SEC Rule Aggregates Large Traders

Terry Flanagan

Scheduled to be effective in October, Securities and Exchange Commission Rule 13h-1, also known as the “large trader rule,” will identify certain market participants as “large traders” and subsequently monitor their actions.

Under the rule, traders will be tagged as a “large trader” if their total transactions in any given calendar day exceeds 2 million shares or $20 million in volume, or 20 million shares or $200 million during any calendar month. Each large trader would then be issued a unique identification number and be required to make certain disclosures to the commission. The trader’s broker-dealer would use that identification number to maintain separate records for such traders. The broker-dealer would also need to report any transaction information to the SEC upon request.

“The large trader reporting requirements are designed to provide the Commission with a valuable source of useful data to support its investigative and enforcement activities, as well as facilitate the Commission’s ability to assess the impact of large trader activity on the securities markets, to reconstruct trading activity following periods of unusual market volatility, and to analyze significant market events for regulatory purposes,” said the SEC in a July 27 order.

“I really don’t think this rule affects the marketplace much at all,” said Michael Kurzrok, director of equities at Woodbine Associates. “I don’t see that it constrains, it doesn’t change anything anyone does. It’s just reporting methodology. All it does is corral large traders, and basically it’s the easiest way to go in and find where the market is impacted, and be able to go in and look at trading activity.”

Most of the burden of this new regulation will be on broker-dealers, in terms of added compliance costs, but Kurzrok doesn’t believe that it will be significant.

“There will be an initial cost to adjust for this, broker-dealers and clearing firms may need an extra body or two in the compliance area,” said Kurzrok. “But once things are set, and once the initial transformation takes place, I don’t even think it will be noticeable. We’re not creating any new divisions for this or new areas. It’s an electronic transmittal of information, once you set up the codes and get everything in place, it’s just another thing on the pile of responsibility.”

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