Grabbing CAT by the Tail
By Quentin Limouzi, Chief Revenue Officer, TradingScreen
MiFID II has been years in the making, but that doesn’t mean institutions were prepared.
Indeed, just over two months into 2018, firms both within and outside of the EU are still adapting to the new regulations, the full implications of which remain to be seen. Designed to promote greater transparency, investor confidence, and competition, MiFID II is changing trade standards across a number of asset classes. That means everyone, from bankers to investors, must reevaluate how to conduct “business as usual.”
It’s no surprise then that with these changes comes a great deal of trepidation. With nearly around 1.4 million paragraphs of rules, MiFID II offers the financial world a lot to think about, and more importantly, to act upon. Fears over data collection, analyst payments, reporting requirements, and firms’ competitiveness (to name a few) abound, and it is clear that investors and companies have their work cut out for them in the foreseeable future.
If this weren’t enough, the wheels have already started turning on the Consolidated Audit Trail National Market System, or CAT NMS plan (we’ll spare you the “cat’s out of the bag” admonition), and with it, a serious demand for U.S. institutions to adapt to how data is collected and tracked in securities markets. Thesys Technologies has already been chosen to build the audit trail as the CAT processor, and SROs such as FINRA are expected to submit data to the central repository within the year. Shortly after, they must implement enhanced surveillance using CAT data, with large and short broker-dealers not far behind.
CAT is coming, and like MiFID II, its full implications remain unclear, which means the time to prepare is now.
Both further reaching and tougher than FINRA’s OATS requirements, CAT calls for a great deal of information to be collected and shared in a timely manner (to put it lightly) from over 2000 U.S. institutions “that will allow regulators to more efficiently and accurately track activity in NMS securities and OTC equities throughout the U.S. markets.” As the world’s largest repository of securities transactions, CAT is expected to take in approximately 58 billion records of orders, executions, and quote life-cycles for equities and options daily, while also securely maintaining data on over 100 million customers.
By its own admission, the SEC expects CAT to change back, middle, and front office operations, and will require of firms an infrastructure capable of handling and relaying massive amounts of data – with timestamps down to the millisecond. For this reason, it is expected that reporters will collectively spend billions preparing in technological, operational, and administrative costs.
The real sticking point? Although these new regulations are coming in hot and heavy, and so far, to the chagrin of many, it is still very much a mystery how reporters are best able to set themselves up for success for CAT’s demands and in the face of risk, be it related to cybersecurity, data error, or myriad other pitfalls.
Given these challenges, you need a reliable trading platform that is as dynamic as today’s regulatory landscape, with the architecture to support your needs.
New regulatory regime provides no exemptions or exclusions.
The market regulator takes on all future aspects of CAT development and maintenance.
Recent changes suggest timeline is likely to be pushed back.
A new proposed master plan lays out a timeline with milestones.
Developers are 'working intensively towards the November 2018 working deadline for initial implementation'.