Wednesday, April 21, 2010

SEC Proposes "Large Trader" Reporting System

On April 14, 2010, the SEC proposed a new Rule 13h-1 (the "Rule") and Form 13H under Section 13(h) of the U.S. Securities Exchange Act of 1934, which would enable the SEC to identify and obtain certain information about "large traders", i.e. traders that conduct a substantial amount of trading activity, as measured by volume or market value, in the U.S. securities markets.

Under the proposed Rule, any firm or individual whose direct or indirect transactions in "NMS securities" -- i.e. exchange-listed securities, including equities and options -- equal or exceed (i) 2 million shares or $20 million during any calendar day, or (ii) 20 million shares or $200 million during any calendar month (such firm or individual, a "large trader") would be required to identify itself to the SEC and make certain disclosure on proposed Form 13H. The SEC would then issue a unique Large Trader Identification Number (“LTID”) for the large trader, who would be required to disclose its LTID to each of its registered broker-dealers and identify all of the accounts used for its trading.

The proposed Rule would also impose recordkeeping and reporting requirements on registered broker-dealers, and would require registered broker-dealers to provide large trader transaction data to the SEC upon request.

As indicated in the SEC press release, the proposed Rule "is designed to strengthen [SEC] oversight of the markets and protect investors in the process," by giving the SEC "prompt access to trading information from large traders so [it] can better analyze the data and investigate potentially illegal trading activity."

The proposed Rule is subject to a 60-day comment period.

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