Order Temporarily Exempting Broker-Dealers From the Recordkeeping, Reporting, and Monitoring Requirements of Rule 13h-1 Under the Securities Exchange Act of 1934 and Granting an Exemption for Certain Securities Transactions, 25007-25010 [2012-10026]

Download as PDF Federal Register / Vol. 77, No. 81 / Thursday, April 26, 2012 / Notices For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.37 Elizabeth M. Murphy, Secretary. [FR Doc. 2012–10027 Filed 4–25–12; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–66839] Order Temporarily Exempting BrokerDealers From the Recordkeeping, Reporting, and Monitoring Requirements of Rule 13h–1 Under the Securities Exchange Act of 1934 and Granting an Exemption for Certain Securities Transactions tkelley on DSK3SPTVN1PROD with NOTICES April 20, 2012. I. Introduction 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 trading information on, 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 Pursuant to Exchange Act Section 13(h)(6) and Rule 13h–1(g) thereunder,2 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. Currently, 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, is April 30, 2012. As discussed below, the Commission is temporarily exempting registered broker-dealers from the requirements of new Rule 13h–1 by extending the April 30, 2012 compliance date to provide them with 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. 2 See 15 U.S.C. 78m and 17 CFR 240.13h–1(g), respectively. VerDate Mar<15>2010 17:51 Apr 25, 2012 Jkt 226001 additional time to comply with the recordkeeping, reporting, and monitoring requirements of the Rule. Specifically, and as discussed more fully below, the Commission is extending the April 30, 2012 compliance date for registered brokerdealers to May 1, 2013, except for certain broker-dealers that: (1) Are large traders or (2) have large trader customers that are either broker-dealers or that trade through a ‘‘sponsored access’’ arrangement, for which the Commission is extending the compliance date to November 30, 2012.3 The extension of the compliance date will allow broker-dealers additional time to develop, test, and implement enhancements to their recordkeeping and reporting systems as required under Rule 13h–1 and, for those broker-dealer 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. In addition, the Commission 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. 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 or 3 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. 4 The term ‘‘Unidentified Large Trader’’ means each person who has not complied with the identification requirements of paragraphs (b)(1) and (b)(2) of Rule 13h–1 that a registered broker-dealer knows or has reason to know is a large trader. See 17 CFR 240.13h–1(a)(9). For purposes of determining whether a registered broker-dealer has reason to know that a person is a large trader, a registered broker-dealer need take into account only PO 00000 Frm 00083 Fmt 4703 Sfmt 4703 25007 (ii) If the broker-dealer is a large trader, any proprietary or other account over which such broker-dealer exercises investment discretion. (iii) Additionally, where a non-brokerdealer 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.7 In addition, the Rule provides that where a non-brokerdealer 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.8 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 transactions in NMS securities effected by or through such broker-dealer. See id. 5 See 17 CFR 240.13h–1(d)(2)(xii). 6 See 17 CFR 240.13h–1(d)(2)(xiii). 7 The reporting activity level is 100 shares. See 17 CFR 240.13h–1(a)(8). Accordingly, in response to a Commission request for EBS information, brokerdealers are required to report information for each account in which any large trader’s or Unidentified Large Trader’s activity amounts to at least 100 shares in the aggregate. In response to a Commission request for transaction records, in addition to reporting information for any identified large trader (i.e., a person for whom the broker-dealer has received an LTID number), the broker-dealer also should report records for each Unidentified Large Trader, as applicable, including any unique identifying number that the broker-dealer has assigned to such person. 8 See 17 CFR 240.13h–1(e). E:\FR\FM\26APN1.SGM 26APN1 25008 Federal Register / Vol. 77, No. 81 / Thursday, April 26, 2012 / Notices the day following the request, unless in unusual circumstances same day submission of information is requested.9 B. Request for Extension of Compliance Date and Other Relief From BrokerDealer Recordkeeping and Reporting Requirements tkelley on DSK3SPTVN1PROD with NOTICES The Financial Information Forum (‘‘FIF’’), representing a variety of brokerdealers 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.11 FIF and SIFMA believe that brokerdealers 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 brokerdealers.12 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 brokerdealers) 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 9 See 17 CFR 240.13h–1(e). See also 17 CFR 240.13h–1(d)(5) (requiring that the records required to be kept pursuant to the provisions of Rule 13h– 1 must be available for reporting on the morning after the day the transactions were effected (including Saturdays and holidays)). 10 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: https://www.sec.gov/comments/s7-1010/s71010.shtml. 11 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: https://www.sec.gov/comments/s7-10-10/ s71010.shtml. 12 See FIF Letter, supra note 10, at 5. VerDate Mar<15>2010 17:51 Apr 25, 2012 Jkt 226001 processing accounts.13 FIF also requested relief for broker-dealers effecting transactions for a large trader other than the large trader’s clearing broker.14 FIF did not request relief from the substantive requirements of the Rule for clearing brokers 15 where the large trader customer either (1) is a U.S. registered broker-dealer or (2) has a ‘‘sponsored access’’ arrangement.16 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,17 and that Commission staff provide guidance on a range of suggested ‘‘Frequently Asked Questions’’ relating to the Rule.18 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 brokerdealer 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 13 In other words, executions in average price processing accounts would be reported with the execution time for each trade but would not include the applicable LTID number(s) associated with the transaction, and allocations out of average price processing accounts would be reported with the applicable LTID number(s) but not the execution times of the constituent trades. 14 See FIF Letter, supra note 10, at 2. 15 This includes the large trader broker-dealer itself, if self-clearing. 16 See FIF Letter, supra note 10, at 2 and 22. FIF defines a ‘‘sponsored access’’ arrangement by reference to the Commission’s Market Access release (Securities Exchange Act Release No. 63241 (November 3, 2010), 75 FR 69792 (November 15, 2010) (S7–03–10)), generally as an arrangement where a broker-dealer permits a customer to enter orders into a trading center without using the broker-dealer’s trading system (i.e., using the customer’s own technology or that of a third party provider). FIF indicates that compliance is easier for sponsored access customers because those arrangements typically are distinct from all other business lines of the broker-dealer, with infrastructure that processes this order flow that is separate from the platforms that handle other client and proprietary flows. See id. at 5. 17 See, e.g., FINRA Regulatory Notice 11–56 (December 2011) (concerning proposed enhancements to EBS submissions). As reflected in that Regulatory Notice, the ISG’s proposed enhancements currently have an effective date of August 31, 2012. Commission staff are currently working with the ISG on the changes to the EBS record layout and expects to be able to coordinate the implementation dates as requested. 18 Commission staff have published written responses to a series of ‘‘Frequently Asked Questions’’ that staff have received since the Commission’s adoption of Rule 13h–1 and Form 13H. See Responses to Frequently Asked Questions Concerning Large Trader Reporting, available at: https://www.sec.gov/divisions/marketreg/mrfaq.htm. PO 00000 Frm 00084 Fmt 4703 Sfmt 4703 the application of the Rule to brokerdealers 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 brokerdealer) where the large trader customer either (1) is a U.S. registered brokerdealer 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. Recordkeeping and Reporting Requirements for Broker-Dealers. Accordingly, the Commission is providing a temporary exemption to extend the compliance date to May 1, 2013, for the broker-dealer recordkeeping, reporting, and monitoring requirements of Rule 13h–1, except as described below.19 The Commission is providing a temporary exemption to extend the compliance date 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 20 where the large trader: 19 In connection with any potential relief that the Commission may grant on or before the new May 1, 2013 date, the Commission would consider the appropriateness of an implementation period as well as a systems testing schedule beyond May 1, 2013. 20 In its request, FIF asked the Commission for ‘‘relief for broker dealers involved in Large Trader transactions that do not have a direct relationship with the Large Trader. Only the self-clearing and clearing broker dealers with a direct relationship with the Large Trader would perform Large Trader Reporting.’’ See FIF Letter, supra note 10, at 2. In Appendix C of its letter, FIF provides an example of the entities for whom it recommends imposing a recordkeeping and reporting obligation. See id. at 25. Specifically, FIF recommends that the reporting E:\FR\FM\26APN1.SGM 26APN1 Federal Register / Vol. 77, No. 81 / Thursday, April 26, 2012 / Notices (1) Is a U.S.-registered broker-dealer,21 or tkelley on DSK3SPTVN1PROD with NOTICES (2) Trades through a sponsored access arrangement.22 On November 30, 2012, these clearing brokers should be prepared to record and report disaggregated trade information, together with the LTID number (or numbers, if applicable) and execution time, for these two categories of large traders, in accordance with the requirements of Rule 13h–1.23 As explained in FIF’s letter, the trading activity of these categories of large traders typically is processed by clearing brokers on infrastructure separate from that used for other customers, so that compliance with the Rule requires substantially less effort than for other types of large trader customers.24 Further, the Commission believes that limiting the recordkeeping and reporting responsibility to clearing brokers for this initial compliance of execution time should rest with the clearing broker for the originating broker, and any prime broker would be relieved from being required to report execution times. The term ‘‘a clearing brokerdealer for a large trader’’ refers to self-clearing and clearing broker-dealers that have a direct relationship with the large trader (including the large trader broker-dealer itself, if self-clearing). 21 The reportable activity would include proprietary trading by a large trader broker-dealer where the large trader is trading for its own account. 22 A ‘‘sponsored access arrangement’’ in this context refers to an arrangement in which a brokerdealer 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). 23 Accordingly, large traders that are themselves registered broker-dealers but that are not selfclearing would not be required to connect to the EBS system to report their transactions as of November 30, 2012, and instead could rely on their clearing broker to perform the reporting responsibilities with respect to their reportable transactions during that interim period. In addition, FIF requested in its letter that the Commission provide guidance on whether execution times are required to be reported in connection with options exercises and assignments as well as exchange traded fund creations and redemptions (i.e., the actual transfers involving the authorized participant and the exchange traded fund sponsor, not the underlying purchases or sales of securities in the secondary market by an authorized participant in connection with the creation or redemption process). See FIF Letter, supra note 10, at 1. While the Commission continues to consider FIF’s broader request for relief, in the interim period, firms will not be required to provide execution times on any options exercises and assignments or exchange traded fund creations and redemptions that they report through EBS for large traders prior to May 1, 2013. 24 See FIF Letter, supra note 10, at 5. VerDate Mar<15>2010 17:51 Apr 25, 2012 Jkt 226001 period is reasonable as it narrows the universe of reporting entities to brokerdealers that currently are connected to the EBS system. Monitoring Requirements. The Commission also is providing a temporary exemption to extend the compliance date to May 1, 2013 for the requirement on registered broker-dealers to monitor their customers’ accounts for activity that may trigger the large trader identification requirements of Rule 13h– 1. This extension should allow firms to focus their resources on the recordkeeping and reporting provisions and facilitate the orderly implementation of those provisions. III. Exemption for Certain Transactions Rule 13h–1(a)(1)(i) defines a large trader as a person who, among other things, ‘‘effects transactions for the purchase or sale of any NMS security * * *’’ 25 Rule 13h–1(a)(6) defines the term ‘‘transactions’’ as ‘‘all transactions in NMS securities, excluding exercises or assignments of option contracts,’’ except for certain specifically enumerated transactions.26 The exceptions from the term ‘‘transaction’’ were designed to exclude certain transactions from the identifying activity level calculation that are not effected with an intent that is commonly associated with the arm’s-length trading of securities in the secondary market and therefore would not fall within the types of transactions that are characterized by the exercise of investment discretion for purposes of Rule 13h–1.27 Rather, these enumerated categories of transactions generally are effected for materially different reasons that reflect fundamental corporate decision-making or capital formation objectives and therefore are not effected with an intent that is normally associated with secondary-market trading activity in NMS securities. SIFMA has requested that certain additional types of transactions involving securities offerings be excluded from being counted towards the identifying activity level.28 Under the Rule, offerings of securities by or on behalf of an issuer generally are excluded for purposes of determining whether a person is a large trader, but that exemption expressly does not apply to ‘‘an offering of securities effected 25 See 17 CFR 240.13h–1(a)(1)(i). 17 CFR 240.13h–1(a)(6). 27 See Rule 13h–1 Adopting Release, supra note 1, 76 FR at 46967. 28 See Letter from Sean Davy, Managing Director, SIFMA, to David S. Shillman, Associate Director, Division, Commission, dated March 26, 2012, available at: https://www.sec.gov/comments/s7-1010/s71010.shtml (‘‘SIFMA Capital Markets Letter’’). 26 See PO 00000 Frm 00085 Fmt 4703 Sfmt 4703 25009 through the facilities of a national securities exchange.’’ 29 The Commission understands from SIFMA that, while the Rule does exclude the vast majority of primary offerings, certain offerings such as ‘‘dribble out’’ programs 30 or offerings ‘‘crossed’’ on a national securities exchange 31 occur with enough regularity to warrant relief for the reasons discussed below. In addition, while the Rule excludes offerings of securities by or on behalf of an issuer, it does not exclude sales of stock acquired as part of employee compensation by current or former selling employees of the issuer in connection with those offerings. SIFMA argues in its letter that offerings effected through the facilities of a national securities exchange, as well as sales by issuer employees in an initial public offering or registered secondary offering, similarly are effected for materially different reasons than those normally associated with secondary-market trading activity, and should be excluded for purposes of determining whether a person is a large trader.32 The Commission believes that it is appropriate and consistent with the purposes of the Exchange Act to not count these transactions for the purpose of determining whether a person meets the identifying activity level. Accordingly, the Commission hereby is exempting from the definition of the term ‘‘transaction,’’ for the sole purpose of determining whether a person is a large trader: (1) Any transaction that is part of an offering of securities by or on behalf of an issuer, or by an underwriter on behalf of an issuer, or an agent for 29 See 17 CFR 240.13h–1(a)(6)(ii) (providing an exclusion for ‘‘[a]ny transaction that is part of an offering of securities by or on behalf of an issuer, or by an underwriter on behalf of an issuer, or an agent for an issuer, whether or not such offering is subject to registration under the Securities Act of 1933 (15 U.S.C. 77a), provided, however, that this exemption shall not include an offering of securities effected through the facilities of a national securities exchange’’). 30 SIFMA notes that a ‘‘dribble out program’’ enables an issuer to offer and sell its equity securities through one or more registered brokerdealers in incremental registered transactions that are effected over a period of time. See SIFMA Capital Markets Letter, supra note 28, at 3. Such offerings involve prospectus supplements, comfort letters, opinions of counsel, due diligence, officer’s certificates, and filings with the SEC. See id. SIFMA states that these transactions can facilitate capital formation for issuers, particularly during periods of high volatility, by avoiding some of the risks of underwritten offerings. See id. 31 SIFMA notes that all of part of an offering of securities by an issuer may be ‘‘crossed’’ on a national securities exchange purely for ease of settlement. See id. SIFMA believes that the character of this type of offering makes it distinguishable from ordinary secondary market trading. See id. 32 See id. E:\FR\FM\26APN1.SGM 26APN1 25010 Federal Register / Vol. 77, No. 81 / Thursday, April 26, 2012 / Notices an issuer, whether or not such offering is subject to registration under the Securities Act of 1933, regardless of whether such transaction is effected through the facilities of a national securities exchange; and (2) sales of securities by a selling shareholder in connection with an initial public offering or in a registered secondary offering if such selling shareholder is a current or former employee of the issuer and the securities being sold were acquired as part of the person’s compensation as an employee of the issuer. The Commission believes that providing this limited exemption will continue to ensure that Rule 13h–1 provides a mechanism for the Commission to gather data on persons that conduct a significant amount of secondary market trading in NMS securities, while providing limited relief to issuers and selling shareholders who would not otherwise meet the definition of large trader in the absence of these capital market transactions. Because such transactions typically are infrequent in nature and are distinguishable in character from the secondary market activity that is the focus of Rule 13h–1, this exemption should preserve the Commission’s ability to identify large traders while reducing burdens on issuers and selling shareholders and thereby assist in the promotion of capital formation. IV. Conclusion 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 are temporarily exempted from those requirements until May 1, 2013, except that clearing broker-dealers for a large trader that either (1) is a U.S.registered broker-dealer,33 or (2) trades through a sponsored access arrangement,34 are temporarily exempted from the recordkeeping and reporting provisions of Rule 13h–1 only until November 30, 2012. Further, it is hereby ordered, pursuant to Exchange Act Section 13(h)(6) and tkelley on DSK3SPTVN1PROD with NOTICES 33 This includes the large trader broker-dealer itself, if self-clearing. 34 A ‘‘sponsored access arrangement’’ in this context refers to an arrangement in which a brokerdealer 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). VerDate Mar<15>2010 17:51 Apr 25, 2012 Jkt 226001 Rule 13h–1(g) thereunder, that: (1) Transactions that are part of an offering of securities by or on behalf of an issuer, or by an underwriter on behalf of an issuer, or an agent for an issuer, whether or not such offering is subject to registration under the Securities Act of 1933, or such transaction is effected through the facilities of a national securities exchange, and (2) sales of securities by a selling shareholder in connection with an initial public offering or in a registered secondary offering if such selling shareholder is a current or former employee of the issuer and the securities being sold were acquired as part of the person’s compensation as an employee of the issuer, are hereby exempt from the definition of the term ‘‘transaction’’ under Rule 13h-1(a)(6) for the sole purpose of determining whether a person is a large trader. By the Commission. Elizabeth M. Murphy, Secretary. organizations that provide essential services of governmental nature may file disaster loan applications at the address listed above or other locally announced locations. The following areas have been determined to be adversely affected by the disaster: Primary Counties Kauai. The Interest Rates are: Percent For Physical Damage: Non-Profit Organizations With Credit Available Elsewhere ....... Non-Profit Organizations Without Credit Available Elsewhere ....... For Economic Injury: Non-Profit Organizations Without Credit Available Elsewhere ....... 3.125 3.000 3.000 The number assigned to this disaster for physical damage is 13065B and for economic injury is 13066B. (Catalog of Federal Domestic Assistance Numbers 59002 and 59008) [FR Doc. 2012–10026 Filed 4–25–12; 8:45 am] BILLING CODE 8011–01–P Joseph P. Loddo, Acting Associate Administrator for Disaster Assistance. [FR Doc. 2012–10112 Filed 4–25–12; 8:45 am] SMALL BUSINESS ADMINISTRATION BILLING CODE 8025–01–P [Disaster Declaration #13065 and #13066] Hawaii Disaster # HI–00026 SMALL BUSINESS ADMINISTRATION U.S. Small Business Administration. ACTION: Notice. Military Reservist Economic Injury Disaster Loans Interest Rate for Third Quarter FY 2012 AGENCY: This is a Notice of the Presidential declaration of a major disaster for Public Assistance Only for the State of Hawaii (FEMA–4062–DR), dated 04/18/2012. Incident: Severe Storms, Flooding, and Landslides. Incident Period: 03/03/2012 through 03/11/2012. Effective Date: 04/18/2012. Physical Loan Application Deadline Date: 06/18/2012. Economic Injury (EIDL) Loan Application Deadline Date: 01/18/2013. ADDRESSES: Submit completed loan applications to: U.S. Small Business Administration, Processing and Disbursement Center, 14925 Kingsport Road, Fort Worth, TX 76155. FOR FURTHER INFORMATION CONTACT: A. Escobar, Office of Disaster Assistance, U.S. Small Business Administration, 409 3rd Street SW., Suite 6050, Washington, DC 20416. SUPPLEMENTARY INFORMATION: Notice is hereby given that as a result of the President’s major disaster declaration on 04/18/2012, Private Non-Profit SUMMARY: PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 In accordance with the Code of Federal Regulations 13—Business Credit and Assistance § 123.512, the following interest rate is effective for Military Reservist Economic Injury Disaster Loans approved on or after April 20, 2012. Military Reservist Loan Program— 4.000% Dated: April 23, 2012. Joseph P. Loddo, Acting Associate Administrator for Disaster Assistance. [FR Doc. 2012–10115 Filed 4–25–12; 8:45 am] BILLING CODE P SUSQUEHANNA RIVER BASIN COMMISSION Projects Approved for Consumptive Uses of Water Susquehanna River Basin Commission. ACTION: Notice. AGENCY: This notice lists the projects approved by rule by the Susquehanna SUMMARY: E:\FR\FM\26APN1.SGM 26APN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 77, Number 81 (Thursday, April 26, 2012)]
[Notices]
[Pages 25007-25010]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-10026]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-66839]


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

April 20, 2012.

I. Introduction

    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 trading information 
on, 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\
---------------------------------------------------------------------------

    \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.
---------------------------------------------------------------------------

    Pursuant to Exchange Act Section 13(h)(6) and Rule 13h-1(g) 
thereunder,\2\ 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.
---------------------------------------------------------------------------

    \2\ See 15 U.S.C. 78m and 17 CFR 240.13h-1(g), respectively.
---------------------------------------------------------------------------

    Currently, 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, is April 30, 
2012. As discussed below, the Commission is temporarily exempting 
registered broker-dealers from the requirements of new Rule 13h-1 by 
extending the April 30, 2012 compliance date to provide them with 
additional time to comply with the recordkeeping, reporting, and 
monitoring requirements of the Rule.
    Specifically, and as discussed more fully below, the Commission is 
extending the April 30, 2012 compliance date for registered broker-
dealers to May 1, 2013, except for certain broker-dealers that: (1) Are 
large traders or (2) have large trader customers that are either 
broker-dealers or that trade through a ``sponsored access'' 
arrangement, for which the Commission is extending the compliance date 
to November 30, 2012.\3\ The extension of the compliance date will 
allow broker-dealers additional time to develop, test, and implement 
enhancements to their recordkeeping and reporting systems as required 
under Rule 13h-1 and, for those broker-dealer 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.
---------------------------------------------------------------------------

    \3\ 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.
---------------------------------------------------------------------------

    In addition, the Commission 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.

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\ or
---------------------------------------------------------------------------

    \4\ The term ``Unidentified Large Trader'' means each person who 
has not complied with the identification requirements of paragraphs 
(b)(1) and (b)(2) of Rule 13h-1 that a registered broker-dealer 
knows or has reason to know is a large trader. See 17 CFR 240.13h-
1(a)(9). For purposes of determining whether a registered broker-
dealer has reason to know that a person is a large trader, a 
registered broker-dealer need take into account only transactions in 
NMS securities effected by or through such broker-dealer. See id.
---------------------------------------------------------------------------

    (ii) If the broker-dealer is a large trader, any proprietary or 
other account over which such broker-dealer exercises investment 
discretion.
    (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\
---------------------------------------------------------------------------

    \5\ See 17 CFR 240.13h-1(d)(2)(xii).
    \6\ See 17 CFR 240.13h-1(d)(2)(xiii).
---------------------------------------------------------------------------

    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.\7\ 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.
---------------------------------------------------------------------------

    \7\ The reporting activity level is 100 shares. See 17 CFR 
240.13h-1(a)(8). Accordingly, in response to a Commission request 
for EBS information, broker-dealers are required to report 
information for each account in which any large trader's or 
Unidentified Large Trader's activity amounts to at least 100 shares 
in the aggregate.
    In response to a Commission request for transaction records, in 
addition to reporting information for any identified large trader 
(i.e., a person for whom the broker-dealer has received an LTID 
number), the broker-dealer also should report records for each 
Unidentified Large Trader, as applicable, including any unique 
identifying number that the broker-dealer has assigned to such 
person.
---------------------------------------------------------------------------

    Broker-dealers are required to report information to the Commission 
upon request of the Commission.\8\ 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

[[Page 25008]]

the day following the request, unless in unusual circumstances same day 
submission of information is requested.\9\
---------------------------------------------------------------------------

    \8\ See 17 CFR 240.13h-1(e).
    \9\ See 17 CFR 240.13h-1(e). See also 17 CFR 240.13h-1(d)(5) 
(requiring that the records required to be kept pursuant to the 
provisions of Rule 13h-1 must be available for reporting on the 
morning after the day the transactions were effected (including 
Saturdays and holidays)).
---------------------------------------------------------------------------

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.\11\
---------------------------------------------------------------------------

    \10\ 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: 
https://www.sec.gov/comments/s7-10-10/s71010.shtml.
    \11\ 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: 
https://www.sec.gov/comments/s7-10-10/s71010.shtml.
---------------------------------------------------------------------------

    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.\12\ 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.\13\ FIF also requested relief for 
broker-dealers effecting transactions for a large trader other than the 
large trader's clearing broker.\14\ FIF did not request relief from the 
substantive requirements of the Rule for clearing brokers \15\ where 
the large trader customer either (1) is a U.S. registered broker-dealer 
or (2) has a ``sponsored access'' arrangement.\16\ 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,\17\ and that Commission staff provide guidance on a 
range of suggested ``Frequently Asked Questions'' relating to the 
Rule.\18\
---------------------------------------------------------------------------

    \12\ See FIF Letter, supra note 10, at 5.
    \13\ In other words, executions in average price processing 
accounts would be reported with the execution time for each trade 
but would not include the applicable LTID number(s) associated with 
the transaction, and allocations out of average price processing 
accounts would be reported with the applicable LTID number(s) but 
not the execution times of the constituent trades.
    \14\ See FIF Letter, supra note 10, at 2.
    \15\ This includes the large trader broker-dealer itself, if 
self-clearing.
    \16\ See FIF Letter, supra note 10, at 2 and 22. FIF defines a 
``sponsored access'' arrangement by reference to the Commission's 
Market Access release (Securities Exchange Act Release No. 63241 
(November 3, 2010), 75 FR 69792 (November 15, 2010) (S7-03-10)), 
generally as an arrangement where a broker-dealer permits a customer 
to enter orders into a trading center without using the broker-
dealer's trading system (i.e., using the customer's own technology 
or that of a third party provider). FIF indicates that compliance is 
easier for sponsored access customers because those arrangements 
typically are distinct from all other business lines of the broker-
dealer, with infrastructure that processes this order flow that is 
separate from the platforms that handle other client and proprietary 
flows. See id. at 5.
    \17\ See, e.g., FINRA Regulatory Notice 11-56 (December 2011) 
(concerning proposed enhancements to EBS submissions). As reflected 
in that Regulatory Notice, the ISG's proposed enhancements currently 
have an effective date of August 31, 2012. Commission staff are 
currently working with the ISG on the changes to the EBS record 
layout and expects to be able to coordinate the implementation dates 
as requested.
    \18\ Commission staff have published written responses to a 
series of ``Frequently Asked Questions'' that staff have received 
since the Commission's adoption of Rule 13h-1 and Form 13H. See 
Responses to Frequently Asked Questions Concerning Large Trader 
Reporting, available at: https://www.sec.gov/divisions/marketreg/mrfaq.htm.
---------------------------------------------------------------------------

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.
    Recordkeeping and Reporting Requirements for Broker-Dealers. 
Accordingly, the Commission is providing a temporary exemption to 
extend the compliance date to May 1, 2013, for the broker-dealer 
recordkeeping, reporting, and monitoring requirements of Rule 13h-1, 
except as described below.\19\
---------------------------------------------------------------------------

    \19\ In connection with any potential relief that the Commission 
may grant on or before the new May 1, 2013 date, the Commission 
would consider the appropriateness of an implementation period as 
well as a systems testing schedule beyond May 1, 2013.
---------------------------------------------------------------------------

    The Commission is providing a temporary exemption to extend the 
compliance date 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 \20\ where the large 
trader:
---------------------------------------------------------------------------

    \20\ In its request, FIF asked the Commission for ``relief for 
broker dealers involved in Large Trader transactions that do not 
have a direct relationship with the Large Trader. Only the self-
clearing and clearing broker dealers with a direct relationship with 
the Large Trader would perform Large Trader Reporting.'' See FIF 
Letter, supra note 10, at 2. In Appendix C of its letter, FIF 
provides an example of the entities for whom it recommends imposing 
a recordkeeping and reporting obligation. See id. at 25. 
Specifically, FIF recommends that the reporting of execution time 
should rest with the clearing broker for the originating broker, and 
any prime broker would be relieved from being required to report 
execution times. The term ``a clearing broker-dealer for a large 
trader'' refers to self-clearing and clearing broker-dealers that 
have a direct relationship with the large trader (including the 
large trader broker-dealer itself, if self-clearing).

---------------------------------------------------------------------------

[[Page 25009]]

    (1) Is a U.S.-registered broker-dealer,\21\ or
---------------------------------------------------------------------------

    \21\ The reportable activity would include proprietary trading 
by a large trader broker-dealer where the large trader is trading 
for its own account.
---------------------------------------------------------------------------

    (2) Trades through a sponsored access arrangement.\22\
---------------------------------------------------------------------------

    \22\ 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).

On November 30, 2012, these clearing brokers should be prepared to 
record and report disaggregated trade information, together with the 
LTID number (or numbers, if applicable) and execution time, for these 
two categories of large traders, in accordance with the requirements of 
Rule 13h-1.\23\
---------------------------------------------------------------------------

    \23\ Accordingly, large traders that are themselves registered 
broker-dealers but that are not self-clearing would not be required 
to connect to the EBS system to report their transactions as of 
November 30, 2012, and instead could rely on their clearing broker 
to perform the reporting responsibilities with respect to their 
reportable transactions during that interim period.
     In addition, FIF requested in its letter that the Commission 
provide guidance on whether execution times are required to be 
reported in connection with options exercises and assignments as 
well as exchange traded fund creations and redemptions (i.e., the 
actual transfers involving the authorized participant and the 
exchange traded fund sponsor, not the underlying purchases or sales 
of securities in the secondary market by an authorized participant 
in connection with the creation or redemption process). See FIF 
Letter, supra note 10, at 1. While the Commission continues to 
consider FIF's broader request for relief, in the interim period, 
firms will not be required to provide execution times on any options 
exercises and assignments or exchange traded fund creations and 
redemptions that they report through EBS for large traders prior to 
May 1, 2013.
---------------------------------------------------------------------------

    As explained in FIF's letter, the trading activity of these 
categories of large traders typically is processed by clearing brokers 
on infrastructure separate from that used for other customers, so that 
compliance with the Rule requires substantially less effort than for 
other types of large trader customers.\24\ Further, the Commission 
believes that limiting the recordkeeping and reporting responsibility 
to clearing brokers for this initial compliance period is reasonable as 
it narrows the universe of reporting entities to broker-dealers that 
currently are connected to the EBS system.
---------------------------------------------------------------------------

    \24\ See FIF Letter, supra note 10, at 5.
---------------------------------------------------------------------------

    Monitoring Requirements. The Commission also is providing a 
temporary exemption to extend the compliance date to May 1, 2013 for 
the requirement on registered broker-dealers to monitor their 
customers' accounts for activity that may trigger the large trader 
identification requirements of Rule 13h-1. This extension should allow 
firms to focus their resources on the recordkeeping and reporting 
provisions and facilitate the orderly implementation of those 
provisions.

III. Exemption for Certain Transactions

    Rule 13h-1(a)(1)(i) defines a large trader as a person who, among 
other things, ``effects transactions for the purchase or sale of any 
NMS security * * *'' \25\ Rule 13h-1(a)(6) defines the term 
``transactions'' as ``all transactions in NMS securities, excluding 
exercises or assignments of option contracts,'' except for certain 
specifically enumerated transactions.\26\ The exceptions from the term 
``transaction'' were designed to exclude certain transactions from the 
identifying activity level calculation that are not effected with an 
intent that is commonly associated with the arm's-length trading of 
securities in the secondary market and therefore would not fall within 
the types of transactions that are characterized by the exercise of 
investment discretion for purposes of Rule 13h-1.\27\ Rather, these 
enumerated categories of transactions generally are effected for 
materially different reasons that reflect fundamental corporate 
decision-making or capital formation objectives and therefore are not 
effected with an intent that is normally associated with secondary-
market trading activity in NMS securities.
---------------------------------------------------------------------------

    \25\ See 17 CFR 240.13h-1(a)(1)(i).
    \26\ See 17 CFR 240.13h-1(a)(6).
    \27\ See Rule 13h-1 Adopting Release, supra note 1, 76 FR at 
46967.
---------------------------------------------------------------------------

    SIFMA has requested that certain additional types of transactions 
involving securities offerings be excluded from being counted towards 
the identifying activity level.\28\ Under the Rule, offerings of 
securities by or on behalf of an issuer generally are excluded for 
purposes of determining whether a person is a large trader, but that 
exemption expressly does not apply to ``an offering of securities 
effected through the facilities of a national securities exchange.'' 
\29\ The Commission understands from SIFMA that, while the Rule does 
exclude the vast majority of primary offerings, certain offerings such 
as ``dribble out'' programs \30\ or offerings ``crossed'' on a national 
securities exchange \31\ occur with enough regularity to warrant relief 
for the reasons discussed below. In addition, while the Rule excludes 
offerings of securities by or on behalf of an issuer, it does not 
exclude sales of stock acquired as part of employee compensation by 
current or former selling employees of the issuer in connection with 
those offerings. SIFMA argues in its letter that offerings effected 
through the facilities of a national securities exchange, as well as 
sales by issuer employees in an initial public offering or registered 
secondary offering, similarly are effected for materially different 
reasons than those normally associated with secondary-market trading 
activity, and should be excluded for purposes of determining whether a 
person is a large trader.\32\
---------------------------------------------------------------------------

    \28\ See Letter from Sean Davy, Managing Director, SIFMA, to 
David S. Shillman, Associate Director, Division, Commission, dated 
March 26, 2012, available at: https://www.sec.gov/comments/s7-10-10/s71010.shtml (``SIFMA Capital Markets Letter'').
    \29\ See 17 CFR 240.13h-1(a)(6)(ii) (providing an exclusion for 
``[a]ny transaction that is part of an offering of securities by or 
on behalf of an issuer, or by an underwriter on behalf of an issuer, 
or an agent for an issuer, whether or not such offering is subject 
to registration under the Securities Act of 1933 (15 U.S.C. 77a), 
provided, however, that this exemption shall not include an offering 
of securities effected through the facilities of a national 
securities exchange'').
    \30\ SIFMA notes that a ``dribble out program'' enables an 
issuer to offer and sell its equity securities through one or more 
registered broker-dealers in incremental registered transactions 
that are effected over a period of time. See SIFMA Capital Markets 
Letter, supra note 28, at 3. Such offerings involve prospectus 
supplements, comfort letters, opinions of counsel, due diligence, 
officer's certificates, and filings with the SEC. See id. SIFMA 
states that these transactions can facilitate capital formation for 
issuers, particularly during periods of high volatility, by avoiding 
some of the risks of underwritten offerings. See id.
    \31\ SIFMA notes that all of part of an offering of securities 
by an issuer may be ``crossed'' on a national securities exchange 
purely for ease of settlement. See id. SIFMA believes that the 
character of this type of offering makes it distinguishable from 
ordinary secondary market trading. See id.
    \32\ See id.
---------------------------------------------------------------------------

    The Commission believes that it is appropriate and consistent with 
the purposes of the Exchange Act to not count these transactions for 
the purpose of determining whether a person meets the identifying 
activity level. Accordingly, the Commission hereby is exempting from 
the definition of the term ``transaction,'' for the sole purpose of 
determining whether a person is a large trader: (1) Any transaction 
that is part of an offering of securities by or on behalf of an issuer, 
or by an underwriter on behalf of an issuer, or an agent for

[[Page 25010]]

an issuer, whether or not such offering is subject to registration 
under the Securities Act of 1933, regardless of whether such 
transaction is effected through the facilities of a national securities 
exchange; and (2) sales of securities by a selling shareholder in 
connection with an initial public offering or in a registered secondary 
offering if such selling shareholder is a current or former employee of 
the issuer and the securities being sold were acquired as part of the 
person's compensation as an employee of the issuer. The Commission 
believes that providing this limited exemption will continue to ensure 
that Rule 13h-1 provides a mechanism for the Commission to gather data 
on persons that conduct a significant amount of secondary market 
trading in NMS securities, while providing limited relief to issuers 
and selling shareholders who would not otherwise meet the definition of 
large trader in the absence of these capital market transactions. 
Because such transactions typically are infrequent in nature and are 
distinguishable in character from the secondary market activity that is 
the focus of Rule 13h-1, this exemption should preserve the 
Commission's ability to identify large traders while reducing burdens 
on issuers and selling shareholders and thereby assist in the promotion 
of capital formation.

IV. Conclusion

    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 are 
temporarily exempted from those requirements until May 1, 2013, except 
that clearing broker-dealers for a large trader that either (1) is a 
U.S.-registered broker-dealer,\33\ or (2) trades through a sponsored 
access arrangement,\34\ are temporarily exempted from the recordkeeping 
and reporting provisions of Rule 13h-1 only until November 30, 2012.
---------------------------------------------------------------------------

    \33\ This includes the large trader broker-dealer itself, if 
self-clearing.
    \34\ 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).
---------------------------------------------------------------------------

    Further, it is hereby ordered, pursuant to Exchange Act Section 
13(h)(6) and Rule 13h-1(g) thereunder, that: (1) Transactions that are 
part of an offering of securities by or on behalf of an issuer, or by 
an underwriter on behalf of an issuer, or an agent for an issuer, 
whether or not such offering is subject to registration under the 
Securities Act of 1933, or such transaction is effected through the 
facilities of a national securities exchange, and (2) sales of 
securities by a selling shareholder in connection with an initial 
public offering or in a registered secondary offering if such selling 
shareholder is a current or former employee of the issuer and the 
securities being sold were acquired as part of the person's 
compensation as an employee of the issuer, are hereby exempt from the 
definition of the term ``transaction'' under Rule 13h-1(a)(6) for the 
sole purpose of determining whether a person is a large trader.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2012-10026 Filed 4-25-12; 8:45 am]
BILLING CODE 8011-01-P

This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.