CAT Moves from Theory To Reality


Broker-dealers and exchanges can expect a meaningful increase in trade-reporting costs over the next few years as the Consolidated Audit Trail becomes reality.

The U.S. Securities and Exchange Commission today voted unanimously to release the proposed CAT plan for comment. This starts the clock ticking on subsequent part of SEC Rule 613’s deadlines, according to Stephen Luparello, director of Division of Trading and Markets at the SEC.

Once the plan is published in the Federal Register, the regulator has 180 days to select which of the three qualified bids will create, implement, and maintain the CAT.

Stephen Luparello, SEC

Stephen Luparello, SEC

Within four months of the SEC approving the CAT plan, broker-dealer and self-regulatory organizations must synchronize their time stamps within 50 milliseconds to the time kept by the National Institute of Standards and Technology’s atomic clocks for electronic orders. Time stamps for manual orders need only to be within 1 second of NIST time.

A year after the SEC selects the plan’s processor, SROs will need to start submitting its trade-reporting data to the CAT. Within two years, large SRO members will need to submit their data to the CAT. Small members of SROs have three years before they are required to submit their trade-data to the industry utility. All trade reports are due to the CAT no later than 8 am the following day.

SROs and their members will need to continue their OATS reporting to the Financial Industry Regulatory Authority until the CAT is fully functional and receiving data from all of the SROs and their members.

The proposed plan provides for a 5% reporting error when the CAT starts receiving data from SROs and broker dealers, which the plan processor will reduce to 1%, according to David Hsu, assistant director with the Division of Markets and Trading at the SEC.

Although the Commission approved releasing the plan for comment, Commissioner Kara Stein took issue with the plan’s proposed level of clock synchronization and its permitted error reporting.

“The current proposal to allow reporting entities’ clocks to be out of sync by up to 50 milliseconds is inconsistent with this reality,” she said. “At the speed at which today’s trading is done, this is like requiring police officers to travel by foot while the rest of the world travels by supersonic jet.”

If the time stamps were out of sync as much as 50 milliseconds, regulators would only be able to determine the sequence of 8% of unrelated equity trades, she noted.

The industry already demands better performance in terms of clock synchronization, Stein added. “Nasdaq states that all exchanges trading Nasdaq securities need to synchronize their matching engines their matching engines and quotation systems within 100 microseconds. This is a much stricter standard- 500 more stringent than the one put before us today.”

“Regardless of the particularities, developing and maintaining the CAT is going to be an incredibly costly endeavor,” added Commissioner Michael Piwowar. “Therefore, it is especially important for our analysis of the pan to be informed by data.  I want to encourage market participants to be catalysts for a robust, data-driven economic analysis.  Please give us your perspectives on the costs and benefits of each component of the plan, as well as the plan generally.

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