Large trader reporting rule: a temporary reprieve for broker‐dealers and broadening of exemptions for capital markets transactions

Abstract

Purpose

The purpose of the paper is to describe the temporary and permanent exemptions issued by the Securities and Exchange Commission (SEC) to the large trader identification requirements under Rule 13h‐1.

Design/methodology/approach

Specifically, the paper provides: an explanation of the definition of a “large trader” as defined under Rule 13h‐1; an overview of the recordkeeping, reporting, and monitoring requirements under Rule 13h‐1; an explanation of the two‐tiered temporary exemption issued by the SEC; and an overview of the permanent exemption adopted by the SEC for certain capital market transactions in connection with determining whether a person is a large trader.

Findings

The SEC extended the April 30, 2012 compliance date under Rule 13h‐1 for registered broker‐dealers by 12 months to May 1, 2013; however, broker‐dealers that are either large traders, or have large trader customers that are either broker‐dealers or trade through a “sponsored access” arrangement, must be in compliance by November 30, 2012. The extension affords broker‐dealers additional time to develop, test, and implement recordkeeping and reporting systems required for compliance. Additionally, the SEC issued a permanent exemption for “dribble out” programs or offerings “crossed” on a national securities exchange, which were not originally exempted under the rule. The SEC determined that these transactions should not be counted for the purpose of determining whether a person meets the identifying activity level for a large trader given that the vast majority of primary offerings are excluded under the rule.

Originality/value

The paper provides practical guidance from experienced regulatory lawyers regarding an important proposed change.

Citation

Sacks, R.D. and Blankenship, M.J. (2012), "Large trader reporting rule: a temporary reprieve for broker‐dealers and broadening of exemptions for capital markets transactions", Journal of Investment Compliance, Vol. 13 No. 4, pp. 4-8. https://doi.org/10.1108/15285811211284065