July 13, 2018

Mr. Brett Redfearn
Director
Division of Trading and Markets
Securities and Exchange Commission
100 F Street, NE Washington, D.C. 20549-1090

Re: SEC Rule 13h-1 Large Trader Implementation Issues for Broker-Dealers
Request for Phase III Extension

Dear Mr. Redfearn:

The Securities Industry and Financial Markets Association (“SIFMA”)1 submits this letter to the Securities and Exchange Commission (“Commission”) to request an extension of the exemptive relief that the Commission has granted in connection with Rule 13h-1 under the Securities Exchange Act of 1934 (“Exchange Act”). The Commission issued an order on October 31, 2017 (“October Order”) to exempt broker-dealers from certain recordkeeping and reporting requirements of Rule 13h-1 until November 15, 2018.2 The compliance phase currently scheduled to take effect on November 15, 2018 is referred to in the October Order as “Phase III.”

SIFMA has previously described the significant implementation challenges that would have to be resolved to meet the compliance requirements of Phase III. In particular, SIFMA stated in its February 13, 2013 letter to the Commission that “it would require a massive restructuring of most of the current execution and clearing flows and systems at considerable cost to aggregate all of [the relevant reporting] information at one broker-dealer” and that “individual broker-dealers must make significant internal changes to their systems, the fundamental restructuring of certain industry standard clearing processes may be required, and concerted and coordinated development activities will be required throughout the broker-dealer industry.”3 These challenges continue to persist and are no less burdensome today. SIFMA also noted in its 2013 letter, and in two subsequent letters,4 that the reporting structure that would ultimately be developed and implemented under Phase III would become redundant when the Consolidated Audit Trail (CAT) is instituted.5 In other words, developing and implementing a LTID Phase III solution is throw away work. This continues to be true.

Certain aspects of Phase III implementation continue to be infeasible except at a prohibitive cost and involving significant industry coordination for the development of new operational flows and processing standards. With the continuing work on CAT development, the costs of a complicated and specialized Phase III solution will greatly outweigh any temporary benefits. In November 2016, the Commission approved the CAT NMS Plan submitted by the Self-Regulatory Organizations (SROs), and the CAT NMS plan identifies Rule 13h-1 as a reporting requirement that could reasonably be eliminated because it will be superseded by the CAT.6 At this point, developing a costly and time-consuming Phase III solution would require significant time and resources that would ultimately be superseded by the CAT. Further, Phase III implementation would require significant additional interpretive guidance, which we have requested from the Commission as far back as February 2013.7

Continue Reading >

1 SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $20 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.

2 Securities Exchange Act Release Nos. 81993 (October 31, 2017), 82 FR 51449 (November 6, 2017). See Also Securities Exchange Act Release Nos. 76322 (October 30, 2015), 80 FR 68590 (November 5, 2015); Securities Exchange Act Release Nos. 70150 (August 8, 2013), 78 FR 49556 (August 14, 2013) (the “August Order”) (establishing Phase Two and providing for Phase Three); 69281 (April 3,2013), 78 FR 20960 (April 8, 2013) (extension of the compliance date); and 66839 (April 20, 2012), 77 FR 25007 (April 26, 2012) (establishing Phase One).

3 SIFMA Request for Exemptive Relief from certain aspects of Rule 13h-1 (Large Trader Reporting), February 13, 2013 (available at http://www.sec.gov/comments/s7-10 10/s71010-102.pdf).

4 SIFMA Request for SEC Rule 13h-1 Large Trader Phase III Extension, April 9, 2015 (available at https://www.sec.gov/comments/s7-10-10/s71010-104.pdf); SIFMA Request for SEC Rule 13h-1 Large Trader Phase III Extension, March 3, 2017 (available at https://www.sec.gov/comments/s7-10-10/s71010-1610783- 135970.pdf).

5 Supra note 3. SIFMA also raised a number of critical interpretive questions that we believe the Commission should address before broker-dealers can develop a compliance solution for Phase III.

6 Amended and Restated Consolidated Audit Trail National Market System Plan (CAT NMS Plan) Submission, Submitted February 27, 2015 (available at http://catnmsplan.com/web/groups/catnms/@catnms/documents/appsupportdocs/p602500.pdf).

7 Supra note 5 at pages 8-10.