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Sharpening the Axe: Three Crucial Steps Broker-Dealers Should Take Now to Prepare for 2019 CAT Industry Testing

Traders Magazine Online News, September 20, 2018

David Campbell

Given the enormous complexity of rewriting how the U.S. equities and options markets will report trade- and order-related events to the Consolidated Audit Trail (CAT), the latest proposal of a phased implementation approach is a welcome change for broker-dealers. Under the new Master Plan, the U.S. cash equities markets can expect to start industry testing order events in August 2019.This will give industry members more time to increase their capability to implement CAT while reducing risk for all stakeholders throughout the process, particularly with the implementation of new requirements such as options reporting.

However, the target dates still seem tight and pending decisions remain unclear, giving pause to firms amidst a host of ongoing proposed changes. Broker-Dealers who are subject to the first go-live phase of CAT implementation – targeted for November 15, 2019 with a conformance period running to February 2020 and the iterations following it – will need to figure out how they will manage these uncertainties and associated risks until they receive more concrete guidance on the final phasing, decision gates and plan tracking.

Mitigating operational and regulatory risks of implementing CAT is all about preparation. Abraham Lincoln once said, “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.” November 2019 may seem like a long way off, but it truly is not when considering an industry testing window opening in less than 12 months. Here are three essential steps broker-dealers can take now to start sharpening their axes.

1. Focus on the Testing Window

Even with the full CAT rollout pushed out to November 2022, the one milestone date that remains consistent is the start date of Phase2A industry testing in August 2019 – about one year from now – and completion by November 2019 to meet the first go-live that month.

What does this mean for individual broker-dealers who must prepare for this test window? Regardless of how realistic the Phase2A testing timeframes are for meeting the go-live slated for just six months later, firms can use this one seemingly unwavering set of target dates to their advantage by maximizing their own testing time window.

A crucial component to industry testing is the firm’s ability to appropriately implement their reporting solution and conduct internal testing, for which industry experts recommend at least six months to complete – ideally starting by February 2019. But what can firms do now to get ready?

2. Ask the Right Questions

Firms can start by asking the right questions and getting the right answers. Quite often, engaging with outsourcing or technology providers is the best place to begin validating what you already know and uncovering what you do not know. Here are four important things to explore.

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