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November 2, 2011

Real-Time Reporting Ignites Debate

By James Armstrong and Peter Chapman

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  • Real-Time Reporting Ignites Debate

Much of the industry is firmly opposed to real-time reporting of a new consolidated audit trail, but regulators continue to hint that a real-time component might still be included when the Securities and Exchange Commission rolls out its CAT proposal in the next few months.

At a conference hosted by the Securities Industry and Financial Markets Association, David Shillman, associate director of the SEC's Division of Trading and Markets, called CAT the agency's "number one" priority.

David Shillman

While a real-time reporting requirement would mean extensive technology upgrades, he said it could still be feasible.

"If a real-time audit trail were approved by the Commission, monitoring technologies could be developed," Shillman said.

At the same conference, Gregg Berman, senior adviser to the director of the Division of Trading and Markets, was even more enthusiastic. He said the SEC had sought information regarding the availability of real-time tools and found the necessary technology for monitoring is available.

"We were quite pleased to find that it is possible for us to procure systems, databases and applications that will enable us to read, monitor and analyze the same low-latency trade-and-quote feeds that many of the most sophisticated market participants use today," Berman said.

Such systems would allow the SEC to observe every trade, every quote and every cancel, at just about the same time and in the same way that other market participants do, according to Berman. He said that while markets are complex, they are not inscrutable.

Others are not so sure real-time reporting would be a good idea. Many in the industry feel it would be excessively expensive and would add little value for regulators, since illegal market activity probably could not be identified until after the fact anyway. 

Gregg Berman

Some in the industry feel it would be impossible to spot in real time any activity not so egregious that it would be caught today anyway.

"Real time is the worst time," said Chris Concannon, a partner with electronic trading firm Virtu Financial and former head of U.S. transaction services at Nasdaq OMX. "In order to recognize manipulation, you have to look at patterns of activity over time."