Rule 13h-1 helps the SEC identify and obtain trading information on market participants that conduct a substantial amount of trading activity in the U.S. securities market. The rule imposes filing requirements on persons that meet the definition of “large trader.” A larger trader is any person that directly or indirectly, including through other persons controlled by such person, exercises investment discretion over transactions in NMS securities that 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 aforementioned thresholds are commonly referred to as the “Identifying Activity Level.” Upon reaching the Identifying Activity Level, a person becomes subject to reporting and filing requirements.
A firm that has investment discretion over substantial trading activity should have a system reasonably designed to monitor its trading levels. A firm that is reasonably likely to effect transactions equal to or greater than the Identifying Activity Level in the near future would need to more closely monitor its trading activity than, for example, a firm that has no expectation of coming close to the Identifying Activity Level. A firm should make sure its system for monitoring trading levels is reasonable considering the aggregate trading activity of its organization.
“NMS Security” is defined as “any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options.” In general, the term “NMS Security” refers to exchange-listed equity securities and standardized options, but does not include exchange-listed debt securities, securities futures, or open-end mutual funds, which are not currently reported pursuant to an effective transaction reporting plan.
The value and volume of options transactions, if any, should be included in aggregate trading activity. When determining value and volume of equity options, a firm must use the volume or fair market value of the equity securities underlying the options. However, for index options, the firm should use the fair market value of the options (rather than the value of the underlying securities). Volume for index options does not need to be calculated. Due to the complexity of determining the value and volume of options transactions, a firm having the need to do so should seek expert guidance if questions arise. See Responses to Frequently Asked Questions Concerning Large Trader Reporting.