1 See Memorandum to SEC Rules Committee No. 52-91 and Investment Issues
Committee No. 10-91, dated August 30, 1991; Memorandum to Investment Advisers
Committee No. 44-91, dated September 12, 1991; and Memorandum to Unit
Investment Trust Committee No. 31-91, dated September 25, 1991.
2 See Memorandum to Investment Issues Committee No. 22-91, SEC Rules
Committee No. 71-91, Investment Advisers Committee 60-91 and Unit Investment
Trust Committee No. 45-91, dated December 12, 1991.
February 24, 1994
TO: INVESTMENT ADVISERS COMMITTEE NO. 14-94
INVESTMENT ISSUES COMMITTEE NO. 3-94
SEC RULES COMMITTEE NO. 19-94
UNIT INVESTMENT TRUST COMMITTEE NO. 14-94
RE: SEC REPROPOSES LARGE TRADER REPORTING SYSTEM
__________________________________________________________
The Securities and Exchange Commission has reproposed Rule 13h-1 under the
Securities Exchange Act of 1934, to establish an activity-based large trader
reporting system. The SEC initially proposed Rule 13h-1 in 1991, pursuant to the
Market Reform Act of 1990, to provide the SEC with the information necessary to
reconstruct trading activity in periods of market stress and for enforcement and
other regulatory purposes.1 The reproposal is intended to address commenters'
concerns that the reporting system as originally proposed would have been unduly
burdensome and costly. The reproposal incorporates many of the Institute's
comments on the original proposal.2 A copy of the SEC's release is attached.
Set forth below is a brief description of the significant provisions of
reproposed Rule 13h-1.
Definition of "Large Trader"
Paragraph (a)(1) of the reproposed rule defines "large trader" as every
person who, for an account that he owns or controls, effects transactions for the
purchase or sale of any publicly traded security or securities, directly or
indirectly, by or through a registered broker or dealer in an aggregate amount
equal to or in excess of the identifying activity level. The identifying
activity level, which is contained in paragraph (a)(8) of the reproposed Rule,
would be the lesser of 200,000 shares and fair market value of $2 million, or
fair market value of $10 million. These minimum thresholds have been increased
from the original proposal of 100,000 shares or fair market value of $4 million.
The time period for aggregating transactions also would be changed from a 24 hour
period to "a calendar day where the account is located."
Many of the terms included in the definition of large trader, such as
account, ownership, and control, and the original aggregation rules have been
modified to address concerns raised by the Institute and other commenters about
the overly broad scope of the proposed definition of a large trader. For
example, the definition of "ownership" in paragraph (a)(4) has been modified to
address concerns that employees, officers, directors and controlling shareholders
would have been subject to the reporting requirements solely by virtue of their
relationship with a large trader entity (see p. 12 of the SEC's release).
3Filing Requirements
A large trader would be required to file reproposed Form 13H within 10
business days after it first effects transactions that reach the identifying
activity level. Upon filing the Form 13H, the identified large trader would
receive from the SEC a unique large trader identification number ("LTID"). Large
traders would be required to disclose their LTIDs and accounts to broker-dealers
that carry large trader accounts. Thereafter, large traders only would be
required to file an updated Form 13H annually, instead of every time the
"information contained therein becomes inaccurate for any reason," as originally
proposed.
Form 13H
Form 13H elicits minimal descriptive information about the large trader.
The reproposal modifies the original proposed Frm 13H, schedules and instructions
to reduce the scope of information required. The reproposal would, among other
things, provide an exemption from the filing requirements of Item 4 of the
reproposed Form, which requires identification on a separate schedule of all
officers, directors and trustees of a large trader corporation or trust, for
persons regulated by the SEC by allowing incorporation by reference of
information already on file with the SEC (such as in Forms ADV, BD and N-1A).
Inactive Filing Status
Paragraph (b)(3) of the reproposed Rule would implement a new "inactive
filing status" for large traders whose aggregate transactions during the previous
full calendar year do not reach the identifying activity level and an aggregate
calendar year total of 2,000,000 shares or fair market value of $30,000,000. The
new inactive status was designed, in part, to eliminate the ongoing burdens of
the proposed reporting system on unit investment trusts. (See note 74 of the
SEC's release.)
Broker-Dealer Requirements
A broker-dealer that carries accounts for itself or others would be
required to make and keep records of transactions effected directly or indirectly
by or through such broker or dealer for all large traders that equal or exceed
the reporting activity level (i.e., equal to or greater than the lesser of $2,000
shares or fair market value of $100,000). Broker-dealers that carry accounts for
large traders, or other persons for whom records must be maintained, would be
required to report transactions electronically upon request by the SEC. The
record keeping and reporting requirements have been modified to minimize the
potential burdens upon broker-dealers under the proposal.
Transition Period
The reporting requirements contained in reproposed Rule
13h-1 would become effective 18 months after adoption of the final Rule.
* * *
Comments are due to the SEC on the reproposed large trader reporting system
by April 18, 1994. If you have any comments on the reproposal that you would
like the Institute to consider including in a letter on the reproposal, please
provide them to me by March 25, 1994. My direct number is 202/326-5824 and the
fax number is 202/326-5828.
Amy B.R. Lancellotta
Associate Counsel
4Attachment