Consolidated Audit Trail Rule Imminent
Traders Magazine Online News, February 9, 2012
Consensus says that the Securities and Exchange Commission's approval of a rule creating a consolidated audit trail -- CAT -- is imminent. The rule will likely come before the end of the quarter but will not include a real-time data provision requirement. However, even after the rule's approval, the building and implementing of the audit trail will be a long ways off.
After the rule is passed by the SEC, the self-regulatory organizations, exchanges and brokers will meet to discuss the rule's provisions and agree on how to build the audit trail and pay for it. Industry professionals estimated this could take several months or even a year, stretching into 2013 before a final blueprint is constructed and approved. Then, perhaps in late 2013 or 2014, the CAT will be operational.
Creation of an audit trail is a top priority at the SEC. Currently, regulators do not have a single database of comprehensive and readily accessible trade data regarding orders and executions. The SEC now wants to get the trail up and running sooner rather than later, and is willing to drop, at least for the time being, its controversial real-time reporting requirement.
Bob Colby
The SEC had issued a request for proposal for a data service provider that could give regulators a broad swath of real-time existing market data that is currently available. According to Brendon Weiss, vice president of legal and government affairs at NYSE Euronext, this RFP might help the SEC estimate the cost of building a CAT. The RFP is posted on the Internet.
"That is a baby step to collecting real-time data and may assist the Commission in determining the real cost of an audit trail," he said.
The CAT was originally proposed by the SEC on May 26, 2010, just 20 days after the "flash crash." The thinking behind the audit trail was to give regulators a central database of trade information to help them reconstruct trades during a turbulent event in the markets, like the flash crash. The information gathered from trades during an event would allow rule makers to analyze what happened and possibly help set up safeguards to prevent future occurrences.
Robert Colby, an attorney with Davis Polk & Wardwell and former deputy director of the SEC's Division of Trading and Markets, believes CAT is coming soon. That's because an audit trail is at the top of the SEC's to-do list for the equity markets, he said.
"I've heard the rumors about it coming this quarter," Colby said, "and have been expecting it any day."
Other knowledgeable market sources echo Colby's prediction that CAT is coming soon, perhaps with a final rule approved by the end of the first quarter. The SEC declined to comment.
For more information on related topics, visit the following channels:
