What Is a Large Trader?
A large trader is an investor or organization with trades that are equal to or exceed specific thresholds set by the Securities and Exchange Commission (SEC). According to SEC regulations, a large trader is defined as an entity whose transactions in National Market System (NMS) securities meet or surpass two million shares or $20 million on any given day, or 20 million shares or $200 million over any calendar month.
Market participants who qualify as large traders must inform the SEC by submitting Form 13H, titled “Large Trader Registration: Information Required of Large Traders Pursuant to Section 13(h) of the Securities Exchange Act of 1934 and Rules Thereunder”.
Key Takeaways
- A large trader is an investor or organization whose trades meet or exceed volume and market value thresholds established by the SEC.
- Typically, large traders include professional market participants and institutional investors with the ability to buy and sell significant blocks of securities.
- Common examples of large traders are mutual funds, pension funds, hedge funds, banks, and insurance companies.
- The SEC tracks large traders to analyze their market impact, address unlawful activities, and safeguard investors from manipulative practices.
Understanding Large Traders
The emergence of trading technologies and the enactment of the Market Reform Act of 1990 necessitated the introduction of large trader reporting by the SEC. Large traders are generally professional market participants and significant institutional investors, such as mutual funds, pension funds, hedge funds, banks, and insurance companies.
These traders possess the capacity to transact in large volumes of securities, including stocks and bonds. The SEC, recognizing the growing importance of large traders and high-frequency traders (HFTs), has prioritized gaining comprehensive access to their activities through regulatory requirements concerning NMS securities.
Large Trader Reporting
Large trader reporting enables the SEC to identify market participants with substantial trading activities and evaluate their market impact. These reports also aid in SEC investigations and enforcement operations. Since 2011, traders engaging in significant trading volumes are required to register with the SEC via Form 13H.
Upon registration, the SEC assigns each large trader a unique Large Trader Identification Number (LTID), which must be provided to their broker-dealers. Each large trader needs to notify the SEC of all accounts using the LTID.
Broker-dealers are responsible for maintaining records of their traders’ LTIDs, monitoring account activities, and reporting transactions classified as large trades. They report such transactions by transmitting data through the Electronic Blue Sheets (EBS) system when requested by the SEC. The SEC utilizes this data to investigate trading volatility and verify compliance with securities laws.
Special Considerations
Large traders have an obligation to submit an initial filing using Form 13H, followed by annual updates corresponding to each calendar year. They may also submit quarterly updates reflecting any changes in their information.
If a large trader reduces their activity below the threshold levels, they may file for inactive status, rendering them exempt from ongoing reporting obligations until they meet the threshold again. To terminate large trader status, they must declare the cessation of their qualifying activities via Form 13H in the subsequent filing period.
Related Terms: Securities and Exchange Commission, National Market System, High-Frequency Trading, Broker-Dealers, Electronic Blue Sheets.
References
- U.S. Securities and Exchange Commission. “Observations from Examinations of Broker-Dealers and Investment Advisers: Large Trader Obligations”. Page 2.
- U.S. Securities and Exchange Commission. “17 CFR Parts 240 and 249, Large Trader Reporting System”. Pages 6-8.
- U.S. Securities and Exchange Commission. “17 CFR Parts 240 and 249, Large Trader Reporting System”. Pages 6-8, 13-14.
- U.S. Securities and Exchange Commission. “17 CFR Parts 240 and 249, Large Trader Reporting System”. Pages 5-6.
- U.S. Securities and Exchange Commission. “Responses to Frequently Asked Questions Concerning Large Trader Reporting”.
- U.S. Securities and Exchange Commission. “17 CFR PARTS 240 and 249, Large Trader Reporting: Final Rule”. Pages 1-2.
- U.S. Securities and Exchange Commission. “17 CFR PARTS 240 and 249, Large Trader Reporting: Final Rule”. Pages 38-39.
- U.S. Securities and Exchange Commission. “17 CFR PARTS 240 and 249, Large Trader Reporting: Final Rule”. Pages 39-43.
