Rule 13h-1 requires all “large traders” to identify themselves to the SEC by electronically filing and periodically updating Form 13H. Upon receipt of an initial Form 13H, the SEC will assign and issue a unique large trader identification number (“LTID”) to the large trader. Each large trader then must disclose its LTID and each account to which it applies to the registered broker-dealers effecting transactions on its behalf. If requested, large traders must also promptly provide additional descriptive or clarifying information to the SEC that would allow the Commission to further identify the large trader and all accounts through which the large trader effects transactions.
A “large trader” is defined as any person that “directly or indirectly, including through other persons controlled by such person, exercises investment discretion over one or more accounts and effects transactions for the purchase or sale of any NMS securities for or on behalf of such accounts, by or through one or more registered broker-dealers, in an aggregate amount equal to or greater than the identifying activity level.” NMS securities generally refer to U.S. listed stocks and options, including ETFs, but excluding mutual funds. “Identifying activity level” is defined as aggregate transactions (both purchases and sales) in publicly traded securities that are equal to or greater than:
- During a calendar day, an aggregate amount of 2 million shares or $20 million (determined by fair market value of the shares), or
- During a calendar month, an aggregate total of 20 million shares or $200 million.
Large traders must self-identify to the SEC by filing an initial Form 13H on EDGAR and then they must comply with additional filing procedures in the future.
Types of Filings
There are six types of Form 13H filings:
- Initial Filing
Identifies the large trader to the SEC and must be filed with the SEC promptly, generally within 10 days after the company meets the definition of a large trader. Once filed, the SEC will assign and issue to a large trader a unique identification number (“LTID”), which the large trader must then provide to its registered broker-dealers.
- Annual Filings
Within 45 days after the end of the calendar year, large traders must submit an Annual Filing, with the same information as the Initial Filing. If the initial filing is in 2011, the first annual filing will not be due until 45 days after December 31, 2012.
- Amended Filings
If any of the information in a filed Form 13H becomes inaccurate for any reason, a large trader must file an Amended Filing promptly following the end of the calendar quarter in which the information became stale. A large trader may voluntarily file an Amended Filing more frequently than quarterly, at its discretion. Adding a broker-dealer to, or removing a broker-dealer from the “approved list” would warrant an amended filing.
- Inactive Status
A large trader who has not effected transactions that meet or exceed the threshold levels at any time during the previous calendar year may file for inactive status. A large trader on inactive status need not file an Amended or Annual Filing until its transactions again reach the identifying activity level. Inactive status also permits the large trader to request that its broker-dealers stop maintaining records of its transactions by LTID.
- Reactivated Status
This filing is submitted by a large trader who was on inactive status in order to reactivate its status after effecting aggregate transactions that meet or exceed the threshold level. Promptly (generally within 10 days) after reaching the threshold level, the large trader must again file Form 13H and inform its broker-dealers of the need to record its trading activity by its LTID.
- Termination Filings
A large trader may permanently end its large trader status by filing a Termination Filing with the SEC. The Termination Filing can be used, for example, when a company acquires or is acquired by another large trader.
Form 13H is designed to collect basic information about a large trader that will help the SEC monitor the trading activity of the most significant U.S. securities market participants. In some instances, Form 13H also requires information about “affiliates” of the large trader, defined as any person that directly or indirectly controls, is under common control with, or is controlled by the large trader. In other instances, Form 13H requires more detailed information about “Securities Affiliates” of the large trader, defined as affiliates that exercise investment discretion over NMS securities. Six items of information must be provided on Form 13H:
- Item 1 requires the large trader to specify the types of businesses engaged in by the large trader or any of its affiliates. A large trader must describe, for itself and each of its Securities Affiliates, the nature of its operations, including a general description of its trading strategies.
- Item 2 requires the large trader to indicate whether it or any of its Security Affiliates already file any other forms with the SEC and, if so, to identify each such Security Affiliate, its CIK numbers, and the forms filed (i.e., ADV, 13F, 13G, etc.).
- Item 3 requires the large trader to disclose whether it or any of its affiliates is registered with the Commodity Futures Trading Commission, and whether it or any of its Securities Affiliates are regulated by a foreign regulator.
- Item 4 requires the large trader to provide an organizational chart that, at a minimum, includes the large trader, its parent company (if applicable), all Securities Affiliates and all CFTC Affiliates. For each of these entities, Item 4 also requires the name, market participant identification number, a brief description of its business, and its relationship to the large trader. It also requires the large trader to identify all its affiliates that file a separate Form 13H and provide any LTID suffixes for those affiliates.
- Item 5 requires the large trader to provide information regarding its corporate form (e.g., partnership, corporation). Item 5 also requires the large trader to identify each executive officer, director, or trustee of the corporation or, in the case of a partnership, each partner that owns a financial interest of more than 10%.
- Item 6 requires the large trader to identify all registered broker-dealers at which it has an account and to disclose whether each such broker-dealer provides prime broker, executing broker, and/or clearing broker services. A large trader must provide its unique LTID (and suffixes, as applicable) to all registered broker-dealers promptly (i.e., within 10 days of receiving its LTID or effecting a transaction with that broker-dealer). The requirement to provide LTIDs to all registered broker-dealers who effect transactions on its behalf (and to identify each account to which it applies) is an ongoing responsibility for large traders.
The SEC allows for voluntary filing of a Form 13H to register as a large trader. While this avoids the initial burden of calculating whether you qualify as a large trader, you will be required to comply with the other filing requirements. We recommend that every adviser that might trigger the filing requirement, file Form 13H prior to that occurrence. Once the requirement is triggered, you only have 10 days to file the Form.
The information provided to the SEC will not be made available to the public and the record keeping, reporting, and monitoring of transactions will be the responsibility of each broker-dealer.
For the adopting release of Rule 13h-1, see: