Quick Answer
A registered broker-dealer keeps thirteen transaction items on trades for a large trader or Unidentified Large Trader through an account it carries, its discretionary accounts if it is itself a large trader, or an account a non-broker-dealer carries. Four more identify an Unidentified Large Trader. Records are available next morning, Saturdays and holidays included, and reported on SEC request.
The trader files the form; the firm keeps the trail. This lesson covers the recordkeeping, the request-driven report, and the safe harbor a firm reaches by building a monitoring program.
Which Accounts Trigger the Recordkeeping Duty?
Every registered broker-dealer maintains records of all the information the rule requires for all transactions effected directly or indirectly by or through three kinds of account.
- An account the broker-dealer carries for a large trader or an Unidentified Large Trader.
- If the broker-dealer is itself a large trader, any proprietary or other account over which it exercises investment discretion.
- Where a non-broker-dealer carries an account for a large trader or an Unidentified Large Trader, the broker-dealer effecting the transactions directly or indirectly for that trader keeps the records for those transactions.
Exam Tip: Gotchas
- Carrying the account is not the only hook. When the account sits at a non-broker-dealer, the duty lands on the broker-dealer that effects the transactions, so no large trader account escapes by being custodied outside a broker-dealer.
- A broker-dealer that is itself a large trader picks up its own discretionary accounts. That limb reaches any proprietary or other account over which the firm exercises investment discretion, not only accounts it carries for customers.
What Transaction Data Must the Firm Keep?
The information required to be maintained for all transactions includes thirteen items.
| Item | Detail |
|---|---|
| Clearing identifiers | The clearing house number or alpha symbol of the broker or dealer submitting the information, and the clearing house numbers or alpha symbols of the entities on the opposite side of the transaction |
| Security symbol | The identifying symbol assigned to the security |
| Execution date | The date the transaction was executed |
| Size and character | The number of shares or option contracts traded in each specific transaction; whether each transaction was a purchase, sale or short sale; and, if an option contract, whether the transaction was a call or put option, an opening purchase or sale, a closing purchase or sale, or an exercise or assignment |
| Price | The transaction price |
| Account number | The account number |
| Market center | The identity of the exchange or other market center where the transaction was executed |
| Customer or proprietary | A designation of whether the transaction was effected or caused to be effected for the account of a customer of the broker-dealer, or was a proprietary transaction effected or caused to be effected for the account of that broker-dealer |
| External transfers | An identifier where part or all of an account's transactions have been transferred or otherwise forwarded to one or more accounts at another registered broker-dealer, and an identifier where they have been transferred or otherwise received from one or more other registered broker-dealers |
| Internal transfers | An identifier where part or all of an account's transactions have been transferred or otherwise received from another account at the reporting broker-dealer, and an identifier where they have been transferred or forwarded to one or more other accounts at the reporting broker-dealer |
| Depository identifier | Where a transaction was processed by a depository institution, the identifier that institution assigned to the account |
| Execution time | The time the transaction was executed |
| Identification number | The large trader identification number or numbers associated with the account, unless the account is for an Unidentified Large Trader |
For transactions effected directly or indirectly by or through the account of an Unidentified Large Trader, the information maintained also includes that trader's name, address, the date the account was opened, and tax identification number or numbers.
Exam Tip: Gotchas
- The identification number field and the Unidentified Large Trader fields are alternatives. An identified trader's account must carry the large trader identification number. An Unidentified Large Trader's account has no number, so it must carry the four identifying items instead.
- The transfer identifiers run in both directions and at two levels. There is an identifier for movements to and from another broker-dealer, and a separate identifier for movements to and from another account at the same broker-dealer.
How Long Are the Records Kept and When Are They Available?
The records and information the rule requires are kept for the periods provided in the records retention rule for records preserved for not less than three years, the first two in an easily accessible place.
Availability runs on a much shorter clock. The records and information must be available on the morning after the day the transactions were effected, and the rule says that expressly includes Saturdays and holidays.
Exam Tip: Gotchas
- Retention and availability are different clocks. A three-year retention period says nothing about how fast the data must be producible, and the rule sets the availability duty at the morning after the trade date.
- The availability clock does not pause for a weekend. The rule names Saturdays and holidays in the text, so a Friday trade is available Saturday morning.
When Does the Firm Report to the SEC?
The reporting duty is request-driven, not periodic.
- On SEC request, every registered broker-dealer that is itself a large trader, or that carries an account for a large trader or an Unidentified Large Trader, electronically reports all of the transaction data and Unidentified Large Trader data to the SEC.
- The form of that report is machine-readable, in accordance with instructions issued by the SEC, and it covers all transactions effected directly or indirectly by or through accounts the firm carries for such traders that are equal to or greater than the reporting activity level.
- Where a non-broker-dealer carries the account, the broker-dealer effecting those transactions directly or indirectly for a large trader electronically reports the same information for those transactions equal to or greater than the reporting activity level.
- The deadline is inside the request. Reports are submitted no later than the day and time specified in the request, which shall be no earlier than the opening of business of the day following the request, unless in unusual circumstances the same-day submission of information is requested.
Exam Tip: Gotchas
- Nothing here is a scheduled filing. The firm builds the records every day and reports only when the SEC asks, so a scenario describing a monthly or quarterly large trader transaction report by the firm is describing something the rule does not require.
- Same-day production is possible but exceptional. The floor is the opening of business on the day following the request, and the rule allows an earlier same-day demand only in unusual circumstances.
Who Is an Unidentified Large Trader?
An Unidentified Large Trader is a person who has not complied with the Form 13H filing and status disclosure requirements and whom a registered broker-dealer knows or has reason to know is a large trader.
For purposes of determining whether a registered broker-dealer has reason to know that a person is a large trader, the firm need take into account only transactions in NMS securities effected by or through that broker-dealer. National market system (NMS) activity the customer runs through a different firm does not have to be counted.
Exam Tip: Gotchas
- The status turns on the firm's knowledge, not the customer's size alone. A person can be a large trader in fact and only becomes an Unidentified Large Trader at a given firm once that firm knows or has reason to know.
- The reason-to-know test is firm-scoped. A customer spreading activity across several firms may sit below each firm's own view while still being a large trader overall.
How Does the Monitoring Safe Harbor Work?
A registered 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 and it establishes policies and procedures reasonably designed to do three things.
- Identify. Find persons who have not complied with the Form 13H filing and status disclosure requirements but whose transactions, effected through an account or a group of accounts carried by the broker-dealer or through which the broker-dealer executes transactions, equal or exceed the identifying activity level. The firm considers account name, tax identification number, or other identifying information available on its own books and records.
- Treat. Treat any person so identified as an Unidentified Large Trader.
- Inform. Inform any person so identified of that person's potential obligations under the rule.
Exam Tip: Gotchas
- Actual knowledge defeats the safe harbor outright. The relief is available only to a firm that both lacks actual knowledge and has the reasonably designed procedures, so a firm that knows cannot rely on its procedures to regain it.
- The safe harbor is not relief from recordkeeping. A firm inside it must still treat the person as an Unidentified Large Trader, which switches on the name, address, account-opening date and tax identification number records that an identified trader's account never needs.
What Should You Check on Exam Day?
- Ask who carries the account. If a non-broker-dealer carries it, the broker-dealer effecting the transactions keeps the records and, on SEC request, reports those at or above the reporting activity level.
- Check whether the account is for an identified or an Unidentified Large Trader; the identification number is required unless the account is for an Unidentified Large Trader, whose account must carry the four identifying items instead.
- Confirm the availability standard is the morning after the trade date, including Saturdays and holidays, and do not confuse it with the retention period.
- Treat the firm's report to the SEC as request-driven, due no earlier than the opening of business the day after the request unless unusual circumstances apply.
- For the safe harbor, look for both halves: no actual knowledge, plus procedures that identify, treat and inform.