Consolidated Audit Trail (CAT) Resource Center



Overview

In response to the increasingly automated nature of securities markets and trading activity being widely dispersed across many trading centers, the SEC in 2010 proposed a rule that would require the SROs (stock exchanges and national securities associations) to develop a consolidated audit trail (CAT).

As originally proposed, the CAT was envisioned as a real-time, comprehensive database of certain securities quotes and orders.  The CAT is intended to enhance regulators’ ability to regulate the securities markets, including investigating illegal activities and monitoring overall market structure.

On July 11, 2012, the SEC approved a final rule requiring the SROs to establish a CAT.   The new SEC Rule requires securities exchanges and securities associations to submit to the SEC a plan to create a CAT system that will capture information regarding securities quotes and orders.  In particular, the CAT system will have to track securities orders across all markets and will have to include information for the entire life-cycle of a securities order -- that is its origination through routing, cancellation, modification, or execution.   

The SEC Rule requires that the CAT system developed by the SROs meet certain requirements, including:

  • That stock exchanges, FINRA and broker-dealers report certain securities quote and order information to a newly created data repository;
  • Data must be reported by 8 a.m. ET the following trading day;
  • Reported data must be tagged and stored by the repository in a linked manner so that regulators can track the life cycle of an order.
  • Each broker-dealer and securities exchange must be assigned a unique identifier that must be reported to the repository along with all reported data; and
  • Each customer (including any adviser to a customer who has trading discretion) must be assigned a unique customer identifier to be reported to the repository for every order originated by the customer.

Importantly, the SEC moved away from a real-time reporting regime as included in the original proposal, in favor of a next day reporting scheme.

CAT Implementation Timeline

The below is a snapshot of the implementation table for the CAT. This timeline is subject to change based on a ruling expected over summer 2013.

Date Event
Feb. 26, 2013 RFP Published
Mar. 5, 2013 RFP Intent to Bid Submission
Mar. 8, 2013 RFP Bidders Conference
Mar. 28, 2013 SIFMA White Paper Released
Apr. 25, 2013 RFP Responses Due
Dec. 18, 2013 A final NMS Plan creating the CAT must be filed with the SEC. The NMS Plan will not be effective until it is approved by the SEC
Within two months after effectiveness of the approved NMS Plan CAT Processor Selected by NMS Plan Participants
Within four months after effectiveness of the approved NMS Plan Business Clock Synchronization for SROs and Broker-dealers
Within one year after effectiveness of the approved NMS Plan SROs begin submitting data to the central repository
Within 14 months after effectiveness of the approved NMS Plan SROs must implement enhanced surveillance using CAT data
Within two years after effectiveness of the approved NMS Plan SRO members, except small members, must begin submitting data to the central repository
Within three years after effectiveness of the approved NMS Plan Small SRO members must begin submitting data to the central repository

 

Position

SIFMA has long supported the SEC’s efforts to provide regulators with timely access to a more robust and effective cross-market order and execution audit trail. We believe that a centralized and comprehensive audit trail would enable the SEC and securities SROs to perform their monitoring, enforcement and regulatory activities more effectively.

The revisions the SEC made since their original proposal strengthen and enhance the establishment of a consolidated audit trail. SIFMA and our member firms believe that this is a more manageable and cost-effective approach to this kind of system. We look forward to working with the SEC, the SROs and our members to ensure the necessary infrastructure and systems are cost effectively implemented so that this long overdue regulatory tool is put in place.



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