Score one for the brokers.
After months of fighting and acrimony, detente exists between the brokers and the exchanges when it comes to liability surrounding data reporting to the consolidated audit trail.
The resolution comes after a dispute between U.S. stock exchanges and broker-dealers that had threatened to hold brokers liable for any breaches of a new trading database controlled by the exchanges and the Financial Industry Regulatory Authority (FINRA). As brokers gear up to send critical and sensitive trade information to the CAT, the SROs had insisted the brokers sign an agreement limiting the SROs’ financial liability to $500 per reporting firm in the case of a data breach.
“That would have put brokers on the hook for any security breaches of the database, which they have no control over,” SIFMA argued. On Wednesday the SROs agreed to remove the language from the agreement limiting SRO liability for a breach of the database.
SIFMA Wednesday issued the following statement from Kenneth Bentsen, Jr., SIFMA president and CEO, on the settlement reached between SIFMA and the SROs for the Consolidated Audit Trail (CAT) Reporter Agreement:
“Today, SIFMA and the SROs reached a settlement of the SEC proceeding filed by SIFMA challenging the Consolidated Audit Trail Reporter Agreement. Under the settlement, the SROs agreed to remove the language from the CAT Reporter Agreement limiting SRO liability for a breach of the CAT database. The SROs further agreed not to impose any limitation of liability language in the Reporter Agreement without first proposing a rule and going through the formal public notice, comment and approval process with the SEC. SIFMA has joined the SROs in filing a stipulation of dismissal with the SEC with respect to our Section 19(d) application. With today’s settlement we have accomplished all that we sought by filing the Section 19(d) application.
“SIFMA’s guiding principle is ‘they who hold the data bear the liability,’ and it was inappropriate and unfair for the SROs to unilaterally impose limits on their liability when they alone hold and control the data inside the CAT, the largest data base to ever be constructed. While SIFMA supports the goals of the CAT and our members have invested substantial resources toward its implementation, we remain vigilant regarding the risks to sensitive customer information being compiled in one government-mandated database and we will strenuously oppose efforts to shield responsibility for maintaining the security and privacy of such data.”