Broker-dealers get extra year to comply with trade reporting rules

The SEC issued Release 34-81993, Order Temporarily Exempting Certain Broker-Dealers From Specified Provisions of the Recordkeeping, Reporting, and Monitoring Responsibilities of Rule 13h-1 Under the Securities Exchange Act of 1934 on Oct. 31, 2017, to delay for an extra year full implementation of its trade reporting rules for broker-dealers.

The requirements were scheduled to go into effect on Nov. 1, 2017. Instead, they will be adopted on Nov. 15, 2018.

The extension is the latest the SEC instituted for Rule 13h-1 of the Securities Exchange Act of 1934, which was adopted in 2011 in Release No. 34-64976, Large Trader Reporting. The extension was granted to satisfy a request from the securities industry that asked that the rule be erased, largely because, in the industry’s view, other reporting requirements, such as Rule 613 of Regulation NMS for National Market System, covered the same information required in Rule 13h-1. Brokerage firms, hedge funds, and other large Wall Street traders are concerned about the duplicative costs they will incur implementing both rules.

The SEC said it is considering the long-term implications of the industry’s request and that it plans to use the next year until the new compliance date to study the overlapping requirements of Rule 13h-1 and Rule 613.

Rule 613 is part of the SEC’s Consolidated Audit Trail (CAT), a reporting and recordkeeping system the market regulator instituted for the stocks and options to give it a more complete view of trading and help supervise the capital markets.

The SEC has let the securities industry adopt Rule 13h-1 in three stages in response to complaints securities firms had about the costs it imposed on them. The first phase began in November 2012 with brokers that are clearing firms, which means they facilitate the settlement of the trade. The second phase began in November 2013 and covered the “direct market access” agreements brokers set up with preferred investors, such as hedge funds and high frequency traders, that let the investors trade directly with the exchange by using the broker’s exchange membership.

The third phase that has now been delayed was intended to cover all broker-dealers who dealt with large traders, which the SEC defines as a person or business that trades 2 million shares or $20 million in securities daily, or 20 million shares or $200 million on a monthly basis.

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