Large Trader Reporting
Regulatory Obligations and Related Considerations
Exchange Act Rule 13h-1 (Large Trader Rule) requires “large traders” to identify themselves as such to the SEC, disclose to other firms their large trader status and, in certain situations, comply with certain filing, recordkeeping and reporting requirements. These requirements help the SEC identify large traders and obtain trading information about their activity in the U.S. securities markets. In addition, broker-dealers will be required to obtain and report large trader information to the CAT for accounts with CAT Reportable Events.
- Has your firm created new WSPs or updated your WSPs to address the Large Trader Rule?
- Does the firm report its relevant proprietary trading activity with the designated Large Trader ID (LTID)?
- If not, how does your firm conduct daily calculations of its own trading activity to monitor its Large Trader status?
- Has your firm updated your new customer account process to address Large Trader Rule requirements?
- Does your firm perform daily calculations of customer accounts to determine if there were any new accounts that breached the daily or monthly thresholds?
- How does your firm notify customers of their regulatory obligations if the customer has been deemed to be an “Unidentified Large Trader”?
- How does your firm work with your clearing firm to comply with the Large Trader Rule?
- How is your firm preparing to comply with CAT reporting requirements relating to LTIDs?
Exam Findings and Effective Practices
- No WSPs – Failing to update or create new WSPs to address the Large Trader Rule, including requirements for timely filing of Form 13H and identifying, monitoring, recordkeeping and filing for large traders and Unidentified Large Traders.
- No Monitoring for Unidentified Large Traders – Not monitoring customer activity to identify and detect Unidentified Large Traders and notifying such traders of their obligations.
- Failure to Report LTID – Not reporting the LTID on Electronic Blue Sheet (EBS) submissions for applicable orders.
- WSPs – Creating new or updated WSPs to address the Large Trader Rule, including developing WSPs to comply with the Large Trader Rule’s recordkeeping requirements for its customer and proprietary trading businesses and Form 13H filing requirements for its proprietary business.
- Form 13H Review – Reviewing the accuracy of, and confirming any updates for, the firms’ Form 13H.
- Large Trader Check – Adding a large trader check to firms’ EBS policies and procedures to confirm that the LTID was populated and formatted correctly.
- New Customer Account Process – Requiring new institutional accounts to provide their LTID as part of the account opening process and, unless customers directed otherwise, requiring their LTIDs be applied to all of their new accounts.
- Daily Large Trader and Customer Account Monitoring – Completing daily large trader monitoring calculations to monitor the firms’ large trader status; performing daily large trader monitoring calculations for their customer accounts to determine if there were any new accounts that breached the daily or monthly thresholds; and engaging their clearing firm to confirm that the clearing firm provided accurate customer LTID numbers and these numbers remained up to date.
- Unidentified Large Traders – Unless customers justified their exemption from the Large Trader Rule:
- creating Unidentified Large Trader ID for those customers;
- notifying them of potential registration obligations; and
- advising them to request their LTID.
- U.S. Securities and Exchange Commission, Office of Compliance, Inspections and Examinations, Observations from Examinations of Broker-Dealers and Investment Advisers: Large Trader Obligations (Dec. 16, 2020)
- U.S. Securities and Exchange Commission, Division of Trading and Markets, Responses to Frequently Asked Questions Concerning Large Trader Reporting (Feb. 22, 2016)
- Regulatory Notice 18-04 (FINRA and ISG Announce Extension of Effective Date for Certain Electronic Blue Sheet Data Elements and Updates to Certain Requestor and Exchange Codes)
- FINRA’s Frequently Asked Questions about Electronic Blue Sheets (EBS)