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CAT Takes Shape

Traders Magazine Online News, September 22, 2017

Terry Flanagan

This article first appeared in the magazine of the STA’s 84th Annual Market Structure Conference, which was held Sep. 13-15 in Washington, D.C.

For many years, the notion of a consolidated audit trail was just that, a notion -- pondered by regulators and discussed at industry conferences, almost as an academic exercise.

But now, the Consolidated Audit Trail -- proper noun, with capital C, A, and T -- is real, and timelines are looming.

“The CAT is a top-of-mind concern for a lot of people in the broker and exchange community,” said Jerry Hanweck, Founder and CEO of his eponymous risk-analytics firm. “What will be the cost of the CAT, how is the CAT going to be implemented, and what does the CAT mean for me?”

Last November, the U.S. Securities and Exchange Commission approved a plan to create a single, comprehensive database to enable regulators to more efficiently and thoroughly track all trading in U.S. equity and options markets. In January 2017, the consortium of Self-Regulatory Organizations charged with developing and implementing the CAT selected Thesys Technologies as the CAT Plan Processor, and the contract was signed in May.

That’s the backstory. Market participants are much more interested in what’s ahead as the CAT moves toward reality. And while the full rollout extends over the next couple years, there will be tangible movement on the CAT front before Thanksgiving.

Coming Up

Thesys, as CAT processor, is meant to publish technical specifications for order life cycle data on November 15. Also on that date, the SROs begin reporting to the CAT. In May 2018, Thesys will publish technical specifications for submission of customer information. Large broker-dealers must begin reporting trades in November 2018; small broker-dealers follow suit one year later.  

Market participants and observers generally support the concept of the CAT, i.e. that regulators should have a single view of the marketplace rather than cobbling together different feeds in an attempt to create a full picture. But as always, the devil is in the details, and cost, logistics and security are among CAT aspects that need to be ironed out in the coming months.         

Even without full information on how CAT will operate, brokers and exchanges are advised to start preparing now, if they haven’t already started. “Firms should not be waiting for the tech specs,” Robert Walley, principal in regulatory and capital markets at consultancy Deloitte, told Markets Media in a July 21 interview. “They should be sourcing their data and getting an understanding of the challenges of the data. They need to understand what’s reportable from the rule, and they need to start designing and building.”

Predecessors to the CAT include the Order Audit Trail System (OATS), established by Finra in 1998, as well as the Blue Sheets, which contain trading and account holder information that allow regulatory agencies to analyze a firm’s trading activity. Both had utility in their day, but they were not built for today’s complex, high-speed electronic markets.     

“There are issues with the legacy trade-reporting environments,” Walley said. “The CAT should retire those legacy platforms.”

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