with the Commission, the SEC will then assign each large trader a unique large trader identification number (LTID), which will allow the agency to efficiently identify and analyze trading activity by the large trader. A large trader will be required to disclose to its broker-dealers its LTID and highlight all of the accounts at the broker-dealer through which the large trader trades.

Recordkeeping, Reporting, and Monitoring: The rule requires broker-dealers to maintain and report data that is largely identical 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 will be required to maintain and report are the LTID and the time a transaction occurs. Accordingly, the rule leverages the existing EBS system, with modifications, to accommodate the specific requirements of the new rule. In addition, the rule requires broker-dealers to monitor whether their customers meet the threshold levels that define a “large trader” (based on transactions handled at the broker-dealer) in order to encourage compliance by their customers with the requirement to identify themselves as large traders to the SEC.

Ready Access to Data: The rule requires transaction data to be available for reporting on the morning after the day the transactions were effected. When the SEC requests data from broker-dealers, it would not under normal circumstances require responses earlier than the opening of business on the day after it makes its request. Prompt access to this data will assist the SEC in reconstructing market activity and performing other trading analyses, and also will assist in investigations of manipulative, abusive, and other illegal trading activity.

Other SEC Actions on Market Structure

Among other things the SEC has already done in connection with its market structure review:

  • Sponsored access: Adopted rules that would effectively prohibit broker-dealers from providing their customers with unfiltered access to exchanges and other alternative trading systems – and that would assure that broker-dealers implement appropriate risk controls.
  • Circuit breakers: Approved rules that will require the exchanges and FINRA to pause trading in certain individual stocks if the price moves 10 percent or more in a five-minute period. This pilot program applies to stocks in the S&P 500 or the Russell 1000 as well as certain exchange-traded products.
  • Erroneous trades: Approved new rules clarifying up front how and when erroneous trades would be broken.
  • Stub quotes: Approved new rules proposed by the exchanges and FINRA to strengthen the minimum quoting standards for market makers and effectively prohibit “stub quotes” in the U.S. equity markets.
  • Consolidated audit trail: Proposed a new rule that would require the SROs to establish a consolidated audit trail system that would enable regulators to track information related to trading orders received and executed across the securities markets.

What’s Next

Rule 13h-1 will be effective 60 days after the date of publication of the rule in the Federal Register. Large traders will have two months after the effective date to comply with the identification requirements of the rule. Broker-dealers will have seven months after the effective date to comply with the requirements to maintain records, report transaction data when requested, and monitor large trader activity.



Modified: 07/26/2011