BOCA RATON, Fla. — Three exchange operators and the Financial Industry Industry Regulatory Authority each have split themselves up in order to pursue bids to build the $4 billion consolidated audit trail – and still fulfill their mandate from the Securities and Exchange Commission to pick the best system.
NYSE Euronext, Nasdaq OMX Group, BATS Global Markets and FINRA each have divided themselves up into two separate teams in advance of the June 30 deadline for submitting bids to build a mechanism to report details of all stock and options trades overnight to the federal regulator, said Robert Colby, chief legal officer for FINRA.
One team at each of the four “self-regulatory organizations” has been charged with working on its bid. And another team has been charged with working on reviewing the bids, said Colby at the the Securities Industry and Financial Markets Association 2013 Operations Conference here.
The two teams are prohibited from communicating with each other, to remove the potential for conflicts of interest, Colby said.
Thirty-one firms have indicated they are interested in placing bids to build the system, which former SEC chairman Mary L. Schapiro said in 2010 would cost $4 billion to build and $2 billion a year to maintain.
Among the potential bidders: Google, operator of the dominant set of data centers for indexing and searching for content on the World Wide Web, SunGard Data Systems, Cinnober Financial Technology and Tradeworx, which is already creating a real-time database of trade details on public markets for the SEC; financial information service Thomson Reuters; consultancies that include Capgemini Financial Services, Grant Thornton, Wipro, Infosys, and Sapient; and the International Business Machines Corporation, the largest provider of information systems services.
Of the four main exchange operators, only Direct Edge did not indicate it wanted to bid. Bidding for NYSE Euronext will be NYSE Technologies, the commercial arm of the company that owns the New York Stock Exchange. Nasdaq OMX and NYSE Technologies already compete to supply advanced trading technology to exchanges around the world. Nasdaq also owns two businesses that specialize in market surveillance. BATS Global Markets, an eight-year-old company, has used high-speed trading systems to take over about 10 percent of the nation’s trading in stocks on its two all-electronic national exchanges.
FINRA, for its part, is expected to present a bid that builds on its existing Order Audit Trail System, which keeps track of trades on the Nasdaq Stock Market, the New York Stock Exchange, NYSE Arca, NYSE MKT, BATS Exchange and the Chicago Stock Exchange.
SIFMA, based on a white paper developed by IBM, is advocating that, in the process of building the comprehensive trail of stock and options data, duplicative systems such as the Order Audit Trail System maintained by FINRA, the Electronic Blue Sheets kept by the SEC and the Consolidated Options Audit Trail System and Large Options Position Reporting system maintained by the options industry. said.
SIFMA did however call for more time to be devoted to building brokers’ part of the system, when development is underway.
The trade group said the “proposed timeline for publication of broker-dealer interface specifications does not leave sufficient time for broker-dealers to complete their internal systems build and testing” by the time their systems are supposed to be operative in December 2015.
At the ops conference Tuesday, SIFMA’s managing director for operations and technology, Tom Price, said full implementation of the trail likely will take until 2017 or possibly 2018.
The SEC has charged the NYSE Euronext, Nasdaq OMX Group, BATS Global Markets, Direct Edge, the National Stock Exchange, the Boston Options Exchange, the International Securities Exchange, the Chicago Board Options Exchange, the Chicago Stock Exchange and FINRA with coming up with a working plan for the system by December.
Those parties are being advised by a development group that includes Credit Suisse Securities, Edward Jones, Fidessa Corporation, Financial Information Forum, Goldman Sachs, Group One Trading, JP Morgan Chase, Keybanc Capital Markets, Morgan Stanley, National Financial Services, Options Clearing Corporation, SIFMA, Security Traders Association, Wells Fargo Advisors and Wolverine Trading/Wolverine Execution Services.
The trail is a response to the Flash Crash of May 6, 2010. The staffs of the SEC and Commodity Futures Trading Commission took five months to reconstruct and analyze what happened that day, when the Dow Jones Industrial Average lost 600 points in a matter of minutes and snapped back almost as quickly
