Applicability of Large Trader Rules to Private Equity Advisers


The U.S. Securities and Exchange Commission (the “SEC”) recently adopted Rule 13h-1 (the “Rule”) under the Securities Exchange Act of 1934 with respect to large trader registration. The Rule requires persons that qualify as a “large trader” (as defined below) to file Form 13H with SEC to receive a large trader identification number (a “LTID”). Large traders must identify themselves in future transactions to broker-dealers through which they trade, using their LTID. Form 13H filings will required for large traders beginning December 1, 2011. The questions set forth below highlight the general applicability of the Rule and the requirements contained in Form 13H.

How Does the Rule Apply to Private Equity Advisers?

The Rule requires that a person that exercises investment discretion, directly or indirectly (including through affiliates it controls), and effects transactions in publicly-traded securities, in excess of a specified threshold, must file Form 13H and be designated as a “large trader.” Although at first glance it might seem that private equity advisers would not need to comply with the Rule, there are several situations in which such advisers would need to file. In particular, (i) large transactions in publicly-traded securities (e.g., a block trade after an IPO of a portfolio company) could exceed the transaction threshold or (ii) under certain circumstances, the securities trading of a portfolio company could be attributed to the private equity adviser.

What is a Large Trader?

A “large trader” is a person who directly or indirectly (including through affiliates it controls) exercises investment discretion over transactions in NMS securities1...

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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.

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