Broker-Dealers are continuing to add to their compliance and regulatory ‘need-to-do’ checklist and in a recent SIFMA submission to the SEC, the list of items under the category Consolidated Audit Trail aka CAT compliance is only growing longer. One senior compliance officer representing a regional broker-dealer went so far as to suggest that when questioning a staff member as to the status of a recent technology upgrade to the audit trail system, he received a blank look in response and found himself asking, “What’s wrong? Cat got your tongue?” The staffer replied, “Not my tongue, my b-a-#-@-s!”
Below, courtesy of Traders Magazine’s Patrick Flannery, please find find a consolidated view of what broker-dealers are now contending with in terms of implementation challenges.
For broker-dealers, the Consolidated Audit Trail (CAT) may seem to be another weighty technical challenge, whose cost and implementation challenges will fall disproportionately on their shoulders (and their budgets). In fact, last week, SIFMA submitted a letter to the SEC detailing exactly how burdensome CAT will be.
The current plan, according to SIFMA, “would impose the vast majority of CAT-related costs on broker-dealers.” In its letter to the SEC, the US lobbyist asked the agency to demand that the parties developing CAT, namely, the exchanges and FINRA, explain how they justify requiring “broker-dealers to bear any of the financial burden of funding a system that exists to receive and process information that broker-dealers are required to report under SEC regulations.”
Global consultant Private Placement Services LLC offers a full suite of professional consulting and offering document preparation services for those seeking to raise money via a private placement of debt, equity or convertible securities. To learn more, visit PPM.co
What’s more, while the data submitted to CAT will give regulators better oversight, which is expected to help promote market fairness, several securities industry insiders have begun to question what type of access broker dealers will have to this data. As we understand, it’s unclear at this point whether broker-dealers will to be able to directly query the very data that they must bear the burden (and cost) of collecting and reporting.
Despite these challenges, things may not be as bad as they seem. For those who learn to understand the value of the data they’re collecting, and how it can be mined for market insight, there’s potential for significant upshot.
The Heavy Lifting
CAT will be a much more detailed and sophisticated form of audit trail than FINRA’s OATS system, to which firms currently report data for regulatory oversight purposes, and as a result, reporting requirements will be significantly more complex. The data that CAT will consolidate is voluminous, and for many firms, who have this data stored in disparate systems, gathering, organizing and time stamping CAT data for reporting purposes will be a substantial if not a near-colossal undertaking.
Some aspects of CAT reporting are so challenging it’s hard to see the bright side. For example, every broker-dealer, exchange and all other self-regulatory organizations (SROs) reporting to CAT will have to establish and maintain a system of unique IDs for customers, accounts, counterparties and orders. The ultimate goal: the entire life cycle of any equity or options order can be preserved for future review. A trade, originated through a retail broker, e.g., that is routed through a broker-dealer and executed on an exchange, should be able to be stitched together and reconstructed from CAT data so that the full picture is viewable from multiple perspectives.
When an original order is received, firms will have to capture and report an ID number of the customer originating the order, a CAT order ID, an identifier of the firm receiving the order, terms of the order and a time stamp measured to CAT time-stamping requirements (currently 50 milliseconds).
To continue reading, please click here
