The building of the audit trail for the $23 trillion U.S. equities market is about to get more transparent.
Aside from requests for proposals (RFPs) buried in obscure websites and files, Tabb Group, an equity market consultancy, is going to chart the development and other on goings regarding the building of the consolidated audit trail or CAT system.
In the first of three reports, Tabb said that the final selection of builders of the CAT isn’t expected until at least early 2016, some six years after the May 2010 “flash crash” which sparked interest in building an equity market tracking system. The lack of a single unified audit system was one of the recommendations suggested to improve equity market regulation and monitoring.
Though the capital markets community-at-large supports the initiative, there is a considerable amount of concern over the lack of transparency in the process, Tabb noted.
Once fully implemented, CAT will serve as the single largest big data central repository of financial markets information for all U.S. equities and options market data. It will replace the multiple reported systems already in place, such as the current Electronic Blue Sheets and OATS reporting systems to track approximately 58 billion records, including orders, executions and quote lifecycles for the equities and options markets each day.
“The CAT is a necessary tool for the 21st century,” said Tabb’s Alex Tabb and Shagun Bali. The two are co-authors of the report, The building of a new CAT system was mandated by the Securities and Exchange Commission in July 2012 via Rule 613.
“The new rule adopted by the Commission requires the exchanges and FINRA to jointly submit a comprehensive plan detailing how they would develop, implement, and maintain a consolidated audit trail that must collect and accurately identify every order, cancellation, modification, and trade execution for all exchange-listed equities and equity options across all U.S. markets,” the SEC wrote back in July 2012.
The SEC said that a consolidated audit trail will increase the data available to regulators investigating illegal activities such as insider trading and market manipulation, and it will significantly improve the ability to reconstruct broad-based market events in an accurate and timely manner. A consolidated audit trail also will significantly increase the ability of regulators to monitor overall market structure and assess how SEC rules are affecting the markets, and will reduce the regulatory data production burdens on SROs and broker-dealers by reducing the number of ad hoc requests from regulators presently.
This report is the first of a three part series.
