Risk Alert Focuses on “Large Trader” Disclosure, Reporting and Recordkeeping Duties

Rule 13h‑1 (Rule) under the Securities Exchange Act of 1934 sets forth identification, filing, recordkeeping and reporting requirements for market participants that conduct significant trading activity – known as “large traders” – and the broker-dealers through which they trade. In 2011, the SEC adopted the Rule to assist it with identifying and collecting data on large traders. The SEC uses the data it collects “to assess the impact of large trader activity on the securities markets, to reconstruct trading activity following periods of unusual market volatility, and to analyze significant market events for regulatory purposes,” according to the 2011 rule release. The SEC’s Division of Examinations (Division) – formerly the Office of Compliance Inspections and Examinations, or OCIE – recently issued a risk alert (Risk Alert) to assist investment advisers and broker-dealers with enhancing their compliance policies and procedures with respect to their obligations under the Rule and to remind broker-dealers of their upcoming reporting requirements under the Consolidated Audit Trail. The Risk Alert advises registrants “to thoroughly review and, where appropriate, amend their supervisory and compliance policies and procedures to ensure compliance with the Rule.” This article provides an overview of the Rule and reviews the Division’s findings and recommendations. See our coverage of other risk alerts on private fund managers; coronavirus pandemic compliance risks; transition from LIBOR; Regulation Best Interest and Form CRS; electronic messaging; the cash solicitation rule; best execution; fees and expenses; the advertising rule; common examination deficiencies; custody; cybersecurity; business continuity and disaster recovery plans; and social media.

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