Large Trader Supporting Statement

PAPERWORK REDUCTION ACT SUBMISSION
Rule 13h-1: Large Trader Reporting System

SUPPORTING STATEMENT
A.

Justification
1.

Need For Information Collection

Rule 13h-1 and Form 13H under Section 13(h) of the Securities Exchange Act of
1934 (“Exchange Act”) establish a large trader reporting regime. The rule is intended to
assist the Commission in identifying and obtaining certain baseline trading information
about traders that conduct a substantial amount of trading activity, as measured by
volume or market value, in the U.S. securities markets. In essence, a “large trader” is
defined as a person whose transactions in national market system (“NMS”) securities
equal or exceed (i) two million shares or $20 million during any calendar day, or (ii) 20
million shares or $200 million during any calendar month. The large trader reporting rule
is designed to facilitate the Commission’s ability to assess the impact of large trader
activity on the securities markets, to reconstruct trading activity, and to analyze
significant market events for regulatory purposes. It also should enhance the
Commission’s ability to detect and deter fraudulent and manipulative activity and other
trading abuses, and should provide the Commission with a valuable source of useful data
to study markets and market activity.
The identification, recordkeeping, and reporting requirements will provide the
Commission with a mechanism to identify large traders and their affiliates, accounts, and
transactions. Specifically, Rule 13h-1 will require large traders to identify themselves to
the Commission and make certain disclosures to the Commission on Form 13H. Upon
receipt of Form 13H, the Commission will issue a unique identification number to the
large trader,1 which the large trader will then provide to its registered broker-dealers.
Registered broker-dealers will be required to maintain transaction records for each large
trader, and will be required to report that information to the Commission upon request.
Finally, certain registered broker-dealers subject to the Rule will be required to perform
limited monitoring of their customers’ accounts for activity that may trigger the large
trader identification requirements of Rule 13h-1.

1

The unique identification number would be called a Large Trader Identification
Number or “LTID.”

2.

Purpose of, and Consequences of Not Requiring, the Information
Collection

In light of the dramatic changes to the securities markets, including increased
volumes, volatility, and the growing prominence of large traders, the Commission has
adopted a large trader reporting rule. The information collection is necessary to enhance
the Commission’s ability to identify large market participants, collect information on
their trading, and analyze their trading activity. This information will allow the
Commission to more effectively and efficiently monitor the impact of large trader activity
on the securities markets.
3.

Role of Improved Information Technology and Obstacles to Reducing
Burden

Rule 13h-1 will require large traders to self-identify to the Commission and
inform their broker-dealers of their unique identification number and all accounts to
which it applies. In addition, the rule will impose recordkeeping, reporting, and
monitoring requirements on registered broker-dealers. The Commission believes that
Rule 13h-1 will enhance the Commission’s ability to obtain electronic data concerning
the trading activity of large traders in an efficient manner utilizing an existing electronic
reporting system, as discussed below. Moreover, the Commission believes that
improvements in telecommunications and data processing technology may reduce any
burdens associated with Rule 13h-1.
4.

Efforts To Identify Duplication

The Commission, pursuant to Rule 17a-25,2 currently collects transaction data
from registered broker-dealers through the Electronic Blue Sheets (“EBS”) system to
support its regulatory and enforcement activities. The Commission uses the EBS system
to obtain securities transaction information to: (1) assist in the investigation of possible
federal securities law violations, primarily involving insider trading or market
manipulation; and (2) conduct market reconstructions. The EBS system can be
inefficient, however, for conducting large-scale investigations and market reconstructions
involving numerous stocks during peak trading volume periods in large part because the
EBS system does not collect critical information such as the time of the trade or the
identity of the trader. To address this limitation with respect to large traders, the
Commission believes that its large trader rule supplements the existing EBS system. The
rule would not be duplicative of the existing EBS system because it would add two new
fields, the time of the trade and the identity of the large trader, to the system.
5.

Effects on Small Entities

The rule requirements will have minimal, if any, effect on small entities. Among
other things, the rule will apply to “large traders,” which is a term that captures persons
2

See 17 CFR 240.17a-25.

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and entities with the resources and capital necessary to effect transactions in securities in
substantial volumes relative to overall market volume in securities. 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. Further, for purposes of determining whether a person effects the requisite
amount of transactions in NMS securities to meet the definition of “large trader,”
paragraph (a)(6) of the rule excludes a limited set of transactions from the term
“transaction” and the requirements of the rule in order to exempt infrequent trades that
might otherwise trigger identification based on a single transaction.
In addition, the rule will apply to registered broker-dealers that serve large trader
customers. Given the considerable volume in which a large trader 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
will be larger entities that have systems and capacities capable of handling the trading
associated with such accounts. Accordingly, the Commission believes that no small
entities will be affected by the rule.
6.

Consequences of Less Frequent Collection

Large traders would self-identify to the Commission on Form 13H through an
initial filing that would be supplemented by mandatory annual updates. If any of the
information contained in a Form 13H filing becomes inaccurate for any reason, large
traders will be required to file an amended Form 13H. However, rather than file
whenever any information needs to be changed, the rule only requires that amendments
be filed on a quarterly basis. Separately, large trader trading data would be collected by
the Commission from broker-dealers upon request on an as-needed basis. Together, the
collection of this information would facilitate the Commission’s ability to identify large
traders, assess the impact of large trader activity on the securities markets, to reconstruct
their trading activity, and analyze significant market events for regulatory purposes. Less
frequent collection of this information would undermine the purposes of the rule.
7.

Inconsistencies With Guidelines In 5 CFR 1320.5(d)(2)

The collection of information would not be inconsistent with 5 CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

All Commission rule proposals are published in the Federal Register for public
comment. The comment period for the release that discussed proposed Rule 13h-1 was
60 days.3 The Commission received 87 comment letters on the proposal from investment
advisers, broker-dealers, institutional and individual investors, industry trade groups, and
other market participants. A number of these comment letters addressed PRA-related
issues and are discussed below.
3

See Securities Exchange Act Release No. 61908 (Apr. 14, 2010); 75 FR 21456
(Apr. 23, 2010) (File No. S7-10-10).
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There were 9 commenters4 that believed the rule might be unduly burdensome
based upon their understanding of how the rule might work. Some commenters stated
that, in terms of large traders: 1) the large trader estimate of 400 large traders appeared to
be underestimated;5 and 2) the 20 hour initial burden estimate for calculating whether
trading activity qualifies as triggering the large trader threshold, completing the initial
Form 13H, obtaining an LTID from the Commission, and informing its registered brokerdealers and other entities of its LTID and the account to which it applies, was
underestimated.6 In terms of broker-dealers, one commenter stated that the broker-dealer
estimate of 300 broker-dealers was underestimated and that therefore the ongoing
monitoring burden of 4,500 burden hours/year was underestimated;7 and 2) the initial
broker-dealer recordkeeping costs of 133,500 burden hours was underestimated.8

4

See Letter to Elizabeth M. Murphy, Commission from Stuart J. Kaswell,
Executive Vice President & Managing Director, General Counsel, Managed
Funds Association, dated June 16, 2010 (“MFA Letter”); Letter to Elizabeth M.
Murphy, Commission, from Lucy Williams, Group Compliance Director,
Prudential PLC, dated June 22, 2010 (“Prudential Letter”); Letter to Elizabeth M.
Murphy, Commission, from Jennifer S. Choi, Associate General Counsel,
Investment Adviser Association, dated June 22, 2010 (“IAA Letter”), Letter to
Elizabeth M. Murphy, Commission, from Manisha Kimmel, Executive Director,
Financial Information Forum, dated June 22, 2010 (“FIF Letter”); Letter to
Elizabeth M. Murphy, Commission, from Anne Tuttle, EVP and General Counsel,
Financial Engines, dated June 22, 2010 (“Financial Engines Letter”); Letter to
Elizabeth M. Murphy, Commission, from Karrie McMillan, General Counsel,
Investment Company Institute, dated June 22, 2010 (“ICI Letter”); Letter to
Elizabeth M. Murphy, Commission, from Steven Hoffman, Vice President and
Counsel, Wellington Management Company, LLP, dated June 22, 2010
(“Wellington Letter”); Letter to Elizabeth M. Murphy, Commission, from Lisa J.
Bleier, Vice President and Senior Counsel, American Bankers Association, dated
June 22, 2010 (“ABA Letter”); and Letter to Elizabeth M. Murphy, Commission,
from Ann L. Vlcek, Managing Director and Associate General Counsel,
Securities Industry and Financial Markets Association, dated June 24, 2010
(“SIFMA Letter”).

5

See MFA and SIFMA Letters.

6

See Prudential, IAA, ICI, Financial Engines, Wellington, and ABA Letters.

7

See FIF Letter.

8

See SIFMA Letter.

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a.

Large Traders
i.

Estimate of Number of Large Traders

One commenter who stated that the large trader estimate of 400 large traders was
underestimated stated that the proposed thresholds may inadvertently capture more than
400 large traders.9 A second commenter stated that the number was underestimated and
that 400 option traders alone would qualify as large traders.10
Notably, the 400 estimate reflects the filing requirement provisions in Rule 13h1(b)(3), which focus, in more complex organizations, on the parent company of the
entities that employ or otherwise control the individuals that exercise investment
discretion. As noted in the proposing release for the rule, the purpose of this focus is to
narrow the number of persons that will need to self-identify and register on Form 13H as
“large traders,” thereby allowing the Commission to identify the primary institutions that
conduct a large trading business. Further, with regards to options traders, most, if not all,
large trader control groups, as a natural consequence of their substantial trading and
hedging activities, would involve persons that are active across a broad array of financial
products trading in multiple venues, including cash equities and derivatives. The
Commission’s estimate takes into account this fact and does not separately count the
number of subsidiary traders that conduct an options business (or any other securities
business) as separate from the number of large trader complexes.
Accordingly, the Commission continues to believe that the large trader estimate of
400 large traders is appropriate. This estimate reflects the proposed rule’s focus on
reporting at the parent company level.
ii.

Large Trader Initial Burden Estimate

Several commenters believed that the 20 hour initial burden estimate for large
traders was underestimated. Three commenters stated that large trader organizations may
need to develop systems in order to report at the parent level.11 This burden, one
commenter stated, would be increased for firms with complicated corporate structures.12
In addition, this commenter noted that compliance with the rule would be more difficult
for investment advisers in that they are required to maintain information barriers between
different affiliates in their organization.13 Another commenter noted that not all the Form

9

See MFA Letter.

10

See SIFMA Letter.

11

See Prudential, IAA, and ICI Letters.

12

See IAA Letter.

13

See id.

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13H required data would be on the premises of the large trader and that, even if it were,
this data would not be in automated form that is amenable to reporting on Form 13H.14
In connection with the potential need to develop new systems, five commenters
stated that the Form 13H requirement to track account numbers would be unduly
burdensome. These commenters noted that some large traders such as investment
advisers can often have discretionary authority over hundreds of thousands of accounts.15
These commenters stated that the requirement to track and update these accounts would
be unduly burdensome.
The Commission addressed these comments by not adopting the proposed
requirement to report account numbers on Form 13H. Instead, the Commission is
requiring the large trader to disclose: (1) the names of broker-dealers with whom it has
an account and (2) the types of brokerage services provided by those brokers.
As discussed in the adopting release, based on the comments received, the
Commission agrees that its proposal underestimated the burden hour estimates for large
traders to report account numbers on Form 13H. In particular, the Commission based its
initial burden estimate for reporting account numbers on its understanding that all large
traders have systems in place to readily track and manage their brokerage account
numbers. While some affected entities are capable of doing so, this may not be the case
for all large traders, particularly investment advisers, who may rely on software to
intermediate the process of communicating with their brokers. For these entities, the
information may not be in a form that is amenable to reporting on the Form without the
use of third-party software. As noted by one commenter, however, many traders already
maintain a list of approved broker-dealers in a readily accessible format, as they maintain
approved broker-dealer lists in the ordinary course of business and have processes for
adding and deleting broker-dealers as well as reviewing trades with a broker-dealer not
on the approved list.16
Though the universe of broker-dealers that will be reported on the Form will
likely be smaller than the number of brokerage accounts that would have been reported,
the Commission based its initial burden estimate for reporting account numbers on its
understanding that large traders had electronic access to this information in a format that
could be uploaded to Form 13H. Some commenters, particularly investment advisers,
indicated this may not be the case for some large traders.

As discussed in the adopting release, the Commission believes that requiring the
reporting of a list of broker-dealers used, rather than all accounts held by each brokerdealer, brings the compliance burden for many large traders that are investment advisers
14

See ICI Letter.

15

See, e.g., Wellington, ICI, and Financial Engines Letters.

16

See ICI Letter.

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in line with the Commission’s original estimate of burdens on large traders for this
provision generally. Consequently, the Commission noted that its estimated burdens on
large traders under the Form are now in line with the requirements of the adopted Rule
and Form.
a.

Broker-Dealers
i.

Estimate of Number of Broker-Dealers and
Estimate of Ongoing Monitoring Burden

One commenter stated that the Commission’s broker-dealer estimate of 300
broker-dealers was underestimated.17 This commenter stated that the estimate should be
closer to over 1,500 broker-dealers because there are many introducing brokers that
would be affected at some level by the rule and would therefore incur both initial and
ongoing costs. Thus, the commenter’s assertion was based on a belief that, though the
rule itself would not specifically require it, carrying broker-dealers might, in turn, require
their introducing broker correspondents to establish policies and procedures to collect
information on Unidentified Large Traders required by the rule to assist the clearing
firms in complying with the requirements of the Rule that are applicable to them.
The Commission addressed this commenter’s concern by clarifying, in the
adopting release, the monitoring safe harbor provision of Rule 13h-1(f) and the limited
scope intended of “other identifying information” that a broker-dealer would need to
consider. The additional discussion in the adopting release on the intended scope of the
monitoring safe harbor clarifies the limited nature of the monitoring duties and addresses
the concerns raised by the commenter that the requirements are less pervasive than the
commenter thought might be possible. Notably, the Commission reaffirmed that a
broker-dealer’s safe harbor policies and procedures would not need to take into account
identifying information on the books and records of another broker-dealer.
In addition, the Commission believes that large traders, whose aggregate NMS
securities transactions equal or exceed the identifying activity level, require sophisticated
trade-processing capacities. Not all broker-dealers will have as customers, or will be in
the business of effecting trades for, large traders. Accordingly, as clarified in the
adopting release, all such entities are not expected to be impacted by the monitoring
provisions of Rule 13h-1(f).
As discussed in the adopting release, the Commission’s estimate of 300 brokerdealers was based on broker-dealer responses to FOCUS report filings with the
Commission, and reflected the number of broker-dealers that the Commission believes
would be reasonably likely to carry accounts for large traders or that would be reasonably
likely to effect transactions directly or indirectly for a large trader where a non-brokerdealer carries the account.

17

See FIF Letter.

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For these reasons, the Commission believes that its original burden estimate is
appropriate. For example, one commenter, a large investment management firm and
likely large trader, reported that it currently has “approximately 250 broker-dealers on
our approved list for executing equity transactions.”18 This number is lower than the
Commission’s estimate of 300 affected broker-dealers.
ii.

Estimate of Initial Broker-Dealer Recordkeeping
Costs

One commenter stated that the build-out costs to update the EBS system would
exceed the Commission’s estimate of 133,500 burden hours/year.19 This commenter also
stated that one of its member firms estimated it would cost $3,000,000-$4,000,000 to
build out the EBS system as proposed by the rule, though the commenter did not provide
any basis for the estimate or assumptions that were made with regards to the collection,
reporting, and monitoring requirements of the Rule. This figure, which is an estimate of
one effected entity that represents a single data point, is significantly higher than the
Commission’s estimate of $106,060.
This commenter stated that one of the major costs with implementing the
recordkeeping requirement is that some broker-dealers do not have access to execution
times. These broker-dealers, the commenter states, would need to devote considerable
resources to updating EBS and gathering, processing, reviewing, and transmitting
information.
Commenters did not express particular concern with the proposed requirement to
record and report LTIDs, but rather focused on the transmission of execution time from
the execution-facing systems to the clearing-facing systems which traditionally are
utilized in the EBS process. Broker-dealers will face different challenges in capturing
and reporting execution time information, depending on the sophistication of and
resources they have previously devoted to their recordkeeping systems. Relevant factors
might include, for example, the size of the entity, the nature, flexibility, and extent of
their existing systems, and the business and other regulatory drivers for their
technological strategies. As such, the Commission’s estimate involves an average
calculation that accommodates a broad spectrum of broker-dealer EBS systems and
considers that different firms would be affected to different degrees, including the
possibility that some firms might spend more than the average. However, not all brokerdealers will face complexities involved with modifying non-integrated legacy systems to
capture execution time, and some broker-dealers will not need to devote as many
resources to those efforts as will others. For example, one commenter that represents a
group that focuses on technological aspects of securities regulation expressed concern
with the proposed monitoring requirements but did not address the costs associated with
modifications to the EBS system. Rather, the commenter believed that broker-dealers
could reasonably modify their systems to capture execution time within the proposed six18

See Wellington Letter.

19

See SIFMA Letter.

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month implementation period.20 The Commission’s estimate is based on an aggregated
figure that recognizes that different broker-dealers will need to invest different levels of
resources based on the needs of their particular technology.
Accordingly, the Commission continues to believe that its initial 133,500 hour
burden/year estimate for the one-time burden on registered broker-dealers to modify their
existing EBS systems is reasonable and appropriate.21 This figure assumes that, on
average, each broker-dealer would have to devote 445 burden hours in order to develop,
program, and test the enhancements to their existing systems to capture and report the
additional fields of information (LTIDs and execution time).
9.

Payment or Gift to Respondents

Not applicable.
10.

Assurance of Confidentiality

The information collection under Rule 13h-1 will be considered confidential
subject to the limited exceptions provided by the Freedom of Information Act.22
11.

Sensitive Questions

Not applicable. Questions of a sensitive nature are not asked.
12.

Estimate of Respondent Reporting Burden

The Commission estimates that the “collection of information” requirements
contained in Rule 13h-1 would apply to approximately 400 large traders23 and 300
registered broker-dealers.24
20

See FIF Letter.

21

The Commission notes that its estimate is in line with the burden estimates from
Rule 17a-25.

22

See 5 U.S.C. 552 and 15 U.S.C. 78m(h)(7).

23

While the Commission is not aware of a database that would allow the
Commission to calculate the precise number of persons that would meet the
definition of large trader, based on the Commission’s experience in this area, the
Commission estimates that there would be 400 large traders subject to the
proposed rule. The estimated number of large traders accounts for the filing
requirement provision contained in Rule 13h-1(b)(3), which encourages large
traders to report at the parent company level as opposed to reporting at the
individual subsidiary level.

24

The Commission estimate of 300 affected broker-dealers is based on brokerdealer responses to FOCUS report filings with the Commission.

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a.

Large Traders

Under the rule, large traders would be required to identify themselves to the
Commission by filing a Form 13H and submitting annual updates, as well as updates on a
quarterly basis if necessary to correct information that becomes inaccurate. Additionally,
each large trader would be required to identify itself to each registered broker-dealer
through which it effects transactions.
i.

Initial Filing of Form 13H and Identifying as a Large
Trader

The Commission estimates that the initial burden for a respondent to comply with
the filing requirements would be 20 burden hours.25 This figure includes the time to
calculate whether its trading activity qualifies it as a large trader, complete the initial
Form 13H with all required information, obtain a LTID from the Commission, and
inform its registered broker-dealers and other entities of its LTID and the accounts to
which it applies. In addition, this figure takes into account the Commission’s
understanding that large traders currently maintain systems that capture their trading
activity. Therefore, the Commission believes that these existing systems would be
sufficient without further modification to enable a large trader to determine whether it
effects transactions for the purchase or sale of any NMS security for or on behalf of
accounts over which it exercises investment discretion in an aggregate amount equal to or
greater than the identifying activity level. Accordingly, the Commission estimates that
the one-time aggregate burden for large traders would be approximately 8,000 burden
hours.26
ii.

Annual and Quarterly Reporting

On an ongoing basis, a respondent may have to file interim updates, and would
have to update its Form 13H annually. The Commission estimates that the ongoing
annualized burden for a respondent to fulfill its reporting obligations would be
approximately 17 burden hours.27 This estimate is based on the varied characteristics of
25

The Commission derived this burden estimate from the following estimate, which
is based on the Commission’s experience with and burden estimates for other
existing reporting systems, including Rule 13f-1: (Compliance Manager at 3
hours) + (Compliance Attorney at 7 hours) + (Compliance Clerk at 10 hours) = 20
burden hours.

26

The Commission derived this aggregate burden estimate from the following: (20
initial burden hours) x 400 respondents = 8,000 total initial burden hours.

27

The Commission derived this burden estimate from the following estimates,
which are based on the Commission’s experience with and burden estimates for
other existing reporting systems, including Rule 13f-1 and Rule 17a-25:
(Compliance Manager at 2 hours) + (Compliance Attorney at 5 hours) +
(Compliance Clerk at 10 hours) = 17 burden hours. Rule 17a-25 requires broker- 10 -

large traders and the nature and scope of the items that would be disclosed on Form 13H
that would require updating and is based on the assumption that large traders would file
one required annual update and three quarterly updates when information contained in the
Form 13H becomes inaccurate. Accordingly, the Commission estimates that the ongoing
annualized burden for large traders for complying with the rule would be 6,800 burden
hours for all large trader respondents.28
iii.

Total Large Trader Burden

The total annual burden for all large trader respondents will be 8,000 hours in the
first year, and 6,800 hours for each subsequent year.
For purposes of submitting this request to OMB, the Commission has averaged
these hourly burdens to determine the estimated annual burden hours required to comply
with proposed Rule 13h-1. Accordingly, based on the Commission’s estimates for the
initial annual and ongoing annual burden hours the total average annual burden hours
required to comply with Rule 13h-1 will be 7,200 hours over a three year period. The
Commission derived the estimated total hours figure from the following: (8,000 hours
(aggregate initial annual burden) + (6,800 hours (aggregate ongoing annual burden) x 2
years)) / 3 years.
b.

Registered Broker-Dealers

Under the rule, registered broker-dealers would be required to comply with
recordkeeping, monitoring, and reporting requirements.
i. Recordkeeping
The Commission believes that the burden of the rule for individual registered
broker-dealers would likely vary due to differences in their recordkeeping systems. The
Commission estimates that all registered broker-dealers that either have a client base that
includes large traders and Unidentified Large Traders29 or that are themselves large
traders, would be required to make modifications to their existing systems to capture the
additional data elements that are not currently captured by systems that are used in
connection with the existing EBS system, including, for example, the LTID number.

dealers to disclose information that is very similar in scope and character to the
information required under the proposed rule.
28

The Commission derived this aggregate burden estimate from the following: (17
annual burden hours) x 400 respondents = 6,800 total ongoing burden hours.

29

Rule 13h-1(a)(9) defined the term “Unidentified Large Trader” to mean each
person who has not complied with the identification requirements of paragraphs
(b)(1) and (b)(2) of the rule that a registered broker-dealer knows or has reason to
know is a large trader.

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1. Initial
The Commission estimates that the one-time, initial burden for a respondent to
conduct system development, including re-programming and testing of the systems to
comply with the rule, would be 445 burden hours.30 This figure is based on the estimated
number of hours for initial system development and implementation, including software
development, taking into account the fact that new data elements are required to be
captured and must be available for reporting to the Commission as of the morning
following the day on which the transactions were effected. Because broker-dealers
already capture, pursuant to Rule 17a-25 and the existing EBS system, most of the data
that Rule 13h-1 would capture, the Commission does not expect broker-dealers to incur
any hardware costs. Accordingly, the Commission estimates that the aggregate one-time,
initial burden to comply with the rule would be 133,500 hours.31
2. Ongoing
The Commission believes that the ongoing annualized expense for the
recordkeeping requirement for registered broker-dealers would not result in a burden, as
registered broker-dealers already are required to provide to the Commission almost all of
the information for all of their customers pursuant to Rule 17a-25 under the Exchange
Act. Once a registered broker-dealer’s system is revised to capture the additional fields
of information, the Commission does not believe that the additional fields would result in
any ongoing annualized expense beyond what broker-dealers already incur under Rule
17a-25 and the existing EBS system.
3. Total Recordkeeping Burden
The total annual recordkeeping burden will be 133,500 hours in the first year, and
0 hours for each subsequent year.
30

The Commission derived the total estimated burden from the following estimates,
which are based on the Commission’s experience with, and burden estimates for,
other existing reporting systems including Rule 13f-1 and Rule 17a-25:
(Computer Ops Dept. Mgr. at 30 hours) + (Sr. Database Administrator at 25
hours) + (Sr. Programmer at 150 hours) + (Programmer Analyst at 100 hours) +
(Compliance Manager at 20 hours) + (Compliance Attorney at 10 hours) +
(Compliance Clerk at 20 hours) + (Sr. Systems Analyst at 50 hours) + (Director of
Compliance at 5 hours) + (Sr. Computer Operator at 35 hours) = 445 burden
hours. As noted in the release, the Commission acknowledges that, in some
instances, multiple LTIDs may be disclosed to a registered broker-dealer for a
single account. Therefore, our hourly burden estimate factors in the cost that
registered broker-dealers would need to develop systems capable of tracking
multiple LTIDs.

31

The Commission derived this estimate from the following: (445 initial burden
hours) x 300 respondents = 133,500 total initial burden hours.

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For purposes of submitting this request to OMB, the Commission has averaged
these hourly burdens to determine the estimated annual burden hours required to comply
with the proposed rule. Accordingly, based on the Commission’s estimates for the initial
annual and ongoing annual burden hours the total average annual burden hours required
to comply with Rule 13h-1 will be 44,500 hours over a three year period. The
Commission derived the estimated total hours figure from the following: (133,500 hours
(aggregate initial annual burden) + (0 hours (aggregate ongoing annual burden) x 2
years)) / 3 years = 44,500.
ii. Monitoring
In addition to requiring registered broker-dealers to maintain records of account
transactions, the rule also requires certain registered broker-dealers to perform limited
monitoring of customers’ trading. In particular, the rule will require broker-dealers to
monitor to help ensure compliance by large traders with the self-identification
requirements of the rule. Paragraph (e) of the rule will require certain broker-dealers to
maintain and report to the Commission certain information about all transactions effected
by Unidentified Large Traders.
The Commission acknowledges that the duty to monitor would impose burdens
on broker-dealers. To reduce the monitoring burden, the Commission has a safe harbor
provision for the monitoring duty. Specifically, registered broker-dealers would be
deemed to not know or to have no reason to know that a person is an Unidentified Large
Trader if: (1) it does not have actual knowledge that a person is a large trader; and (2) it
has established policies and procedures reasonably designed to identify persons who have
not complied with the identification requirements of the rule, treats any such person as an
Unidentified Large Trader, and informs such person of its potential obligations under the
rule.32 For purposes of determining whether a registered broker-dealer has reason to
know that a person is large trader, a registered broker-dealer need take into account only
transactions in NMS securities effected by or through such broker-dealer.
1. Initial
The Commission estimates that the one-time, initial burden for a respondent to
comply with the monitoring requirements by establishing a compliance system to detect
and identify Unidentified Large Traders as well as monitoring in the first year would be
70 burden hours.33 This figure is based on the estimated number of hours to establish
32

See Rule 13h-1(f).

33

The Commission derived the estimated total burden from the following estimates,
which are based on the Commission’s experience with, and burden estimates for,
other existing reporting systems including Rule 13f-1: (Sr. Programmer at 10
hours) + (Compliance Manager at 10 hours) + (Compliance Attorney at 10 hours)
+ (Compliance Clerk at 20 hours) + (Sr. Systems Analyst at 10 hours) + (Director
of Compliance at 2 hours) + (Sr. Computer Operator at 8 hours) = 70 burden
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policies and procedures reasonably designed to assure compliance with the identification
requirements of the rule. Accordingly, the Commission estimates that the aggregate
initial, one-time burden to comply with the monitoring requirements is 21,000 hours.34
2. Ongoing
The Commission estimates that the ongoing annualized burden to a respondent for
the monitoring requirements of the rule, including the requirement to inform Unidentified
Large Traders of their potential obligations under the rule, would be approximately 15
burden hours per year.35 Accordingly, the Commission estimates that the ongoing
annualized burden for all respondents for the monitoring requirements would be 4,500
burden hours.36
3. Total Monitoring Burden
The total annual monitoring burden will be 21,000 hours in the first year, and
4,500 hours for each subsequent year.
For purposes of submitting this request to OMB, the Commission has averaged
these hourly burdens to determine the estimated annual burden hours required to comply
with the rule. Accordingly, based on the Commission's estimates for the initial annual
and ongoing annual burden hours the total average annual burden hours required to
comply with Rule 13h-1 will be 10,000 hours over a three year period. The Commission
derived the estimated total hours figure from the following: (21,000 hours (aggregate
initial burden) + (4,500 hours (aggregate ongoing annual burden) x 2 years)) / 3 years =
10,000.
iii. Reporting
The rule also would require registered broker-dealers to report large trader
transactions to the Commission upon request. The Commission believes that this
collection of information would not involve any substantive or material change in the
hours. Rule 13f-1, like Rule 13h-1, requires monitoring of a certain trading
threshold.
34

The Commission derived this estimate from the following: (70 initial burden
hours) x 300 respondents = 21,000 total initial burden hours.

35

The Commission derived the estimated total burden from the following estimates,
which are based on the Commission’s experience with, and burden estimates for,
other existing reporting systems including Rule 13f-1 and Rule 17a-25:
(Compliance Attorney at 15 hours) = 15 burden hours. Rule 13f-1, like Rule 13h1, requires monitoring of a certain threshold and, upon reaching that threshold,
disclosure of information.

36

The Commission derived this estimate from the following: (15 annual burden
hours) x 300 respondents = 4,500 total ongoing burden hours.

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burden that already exists as part of registered broker-dealers providing transaction
information to the Commission in the normal course of business, particularly in
connection with the existing EBS system.37 However, the Commission notes that the
information would need to be available for reporting to the Commission on a next-day
basis, versus the 10 business day period that is generally associated with an EBS request
for data.38 Nevertheless, once the electronic recordkeeping system is in place to capture
the information, where such system is specifically designed and built to furnish the
information within the next-day time period specified in the proposal, the Commission
believes that the provision of such information to the Commission would result in
minimal additional burden. The Commission also clarified in the rule that, when it
requests large trader transaction data, broker-dealers must submit the information to the
Commission no later than the day and time specified in the request for transaction
information, which will normally be no earlier than the opening of business of the day
following such request, unless in unusual circumstances the same-day submission of
information is requested.
Although it is difficult to predict with certainty the Commission’s future needs to
obtain large trader data, taking into account the Commission’s likely need for data to be
used in market reconstruction purposes and investigative matters, the Commission
estimates that it would likely send 100 requests for large trader data per year to each
registered broker-dealer subject to the rule.39 The Commission estimates that it would
take a registered broker-dealer 2 hours to comply with each request, considering that a
broker-dealer would need to run the database query of its records, download the data file,
and transmit it to the Commission. Accordingly, the annual reporting hour burden for a
respondent is estimated to be 200 burden hours (100 requests x 2 burden hours/request =
200 burden hours).40 The annual aggregate annual reporting burden is estimated to be
37

See 17 CFR 240.17a-25.

38

See Securities Exchange Act Release No. 44494 (June 29, 2001), 66 FR 35836
(July 9, 2001) (File No. S7-12-00) (17a-25 adopting release).

39

Compared to the EBS system, where the Commission sent 5,168 electronic blue
sheets requests between January 2007 and June 2009, the Commission
preliminarily expects to send fewer requests for large trader data, in particular
because the Commission preliminarily expects that a request for large trader data
would be broader and encompass a larger universe of securities and a longer time
period than would be the case for the typically more targeted EBS requests it
sends to broker-dealers.

40

The Commission derived the estimated total annual burden based on the
Commission’s experience with, and burden estimates for, other existing reporting
systems, including Rule 17a-25. The Commission estimated that each brokerdealer who electronically responds to a request for data in connection with Rule
17a-25 and the EBS system spends 8 minutes per request. See Securities
Exchange Act Release No. 44494 (June 29, 2001), 66 FR 35836, 35841 (July 9,
2001) (S7-12-00). Unlike EBS, under Rule 13h-1, a broker-dealer would also be
required to report data on Unidentified Large Traders. The Commission therefore
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60,000 hours (200 annual burden hours x 300 respondents = 60,000 aggregate burden
hours).
c.

Total Broker-Dealer Burden

For the first year, the estimated aggregate annual burden hours for broker-dealers
to comply with the Rule 13h-1 are 214,500 hours. The Commission derived the
estimated total hours figure from the following: (133,500 hours (estimated total initial
burden for recordkeeping requirement) + 21,000 hours (estimated total initial burden for
the monitoring requirement) + 60,000 hours (estimated total burden for reporting) =
214,500 total burden hours).
For subsequent years, the estimated aggregate annual burden hours required to
comply with Rule 13h-1 are 64,500. The Commission derived the estimated total hours
figure from the following: (4,500 hours (estimated total ongoing burden for the
monitoring requirement) + 60,000 hours (estimated total burden for reporting) = 64,500
total burden hours).
For purposes of submitting this request to OMB, the Commission has averaged
these hourly burdens to determine the estimated annual burden hours required to comply
with the rule. Accordingly, based on the Commission's estimates for the initial annual
and ongoing annual burden hours of complying with Rule 13h-1, the total average
annualized burden hours are estimated to be 114,500 hours over a three year period. This
figure is derived from the following: (214,500 hours (aggregate initial annual burden) +
(64,500 hours (aggregate ongoing annual burden) x 2 years)) / 3 years).
13.

Estimate of Total Annualized Cost Burden

The Commission believes that compliance with the rule does not require any capital
or start up costs, or any recurring annual external operating and maintenance costs separate
from the wages, salaries, or fees represented in the estimated hourly burdens discussed
above.
14.

Estimate of Cost to Federal Government

There would be no additional costs to the Federal Government.
15.

Explanation of Changes in Burden

Not applicable. Rule 13h-1 would be a new rule.
believes that the time to comply with a request for data under the rule could take
longer than would a similar request for data under the EBS system, as a brokerdealer likely would take additional time to review and report information on any
Unidentified Large Traders, including the additional fields of information
required by paragraph (d)(3) of the rule.

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16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Explanation as to Why Expiration Date Will Not Be Displayed

We request authorization to omit the expiration date on the electronic version of
the form for design and IT project scheduling reasons. The OMB control number will be
displayed.
18.

Exceptions to Certification

Not applicable.
B.

Collection of Information Employing Statistical Methods

The collection of information does not employ statistical methods, nor would the
implementation of such methods reduce the burden or improve the accuracy of results.

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