So far, the Consolidated Audit Trail appears to be in limbo.
Last summer, the Securities and Exchange Commission originally planned to give the securities industry 90 days to come up with a plan to create a CAT that would deliver to it overnight details every day of all stock and options transactions on national exchanges.
That got extended to 270 days from publication of the rule governing its creation in the Federal Register. Then, on December 5, the exchanges and the Financial Industry Regulatory Authority asked if they could deliver the plan in December of this year, instead.
The 270 days runs out April 26. The new target is eight months after the deadline set by the SEC for delivering the National Market System plan that grew out of the Flash Crash market disruption of May 6, 2010.
The SEC Tuesday told Securities Technology Monitor and Traders Magazine that “no decisions have been made” more than a month later on whether to grant the request for the extension. Meanwhile, the exchanges are declining to comment on how they will respond if an extension is not granted or if they are making progress on the project.
And, of course, Mary Schapiro, who first proposed setting up the trail two-and-a-half years ago, stepped down from her post as chairman of the Securities and Exchange Commission on December 14. Her successor, Elisse B. Walter, has not commented publicly since taking office.
The silence comes as the first deadline set by NYSE Euronext, Direct Edge, Nasdaq OMX Group, BATS Global Markets and other stock and options industry participants set for themselves on their own extended timeline.
That arrives next Friday, January 18, the cutoff in the industry’s own timeline for comment from interested parties on how to technically go about setting up the system. Those comments are to be melded into a Request for Proposals that will go out in the middle of February, with responses due back in early April.
The same month that the SEC wants the complete plan for implementing the system to be delivered.
That’s not likely to happen. Not that nothing will get delivered to the SEC on April 26.
“Presumably they will deliver something and say this is an interim report and the SEC would have to put up with that,“ said Roger D. Blanc, co-chair of the Financial Institutions and Regulatory Practice Group of Willkie Farr & Gallagher, a law firm based in New York. “What are they going to do? Sue everybody. I doubt it.”
After the 1975 adoption of amendments to the Securities Act of 1934 that, among other things, required exchanges to be “self-regulatory organizations,’’ the Nasdaq Stock Market, the New York Stock Exchange and other market participants worked together to create a consolidated tape of prices from different markets and an electronic system for disseminating the bid, ask and size for a trade of a security in any market, Blanc notes.
These early outgrowths of the movement to create a National Market System did not result in any friction between regulator and the self-regulatory organizations over meeting deadlines, according to Blanc.
‘’I don’t remember any of it getting into this sort of ‘who struck John’ phase,’’ he said. “It got done.’’
The bigger problem may be keeping up with the high-speed, fast-changing technology that the audit trail is supposed to help the SEC tame.
“The problem as I see it is, if it takes them another year to implement something, the technology on the trader side will be different,’’ said Lee Unterman, a lawyer with Montgomery McCracken Walker & Rhoads in New York.
Broker-dealers, in particular, he said, are trying to get ready, in good faith, to participate in the auditing system.
And the SEC itself, alongside the CAT initiative, is also developing a separate system, in conjunction with a high-frequency trading technology firm, to capture all public trade data in real time.
These two projects are the SEC’s chance at catching up. Because, so far, the SEC lags well behind the market with its ability to see what’s going on, as it happens, in markets measured by microseconds.
“It’s like trying to race after a Ferrari with a bicycle,’’ said Unterman.
