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A-Team Insight Blogs

SROs To Select CAT Builder within Two Months Following SEC Approval of NMS Plan

The Securities and Exchange Commission (SEC) has approved the national market systems (NMS) plan that will create a consolidated audit trail (CAT) designed to help regulators improve tracking of trading activity in the US equity and options markets. Within two months of this week’s approval, self-regulatory organisations (SROs) must select an organisation, or plan processor in NMS terms, to build and operate the CAT. Reporting deadlines start within a year.

Proposals for a CAT have previously met mixed opinion on how successful such a scheme could be, but the SEC’s decision to approve the NMS plan means the CAT will go ahead. SROs have two months to select one of the remaining plan processor bidders to build the central CAT repository – final bidders include FIS, the Financial Industry Regulatory Authority (Finra) and Thesys Technologies – and will do so through a two-round voting process in which each SRO has one vote.

The SEC states that the plan processor will be responsible for: operating, maintaining and upgrading the central repository; ensuring the security and confidentiality of all data reported to the central repository; and publishing technical specifications containing detailed instructions for the submission of data by the SROs and broker-dealers to the central repository.

Building the CAT is expected to take about 10 months, after which SROs are expected to start reporting their data by November 2017. Large broker-dealers are expected to report by November 2018 at the latest and small broker-dealers by November 2019 at the latest.

The SROs propose to conduct the activities of the CAT through a not-for-profit Delaware limited liability company that they would own jointly. An operating committee comprising all the SROs – each with one vote – will manage the company, while an advisory committee comprising broker-dealers, institutional investors, a service bureau that provides CAT reporting services, an academic who is a financial economist and a person with significant regulatory experience will provide input to the operating committee.

Commenting on the approval of the NMS plan, SEC chair Mary Jo White, said: “Through the CAT, regulators will have more timely access to a comprehensive set of trading data, enabling us to more efficiently and effectively conduct research, reconstruct market events, monitor market behaviour, and identify and investigate misconduct.”

Before approving the plan, the SEC modified some of its provisions in response to public comments and recommendations from the SROs. Modifications include the strengthening of several data security requirements in the plan, changes to clock synchronisation standards, and expansion of the membership of the advisory committee.

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