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David Weisberger
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Stop the BS & Promote Real Transparency!

In this shared blog, David Weisberger says a recent WSJ article is wrong and that traders do need to purchase faster and more comprehensive market data to avoid being fined for violating "Best Execution" obligations.

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September 1, 2011

Commentary: Player's Club

Why an LTID will be the Street's new status symbol

By Dan Mathisson

Also in this article

Are you a player? Since the days of Gordon Gekko and "Liar's Poker," everyone on Wall Street has wanted to be one. But entering the hallowed halls of playerdom was always in the eye of the beholder, with no official designation that announced your arrival. The good news is that the decades of ambiguity are over. Last month, in a unanimous vote, the five SEC commissioners officially defined who's hot and who's not.

Dan Mathisson

The definition is within rule 13h-1, the "Large Trader Reporting Rule," which goes into effect in stages over the next nine months. And if you don't qualify as a "large trader" under the new rule, well, I'm sorry to inform you that no matter what you may think of yourself, the bouncer ain't letting you into that exchange VIP room.

There is a clear definition of who's allowed past the SEC's velvet rope: A person or trading entity that trades 2 million shares or $20 million in a single day qualifies, as does anyone who trades 20 million shares or $200 million in a month. Hit the target, file form 13H within 10 days, and then sit back and wait for Telly Savalas to knock on your door and hand you the ultimate Player's Club card, officially known as an "LTID" (Large Trader ID), good for one full year of impressing your friends and brokers.

So how exclusive is the designation? It may be a more elite club than you would think. The SEC estimates there will be only 400 trading entities and people that get an LTID, which seems like a wild underestimate based on my own unofficial survey-of the dozen or so clients I randomly discussed it with, a full 100 percent said they will definitely qualify. One client even said his personal account would qualify, swearing that he once flipped enough Sirius Radio tax-free in his IRA account to cross the threshold. With approximately 7,000 hedge funds and 10,000 mutual funds in the U.S. alone, not to mention countless hordes of day traders watching CNBC all day, it seems impossible that only 400 trading entities would qualify.

But the SEC is calling traders out on their supposed massive volumes. Despite receiving several public comment letters saying the estimate of 400 large traders was too low, the Commission is standing by its number. The final rule points out that each parent company receives only one LTID for all its subsidiaries, whether the parent company runs $1 million in one fund, or $1 trillion across thousands of funds. Also implicit in their low estimate may be a belief that traders like to exaggerate their volume, and so there may actually be fewer seven-figure Sirius flippers than we hear about over beers.