On November 15, 2016, the Securities and Exchange Commission (SEC) approved the National Market System (NMS) Plan governing the creation and operation of the Consolidated Audit Trail (CAT), capping four years of development by the 21 self-regulatory organizations (SROs) responsible for implementing the CAT.1 The CAT NMS Plan will require broker-dealers conducting business in the US equity and options markets to report all transactions—including orders, quotes, executions, cancels, allocations, and sensitive customer and account information—to a central repository.
The CAT may require major changes to the way firms capture and report to regulators order and customer information. Notably, it will require a universal time sync standard across the industry, and will require firms to report for the first time on a daily basis information related to all of its and its customers’ options transactions, allocations, and detailed information about the customers behind each order.
With the approval of the CAT NMS Plan, deadlines for broker-dealer compliance with CAT are set into motion:
With the clarification of these deadlines, broker-dealers should begin to develop plans to ensure compliance with CAT, and to identify related strategic opportunities to enhance the data management, analytics and surveillance solutions that will support compliance.
CAT provides an opportunity for firms to take a more strategic view of their regulatory reporting with an eye toward centralizing their regulatory reporting functions into a more cohesive and efficient whole. In doing so, firms may be better positioned to deploy enhanced solutions to more effectively monitor and surveil their operations. This will be of particular importance given the expectation that CAT will provide regulators with enhanced surveillance capabilities. Firms can leverage analytics of the combined data for additional business value opportunities and enhanced risk and operational management improvements.
Firms wishing to understand more about CAT, its requirements and impacts, and solution strategies should contact:
1Securities and Exchange Commission, “SEC Approves Plan to Create Consolidated Audit Trail,” (November 15, 2016), available at https://www.sec.gov/news/pressrelease/2016-240.html.