The Large Trader Rule: What Clients Need to Know

Most traders won't be affected by the Securities and Exchange Commission's (SEC) Large Trader Rule. But for those who meet or exceed the regulator's transaction thresholds, it's important to understand the registration and ongoing compliance requirements. Here are the basics and where to find additional resources.

Under Rule 13h-1 (the Large Trader Rule) of the Securities Exchange Act of 1934, entities known as "large traders" are required to self-identify, register with the SEC, and make certain disclosures.

A large trader is defined as any person or organization that—in their own account or an account for which they exercise "investment discretion"—directly or indirectly performs aggregate transactions in National Market System (NMS) securities equal to or exceeding the following thresholds:

• Daily threshold: 2 million shares or $20 million in transactions
• Monthly threshold: 20 million shares or $200 million in transactions

If a trader or organization meets the criteria to be considered a large trader, they must submit Form-13H to register with the SEC. They will then receive a unique large trader identification number, which they must provide to their registered broker-dealer(s).

Broker-dealers are required to keep records of large traders' identification numbers and trade execution times, and they must provide this transaction information to the SEC upon request. Certain broker-dealers are also required to perform "limited monitoring" of their customers' accounts for activity that may trigger large trader identification requirements.

/story/high-frequency-algorithmic-tradingRule 13h-1 was designed to help the SEC "identify and collect information on the trading activity of the most significant participants in the U.S. markets," according to the regulator. It allows the SEC to assess large traders' impact on markets, reconstruct trading activity after periods of unusual market volatility, and analyze significant market events. The SEC has also said this rule helps it detect fraud and market abuse and support enforcement activities.

The Large Trader Rule has been in effect since October 2011. It was put in place after the "flash crash" of May 6, 2010, in which the Dow Jones Industrial Average^® plummeted roughly 9% in minutes due in part to high-frequency algorithmic trading programs and an unusually large sell order placed by an investment firm.

Both equity and index option transactions count toward the SEC's daily and monthly large trader reporting thresholds, but they are calculated differently.

Equity options calculations:

• Volume: The volume of underlying shares tied to equity options is calculated by multiplying the number of contracts traded by the multiplier. For example, a trader who purchases 10 call options with a multiplier of 100 shares per contract on ZYX stock, would count 1,000 shares toward the SEC's large trader reporting thresholds.
• Fair market value: The fair market value of underlying shares tied to equity options is calculated using the premium price, the multiplier, and the number of contracts. For example, a trader who purchases 10 call options with a multiplier of 100 shares per contract and a premium of $10 on ZYX stock would calculate fair market value as follows: 10 contracts x 100 shares per contract X $10 premium = $10,000 in fair market value.

Index options calculations:

• Volume: Volume is not calculated for index options.
• Fair market value: The fair market value of underlying shares tied to index options is calculated using the multiplier, the price per unit, and the number of contracts. For example, a trader who purchases 10 call options on an index with a multiplier of 100 for $50 per unit would calculate fair market value as follows: 10 contracts x 100 shares per contract x $50 price per unit = $50,000 in fair market value.

Traders who meet the SEC's large trader reporting thresholds must take the following steps to register with the SEC and remain compliant:

• Obtain an EDGAR account. Visit the SEC's EDGAR Filer Management website and create an account.
• Submit Form 13H. Fill out and submit Form 13H electronically. This form includes basic information about the large trader (name, address, taxpayer ID, etc.) as well as disclosures related to the trader's occupation, any large trader registration with other regulators, and more.
• Notify broker-dealer(s). Provide the LTID to any associated registered broker-dealer(s).
• Maintain ongoing compliance obligations. Submit Form 13H to the SEC annually and file a quarterly amendment if any previously submitted information has changed.

If a trader's transaction activity falls below the SEC's large trader thresholds, they may be able to file for inactive status on Form 13H and pause certain filing obligations. Traders can also submit a permanent termination filing to end their large trader status if they have ceased trading operations entirely and do not expect to requalify in the future.

While the registration and ongoing compliance obligations for large traders can be time-consuming, failure to comply can result in civil penalties, cease-and-desist orders, and formal censures. In 2024, for example, the SEC charged multiple investment managers with failing to submit Form 13H, resulting in six-figure penalties for these institutions. Failure to comply with SEC rules can have significant consequences.