SEC Rejects CAT Delay


All systems are go, Houston.

Despite pressure from the exchanges and others, the Securities and Exchange Commission (SEC) rejected a last-minute request to delay by a year the start of  the Consolidated Audit Trail tracking system.

With the delay squelched, exchanges are required to begin feeding trading data into the audit trail beginning today. The audit trail was created by SEC rule last year, and not complying could open them up to SEC punishment for non compliance.

Proponents of a delay cited cybersecurity concerns as paramount to delaying implementation of the system. Recently, the SEC admitted its own EDGAR system had been compromised as did consumer credit agency Equifax.

In a statement released on Tuesday, SEC Chairman Jay Clayton said talks with the exchanges in recent days had been “constructive,” but he said he was “not in a position to support the issuance of the requested relief on the terms currently proposed.”

“I have made it clear that the SEC will not retrieve sensitive information from the CAT unless we believe appropriate protections are in place,” Clayton said.

Just last month, in testimony to Congress, Jay Clayton, Chairman of the SEC, said he had outstanding questions related to the CAT and that the SEC wouldn’t accept data from the massive system until they were answered, according to a report on Bloomberg. More generally, Clayton said his agency was conducting a review to make sure the SEC wasn’t collecting unnecessary personal information.“I’ve made it clear that I don’t want information unless we need it for our mission,” Clayton told lawmakers.

Chair Clayton affirmed that the CAT was “very important” to the SEC’s oversight role, but stressed that the SEC “would not take sensitive data that we cannot protect.”

In January 2017, the consortium of Self-Regulatory Organizations charged with developing and implementing the CAT selected Thesys Technologies as the CAT Plan Processor, and the contract was signed in May.

Thesys, as CAT processor, is publishing technical specifications for order life cycle data starting today.

In May 2018, Thesys will publish technical specifications for submission of customer information. Large broker-dealers must begin reporting trades in November 2018; small broker-dealers follow suit one year later.

Thesys, an eight-year-old provider of high performance trading technology, formed Thesys CAT LLC to focus exclusively on building and maintaining the audit trail. Thesys CAT has about 25 employees, spanning technologists, compliance professionals, business analysts, and project managers, according to Ed Watson, the unit’s chief operating officer.

Market participants and observers mostly support the concept of the CAT – that regulators should have a single view of the marketplace rather than cobbling together different feeds in an attempt to create a full picture.

And that support has also been echoed in Canada. That’s right, the beginnings of a Canadian CAT.

The Investment Industry Regulatory Organization of Canada (IIROC) has recently put forth a proposal which would require legal entity identifiers (LEIs) for orders so that the SRO (and other regional regulators) can better understand market structure and track participant behavior. The plan has been issued with a six-month comment period.

According to IIROC, the goal of including LEIs is to enhance market integrity and investor protection. The regulator has published for comment proposed amendments to the UMIR and the Dealer Member Rules (DMR) that would require client identifiers on:

–          each order sent to a marketplace

–          each reportable trade in a debt security. Dealer Members would need to provide client identifiers.

Doug Clark, head of market structure research at ITG Canada, told Traders Magazine that the idea of a audit trail isn’t something new up North despite the move towards LEIs.

“IIROC has had something close to CAT data, directly from the exchanges, for almost a decade, for secondary equity market trading,” Clark began. “They have used this for market surveillance and academic-style studies of market quality. Recently, they have proposed adding LEI’s (legal entity identifiers) to orders.”


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