Rule 13h-1 Supp Statement

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission for
Rule 13h-1: Large Trader Reporting Rule
A.

Justification
1.

Information Collection Necessity

Rule 13h-1 and Form 13H under Section 13(h) of the Securities Exchange Act of
1934 (“Exchange Act”) established a large trader reporting system. The system 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. 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
system is designed to facilitate the Commission’s ability 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. It also enhances the Commission’s ability to detect and deter fraudulent and
manipulative activity and other trading abuses, and provides the Commission with a
valuable source of useful data to study markets and market activity.
The identification, recordkeeping, and reporting system provides the Commission
with a mechanism to identify large traders and obtain additional information on their
trading activity. Specifically, Rule 13h-1 requires 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 issues a unique identification number to the large
trader, 1 which the large trader then provides to its registered broker-dealers. Registered
broker-dealers are required to maintain transaction records for each large trader, and are
required to report that information to the Commission upon request. In addition,
registered broker-dealers are required to adopt procedures to monitor their customers for
activity that would trigger the identification requirements of the rule.
2.

Information Collection Purpose and Use

In light of the dramatic nature of the securities markets and the prominence of
large traders, the Commission has established a large trader reporting system. 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 allows the Commission to more effectively and efficiently
monitor the impact of large trader activity on the securities markets.

1

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

3.

Consideration Given to Information Technology

Rule 13h-1 requires 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 imposes recordkeeping, reporting, and monitoring
requirements on registered broker-dealers. The Commission believes that Rule 13h-1
enhances the Commission’s ability to obtain electronic data concerning the trading
activity of large traders in an efficient manner utilizing existing electronic reporting
systems including the Commission’s EDGAR system for the submission of Form 13H.
Moreover, the Commission believes that improvements in telecommunications and data
processing technology reduce any burdens associated with Rule 13h-1.
4.

Duplication

The Commission, pursuant to Rule 17a-25, 2 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. Rule 13h-1 supplements the
existing EBS system by adding two fields to the system: the time of the trade and the
LTID number of the person exercising investment discretion over the trade. These two
fields make investigations and market reconstructions easier to conduct.
5.

Effect on Small Entities

The rule requirements have minimal, if any, effect on small entities. Among other
things, the rule applies to “large traders,” which is a term that implicates persons and
entities with the resources and capital necessary to transact securities in substantial
volumes relative to overall market volume in publicly traded securities. The Commission
does not believe that any small entities are engaged in the business of trading in NMS
securities in a volume that approaches the threshold levels. Additionally, 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 to
exempt certain small or infrequent traders who might trigger identification based on a
single transaction. 3 In addition, the rule applies to registered broker-dealers that serve
2

See 17 CFR 240.17a-25.

3

Further, the Commission has exempted by order certain additional transactions
from the rule’s definition of “transaction” for the purpose of determining whether
a person is a large trader. See Securities Exchange Act Release No. 66839 (April
20, 2012), 77 FR 25007 (April 26, 2012). In addition, the Commission provided
exemptive relief to certain equity option traders by allowing them to value equity
options trades by an alternative “premium paid” method when calculating whether
they met Rule 13h-1’s identifying activity level. See Securities Exchange Act
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large trader customers. Given the considerable volume in which a large trader effects
transactions, registered broker-dealers servicing large trader customers or broker-dealers
that are large traders themselves are larger entities that have systems and capacities
capable of handling the trading associated with such accounts. Accordingly, the
Commission estimates that no small entities are affected by the rule.
6.

Consequences of Not Conducting Collection

Large trader self-identification on Form 13H is collected with mandatory annual
updates and more frequent quarterly updates as necessary. Large trader trading data is
collected by the Commission from broker-dealers on an as-needed basis. The collection
of this information facilitates the Commission’s ability to identify large traders, assess the
impact of large trader activity on the securities markets, reconstruct their trading activity,
and analyze significant market events for regulatory purposes. Not collecting this
information would undermine the purposes of the rule.
7.

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

There are no special circumstances. This collection is consistent with the
guidelines in 5 CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

The required Federal Register notice with a 60-day comment period soliciting
comments on this collection of information was published. No public comments were
received.
9.

Payment or Gift

The respondents receive no payments or gifts.
10.

Confidentiality

The information collection under Rule 13h-1 is considered confidential subject to
the limited exceptions provided by the Freedom of Information Act. 4

Release No.76322 (October 30, 2015), 80 FR 68590 (November 5, 2015). In
effect, this exemptive relief also may exclude as large traders certain infrequent
traders who might trigger identification based on a single transaction or equity
options traders whose options transactions are unlikely to have a material impact
either on the options market or the underlying equities markets for the purposes of
Rule 13h-1.
4

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

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11.

Sensitive Questions

No information of a sensitive nature will be required under this collection of
information. The information collection collects personally identifiable information
(“PII”), to include sensitive PII that may include a Social Security Number, Tax Payer ID
Number, Name, Job Title, Telephone Number, Email Address, User ID, Work Address or
Fax Number. This information collection constitutes a system of record for purposes of
the Privacy Act and is covered under system of records notice (“SORN”) SEC-1,
Registration Statements Filed Pursuant to Provisions of the Securities Act of 1933,
Securities Exchange Act of 1934, Public Utility Holding Company Act of 1935, and
Investment Company Act of 1940;
https://www.sec.gov/about/privacy/sorn/secsorn1.pdf. In accordance with Section 208
of the E-Government Act of 2002, the agency has conducted a Privacy Impact
Assessment (“PIA”) of the EDGAR system, in connection with this collection of
information. The EDGAR PIA, published on January 29, 2016, is provided as a
supplemental document and is also available at https://www.sec.gov/privacy.
12.

Information Collection Burden

The “collection of information” contained in Rule 13h-1 applies to approximately
6,300 large traders 5 and 300 registered broker-dealers.
a.

Large Traders

Under Rule 13h-1, large traders are 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 is 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 initial burden for a respondent to comply with the requirements of Rule 13h-1
is 20 burden hours. 6 The initial internal cost of compliance is $5,615. 7 These figures

5

This estimate is based on the Commission’s experience receiving Forms 13H
since December 1, 2011.

6

This burden estimate is based on the Commission’s experience administering the
Rule, and is calculated as follows: (Compliance Manager at 3 hours) +
(Compliance Attorney at 7 hours) + (Paralegal at 10 hours) = 20 burden hours.

7

The Commission calculated this cost estimate as follows: (Compliance Manager
at $307 per hour for 3 hours) + (Compliance Attorney at $362 per hour for 7
hours) + (Paralegal at $216 per hour for 10 hours) = $5,615. All of the hourly
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include the time to calculate whether its trading activity qualifies it as a large trader,
become an EDGAR filer (if necessary), 8 complete the initial Form 13H with all required
information, obtain a LTID from the Commission, and inform its registered brokerdealers of its LTID and the accounts to which it applies. The Commission notes that the
actual burden for a large trader may vary widely depending on the size of its
organization, if any, and the number of broker-dealers with which it has an account.
Based on the Commission’s experience collecting Forms 13H in previous years,
the Commission estimates that approximately 600 large traders per year will be required
to identify themselves for the first time under Rule 13h-1.
Accordingly, the Commission estimates that the one-time aggregate burden for
large traders initially filing Form 13H is approximately 12,000 burden hours, and that the
one-time aggregate internal cost of compliance of large traders initially filing Form 13H
is approximately $3,369,000. 9
ii.

Annual and Quarterly Reporting

On an ongoing basis, a respondent may have to file interim updates, and has to
update its Form 13H annually. The Commission estimates that the ongoing annualized
burden for a respondent to fulfill its reporting obligations is approximately 6 burden
hours. 10 The estimated annualized internal cost of compliance for a respondent to
rates used in all of the cost calculations for this renewal are from SIFMA’s
Management & Professional Earnings in the Securities Industry 2017.
8

All Forms 13H must be filed through the Commission’s EDGAR system. Some
persons already are EDGAR filers when they reach the large trader registration
threshold, but those who are not must become EDGAR filers.

9

The Commission calculated the aggregate annual burden estimate as follows: 20
initial burden hours per year x 600 respondents = 12,000 total initial burden hours
per year. The Commission calculated the aggregate annual cost estimate as
follows: $5,615 (cost per initial filing) x 600 respondents per year = $3,369,000
total annual initial internal cost of compliance for initial filings.

10

The Commission calculated this burden estimate as follows: (Compliance
Manager at 2 hours) + (Compliance Attorney at 2 hours) + (Paralegal at 2 hours)
= 6 burden hours. The Commission’s estimate is lower than its initial estimate of
17 burden hours for two reasons. First, the initial estimate was calculated using a
projection that each large trader would file one annual and three quarterly updates
to its Form 13H. That projection was its experience with and burden estimates for
other existing reporting systems, including Rule 13f-1 and Rule 17a-25. The
Commission is lowering its projection based on its experience since 2012 with
collecting quarterly and annual updates to the Form 13H. Specifically, based on
its actual experience, the Commission expects large traders to file one annual and
one quarterly update per year. Second, the initial estimate did not reflect the
design of the input method for the Form 13H updates, which was determined after
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comply with the ongoing requirements of the rule is $1,770. 11 These estimates are based
on the varied characteristics of large traders and the nature and scope of the items that are
disclosed on Form 13H that would require updating.
Approximately 6,300 entities are registered as large traders. Based on its
experience collecting initial Forms 13H in previous years, the Commission estimates that
approximately 600 new large traders will register each year and thus be subject to
quarterly and annual reporting requirements over the next three years.
Accordingly, the Commission makes the following estimates of the annual
ongoing aggregate compliance burden and the annual ongoing aggregate compliance cost
for large traders:
PRA Renewal
Year
1
2
3

Number of
Respondents

6,300
6,900
7,500
3-Year Total
Annual Average Over 3 Years
b.

Annual Burden
Hours 12
37,800
41,400
45,000
124,200
41,400

Annual Internal
Cost of
Compliance 13
$11,151,000
$12,213,000
$13,275,000
$36,639,000
$12,213,000

Registered Broker-Dealers

Under Rule 13h-1, registered broker-dealers are required to comply with
recordkeeping and monitoring and reporting requirements. The Commission estimated
from broker dealer responses to FOCUS report filings with the Commission that there are
approximately 300 registered broker-dealers subject to the requirements of Rule 13h-1.
i. Recordkeeping

the estimate was made. Specifically, Form 13H updates, which are filed
electronically, auto-populate with the information last provided by the large
trader. Consequently, when updating its Form 13H information, a large trader
need manually input only the information that has changed since its last filing
(instead of all the information required by the form). That time savings now is
accounted for in the current burden hours estimate.
11

The Commission calculated this cost estimate as follows: (Compliance Manager
at $307 per hour for 2 hours) + (Compliance Attorney at $362 per hour for 2
hours) + (Paralegal at $216 per hour for 2 hours) = $1,770.

12

The Commission calculated these aggregate annual burden hours estimates as
follows: number of respondents x 6 annual burden hours.

13

The Commission calculated these aggregate annual cost estimates as follows:
number of respondents x $1,770 (ongoing annual cost per respondent).

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The Commission believes that the burden of Rule 13h-1 for individual registered
broker-dealers likely varies 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 Traders 14 or that are themselves large
traders, already have made modifications to their existing systems to capture and
maintain the additional data elements that were not previously required under Rule
17a-25.
The Commission believes that all broker-dealers subject to Rule 13h-1 have
already incurred the one-time, initial burden for a registered broker-dealer to conduct
system development, including re-programming and testing of the systems to comply
with the rule. Accordingly, there is no initial burden to comply with the rule.
Further, the Commission believes that registered broker-dealers will not incur any
ongoing annual expense for the recordkeeping requirement because registered brokerdealers already are required to keep almost all of the information required by Rule 13h-1
for all of their customers pursuant to Rule 17a-25 under the Exchange Act. The
Commission believes that the two additional fields do not result in any ongoing
annualized expense beyond what broker-dealers already incur under Rule 17a-25 and the
existing EBS system.
ii. Monitoring
In addition to requiring registered broker-dealers to maintain records of account
transactions, the rule also requires registered broker-dealers to monitor for such
transactions. In particular, the rule requires registered broker-dealers to monitor large
traders to help ensure compliance by large traders with the self-identification
requirements of the rule. Paragraph (e) of the rule requires certain broker-dealers to
maintain and report to the Commission certain information about all transactions effected
by Unidentified Large Traders.
1. Initial
The Commission believes that all broker-dealers subject to Rule 13h-1 already
incurred the one-time, initial burden to comply with the monitoring requirements by
establishing a compliance system to detect Unidentified Large Traders and inform them
of their potential responsibilities under the rule.

14

Rule 13h-1(a)(9) defines the term “Unidentified Large Trader” to means 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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2. Ongoing
Based on the Commission’s understanding of broker-dealers’ monitoring
procedures, the Commission estimates that the ongoing annual burden on a broker-dealer
for the monitoring requirements of the rule is approximately 15 burden hours per year.
The Commission estimates that that the annual ongoing internal cost of monitoring is
$5,430. 15 Accordingly, the Commission estimates that the aggregate ongoing annual
burden and aggregate ongoing annual internal cost of compliance associated with the
monitoring requirements are 4,500 burden hours and $1,629,000, respectively. 16
iii. Reporting
Rule 13h-1 also requires registered broker-dealers to report large trader
transactions to the Commission upon request. The Commission believes that this
provision of information does not involve any substantive or material change in the
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. 17 Although the information must be available
to report on a next-day basis (versus the 10 business day period that is generally
associated with an EBS request for data 18), the electronic recordkeeping and transmission
system already is in place to report the information. Therefore, the Commission believes
that the provision of such information to the Commission results in minimal additional
burden.
Although it is difficult to predict with certainty the Commission’s future needs to
obtain large trader data, taking into account the Commission’s need for data to be used in
market reconstruction purposes and investigative matters, the Commission estimates that
it may send 100 requests specifically seeking large trader data per year to each registered
broker-dealer subject to the rule. The Commission estimates that it takes a registered
broker-dealer 2 hours to comply with each request, 19 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 broker-dealer
is estimated to be 200 burden hours (100 requests x 2 burden hours/request = 200 burden
15

This estimate was calculated as follows: (Compliance Attorney at $362 per hour)
x 15 hours burden hours per year = $5,430.

16

The Commission calculated these estimates as follows: 15 annual burden hours x
300 broker-dealers = 4,500 total ongoing burden hours; $5,430 (annual ongoing
monitoring cost) x 300 broker-dealers = $1,629,000.

17

See 17 CFR 240.17a-25.

18

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).

19

The Commission estimates the burden on each affected broker-dealer as 2 burden
hours (Paralegal at 2 hours).

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hours). The Commission estimates that it costs each affected broker-dealer $432 to
comply with each request. 20 The Commission estimates the annual reporting internal
cost of compliance per broker-dealer is $43,200. 21 The annual aggregate annual
reporting burden is estimated to be 60,000 hours. 22 The annual aggregate annual
reporting internal cost of compliance is estimated to be ($43,200 annual reporting internal
cost of compliance x 300 broker-dealers = $12,960,000).
13.

Costs to Respondents

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.

Costs to Federal Government

There are no costs to the Federal Government.
15.

Changes in Burden

The estimated one-time aggregate burden for new large traders has decreased due
to a decrease (from 660 to 600) in the annual number of projected large traders filing an
initial Form 13H. The Commission’s estimate of the annual ongoing burden for large
traders has increased as the result of an increase in the number of large traders.
16.

Information Collection Planned for Statistical Purposes

Not applicable. The information collection is not used for statistical purposes.
17.

Approval to Omit OMB Expiration Date

We request authorization to omit the expiration date on the electronic version of
the form. Including the expiration date on the electronic version of the form will result
in increased costs, because the need to make changes to the form may not follow the
application’s scheduled version release dates. The OMB control number will be
displayed.

20

This estimate was calculated as follows: 2 hours (time to respond to each request)
x $216 (of Paralegal hourly rate) = $432 per request.

21

This estimate was calculated as follows: 100 requests per year x $432 per request
= $43,200.

22

This estimate was calculated as follows: 200 annual burden hours x 300 brokerdealers = 60,000 aggregate burden hours.

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18.

Exceptions to Certification for Paperwork Reduction Act Submissions

This collection complies with the requirements in 5 CFR 1320.9.
B.

Collection of Information Employing Statistical Methods
This collection does not involve statistical methods.

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