SEC Commissioners voted unanimously to publish and request comments on a proposed national market system plan that would create a single, comprehensive database of all trading activity in the U.S. equity and options markets (the "consolidated audit trail" or "CAT" plan). The proposed CAT plan was submitted to the SEC by FINRA and the national securities exchanges (the "SROs") jointly. It is intended to improve regulators' ability to perform market research and monitoring, effect event reconstruction, and identify and investigate market misconduct.
Highlights from the proposed CAT plan include the following:
Plan Processor and Central Repository. Under the CAT plan, a plan processor would build a central repository for receiving, consolidating, and retaining reported trade and order data. The plan processor would be responsible for, among other things, (i) operating, maintaining, and upgrading the central repository, (ii) ensuring the security and confidentiality of all data reported to the central repository, and (iii) publishing technical specifications for the submission of data to the central repository.
Data Recording and Reporting. The SROs and broker-dealers would be required to submit certain order information to the central repository that includes (i) a unique identifier provided by the broker-dealer for the customer submitting the order (ii) an identifier provided by the applicable SRO for the broker-dealer receiving, originating, routing, or executing the order, (iii) the date and time of the order, and (iv) the material terms of the order (e.g., symbol, size and price). The proposed CAT plan would require that order information be reported to the central repository by 8:00 a.m. on the day following the event, and that such data be time-stamped in increments as granular as those that are utilized by the SROs and broker-dealers, subject to a minimum increment of one millisecond (except for manual order events that are subject to a minimum increment of one second). The proposed CAT plan would set an initial maximum error rate of five percent for data reported to the central repository, with the intent of establishing a phased approach in order to lower the maximum error rate to one percent for data reported to the central repository.
Governance. The activities involved in the CAT plan would be conducted through a Delaware limited liability company owned jointly by the SROs. The company would be managed by an operating committee composed of representatives from all of the SROs, each of whom would be afforded a single vote. The proposed CAT plan also calls for the separate formation of an advisory committee that would consist of broker-dealers of various sizes and specialties, as well as investors, among others, all of whom would provide input to the operating committee.
Regulatory Access and Use. The proposed CAT plan would allow SROs and the SEC to access the data contained in the central repository for regulatory and oversight purposes. Access points would provide the data in forms that allowed all regulators to perform complex queries pertaining to tasks such as the reconstruction of market events and determining the status of order books at various time intervals.
Data Security and Confidentiality. The proposed CAT plan would establish data security requirements for the central repository with regard to (i) connectivity and data transfer, (ii) encryption, (iii) storage, (iv) access, (v) breach management, and (vi) personally identifiable information.
Comments on the proposed CAT plan should be submitted to the SEC within 60 days of the proposal's publication in the Federal Register.
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