Free Site Registration

Consolidated Audit Trail: Can Complex Compliance Create Future Value?

Traders Magazine Online News, March 12, 2018

David Campbell and Keith Jamaitis


Spurred by the Flash Crash, Consolidated Audit Trail (CAT) will change how SEC regulated banks and broker dealers manage information and reporting, creating monumental changes in technology, operations and processing flows. The data repository will link cross-firm trade events and track potential market manipulation, overseeing the most complex orders and trading strategies making oversight transparent.

CAT will create a single database of equity and listed options orders, quotes and executed trades that is expected to grow to the equivalent of over 10 times the content of all U.S. academic research. Only the National Securities Agency’s database will be larger.  The projected size of the database is not the only measure of the scope and complexity of CAT.  Twenty-three Self-Regulatory Organizations (SROs) manage the plan, thousands of broker dealers will need to report – including those exempted under current regulations, a new asset class (options) is being added on top of the equities currently reported in OATS, and there may not be immediate retirement of overlapping reporting mechanisms such as OATS when CAT goes live.

Key CAT Challenges:  Industry

As currently planned, CAT will receive data on approximately 58 billion transactions daily and maintain data on over 100 million institutional and retail accounts and their customer’s personal identifiable information (PII).  With so much data, and so many participants, the CAT programme has already run up against the challenges of complex coordination (with 23 SROs on the CAT Operating Committee) and gaining industry feedback and expertize.  The most immediate results have been the Request for Exemptive Relief to change all the deadlines and the inability to create complete specifications on the original schedule for both SRO reporting and industry member (broker dealer) reporting.  The revised approach announced by the Operating Committee on 30 January 2018 to gain industry feedback is a good step in overcoming these issues.

The scope of PII being held has raised numerous cybersecurity concerns – not only with a single repository containing so much PII, but also with the proposed ability of all 23 SROs being able to download data from the repository.  This increases the number of vulnerable nodes that may be holding copies of this data, making the cybersecurity task harder and more complex.  Congress and the industry – SIFMA has provided an alternate proposal – have all raised these concerns, but the central issue remains – without some way to identify who has initiated orders, how can suspicious activity be noticed or tracked across firms effectively?

Finally, the industry faces the issue of who pays for this central repository.  The CAT repository is designed to enable the SROs to better perform their market surveillance functions, yet all SRO proposals on funding the CAT to date have put the onus on the broker dealer community, leading to SEC rejection of the initial proposal.  Industry members face cost challenges to implement solutions and operate in the new CAT environment, and do not see the logic of being primary responsible for the $50M+ estimates of running the repository.

Key CAT Challenges – Banks and Broker Dealers 

For more information on related topics, visit the following channels:

Comments (0)

Add Your Comments:

You must be registered to post a comment.

Not Registered? Click here to register.

Already registered? Log in here.

Please note you must now log in with your email address and password.