CAT Update – SIFMA Guide; Peirce Privacy Concern; Latest Timeline

Published On October 15, 2019

15 October 2019: The Securities Industry and Financial Markets Association put out a 104-page guide to the Consolidated Audit Trail in August this year. 

Meanwhile Hester Peirce, Commissioner at the US Securities and Exchange Commission, expressed concern in early October at the potential privacy implications related to the planned Consolidated Audit Trail, with the result that all retail investor activity will be tracked. CAT will deliver a single archive database for all equity and options trades on US exchanges. Broker-dealers will report data for CAT on trades they execute on behalf of all clients from April of 2020. 

The SEC proposed guidance this September requiring that self-regulatory organizations, exchanges and securities associations, file and publish implementation plans and quarterly progress reports to ensure the project hits its deadline.

As an update, there are currently no changes planned to industry member technical specifications published in October 2018 (version 1.0). No material changes to the specifications are expected outside of resolution of outstanding issues. The need for a mechanism to facilitate error feedback and correction was confirmed. A revised rollout plan for phase 2a and 2b for large broker-dealers has been scheduled, which further breaks down the implementation for these two phases into four sub-phases. A regulatory conformance period is no longer deemed necessary.

Industry experts are still expecting delays of at least six months to the project as the transition will be complicated and many questions remain that need to be clarified. 

They recommend that firms be ready to start reporting by this time in 2020, and make a registration with the CAT plan processor. Development for phases 2a and 2b should be in focus now. Now is the time for firms to ensure they have robust controls for regulatory reporting; the complexity and increased volume required by CAT will place unusual stress on any existing weaknesses, and ensure effective testing.

Simple order flow covers the majority of transactions (orders routed away without splitting, bunching, crossing internally) and should be the main focus now; more complex orders that cover about 20 percent of volume can be addressed at another time (multiple entity; desk or system hops; splitting; bunching).