SEC Final Rule: Consolidated Audit Trail

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Gavel.png PLAN APPROVED: On April 27, 2016, the SEC approved the CAT plan and released it for public comment. For more information, click HERE.
Timeline, Consolidated Audit Trail, SEC
Final Rule Issue Effective Date Plan Released
August 1, 2012 October 1, 2012 April 27, 2016

On August 1, 2012, an SEC final rule was published that adopt Rule 613, which will create a comprehensive consolidated audit trail in order to allow regulators to accurately track all activity throughout the U.S. markets in certain securities known as National Market System (NMS) securities. The rule was first proposed in 2010, soon after the "Flash Crash" of May 6, 2010.

Because markets have become more dispersed, with the advent of multiple trading venues including both "lit" and "dark" markets, regulators, including the Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues issued among its recommendations the creation of a single database for uniform, consolidated cross-market order and execution tracking of market data.

The SROs, in conjunction with FINRA, have been tasked with the process of developing the NMS, and are soliciting bids for the development of the system. For more information on the status of the development process, click HERE.

Summary of the Final Rule[edit]

Among other things, the rule requires self-regulatory organizations (SROs) to jointly submit a plan – called an NMS plan – to create, implement and maintain a consolidated audit trail. The rule specifies the type of data to be collected, when the data is to be transmitted, and how the data is to be prepared for regulatory use.

Among the requirements:

  • Members of exchanges and of FINRA must provide certain detailed information to a newly created central repository regarding each quote and order in an NMS security by 8 a.m. Eastern Time the following trading day and be subsequently available in an aggregated format to regulators for their analysis
  • All reportable events must be tagged and stored by the central repository in a linked fashion, with each broker dealer and exchange's unique, cross-market identifier.
  • Each customer and customer adviser who has trading discretion over a customer’s account will be assigned a unique, cross-market customer identifier to be reported to the central repository for every order originated.
  • Business clocks and time stamps are to be synchronized to within milliseconds.
  • However, SROs will be allowed to design the specifics of how market participants would report data to the central repository, but will still need to be sent to regulators in a uniform electronic format.

The rule also allows small broker-dealers up to three years, to begin reporting the required data to the consolidated audit trail.

Development and Implementation of the System[edit]

The process for developing and implementing the NMS plan will require, among other things:

  • details and technological specifics of how the consolidated audit trail would be created, and any reasonable alternative approaches considered by the SROs and the rationale behind their choices;
  • detailed cost estimates for creating, implementing, and maintaining the consolidated audit trail;
  • plans for the elimination of any other reporting systems that are no longer necessary or that are superseded by the consolidated audit trail;
  • the establishment of an advisory committee to advise the plan sponsors on how to implement, operate, and administer the central repository;
  • additional policies and procedures designed to protect confidential information collected and retained by the central repository; and
  • detailed information regarding anticipated error rates as well as the plan’s proposed error correction process.

Request for Proposals on System Development, March, April 2013[edit]

In March 2013, the national exchanges, in conjunction with FINRA ("the SROs"), began accepting bids for the creation, development and management of the consolidated audit data service. As of a bidders' conference held on March 8, 2013, 31 firms had indicated they would be submitting bids. The deadline for bids is April 25, 2013. The SROs will then determine a winning bid, and submit the plans to the SEC.

Once the SROs have submitted their proposed plan to the SEC, the Commission will publish the plan for notice and comment by the public. In considering the approval of the plan, the Commission will conduct an economic analysis of the consolidated audit trail based in part on the specific details and cost estimates required to be provided by the SROs, and further informed by any comments received from the public.

SEC Rule 613 Implementation Timeline[edit]

Event Implementation Date<ref>SEC Rule 613: Consolidated Audit Trail (CAT). Retrieved on March 8, 2013.</ref>
CAT Processor Selected by NMS Plan Participants Within two months after effectiveness of the approved NMS Plan
Business Clock Synchronization for SROs and Broker-dealers Within four months after effectiveness of the approved NMS Plan
SROs begin submitting data to the central repository Within one year after effectiveness of the approved NMS Plan
SROs must implement enhanced surveillance using CAT data Within 14 months after effectiveness of the approved NMS Plan
SRO members, except small members, must begin submitting data to the central repository Within two years after effectiveness of the approved NMS Plan
Small SRO members must begin submitting data to the central repository Within three years after effectiveness of the approved NMS Plan

Related Document: Final Rule as it Appeared in the Federal Register[edit]



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