The Securities and Exchange Commission’s Large Trader Rule might appear simple on paper but implementation poses significant challenges. Simon explains.
The Securities and Exchange Commission’s Large Trader Rule, adopted on July 26, might appear simple on paper but implementation poses significant challenges to middle- and back-office teams that support trading. Simply put, a lot of questions need to be answered.
That was the crystal clear message on the Aug. 31 joint Security Traders Association/Financial Information Forum call that focused on the ramifications of the LTR.
The questions raised need to be answered now (well, really yesterday) because the deadlines for compliance are alarming. With the ruling approved and hitting the Federal Register on Oct. 3, by Dec. 1, large traders will need to be identified and by April 30, 2012, broker-dealers will have to be able to report and be compliant for SEC audits.
For their efforts to help the industry out, the STA/FIF should be commended. While discussing issues within their mostly buy-side community, topics that were raised are highly intriguing. Some are nonthreatening – “What does a broker do if the buy-side client refuses to admit they are a large trader?” or “Where do I go to file and get my LTID and how long does this take?”
Still other questions are extremely important for greater clarity, such as:
- Which securities do large trader requirements cover?
- How does a parent company vs. subsidiary relationship change reporting requirements?
- How are electronic blue sheets (EBSs) impacted?
- How are unidentified large traders monitored?
- What are the responsibilities of the sell-side for proprietary accounts trading through their pipes?
The list goes on and on.
Some of these questions have been answered but the details will be critical before industry adoption takes hold. Simple advisory on the day-to-day issues by the SEC could help to overcome what some believe are misunderstood safeguards of collecting, reporting and disseminating required information.
Specifically, the disruption to current processes and how the rule is applied has both buy-side firms and sell-side firms concerned, to say the least.
That’s the main reason the STA/FIF group is soliciting input and has a set of at least 75 questions they are bringing to the SEC next week. How these questions are answered – including the verbiage the SEC uses in those answers – will help the industry disseminate everything.
But for now, it’s a bit of a mess and the cost of what we don’t know is still very much at…large.