Schedule 13H

Schedule 13H acts as an identification and monitoring system for large traders in U.S. securities markets. This filing requirement helps regulators track significant trading activity and assess potential risks posed by high-volume market participants. Many hedge fund managers with active trading strategies must comply with this requirement.

Section 13(h)Provision of the Securities Exchange Act of 1934 that establishes requirements for identifying and reporting large traders in U.S. securities markets. of the Exchange Act and Rule 13h-1SEC regulation implementing the large trader identification procedures under Section 13(h), including filing requirements, entity structure rules, and broker-dealer obligations. require any person meeting the large trader definition to file identifying information with the SEC using Form 13HSEC filing form required for large traders to register with the SEC and obtain a large trader identification number for regulatory tracking purposes.. They typically must file within 10 days of reaching the applicable threshold.

When the SEC receives a completed filing, it assigns each large trader a unique identification number called a large trader ID (LTID). The filer must then communicate this LTID to all broker-dealersA person or firm engaged in the business of buying and selling securities for the account of others or for its own account. through which it executes transactions. This system allows broker-dealers to track and report the trading activity of large traders precisely for regulatory surveillance purposes.

Large trader classification depends on the trading volume an investor generates and the nature of its investment strategies. The classification is based on the aggregate volume of National Market System (NMS) securities traded.

The determination of large trader status focuses on investment discretionThe authority granted to an investment manager to make trading decisions on behalf of clients without obtaining prior approval for each transaction. exercised by a person. This means an investment adviserA professional who provides investment advice or manages client portfolios for compensation, typically regulated under the Investment Advisers Act. managing multiple client accounts aggregates trading activity across all of those accounts. Therefore, it is typically the investment adviser firm that meets the large trader definition—not the individual hedge fund entities it advises.

An adviser crosses the large trader threshold when its aggregate purchases and sales (combined across all client accounts it manages) reach or exceed either threshold:

• Two million shares or shares valued at $20 million during any single calendar day, or
• Twenty million shares or shares valued at $200 million during any calendar month

Once this "identifying activity level" is reached, prompt Form 13H filing becomes mandatory.

The term "NMS Security" has a specific regulatory definition that determines which trading activities count toward the large trader thresholds. NMS Securities encompass exchange-listed equity securities and standardized options traded on U.S. exchanges.

The definition explicitly excludes several types of securities:

• Exchange-listed debt securities
• Securities futures products
• Open-end mutual fund shares that are not currently reported through an effective transaction reporting plan

This scope limitation means that a large trader might engage in substantial trading volume in excluded categories (such as corporate bonds or currency options) without triggering Form 13H obligations. Only transactions in qualifying NMS Securities are aggregated for purposes of determining large trader status and counting toward the identifying activity levels.

Rule 13h-1 implements a tiered filing structure that targets the top entity in an organizational chain to avoid duplicative filings. In most cases, this means the highest-level control person or holding company files a single Form 13H. This consolidates all related accounts under that umbrella, even if subordinate entities separately would qualify as large traders on their own.

Alternatively, a parent company can avoid a filing obligation entirely if each of its controlled subsidiaries independently complies with Rule 13h-1 and lists the parent on each of their separate filings. This creates a cross-referencing system.

In instances where no subsidiary meets the large trader threshold independently, the parent must file if the combined trading activity of all affiliated entities collectively reaches the large trader level. This structure prevents regulatory arbitrageThe practice of taking advantage of differences in regulatory requirements between jurisdictions or regulatory frameworks to gain competitive advantages or avoid compliance costs. and ensures comprehensive coverage of trading activity within affiliated groups.

Broker-dealers maintaining accounts for large traders must tag all transactions with the appropriate LTID. They must also maintain records and reporting protocols tied to that identification number. This system enables the SEC to consolidate trading data across multiple broker relationships and reconstruct the complete market activity pattern attributable to each large trader. This supports both ongoing surveillance and enforcement investigations.

Once large trader status is established through an initial Form 13H filing, continuing compliance obligations apply. Filers must submit an annual update to their Form 13H within 45 days following each calendar year-end.

Additionally, if any information on file becomes inaccurate during a calendar quarter, an amended filing must be submitted promptly following the end of that quarter.

Large trader status persists indefinitely as long as the trader continues to meet or exceed the identifying activity level. However, if a trader goes a full calendar year without executing transactions at or above the threshold amount, it may elect "inactive status" through Form 13H. Once inactive status becomes effective upon filing, broker-dealers may cease LTID tagging and associated reporting for that trader's transactions until the trader reactivates by again exceeding the thresholds.

Since September 2024, the SEC has significantly escalated enforcement scrutiny of large trader reporting compliance. The agency brought charges against multiple institutional investment managers for failing to timely file Forms 13H and maintain accurate filings. This highlights the importance of robust compliance procedures for managers meeting large trader status. These enforcement actions demonstrate that failure to file or maintain current Form 13H information can result in substantial penalties and regulatory sanctions.