New Requirements for Tracking NMS Trading

To help detect potentially manipulative and abusive trading practices, the SEC adopted new requirements to oversee security trading activities, by identifying large market participants and effectively collecting information on their trading activities. On July 26, 2011, the SEC voted unanimously to adopt Rule13h-1 under the Securities Exchange Act of 1934 and Form 13H. These new requirements allow the SEC to implement a new system to monitor large traders’ trading activity, through a requirement, that broker-dealers record large traders’ activity and when requested, report the activity to the SEC. Firms that have not already identified themselves as “large traders” will need to actively monitor their trading as they near the applicable trading activity threshold.

A large trader is defined in Rule 13h-1 “as a person whose transactions in NMS securities equal or exceed 2 million shares or $20 million during any calendar day, or 20 million shares or $200 million during any calendar month.” Firms will not have to count toward the thresholds certain categories of trades that the SEC deems less risky. A list of transactions that are excluded from the large trader trading activity threshold are described under Rule 13h-1(a)(6).

Certain investment advisers and broker-dealers with discretionary authority over clients’ investments are required to self-identify themselves as a large trader to the SEC using Form 13H. The SEC will assign each large trader a unique number called a Large Trader Identification Number (“LTID”), which the large trader must then provide to its U.S. registered broker-dealers. These broker-dealers will have certain recordkeeping and reporting obligations to the SEC.

Firms are required to file Form 13H with the SEC within 10 days after first effecting aggregated transactions that reach the threshold. Alternatively, firms may voluntarily register with the SEC rather than having to monitor their trading activity levels making them subject to all of the reporting obligations of a large trader.

Click here for more information on large trader reporting. Click here to learn how to complete and file the Form 13H.