Lanny Schwartz is a partner in the Financial Institutions Group at Davis Polk & Wardwell LLP. This post is based on a Davis Polk client memorandum.
On July 26, 2011, the SEC adopted Rule 13h-1 under the Securities Exchange Act of 1934 to require large trader registration and reporting. [1] The rule requires persons who directly or indirectly exercise investment discretion and purchase or sell more than a specified amount of U.S.-listed stocks and options through a registered broker-dealer to register with the SEC as large traders. These large traders must obtain a unique identification number and provide it to their registered broker-dealers. Registered broker-dealers must comply with monitoring, recordkeeping and reporting requirements with respect to registered large traders and persons who such broker-dealers know or have reason to know are large traders.
The rule will effectively require the ultimate parent companies of groups that may be large traders on a group-wide basis to develop corporate systems to enable them to identify all of their affiliates that have investment discretion with respect to U.S.-listed stocks and options. In addition, they must gather and report facts about the businesses, trading activities, regulation and brokerage relationships of the group on a combined basis. Registered broker-dealers will need to enhance their recordkeeping and reporting capabilities (using the existing Electronic Blue Sheets system) regarding large trader activity in accounts they carry, and develop systems to identify accountholders who may be “Unidentified Large Traders.”