CAT Readies for Sell Side Funding


The US cash equities and listed options markets have had a sneak peek at how much supporting the new Consolidated Audit Trail likely will cost them.

“We are expecting it to be in the range of $200 for the smallest broker-dealer up to the $350,000 range for the super-large tier of broker-dealers per annum,” said Alex Ravenel, senior manager, financial services at Deloitte Advisory during an industry outreach hosted by the CAT NMS Operating Committee.

Each broker-dealer will fall into one of nine tiers depending on the volume of its orders, fills, and cancels sent to self-regulatory organizations and alternative tradings systems.

“There will be a set fee that every broker-dealer in that tier will pay,” explained Peter Santori, chief regulatory officer of the Chicago Stock Exchange.

Exchange and ATS operators also will be charged an annual fee to support the CAT. However, the venues will be separated into two tiers based on cash equities market share and trading volumes and a separate assignment will be made for the listed options market.

The CAT NMS Operating Committee used all available market data, including OATS data, for a three-period in 2016 to calculate the various tier-thresholds and then recalculated the thresholds using data from the end of 2016 and the beginning of 2017.

“We believe we have a reasonable basis for the lines that we drew and for the fees that we are charging based on the tier that a broker-dealer is in or as an exchange or an ATS,” said Santori.

The CAT NMS Operating Committee envisions the broker-dealer community would start contributing to the CAT’s development and operation prior to the reporting deadline of November 15, 2018, for the larger broker-dealers.

The SROs, which have been funding the development of the CAT for the past four years will begin paying their respective fees when they start reporting into the CAT on November 15.

“All the CAT reporters, broker-dealers, and including the execution venues, will have a responsibility to pay a certain amount of money to finance the CAT,” said Santori.

The tiered rates are not final and cannot go into effect until the US Securities and Exchange Commission approves each Rule 19b-4 filing made by each SRO, which are open for public comment.

“We’ve worked very closely with the Commission on this,” he added. “There is a lot of information in there and has been drafted in a way to solicit a lot of comments from the industry about the approach which is being taken and recommended by the SROs.”

Broker-dealers that are exempt from certain OATS reporting requirements will not find similar exemptions under the CAT NMS plan.

“Those exemptions will not apply to the CAT,” said Ravenel. “It will cast a wider net that OATs does, which is one of the core requirements of the plan.”

The CAT NMS Operating Committee acknowledges that there will be an overlap in reporting requirements during the CAT’s deployment, but says that should be a temporary situation.

“Under adopting the CAT NMS release, the SROs are required to put forth plans to retire duplicative systems, particularly OATS and electronic Blue Sheets,” explained Robert Walley, advisory principal, Enterprise Risk Services at Deloitte Advisory and the call’s moderator. “The timeline will need to be determined, but it is one of the requirements to move forward.”

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