Consolidated Audit Trail Moving Forward — Slowly


It has been a long and winding road, but the latest indications are that U.S. market regulators’ drive for a full ex post facto picture of trading in all markets is gaining momentum.

The U.S. Securities and Exchange Commission estimates that a plan processor for its long-coveted Consolidated Audit Trail may be selected by year-end.
“If we can get the CAT notice out in the next 180 days, we could make the decision to approve or not approve the plan,” said Stephen Luparello, director, Division of Trading and Markets during a panel discussion at the Investment Company Institute’s capital markets conference in lower Manhattan. “Once that happens, things will start moving more quickly.

After the regulator publishes its CAT notice for public commentary, the industry has two months to select the CAT plan processor. ”Things will start to fall in to place really quickly,” Luparello said. At that time, “the process stops being this endless period of development with no fixed deadlines, and becomes something with very hard deadlines.”

Stephen Luparello, SEC

Stephen Luparello, SEC

Robert Colby, chief legal officer for the Financial Industry Regulatory Authority (Finra), asked Luparello when the regulator would decide whether or not to grant the exemptive relief from portions of SEC Rule 613, which the industry first requested in January 2015. “We wrote the plan based on that exemption and if the SEC doesn’t approve the exemption, we’ll have a real problem with the CAT plan,” said Colby.

Luparello suggested that assuming the exemption would come at the same time as the SEC publishes its CAT notice would not be a bad assumption.
“It just needs to come out in a way that allows for people to incorporate it into their analysis when they make their comments on the notice,” he explained. “We assume that requested exemptions are viable alternatives.”

The notion of a CAT is not without controversy. The SEC says it needs a full suite of information to effectively monitor markets; some brokers oppose the CAT plan on the basis that its upside will be more than offset by its downside of vulnerability to hackers and direct costs borne by industry participants.

To be sure, as with most any significant regulatory initiative, the devil is in the details, and implementation is a long process. Even when a CAT processor is selected, trading venues will need to have their input, so a fully functioning CAT may still be years away.

Featured image by Juhku/Dollar Photo Club

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