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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Opening Remarks Regarding the Adoption of Large Trader Reporting Requirements


Commissioner Elisse B. Walter

U.S. Securities and Exchange Commission

Washington, D.C.
July 26, 2011

I, too, want to offer my thanks to our staff and, in particular, the individuals within the Office of Market Supervision in the Division of Trading and Markets who developed and finalized the adopting release before us today.

As we all know, the Commission has, for some time now, been looking at market structure — finding ways to update our regulations and our tools to more effectively surveil the markets. The new requirements under Rule 13h-1 and Form 13H are intended to strengthen the SEC’s oversight of securities trading activities and to help us to detect potentially manipulative and abusive practices — by identifying large market participants and more effectively collecting information on their trading activity. The rule under consideration today is part of our ongoing efforts to ensure that the markets are fair, transparent and efficient — especially given that rapid technological advances have continued to produce fundamental changes in the securities markets, with new types of market participants, new trading strategies and new products in a trading environment that operates primarily on an automated basis. These changes have enabled significant market participants to use advanced trading methods to trade electronically in large volumes at high speeds.

In my view, the need for the Commission to track and monitor large trading activity is even greater today than it was in 1990 when Congress passed the Market Reform Act. After three proposals, I am extremely pleased that today the Commission is considering the large trader rule for adoption.

Some have expressed reservations about the rule before us, citing potential costs and the potential regulatory headache in complying with its requirements. But, I believe strongly — and Congress’ 1990 action reflects this — that regulatory agencies, like the Commission, simply cannot function or effectively carry out their missions without obtaining critical information about the activities they regulate and the people who carry out those activities. And, I believe that the new requirements in Rule 13h-1 will be a significant step toward accomplishing that. Specifically, the rule will further the Commission’s understanding of entities or individuals who qualify as large traders and help its analysis of the role they play in the marketplace, including, for example, the impact of their trading activities on the interests of long term investors.

I also understand that some are concerned that the rule will impact persons who may not have had any previous contact with the Commission. However, one of the benefits of the rule is just that — it will provide the Commission with a better sense of who the significant market participants are. Having this knowledge will enable the Commission to engage in an open dialogue and discussion with large traders regarding their experience in the marketplace, which could better inform the Commission in future rulemakings and policy decisions.

I would also highlight that this rule will be implemented within an existing regulatory framework, which should alleviate any undue burden and also quicken the time frame within which it can be implemented and thus provide the Commission with valuable information.

Finally, I believe that another significant improvement under the rule is the timing within which the information must be provided to the Commission upon request. While the current EBS reporting system did not require that broker-dealers provide the information to the Commission by a definitive date, this rule will enable the Commission to have information at the opening of business on the day following a request, or on the same day if the situation warrants it. I think having timely information will be a huge improvement to the Commission in its surveillance and investigative activities.

However, as I have said before, the large trader requirements are not a cure-all to the agency’s need for better audit trail information, but rather an additional mechanism that the Commission can use to monitor a particular set of market participants.

We need to have an even more complete, timely picture of the markets, and it is my hope that the very near future will find the Commission, as the Chairman stated, in a similar position to consider for adoption the development and implementation of a consolidated audit trail that would capture customer and order event information across the markets.

Today, we have an incomplete and possibly inaccurate picture of the markets. As order flow often moves from one marketplace to another, the Commission is not adequately equipped with the surveillance capabilities to gather and analyze cross-market data in a timely manner. In my view, a consolidated audit trail, along with the large trader reporting requirements, would begin to close this gap and enhance the Commission’s ability to perform its job — its market monitoring responsibilities.

Thanks once again to the Division of Trading and Markets, and the rest of the staff for your excellent and hard work on this adopting release.



Modified: 07/26/2011