Federal Register, Volume 76, Number 149, August 3, 2011, Pages 46595-47054 Page: 46,980
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46980 Federal Register/Vol. 76, No. 149/Wednesday, August 3, 2011 /Rules and Regulations
nevertheless has actual knowledge that
a person is a large trader and the person
has not provided the broker-dealer with
a LTID, then the broker-dealer must
treat the person as an Unidentified
Large Trader under the recordkeeping
and reporting requirements of the Rule.
Further, in response to questions
regarding the scope of a broker-dealer's
obligations with respect to an
Unidentified Large Trader, the
Commission notes that the Rule does
not require a broker-dealer to stop doing
business with Unidentified Large
Traders. Rather, paragraph (d)(3) of the
Rule requires broker-dealers to maintain
information on Unidentified Large
Traders, and paragraph (e) requires
broker-dealers to report that information
to the Commission on request.206
Moreover, the Rule does not require a
broker-dealer to proactively or
affirmatively determine who is in fact a
large trader. A potential large trader is
required to assess for itself whether it
meets the identifying activity threshold
and thus qualifies as a large trader. The
Commission notes that in some cases
only the potential large trader would
know whether it in fact is a large trader
because certain types of transactions are
excluded from the identifying activity
level calculation. For example, a broker-
dealer may have a customer that
effected $22,000,000 worth of
transactions through that broker-dealer
in a given day, in excess of the
identifying activity threshold. If that
customer did not previously identify
itself as a large trader to the broker-
dealer by providing an LTID and
identifying the accounts to which it
applies, then the broker-dealer would
treat the customer as an Unidentified
Large Trader. However, the customer
may not, in fact, be required to register
as a large trader because the customer
may not have exercised investment
discretion over those transactions.
The Commission also is making
several modifications to paragraph (f)
from the proposal to clarify the
requirements of the safe harbor
provision contained in that paragraph.
As noted above, this safe harbor would
provide a broker-dealer with assurance
as to whether it has "reason to know"
that a person is a large trader, and
therefore whether the broker-dealer
must treat such person as an
Unidentified Large Trader. As a
practical matter, the Commission
expects that broker-dealers with
customers whose trading activities
206 The Rule does not address any other
obligation or potential liability of the broker-dealerunder any other provisions of the federal securities
laws.could exceed the identifying activity
level will likely elect to avail
themselves of the safe harbor. To qualify
under the safe harbor, the broker-dealer
must (i) implement policies and
procedures reasonably designed to
identify customers whose trading
activity exceeds the identifying activity
level, (ii) treat such customers as
Unidentified Large Traders for purposes
of the Rule, and (iii) notify such
customers of their potential obligation
to comply with the rule as a large trader.
Certain technical changes to
paragraph (f) have been made to clarify
these requirements. For example,
paragraphs (f)(1) and (2) now make clear
that if a customer's trading activity
exceeds the identifying activity level,
and the customer has not self-identified
as a large trader, the broker-dealer must
treat that customer as an Unidentified
Large Trader for purposes of the Rule.
In addition, paragraph (f)(1) has been
revised to clarify that-consistent with
the definition of Unidentified Large
Trader-the broker-dealer's policies and
procedures for measuring a customer's
trading activity need only consider
transactions effected in accounts carried
by the broker-dealer or through which
the broker-dealer executes
transactions.207
ATSs. One commenter,208 a broker-
dealer that operates an ATS, argued that
an ATS should not have a duty to
monitor its subscribers' compliance
with the large trader identification
requirements. The commenter argued
that, just as an exchange would not have
an obligation to monitor its broker-
dealer members' compliance with
proposed Rule 13h-1, a broker-dealer
that operates an ATS should not be
required to monitor whether its
subscribers are complying with the
requirements of the rule. The
Commission notes that the monitoring
requirements are only applicable to
registered broker-dealers that are large
traders, carry accounts for large traders
207 In addition, as proposed, paragraph (f) applied
to broker-dealers that are large traders, exercise
investment discretion over an account together with
a large trader or Unidentified Large Trader, carry an
account for a large trader or Unidentified Large
Trader, or effect transactions directly or indirectly
for a large trader where a non-broker-dealer carries
the account. Because the Commission is not
adopting the proposed requirement to disclose
account numbers or the corresponding
requirements on large traders to disclose their
LTIDs to other large traders, the Commission
believes it is appropriate to streamline the
introduction to paragraph (f) to refer to broker-
dealers generally, and to modify sub-paragraph (1)
to refer to transactions effected through an account
or a group of accounts carried by such broker-dealer
or through which such broker-dealer executestransactions, as applicable.
208 See GETCO Letter at 3.or Unidentified Large Traders, or effect
transactions on behalf of large trader
customers whose accounts are carried
by non-broker-dealers. If an ATS is not
operating in those capacities, then it is
not subject to the monitoring
requirements.
C. Foreign Entities
In the Proposing Release, the
Commission requested comment about
whether the proposed treatment of
foreign entities is appropriate and the
extent to which foreign statutes might
complicate compliance with the
proposed rule by foreign large
traders.209 In addition, the Commission
solicited comment concerning whether
the proposed rule would have any
unintended negative consequences for
the U.S. markets.210 The Commission
received a number of comments, both
general and specific, on these topics.211
One commenter expressed concern with
the broad definition of "large trader"
applying to non-U.S. entities, and
suggested that the Commission modify
the proposed rule to impose
recordkeeping and reporting
requirements solely on registered
broker-dealers.212 The Commission
believes that limiting the definition of
"large trader" in the suggested manner
would be inconsistent with the
legislative intent behind Section 13(h),
as evidenced by the plain language of
the statute.213 The statute contemplates
that the Commission would be able to
identify all persons who are large
traders, not just large traders who are
U.S. entities. Accordingly, the Rule
requires a foreign entity that is a large
trader to comply with the identification
requirements of paragraph (b) of the
Rule. With respect to the recordkeeping
and reporting requirements, however,
the Commission notes that paragraphs
(d) and (e) of the Rule, concerning
209 See Proposing Release, supra note 3, 75 FR at
21473.
210 See id. at 21482.
211 See, e.g., European Banking Federation and
Swiss Bankers Association Letter at 2-5 and SIFMA
Letter at 12-13.
212 See European Banking Federation and Swiss
Bankers Association Letter at 3.
213 Section 13(h)(1) in pertinent part provides that
each large trader shall: (A) Provide such
information to the Commission as the Commission
may by rule or regulation prescribe as necessary or
appropriate, identifying such large trader and all
accounts in or through which such large trader
effects such transactions; and (B) identify, in
accordance with such rules or regulations as the
Commission may prescribe as necessary or
appropriate, to any registered broker or dealer by or
through whom such large trader directly or
indirectly effects securities transactions, such large
trader and all accounts directly or indirectly
maintained with such broker or dealer by such largetrader in or through which such transactions are
effected.
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United States. Office of the Federal Register. Federal Register, Volume 76, Number 149, August 3, 2011, Pages 46595-47054, periodical, August 3, 2011; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc52326/m1/392/: accessed April 24, 2024), University of North Texas Libraries, UNT Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.