SEC Proposes New Rule to Identify Large Traders, Including Insurance Companies


On April 14, 2010, the Securities and Exchange Commission (the “SEC”) proposed a rule that would require persons that purchase or sell publicly traded securities in excess of certain amounts per month or per day to identify themselves to the SEC. This rule would apply to insurance companies trading for their own accounts and any accounts over which they exercise investment discretion. The rule is designed to permit the SEC to monitor and analyze trading data on an almost contemporaneous basis and quickly investigate possible manipulations and other frauds. It would bring a new type of transparency to the U.S. securities markets because the trading of every person subject to the rule would be almost immediately “knowable” by the SEC.

Why the Rule was Proposed Now

If adopted, proposed new Rule 13h-1 would become part of the rules under the Securities Exchange Act of 1934 (the “Exchange Act”). It appears to be part of the SEC’s response to recent changes in the U.S. markets for equity and option securities. Since becoming chairman of the SEC, Mary Schapiro has often voiced her concern that the SEC does not have ready access to information regarding persons that trade in large volume in the U.S. securities markets. The SEC release proposing new Rule 13h-1 states that it is designed to “facilitate the Commission’s ability to assess the impact of large trader activity on the securities markets, to reconstruct trading activity following periods of unusual market volatility, and to analyze significant market events for regulatory purposes.”

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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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