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December 16, 2020

Observations from Examinations of Broker-Dealers and Investment 

Advisers: Large Trader Obligations*

I. Introduction

This Risk Alert contains observations from the Office of Compliance Inspections and 

Examinations (“OCIE”) examinations of SEC-registered investment advisers (“investment 

advisers”) and broker-dealers (“broker-dealers”) for compliance with Rule 13h-1. The Securities 

and Exchange Commission adopted Rule 13h-1 (“Rule 13h-1” or the “Rule”) to assist the 

Commission in both identifying and obtaining information on market participants that conduct a 

substantial amount of trading activity, as measured by volume or market value, in national 

market system (“NMS”) securities (such persons are referred to as “Large Traders”).1 The Large 

Trader reporting requirements are designed to provide the SEC with data to facilitate the SEC’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. 

The Rule requires entities and individuals, such as investment advisers, whose transactions in 

NMS securities meet or exceed the daily or monthly thresholds identified by the Rule to selfidentify to the SEC on Form 13H, and also requires certain recordkeeping, reporting, and 

monitoring responsibilities for broker-dealers.

2 During examinations, OCIE observed that some 

investment advisers and broker-dealers were either not aware of the Rule or were not familiar 

with certain requirements. This Risk Alert is intended to assist investment advisers and brokerdealers in reviewing and enhancing their compliance programs with respect to their Large Trader 

obligations. This Risk Alert is also intended to remind broker-dealers of their regulatory 

reporting obligations related to the reporting of Large Trader information in Electronic Blue

 

* The views expressed herein are those of the staff of OCIE. This Risk Alert is not a rule, regulation, or 

statement of the Securities and Exchange Commission (the “SEC” or the “Commission”). The Commission 

has neither approved nor disapproved the content of this Risk Alert. This Risk Alert has no legal force or 

effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any 

person. This document was prepared by OCIE staff and is not legal advice.

1 Large Trader Reporting, Exchange Act Rel. No. 34-64976 (July 27, 2011), available at: 

https://www.sec.gov/rules/final/2011/34-64976.pdf (“Large Trader Reporting”).

2 See Rule 13h-1. 
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Sheets and their upcoming reporting obligations with respect to the Consolidated Audit Trail

(“CAT”).

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II. Background

Rule 13h-1 defines a Large Trader as a person whose transactions in NMS securities equal or 

exceed 2 million shares or $20 million during any calendar day, or 20 million shares or $200 

million during any calendar month. The Rule also applies to persons that exercise investment 

discretion over trading in NMS securities. An investment adviser that exercises investment 

discretion directly or indirectly on behalf of itself or others, for example, will become a Large

Trader if it meets the transaction thresholds in the definition.

A Large Trader must file and periodically update Form 13H, which provides the Commission 

with general information about its business, regulatory status, affiliates, governance, and brokerdealers where the Large Trader has an account.

4 Upon receipt of Form 13H, the Commission 

will assign to each Large Trader a unique identification number (“LTID”). A Large Trader must 

then disclose its LTID to all broker-dealers effecting transactions on its behalf and must identify

to each such broker-dealer all accounts at that broker-dealer to which the LTID applies.5

 

Under the recordkeeping requirements in Rule 13h-1, broker-dealers are required to maintain 

records for all transactions effected directly or indirectly by or through (i) an account such 

broker-dealer carries for a Large Trader or an Unidentified Large Trader6 or (ii) if the brokerdealer is a Large Trader, any proprietary or other account over which such broker-dealer 

exercises investment discretion. For Unidentified Large Traders, broker-dealers should assign 

their own unique identifier to the applicable account(s).7 In addition, the Rule requires that upon 

request of the Commission, broker-dealers report certain Large Trader information using the 

Electronic Blue Sheets infrastructure. 

The Rule has a safe harbor for broker-dealers to detect and identify persons that may be Large

Traders. A broker-dealer is deemed not to know or have reason to know that a person is a Large 

Trader if it does not have actual knowledge that the person is a Large Trader and it establishes

policies and procedures that (1) identify persons who have not identified as a Large Trader under 

the rule but whose transactions effected through the broker-dealer equal or exceed the Large 

Trader identifying activity level;8 (2) treat any person identified in (1) as an Unidentified Large 

 3 See Rule 17a-25.

4 Form 13H, available at: https://www.sec.gov/files/form13h.pdf. 

5 See Rule 13h-1(b)(2).

6 The Rule requires broker-dealers to treat as an Unidentified Large Trader (for purposes of the 

recordkeeping and reporting provisions in paragraphs (d) and (e) of the Rule) any person that the brokerdealer “knows or has reason to know” is a Large Trader where such person has not complied with the 

identification requirement applicable to Large Traders (i.e., has not identified itself as a Large Trader to the 

broker-dealer and disclosed the accounts to which its LTID applies).

7 Large Trader Reporting, at fn.165.

8 See Rule 13h-1(a)(7).
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Trader; and (3) inform any person identified in (1) of its potential obligations under the Rule.9 

The broker-dealer monitoring requirements are intended to promote awareness of and foster 

compliance with Rule 13h-1.10

III. Staff Observations

OCIE conducted a number of examinations that focused on broker-dealers and investment 

advisers’ compliance with Rule 13h-1. During these examinations, staff observed numerous 

instances of potential non-compliance with the Rule including where Large Traders may not

have self-identified with the SEC and/or may not have filed their annual Form 13H as required 

by the Rule. 

In response to OCIE’s observations, firms were responsive and improved their procedures, 

processes, and controls to help ensure compliance with the Rule. Additionally, firms that may 

have missed their filing obligations took steps to address these issues, including the submission 

of Forms 13H for prior years. OCIE encourages both investment advisers and broker-dealers to 

thoroughly review and, where appropriate, amend their supervisory and compliance policies and 

procedures to ensure compliance with the Rule. 

Investment Advisers

An investment adviser that transact in NMS securities is encouraged to review its compliance 

policies and procedures around:

• Identifying situations that could lead the investment adviser to become a Large Trader

under the Rule.

o For example, if an investment adviser enters into a new discretionary client or 

customer agreement, the trading activity may meet the transaction thresholds of 

the Rule and result in the investment adviser being deemed a Large Trader.

• Timely filing of Form 13H, with respect to both the annual filing requirement and 

obligations to provide amended filings, where applicable.

• Promptly following the end of a calendar quarter amending Form 13H in the event that 

any of the information contained within the filing becomes inaccurate for any reason, 

including the list of broker-dealers effecting transactions in eligible securities by the 

investment adviser, or the investment adviser’s affiliates.11

• Notifying any broker-dealers through which the investment adviser executes transactions

of its Large Trader status. 

 9 See Rule 13h-1(f).

10 Large Trader Reporting, at 16.

11 See Rule 13h-1(b)(2) and Rule 13h-1(b)(1)(iii)
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Broker-Dealers

Staff observed that firms had potential compliance issues in the following areas: (1) 

recordkeeping; (2) monitoring; and (3) reporting to Electronic Blue Sheets. For a broker-dealer 

that transact in NMS securities, OCIE encourages it to assess and make any necessary changes to 

its supervisory and compliance policies and procedures with respect to:

• Applicability of the Rule to the broker-dealer and its affiliates.

• Timely filing of both the annual filing and any amended filings of Form 13H, if 

applicable.

• Reporting requirements under Electronic Blue Sheets and the CAT, as well as applicable 

FINRA Rules.

• Monitoring customer activity to identify customers that may be Large Traders, but have 

not provided their LTIDs, and the process of contacting such customers.

• Identifying and associating new accounts for existing Large Traders.

OCIE encourages market participants to visit the Division of Trading and Markets’ Responses to 

Frequently Asked Questions Concerning Large Trader Reporting for additional staff views.

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III. Broker-Dealer Reporting Responsibilities

Information to identify each Large Trader in a uniform manner across markets is necessary to 

permit the SEC to fully track and analyze Large Trader activity, especially with respect to Large 

Traders that trade through multiple accounts at multiple broker-dealers or trade using direct 

market access arrangements.13 The Rule requires that, upon a request from the Commission for 

transaction data, a broker-dealer that is itself a Large Trader or carries an account for a Large 

Trader or an Unidentified Large Trader must report that data to the Commission. The 

requirements that a Large Trader provide its LTID to all broker-dealers who effect transactions 

on its behalf, and identify each account to which it applies, are ongoing responsibilities that must 

be discharged promptly by each Large Trader.

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Additionally, where a non-broker-dealer carries an account for a Large Trader or an Unidentified 

Large Trader, the broker-dealer effecting such transactions directly or indirectly for the Large 

Trader or Unidentified Large Trader must electronically report transaction data to the 

 12 See Responses to Frequently Asked Questions Concerning Large Trader Reporting, available at: 

https://www.sec.gov/divisions/marketreg/large-trader-faqs.htm.

13 Large Trader Reporting, at 12.

14 Large Trader Reporting, at 44.
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Commission through the Electronic Blue Sheets system for such transactions equal to or greater 

than the reporting activity level.15

Consolidated Audit Trail Reporting Obligations

On July 18, 2012, the Commission adopted Rule 613 under Regulation NMS (“Rule 613”) to 

create a comprehensive consolidated audit trail that would allow regulators to track all activity 

throughout the U.S. markets in NMS securities.16 Among other things, Rule 613 requires the 

self-regulatory organizations (“SROs”) jointly to submit a plan – called the CAT NMS Plan – to 

create, implement and maintain the CAT. The rule specifies the type of data to be collected, as 

well as when the data is to be reported to the CAT. Whereas Electronic Blue Sheets are trading 

records requested by the Commission and SROs from clearing broker-dealers, reporting into the 

CAT applies to all broker-dealers. On April 20, 2020, the Commission issued two exemptive 

orders that together allow for the phased reporting of data by broker-dealers into the CAT.17

The reporting of customer identifying information as it relates to Large Traders begins on 

April 26, 2021. On that date, large broker-dealers are required to report to the CAT certain 

account information regarding account holders with a LTID or an Unidentified Large Trader 

Identification number (collectively called “LTID Account Information”).

18 The reporting 

requirements and guidance for such reporting are set forth in the CAT Reporting Customer and 

Account Information Technical Specifications for Industry Members.19

Broker-dealers will be required to obtain and report LTIDs to the CAT for accounts with 

Reportable Events. Given that this requirement extends beyond clearing broker-dealers, the 

number of firms required to report LTIDs will increase. Firms for which this is a new 

requirement may have to change their current onboarding activities to verify whether an LTID 

exists, and is recorded and reported to the CAT, for any account with Reportable Events.20 

OCIE recommends that broker-dealers review the new reporting obligation requirements under 

 15 See Rule 13h-1(e). 

16 See Consolidated Audit Trail, Exchange Act Rel. No. 34-67457 (July 18, 2012), available at:

https://www.sec.gov/rules/final/2012/34-67457.pdf.

17 See Order Granting Conditional Exemptive Relief, Exchange Act Rel. No 34-88702 (April 20, 2020), 

available at: https://www.sec.gov/rules/exorders/2020/34-88702.pdf and Order Granting Conditional 

Exemptive Relief, Exchange Act Rel. No. 34-88703 (April 20, 2020), available at:

https://www.sec.gov/rules/exorders/2020/34-88703.pdf. 

18 By December 13, 2021, all broker-dealers must report LTID Account Information related to all remaining 

active accounts, available at: https://www.catnmsplan.com/faq. 

19 See Order Granting Conditional Exemptive Relief, Pursuant to Section 26 of the Exchange Act and Rule 

608(e) of Regulation NMS Under the Exchange Act, from Section 6.4, 6.7 (a)(v) and 6.7(a)(vi) of the 

National Market System Plan Governing the Consolidated Audit Trail (April 20, 2020), available at

https://www.sec.gov/rules/exorders/2020/34-88702.pdf. See also CAT Industry Members Specifications, 

available at: https://www.catnmsplan.com/specifications/im.

20 See CAT NMS Plan Section 6.4. “Reportable Events” is defined in Section 1.1 of the CAT NMS Plan, 

available at: https://www.sec.gov/rules/sro/nms/2016/34-79318-exhibit-a.pdf. 
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the CAT NMS Plan related to Large Traders and ensure they are ready to meet these reporting 

requirements by April 26, 2021. 

IV. Conclusion 

Examinations of investment advisers and broker-dealers have resulted in a range of observations 

with respect to Large Trader regulatory obligations. OCIE encourages investment advisers and 

broker-dealers to review their practices, and written policies and procedures, including the 

implementation of those policies and procedures, to address the issues discussed in this Risk 

Alert. OCIE also encourages firms to review their applicable reporting obligations, currently for 

Electronic Blue Sheets, and forthcoming for the CAT.

This Risk Alert is intended to highlight for firms risks and issues that OCIE staff has identified. 

In addition, this Risk Alert describes factors that firms may consider to (i) assess their 

supervisory, compliance, and/or other risk management systems related to these risks, and (ii) 

make any changes, as may be appropriate, to address or strengthen such systems. These factors 

are not exhaustive, nor will they constitute a safe harbor. Other factors besides those described 

in this Risk Alert may be appropriate to consider, and some of the factors may not be applicable

to a particular firm’s business. While some of the factors discussed in this Risk Alert reflect 

existing regulatory requirements, they are not intended to alter such requirements. Moreover, 

future changes in laws or regulations may supersede some of the factors or issues raised here. 

The adequacy of supervisory, compliance, and other risk management systems can be determined 

only with reference to the profile of each specific firm and other facts and circumstances.