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July 6, 2009

Regulators to Merge OATS and OTS

By Peter Chapman

The two principal self-regulatory bodies are exploring ways to create a centralized system into which brokers would report details about the orders they receive. If the plan comes to fruition, it could alleviate much of the burden brokers now face in reporting to two separate systems.

The Financial Industry Regulatory Authority and NYSE Regulation, which together oversee most trading activity in the U.S., are in discussions over a possible merger of the Order Audit Trail System with the Order Tracking System.

"We have met with the New York Stock Exchange to explore a more detailed way of integrating or combining OATS and OTS," Tom Gira, an executive vice president in FINRA's market regulation department, said recently. "It's not as easy as it sounds, but we have had a dialogue as to how we would achieve it."

OATS is FINRA's trade-reporting system. OTS is the New York's. The SROs' rules require brokers to report extensive details about their orders into the systems on a daily basis. The systems complement the industry's trade-reporting systems and allow the regulators to create an "audit trail" by which to judge whether a particular order received the best execution possible.

Brokers have long complained reporting to two systems is redundant. Many also vehemently dislike the OATS system, which they claim is unnecessarily burdensome. As least one broker won a legal ruling against FINRA over OATS. The New York's system draws fewer complaints. The SROs offered no timeline for completion of the project.



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