The Securities and Exchange Commission (SEC), spurred by the May 6, 2010, disruption and concerns of systemic risk in the U.S. securities market, adopted Rule 13h-1 in July 2011. Known as the large trader rule, it is designed to enable the SEC to identify and monitor market participants who engage in significant trading activity.

The rule requires persons to register as large traders if they exercise direct or indirect investment discretion over one or more accounts, and execute transactions in the U.S. securities markets at or in excess of the following, in aggregate, in those accounts over which they have discretion:

• Two million shares or fair market value of $20 million per day
• Twenty million shares or fair market value of $200 million per month

Large traders must file the new Form 13H with the SEC by December 1, 2011, and update their registration quarterly or annually, as needed. Once registered, a large trader is assigned a large trader identification (LTID) that must be provided thereafter to each broker-dealer to which orders are sent.

Financial organizations should notify investment professionals and others that maintain investment discretion on client holdings about their obligations, and be advised that their firms may be required to file, as well. Non-U.S. clients who purchase or sell U.S. securities at either level above must also file Form 13H. For more information, including filing instructions, please refer to the August 3, 2011, Federal Register article, Large Trader Reporting.

Obligation to Record, Monitor and Report Starting May 2012

The rule will also impose recordkeeping, reporting and monitoring responsibilities on SEC-registered broker-dealers that execute large trader transactions. Though largely based on existing systems for reporting data to the SEC, the rule now requires the reporting of two additional elements: the LTID and the transaction execution time. Financial organizations are advised to assess their existing recordkeeping and reporting infrastructure, and policies and procedures, to determine whether changes are required to comply with the rule.