A new SEC rule is coming into force which will impact on Large Traders (‘LT’) of NMS securities (the latter are basically any US exchange-listed securities including options. For the precise definition see ‘Rule 600(b)(46)’ on page 480 using link ‘NMS Security’) whether or not the LT is based in the US. The intention is to help the SEC with its investigative and enforcement activities.
Non-US persons can also be LTs as, for the purposes of the rule, it does not matter where the NMS security is traded.
There will be a corresponding obligation on registered broker-dealers to capture certain information on trades by LTs and to detect unidentified LTs.
A LT is a person which:
“Directly or indirectly, including through other persons controlled by such person, exercises investment discretion over one or more accounts and effects transactions for the purchase or sale of any NMS security for or on behalf of such accounts, by or through one or more registered broker-dealers in an aggregate amount equal to or greater than the identifying activity level” (‘IAL’).
The IAL is where the aggregate amount is equal to or exceeding (i) 2M shares or $20M during any calendar day or (ii) 20M shares or $200M during any calendar month.
For the avoidance of doubt, where a fund is involved it is the adviser/sub-adviser that will be subject to the rule and not the fund. The ‘Initial filings – who must file?’ section on the Federal Register entry (see link) provides useful guidance.
A LT is required to file Form 13H with the SEC. Upon receipt the SEC will issue each LT with a unique number that the LT must provide to its registered broker-dealers.
Firms can voluntarily elect to register as an LT on Form 13H. This might be appropriate for firms that do not want to monitor their aggregate activity levels.
Subsidiaries of an entity can either file independently or the parent can file on behalf of its subsidiaries.
Annual filings must be submitted within 45 days after the end of each calendar year. If any information in a filing is inaccurate an LT must file an amended filing no later than the end of the calendar quarter “in which the information becomes stale”.
The entry on the Federal Register advises that the requirement on LTs to identify to the SEC is 1 December 2011 whilst broker-dealers must begin monitoring from 30 April 2012.
An example of Form 13H can be found in the entry on the Federal Register, including guidance notes, using the attached link.