Document ID: SEC-2013-0658-0001
Agency: sec
Document Type: Notice
Title: Order of Temporary Exemption from Recordkeeping, Reporting, and Monitoring Requirements
Posted Date: 2013-04-08T04:00Z

[Federal Register Volume 78, Number 67 (Monday, April 8, 2013)]
[Notices]
[Pages 20960-20961]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-08100]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-69281]

Order Temporarily Exempting Certain Broker-Dealers From the 
Recordkeeping, Reporting, and Monitoring Requirements of Rule 13h-1 
Under the Securities Exchange Act of 1934

April 3, 2013.
    On July 27, 2011, the Securities and Exchange Commission 
(``Commission'') adopted Rule 13h-1 under the Securities Exchange Act 
of 1934 (``Exchange Act'') concerning large trader reporting to assist 
the Commission in both identifying, and obtaining trade information 
for, market participants that conduct a substantial amount of trading 
activity, as measured by volume or market value, in U.S. securities 
(such persons are referred to as ``large traders'').\1\
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    \1\ See Securities Exchange Act Release No. 64976 (July 27, 
2011), 76 FR 46960 (Aug. 3, 2011) (``Rule 13h-1 Adopting Release''). 
The effective date of Rule 13h-1 was October 3, 2011.
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    In addition to requiring large traders to register with the 
Commission by filing and periodically updating Form 13H, Rule 13h-1 
requires certain broker-dealers to, among other things, maintain 
specified records of transactions that they effect, directly or 
indirectly, for large traders, and to report to the Commission, upon 
request of the Commission, such records in electronic format.
    Initially, the compliance date for the broker-dealer recordkeeping 
and reporting requirements of Rule 13h-1(d) and (e), respectively, as 
well as the requirement under Rule 13h-1(f) for broker-dealers to 
monitor their customers' accounts for activity that may trigger the 
large trader identification requirements of Rule 13h-1, was April 30, 
2012. The Financial Information Forum (``FIF'') \2\ and the Securities 
Industry and Financial Markets Association (``SIFMA'') \3\ previously 
requested that the Commission grant certain substantive relief and 
temporarily exempt registered broker-dealers from the recordkeeping, 
reporting, and monitoring requirements of the Rule to provide them with 
additional time to comply.\4\
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    \2\ See Letter from Manisha Kimmel, Executive Director, 
Financial Information Forum, to Robert Cook, Director, and David 
Shillman, Associate Director, Division of Trading and Markets, 
Commission, dated January 25, 2012 (``FIF Letter''), available at: 
http://www.sec.gov/comments/s7-10-10/s71010.shtml.
    \3\ See Letter from Ann L. Vlcek, Managing Director and 
Associate General Counsel, SIFMA, to David S. Shillman, Associate 
Director, Division, Commission, dated March 29, 2012, available at: 
http://www.sec.gov/comments/s7-10-10/s71010.shtml.
    \4\ See Securities Exchange Act Release No. 66839 (April 20, 
2012), 77 FR 25007 (April 26, 2012) (``April Exemptive Order'').
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    Pursuant to Exchange Act Section 13(h)(6) and Rule 13h-1(g) 
thereunder,\5\ the Commission, by order, may exempt from the provisions 
of Rule 13h-1, upon specified terms and conditions or for stated 
periods, any person or class of persons or any transaction or class of 
transactions from the provisions of Rule 13h-1 to the extent that such 
exemption is consistent with the purposes of the Exchange Act.
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    \5\ See 15 U.S.C. 78m(h)(6) and 17 CFR 240.13h-1(g), 
respectively.
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    In response to FIF's and SIFMA's requests, the Commission 
temporarily exempted broker-dealers from the recordkeeping, reporting, 
and monitoring requirements, thereby establishing a two-phased approach 
to implementation.\6\ In the first phase, the Commission provided a 
temporary exemption to extend the compliance date from April 30, 2012 
to November 30, 2012 for the broker-dealer recordkeeping and reporting 
requirements of Rule 13h-1 with respect to a clearing broker-dealer for 
a large trader where the large trader: (1) Is a U.S.-registered broker-
dealer,\7\ or (2) trades through a sponsored access arrangement \8\ 
(``Phase One''). In the

[[Page 20961]]

second phase, which concerned the remaining portions of the rule, the 
Commission provided a temporary exemption to extend the compliance date 
for the additional broker-dealer recordkeeping, reporting, and 
monitoring requirements of Rule 13h-1 from April 30, 2012, to May 1, 
2013 (``Phase Two'').
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    \6\ The April Exemptive Order also provided an exemption for 
certain transactions from the definition of the term ``transaction'' 
provided in Rule 13h-1(a)(6) for the purpose of determining whether 
a person is a large trader. See April Exemptive Order, supra note 4.
    \7\ The reportable activity would include proprietary trading by 
a large trader broker-dealer where the large trader is trading for 
its own account.
    \8\ A ``sponsored access arrangement'' in this context refers to 
an arrangement in which a broker-dealer permits a large trader 
customer to enter orders directly to a trading center where such 
orders are not processed through the broker-dealer's own trading 
system (other than any risk management controls established for 
purposes of compliance with Rule 15c3-5 under the Exchange Act) and 
where the orders are routed directly to a trading center, in some 
cases supported by a service bureau or other third party technology 
provider. See Securities Exchange Act Release No. 63241 (November 3, 
2010), 75 FR 69792 (November 15, 2010) (S7-03-10).
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    With Phase One fully implemented, the Commission now is focusing 
its attention on FIF's and SIFMA's relief requests concerning Phase 
Two. On February 13, 2013, SIFMA submitted a supplemental letter that 
outlined its members' experience in implementing Phase One and also 
provided additional detail on implementation issues relating to the 
Phase Two deadline.\9\ Because many of the issues presented in Phase 
One also are implicated in the Phase Two relief request, such as the 
issues concerning average price account processing and the transmission 
of execution time information on disaggregated trades, the Commission 
currently is considering the industry's experience with Phase One 
implementation in evaluating the requests for relief concerning Phase 
Two.
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    \9\ See Letter from Theodore Lazo, Managing Director and 
Associate General Counsel, SIFMA, to David S. Shillman, Associate 
Director, Division, Commission, dated February 13, 2013, available 
at: http://www.sec.gov/comments/s7-10-10/s71010.shtml.
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    The Commission believes that it is appropriate and consistent with 
the purposes of the Exchange Act to provide a temporary exemption from 
the Phase Two broker-dealer recordkeeping, reporting, and monitoring 
requirements of Rule 13h-1 to further extend the compliance date for 
Phase Two. This temporary exemption from the Rule's requirements should 
provide the Commission with the necessary time to complete its review 
of the implementation issues raised by FIF and SIFMA, assess the 
appropriateness of the requested exemptive relief, announce its 
response thereto, and allow broker-dealers time to develop, test, and 
implement any necessary systems changes once the Commission's review is 
complete.
    Accordingly, the Commission is providing a temporary exemption to 
extend the compliance date to November 1, 2013, solely for the Phase 
Two broker-dealer recordkeeping, reporting, and monitoring requirements 
of Rule 13h-1.\10\
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    \10\ The effective date for Rule 13h-1 remains October 3, 2011. 
The compliance date for the requirement on large traders to identify 
to the Commission pursuant to Rule 13h-1(b) was December 1, 2011. 
The compliance date for Phase One was November 30, 2012.
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    It is hereby ordered, pursuant to Exchange Act Section 13(h)(6) and 
Rule 13h-1(g) thereunder, that broker-dealers subject to the 
recordkeeping, reporting, and monitoring requirements of Rule 13h-1 
(other than clearing broker-dealers for a large trader that either (1) 
is a U.S.-registered broker-dealer, or (2) trades through a sponsored 
access arrangement) are temporarily exempted from those requirements 
until November 1, 2013.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-08100 Filed 4-5-13; 8:45 am]
BILLING CODE 8011-01-P