"The SEC is trying to understand who is in the market and ultimately is responsible for the actions occurring in the marketplace," said Lawrence, "and that's why they don't want to break it down. Take a step back: Why are they doing this?" he asked. "They need it for market reconstruction purposes, surveillance and insider trading information. The May 6, 2010, flash crash," he added, "accelerated in their minds the need to gather the kind of information they're seeking."

Along those lines, as previously mentioned, the amount and type of information that BDs will have to gather from their large traders is an open issue. One area that may be up for change is compressed trades. If an advisor is trading away from a custody broker, and the broker may have executed 20 trades on the same security in the same marketplace, those trades previously could be compressed into one trade at an average price and given to the custody broker who will settle the trade.

Now, however, because of the information the SEC is seeking, particularly on individual trades, that can no longer be done. Instead of one trade at an average price, the advisor will have to take in, for instance, the data on 20 trades for 500 shares each at various strike prices, and capture the trade times—and be able to report it on request.

BDs have been given extra time to comply with the requirements of Rule 13h-1, although large traders have not. An extension was granted on April 20 that exempts BDs from the recordkeeping, reporting and monitoring requirements of the rule until May 1, 2013; U.S.-registered BDs or traders that trade via sponsored access arrangements are also temporarily exempted from these requirements, but only until Nov. 30.

Instant Insights /

SEC's large trader rules hit advisors, too

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