On 7/27/11, the SEC adopted Rule 13h-1 under the Securities Exchange Act of 1934 established new trade reporting requirements on large traders, to assist the Commission with identifying, and obtaining trading information on, market participants that conduct a substantial amount of trading activity. Compliance Date Approaching. Currently, new rules are set to kick in on 4/30/12 - i.e., 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, is April 30, 2012. One Year Extension. However, the SEC has decided to temporarily exempt registered broker-dealers from the large trader requirements of new Rule 13h-1 and has extended the compliance date from 4/30/12 to 5/1/13 - one full year later.  This has been done to provide them with additional time to comply with the recordkeeping, reporting, and monitoring requirements of the Rule.  But here are the caveats. A different compliance date extension, however, will apply to certain broker-dealers that meet the following credentials:

• are large traders, or
• have large trader customers that are either B/D's or that trade through a “sponsored access” arrangement, for which the Commission is extending the compliance date to 11/30/12.    The extension of the compliance date will allow B/D's additional time to develop, test, and implement enhancements to their recordkeeping and reporting systems as required under Rule 13h-1 and, for those B/D requirements for which the compliance date has been extended to May 1, 2013, for the Commission to consider requests for relief from certain provisions of the Rule.

Additionally, the SEC is exempting certain transactions from the definition of the term “transaction” provided in Rule 13h-1(a)(6), but for the sole purpose of determining whether a person is a large trader. Note to Readers: A link to the FINRA Exemptive Order is provided at the end of this post.  It should be noted that a large part of the FINRA Order, from this point on contains lengthy discussions of other rules changes that were to have taken effect on 4/30/12 - starting with Broker-Dealer Recordkeeping and Reporting.  C-I tracked these discussions - and even copied some of the text - see below - but in the end, it became too voluminous and we dropped it.  You're welcome to read the remainder of the text, below, and to continue to the source document using the hyper-link.  We apologized for any inconvenience. Exemptive Order, Continued. II. Broker-Dealer Recordkeeping and Reporting A. Introduction Recordkeeping. 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. Specifically, Rule 13h-1(d) requires broker-dealers to maintain records of the information specified in Rule 13h-1(d) 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 Trader,4 (ii) If the broker-dealer is a large trader, any proprietary or other account over which such broker-dealer exercises investment discretion. or (iii) Additionally, where a non-broker-dealer carries an account for a large trader or an Unidentified Large Trader, the broker-dealer effecting transactions directly or indirectly for such large trader or Unidentified Large Trader shall maintain records of all of the information required under the Rule for those transactions. The information required to be maintained for large trader accounts includes the standard information currently captured pursuant to Rule 17a-25 and the Electronic Blue Sheets (“EBS”) system, plus two new fields that are unique to Rule 13h-1: (1) the time that the transaction was executed (“execution time”)5 and (2) the large trader identification (“LTID”) number(s) associated with the account.6 Reporting. Rule 13h-1(e) requires every registered broker-dealer who is itself a large trader or carries an account for a large trader or an Unidentified Large Trader to report electronically to the Commission, at the Commission’s request, the required transaction information on such persons whose activity is equal to or greater than the reporting activity level.   In addition, the Rule provides that 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 a large trader must electronically report such information, at the Commission’s request. Broker-dealers are required to report information to the Commission upon request of the Commission.  Information must be reported to the Commission no later than the day and time specified in the Commission’s request for transaction information, which shall be no earlier than the open of business of the day following the request, unless in unusual circumstances same day submission of information is requested. B. Request for Extension of Compliance Date and Other Relief from Broker-Dealer Recordkeeping and Reporting Requirements The Financial Information Forum (“FIF”), representing a variety of broker-dealers and other market participants, has requested that the Commission extend the compliance date to November 30, 2012 for the broker-dealer recordkeeping and reporting provisions of Rule 13h-1, and provide certain substantive relief with respect to those provisions.10 The Securities Industry and Financial Markets Association (“SIFMA”) also has approached Commission staff with an outline for relief similar to that requested by FIF, including a phased implementation approach. FIF and SIFMA believe that broker-dealers need additional time to perform the business analysis, development, and testing required to implement the Rule’s recordkeeping and reporting requirements. FIF and SIFMA also believe that relief from certain of the substantive requirements of the Rule is warranted in order to reduce the implementation costs for some broker-dealers. Among other things, FIF has requested relief from the reporting requirements for non-self clearing broker-dealers, such that only clearing broker-dealers (including large traders that are themselves self-clearing broker-dealers) would report large trader transaction data to the Commission through the EBS infrastructure. Further, for large trader customers other than those using “sponsored access” arrangements, FIF has requested relief from providing LTID numbers on executions in average price processing accounts, and execution time on allocations made out of average price processing accounts.  FIF also requested relief for broker-dealers effecting transactions for a large trader other than the large trader’s clearing broker. FIF did not request relief from the substantive requirements of the Rule for clearing brokers where the large trader customer either (1) is a U.S. registered broker-dealer or (2) has a “sponsored access” arrangement.  Finally, FIF and SIFMA requested that the Commission coordinate the Rule’s implementation dates with those for a series of separate changes to the EBS record layout that have been proposed by the Intermarket Surveillance Group, and that Commission staff provide guidance on a range of suggested “Frequently Asked Questions” relating to the Rule. C. Extension of Compliance Date for the Broker-Dealer Requirements The Commission believes that it is appropriate and consistent with the purposes of the Exchange Act to provide a temporary exemption from the broker-dealer recordkeeping, reporting, and monitoring requirements of Rule 13h-1 by extending the Rule’s compliance date on a limited basis. FIF raised a variety of implementation concerns relating to the application of the Rule to broker-dealers other than the large trader’s clearing broker, and in cases where the large trader customer is neither a U.S.-registered broker-dealer nor a sponsored access customer. An extension of the compliance date should provide the Commission an opportunity to work with market participants to more fully examine the implementation issues raised by FIF, assess the appropriateness of any exemptive relief, and allow broker-dealers time to develop, test, and implement the necessary systems changes once the examination of implementation issues is complete. However, the Commission believes a more modest extension of the compliance date is appropriate for those aspects of the Rule for which substantive relief was not requested – namely compliance by the large trader’s clearing broker (including the large trader itself if it is a self-clearing broker-dealer) where the large trader customer either (1) is a U.S. registered broker-dealer or (2) has a “sponsored access” arrangement. The Commission believes that temporarily exempting registered broker-dealers from the recordkeeping, reporting, and monitoring requirements of Rule 13h-1 for the stated periods should facilitate the orderly and meaningful implementation of the requirements for those broker-dealers that need more time to comply with the new rule. ETC. For further details,  go to: [SEC Exemptive Order # 34-66839, 4/20/12].