The U.S. Securities and Exchange Commission (“SEC”) recently adopted Rule 13h-1 that would require “large traders” to file new Form 13H with the SEC through its Electronic Data Gathering, Analysis and Retrieval (EDGAR) System.
Rule 13h-1 defines “large trader” as any person or entity, including investment advisers, 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 [exchange-listed] security 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” either 2 million shares or $20 million in a single day; or 20 million shares or $200 million in a calendar month. This means that any entity that places trades that qualify as “large trades” and has investment discretion over an account, not the account holder, will have to file Form 13H. There are a limited number of exceptions to the definition of “large trader” including trades related to gifts, distributions of estates, court-ordered transactions, exercises or assignments of options contracts, and the creation of ETFs.
The information requested by Form 13H includes basic identifying information, the name of the organization and any affiliates, an organization chart, a description of the nature business, a list of forms the business filed with the SEC, the names of each general partner and execute officers, directors or trustees, and a list of broker-dealers where the trader has an account. The Form 13H will be kept confidential by the SEC and will be exempt from Freedom of Information Act requests.
After Form 13H has been submitted to the SEC, the SEC will assign the trader an identification number known as an LTID. This LTID must be given to any registered broker-dealer where the trader maintains an account. The broker-dealer is required to maintain certain records for each transaction for these accounts and upon request must provide that information to the SEC.
Rule 13h-1 comes into effect on October 3, 2011 and organizations that will be required to file Form 13H have until December 1, 2011 to do so. If an organization has not recently placed any trades that would require it to register as a “large trader”, it can file a Form 13H now or it can wait and file the Form 13H within ten days of qualifying as a “large trader.” After making an initial Form 13H filing, “large traders” must continue to file Form 13H annually. Further, if any information contained within the form becomes inaccurate or out-dated, an amended filing must be made by the end of the calendar quarter. If an organization has filed a Form 13H, but during the previous calendar year did not place a trade that qualified as a “large trade,” it can make a filing to request “inactive” status and re-activate whenever necessary.