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Rule 13h-1 (the “Large Trader Rule”) under the Securities Exchange Act of 1934 requires that market participants that conduct a substantial amount of trading activity, as measured by volume or market value, in US securities register with the Securities and Exchange Commission by electronically filing and periodically updating Form 13H. The Large Trader Rule also requires that every registered broker dealer maintain records of certain data (“Transaction Data”), including the applicable large trader identification number and execution time on each component trade, for all transactions effected directly or indirectly by or through: (i) an account such broker dealer carries for a large trader; or (ii) if the broker dealer is itself a large trader, any proprietary or other account over which such broker dealer exercises investment discretion. Additionally, where a non-broker dealer carries an account for a large trader under the Large Trader Rule, the broker dealer effecting transactions directly or indirectly for such large trader must maintain records of all Transaction Data. The Large Trader Rule further requires that, upon SEC request, every registered broker dealer that is itself a large trader or that carries an account for a large trader must electronically report Transaction Data to the SEC through the Electronic Blue Sheet system for all transactions equal to or greater than the reporting activity level that are effected directly or indirectly by or through accounts carried by such broker dealer for large traders. Additionally, where a non-broker dealer carries an account for a large trader, the broker dealer effecting such transactions directly or indirectly for a large trader must electronically report Transaction Data to the SEC through the Electronic Blue Sheet system. Initially, the compliance date for the broker dealer requirements was April 30, 2012. In response to industry requests, the SEC extended the compliance date for the broker dealer recordkeeping, reporting and monitoring requirements and took a two-phased approach to implementation of the broker dealer requirements under the Large Trader Rule. On August 8, 2013, the SEC issued an order temporarily exempting certain broker dealers and certain transactions from the recordkeeping and reporting requirements of the Large Trader Rule. Specifically, broker dealers that are large traders but do not self-clear, and broker dealers effecting transactions directly or indirectly for a large trader where a non-broker dealer carries the account for the large trader, are temporarily exempted from recording and reporting Transaction Data through the Electronic Blue Sheet system for the duration of “phase two,” which ends November 1, 2013. The SEC has established a new “phase three” for which the compliance date will be November 1, 2015. Such broker dealers will be subject to these requirements by that date.
Click here to read SEC Release No. 34-70150.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
© Katten Muchin Rosenman LLP
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