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June 21, 2012 at 05:44 AM
Although the SEC has given a temporary pass to broker-dealers on complying with Rule 13h-1, the Large Trader Rule, advisors must still comply if they qualify, which could mean more paperwork, depending on how they handle client securities.
The new rule is intended to track large traders—any person or entity with discretion directly or indirectly to effect the trade in an account, to the tune of 2 million shares or $20 million per day, or 20 million shares or $200 million per month.
That means, according to Jesse Lawrence, managing director and senior managing counsel at Pershing, that if you as an advisor are making investment decisions or trades in that amount for clients, even if through separately managed accounts, you are required to register.
Advisors can register via Form 13H to get a large trader identification number, or LTID, which then must be provided to their broker-dealer. If the advisor fails to self-register, their BD is obliged to report the advisor as a large trader based on the advisor’s activity, since the BD is also required to track the advisor’s activity and maintain records on it.
There are a number of ways, Lawrence said, in which advisors are affected by the new rule. While Lawrence said that the effect on BDs is much more far-reaching, advisors who think compliance begins and ends with the LTID should think again. For one thing, BDs will want more and different information from advisors going forward, although the jury is still out on how much and what kind, since the industry has posed a number of questions to the SEC for interpretive guidance.
For another, Lawrence added, advisors will have to pay attention to information that perhaps wasn’t of significant concern before. Aggregate trades are an area of concern, lest the advisor cross the threshold in a supervisory program.
