Federal Register, Volume 76, Number 149, August 3, 2011, Pages 46595-47054 Page: 47,001
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Federal Register/Vol. 76, No. 149 /Wednesday, August 3, 2011 /Rules and Regulations
uniformly on all affected entities
(whether U.S. or non-U.S.).
New Rule 13h-1 is designed to
achieve the appropriate balance
between the Commission's goals of
monitoring the impact on the securities
markets of securities transactions by
large traders and assisting the
Commission's enforcement of the
federal securities laws, on the one hand,
and the effort to minimize the burdens
and costs associated with implementing
a large trader reporting rule.
The Commission believes that the
disclosure by registered broker-dealers
to regulators that would be achieved by
the large trader reporting rule would
promote efficiency by enabling the
Commission to go beyond the EBS
system, which permits investigations of
small samples of securities over a
limited period of time, and to instead
assist with large-scale investigations and
market reconstructions involving
numerous stocks during peak trading
volume periods. The Rule also would
enable the Commission to receive from
contemporaneous information on large
traders' trading activity much more
promptly than is currently the case with
the EBS system. With a system designed
specifically to help the Commission
reconstruct and analyze time-sequenced
trading data, the Commission could
more quickly investigate the nature and
causes of unusual market movements
and initiate investigations and
regulatory actions where warranted.
The Commission acknowledges that
the trading activity of certain large
traders also promotes market liquidity
in secondary securities markets. The
Commission also acknowledges that
participation in primary market
offerings may be affected by changes in
expectations about secondary market
liquidity and price efficiency. As
discussed above, however, the
Commission believes that Rule 13h-1
will enhance the Commission's efforts
to monitor the markets, in furtherance of
promoting efficiency and capital
formation and thereby bolstering
VII. Regulatory Flexibility Act
The Regulatory Flexibility Act
("RFA") 434 requires Federal agencies, in
promulgating rules, to consider the
impact of those rules on small entities.
Section 603(a) 435 of the Administrative
434 5 U.S.C. 601 et seq.
435 5 U.S.C. 603(a).
Procedure Act,436 as amended by the
RFA, generally requires the Commission
to undertake a regulatory flexibility
analysis of all proposed rules, or
proposed rule amendments, to
determine the impact of such
rulemaking on "small entities." 437
Section 605(b) of the RFA states that
this requirement shall not apply to any
proposed rule or proposed rule
amendment, which if adopted, would
not "have a significant economic impact
on a substantial number of small
Paragraph (a) of Rule 0-10 provides
that for purposes of the Regulatory
Flexibility Act, a small entity when
used with reference to a "person'" other
than an investment company means a
person that, on the last day of its most
recent fiscal year, had total assets of $5
million or less.439 In reference to a
broker-dealer, small entity means total
capital of less than $500,000 and not
affiliated with any person that is not a
small business or small organization.
Pursuant to Section 605(b), the
Commission believes that Rule 13h-1
and Form 13H will not have a
significant economic impact on a
substantial number of small entities.
In the Proposing Release, the
Commission requested comment on
whether proposed Rule 13h-1 and Form
13H would have a significant economic
impact on a substantial number of small
entities. While the Commission did
receive comment letters that discussed
the overall number of respondents that
would be affected by the proposed new
rule,440 the Commission did not receive
any comments that specifically
addressed whether Rule 13h-1 and
Form 13H would have a significant
economic impact on small entities.
Rule 13h-1 and Form 13H will
require self-identification by large
traders, which is a term that, as
discussed below, would implicate
persons and entities with the resources
and capital necessary to transact
securities in substantial volumes
436 5 U.S.C. 551 et seq.
437 Although Section 601(b) of the RFA defines
the term "small entity," the statute permits agencies
to formulate their own definitions. The Commission
has adopted definitions for the term small entity for
the purposes of Commission rulemaking in
accordance with the RFA. Those definitions, as
relevant to this rulemaking, are set forth in Rule 0-
10, 17 CFR 240.0-10. See Securities Exchange Act
Release No. 18451 (January 28, 1982), 47 FR 5215
(February 4, 1982) (File No. AS-305).
438 See 5 U.S.C. 605(b).
439 17 CFR 240.0-10(a). Investment companies are
small entities when the investment company,
together with other investment companies in the
same group of related investment companies, has
net assets of $50 million or less at the end of its
most recent fiscal year. 17 CFR 270.0-10(a).
440 See supra Section IV.C.
relative to overall market volume in
NMS securities.441 Specifically, the Rule
defines "large trader" as a person that
effects transactions in an "identifying
activity level" of: (1) 2 million shares,
or shares with a fair market value of $20
million, effected during a calendar day;
or (2) 20 million shares, or shares with
a fair market value of $200 million,
effected during a calendar month.
The Commission anticipates that the
types of entities that would identify as
large traders would include, for
example, broker-dealers, financial
holding companies, investment
advisers, and firms that trade for their
own account. The Commission does not
believe that any small entities would be
engaged in the business of trading, over
the course of the applicable measuring
period, in a volume that approaches the
threshold levels. Because the Rule
focuses on parent companies and is
designed to identify the largest market
participants by volume or fair market
value of trading, the Commission
believes that a large trader that trades in
such substantial volumes would
necessarily have considerable assets
(beyond the level of a small entity) to be
able to conduct such trading.
In addition, Rule 13h-1 will apply to
registered broker-dealers that serve large
trader customers. The Commission
believes that, given the considerable
volume in which a large trader as
defined in the Rule would effect
transactions, particularly in the case of
high-frequency traders, registered
broker-dealers servicing large trader
customers or broker-dealers that are
large traders themselves likely would be
larger entities, with total capital greater
than $500,000, and have systems and
capacities capable of handling the
trading associated with such accounts.
Further, because the trading capacities
of large traders will typically necessitate
the services of sophisticated broker-
dealers likely to be well capitalized
entities or affiliated with well
capitalized entities, the Commission
does not believe that any broker-dealer
that maintains large trader customers
would be "not affiliated with any
person that is not a small business or
small organization" under Rule 0-10.
For the foregoing reasons, the
Commission hereby certifies that,
pursuant to 5 U.S.C. 605(b), Rule 13h-
1 will not have a significant economic
impact on a substantial number of small
VIII. Statutory Authority
Pursuant to the Exchange Act and
particularly, Sections 13(h) and 23(a)
441 See supra text accompanying note 61.
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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.. (digital.library.unt.edu/ark:/67531/metadc52326/m1/413/: accessed September 25, 2017), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.