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The Daily

SEC Proposes Consolidated Audit Trail (CAT) for All Equities and Options

Chris Gaetano
Published Date:
Apr 28, 2016
No, a different kind of CAT than this. The Securities and Exchange Commission wants to make every single purchase of all equities and options in the U.S. auditable, having proposed the creation of a central database for all trading activity that will aid regulators in overseeing the markets. The program would be called the Consolidated Audit Trail (CAT). 

The proposal was developed after, in 2012, the SEC required self-regulatory organizations (SROs), such as FINRA, and public exchanges, like the New York Stock Exchange, work together in creating a plan for a singular database that would track all trades in the U.S. equities and options markets, according to the SEC. 

Under the proposal, when someone makes an order for a security or option, SROs and broker-dealers would need to submit information about order to this central database. This would include a unique identifier for the customer submitting the order, an identity for the broker-dealer receiving, originating, routing or executing the order, the date and time of the order, and the security symbol, price, size, order type and other material terms associated with the order. Generally this information would need to be submitted by 8 a.m. the following morning. 

The central database would be governed through a limited liability company based in Delaware, and would be jointly owned and managed by the SROs. There would also be an advisory committee consisting of
 broker-dealers, investors, and a person with significant regulatory experience. Both the SROs and the SEC would have access to the data for regulatory and oversight purposes. Regulators would use the database to perform complex queries like reconstructing market event and the status of order books at various time intervals. 

If the SEC approves the plan, the SROs would have two months to select the plan processor among the remaining bidders, and one year to begin reporting data to the central database. Large broker-dealers would have two years to begin sending data, and small broker-dealers would have three. 

Once the database is complete, other similar rules and systems that duplicate the CAT's function would be retired. 

“The Commission’s action to approve the proposed CAT plan for public comment is a major market structure milestone.  CAT will enable regulators to harness today’s technology to enhance the regulation and oversight of today’s trading markets,” said SEC Chair Mary Jo White.  “It will significantly increase the ability of regulators to conduct research, reconstruct market events, monitor market behavior, and identify and investigate misconduct.”