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Overcoming roadblocks with technology to reach CAT compliance

Authored by: Chris Ekonomidis, Sr. Director - Business Consulting

In order to keep track of the plethora of data generated every day across different trading markets, many exchanges and self-regulatory organizations (SROs) each keep their own order and trade audit trail systems which differ by instrument. These distinct audit trails resulted in significant variances in reporting types, formats and data elements. Some of these differences exist for valid reasons (e.g. different fields are needed for different instruments) but some are the result of fragmented requirements that have built up over time. On May 6, 2010, the Flash Crash resulted in a 9% drop in minutes. Analyzing the order and trade flows from across the various audit trails to accurately recreate what happened brought these differences to light.

To address these inconsistencies, the U.S. Securities and Exchange Commission (SEC) approved the Consolidated Audit Trail (CAT) National Market System (NMS) plan proposed by the SROs to assist with data quality and transparency of equity and options market activities. Increased data reporting requirements across the entire order and trade lifecycle would be reported completely and accurately. A central repository would store this streamlined data to make it available for compliance measures in one place and format. SROs began reporting their data to a CAT processor in November 2017, and now there is just about a year left until large broker-dealers must report and two years for smaller broker-dealers. Firms must focus their attention to short-term plans to aggregate and report their data correctly in time to meet their respective deadlines.


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