SEC Exams Identify Violations of Large Trader Rule for BDs and RIAs

Rule 13h of the Securities Exchange Act identifies a large trader as “anyone whose trading in national market system securities exceeds two million shares or $20 million in value during a calendar day, or 20 million shares or $200 million in a calendar month.” Additionally, the rule would also apply to “an investment advisor who has investment discretion, directly or on behalf of others…if they meet these thresholds.” During examinations, the OCIE observed that many investment advisors and broker-dealers were either “not aware of…Rule (13h-1) or were not familiar with certain requirements.” Rule 13h-1 was created to monitor, “market participants that conduct a substantial amount of trading activity, as measured by volume or market value, in national market system (“NMS”) securities (such persons are referred to as “Large Traders”). Additionally, “The Rule requires entities and individuals, such as investment advisers, whose transactions in NMS securities meet or exceed the daily or monthly thresholds…to self-identify to the SEC on Form 13H, and also requires certain recordkeeping, reporting, and monitoring responsibilities for broker-dealers.”

Investment Advisors were encouraged to review their compliance policies and procedures regarding SEC Rule 13h-1 to ensure that they are:

  • identifying situations that could lead the investment adviser to become a Large Trader under the Rule;
  • timely filing Form 13H, with respect to both the annual filing requirement and amended filings
  • amending Form 13H promptly after the end of a calendar quarter, in the event that any of the information contained within the filing becomes inaccurate for any reason; and
  • notifying any broker-dealers through which the investment adviser executes transactions of its Large Trader status.

Broker-dealers were encouraged to review their Rule 13h-1 compliance policies and procedures to ensure:

  • the applicability of SEC Rule 13h-1 to the broker-dealer and its affiliates;
  • the timely filing of both the annual filing and any amended filings of Form 13H;
  • they are meeting reporting requirements under Electronic Blue Sheets and the Consolidated Audit Trail, as well as applicable FINRA Rules;
  • monitoring customer activity to identify any customers that may be Large Traders, but have not provided their SEC-assigned unique identification numbers, and detailing the process of contacting such customers; and
  • identifying and associating new accounts for existing Large Traders.

If your firm requires any assistance with ensuring compliance with this rule, contact one of our compliance experts here

OCIE Risk Alert – 12/16/2020 – Large Trader Obligations
Financial Advisor IQ – SEC Exams Find B-D, RIA Violations of Large Trader Rule