Notice To Members 94-17

SEC Reproposes Large-Trader Reporting System

Published Date:

SUGGESTED ROUTING

Senior Management
Institutional
Legal & Compliance
Trading

Executive Summary

The Securities and Exchange Commission (SEC) is reproposing to adopt Rule 13h-l and Form 13H under the Securities Exchange Act of 1934. Originally published for comment in 1991, the proposed rule establishes a system for identifying large-trader accounts and transactions, and places certain record-keeping and reporting requirements on large traders and their registered broker/dealers. Comments on the proposed rule are due on or before April 18, 1994.

Background

The SEC initially proposed Rule 13h-l following the passage of the Market Reform Act of 1990 (Market Reform Act). In congressional reports accompanying the Market Reform Act, legislators noted the importance of having the necessary information to reconstruct trading activity in periods of market stress. These reports noted that the SEC was limited in its ability to gather broad-based samples of investor-trading information. To remedy this situation, Congress provided the SEC with specific authority to establish a large-trader reporting system.

The initial proposal for a large-trader reporting system was contained in Securities Exchange Act Release No. 29593 and published in the Federal Register on August 28, 1991. The SEC noted that it received comments from broker/ dealers, regulatory organizations, industry associations, and other market participants that, although generally supportive, expressed concern that the proposed rule would be unduly burdensome and costly.

Reproposal Of Rule 13h-1

To incorporate many of the suggestions made in the comment letters, the SEC determined to repropose Rule 13h-l, revising certain provisions to clarify the operation of the system and reduce the costs associated with the rule. The reproposed rule is contained in SEC Release No. 34-33608 and was published in the Federal Register on February 17, 1994.

The changes in the reproposed rule are intended to accomplish the following:

1. Clarify the definition of a large trader and provide a flexible concept of aggregation.
2. Increase the identifying and reporting activity levels.
3. Reduce the scope of information captured on Form 13H.
4. Streamline Form 13H filing and updating requirements that include an inactive filing status.
5. Provide more informative and detailed instructions to Form 13H.
6. Reduce the recordkeeping and reporting requirements for the large-trader identification numbers.
7. Provide a safe harbor for the duty to supervise.

Due to the extensive changes, the SEC is seeking comment on any aspect of the reproposed rule. In particular, the SEC invites comments as to whether there are more cost-effective alternatives to the reproposed system that would provide similar benefits. Because of the time that has elapsed, the SEC also is requesting comments that identify any new information technologies that would accomplish the goals of the Market Reform Act while minimizing the costs to a greater extent.

NASD members that wish to comment on the reproposed rule should do so by April 18, 1994. Comment letters should refer to File No. S7-24-91 and should be sent, in triplicate, to:

Jonathan G. Katz
Secretary
Securities and Exchange
Commission
450 Fifth Street, NW
Washington, DC 20549.

Members are requested to send copies of their comment letters to:

Joan Conley
Corporate Secretary
National Association of Securities
Dealers, Inc.
1735 K Street, NW
Washington, DC 20006-1500.

Questions concerning this Notice may be directed to Roberta Donohue, NASD Compliance Department, at (202) 728-8203.