More On Legal & Compliancefrom The Advisor's Professional Library
- Preventing and Dealing with Client Complaints Although the SEC has not provided specific guidance on how client complaints should be handled, a firms policies and procedures should provide clear direction how to do so, as neglecting complaints can exacerbate a bad situation.
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
Just when you thought there couldn’t be any more forms to complete, we have yet another one from our friends at the SEC—the new Form 13H. There is a question on the new SEC exam regarding “compliance budgets.” Query—how can any advisor maintain a realistic compliance budget if regulators keep propounding new forms and requirements?
My colleagues, Steve Galletto and Matt Jacobs, recently had an opportunity to conduct a national seminar on this issue, and I asked them to summarize the new rule for our readers.
The “Large Trader Rule,” Rule 13h-1, collects information on U.S. securities market participants involved in large volume value trading. It became effective on Oct. 3, 2011. The Large Trader Rule requires that all qualifying market participants, including investment advisors, file a Form 13H. The filing will generate an identification number that shall be used to monitor trading activity. By imposing a self-identifying requirement on qualifying market participants, the Large Trader Rule has created a valuable data source and tracking system for trading activity.
The Large Trader Rule identifies qualifying market participants, or “large traders,” as any person or entity, including investment advisory firms, that effect transactions in exchange-listed securities through a broker-dealer on a discretionary basis in an aggregate amount equal to or greater than either two million shares or $20 million in a single day, or 20 million shares or $200 million in a calendar month. The rule also requires that market participants who fit the definition of a large trader self-identify by filing Form 13H electronically through the EDGAR system.
Investment advisors who meet the definition of a large trader will be required to disclose on their Form 13H information such as the name and address of the organization, the name and contact information for an authorized person of the firm, the names of each general partner and executive officer, a description of the firm’s business activity, and the name of each broker-dealer where the investment advisor has an account. To complete a Form 13H filing, an investment advisor must also upload an organizational chart depicting any parent or subsidiary relationship. The information disclosed by investment advisors on the Form 13H will be kept confidential by the SEC and is exempt from Freedom of Information Act requests.
After filing an initial Form 13H, the investment advisor will be assigned a Large Trader Identification Number (a “LTID”). The rule requires all qualifying investment advisors to provide their LTIDs to each broker-dealer effecting transactions on their behalf. Under the rule, it is the responsibility of the broker-dealers effecting transactions on behalf of an investment advisor to maintain records concerning, as well as to monitor and report on, the investment advisor’s trading activity.
Qualifying investment advisors are required to promptly file Form 13H after their aggregate trading in exchange-listed securities reaches the thresholds previously mentioned. Although the Large Trader Rule does not provide guidelines as to how promptly qualifying investment advisors must file their initial Form 13H, the industry believes that so long as newly qualifying market participants file their initial Form 13H within 10 days of meeting a qualifying threshold, the initial filing requirement is met.
Qualifying investment advisors have a continuing obligation to file an amended Form 13H annually. Furthermore, if any information contained within the investment advisor’s most recently filed Form 13H becomes inaccurate, an amended Form 13H filing must be made by the end of the calendar quarter during which that information became inaccurate.