The Securities and Exchange Commission adopted a rule Wednesday that would build a single system to monitor and analyze trading activity across U.S. equity and options markets.
In a 3-2 vote, SEC commissioners agreed to require securities exchanges and the Financial Industry Regulatory Authority to create a so-called consolidated audit trail that will enable the reconstruction of market crises and analyze trading on 13 equity exchanges, 10 options markets and more than 200 broker-dealers that execute stock trades away from public venues. The effort is part of the agency's response to the May 6, 2010, stock rout that temporarily erased $862 billion in U.S. equity value.
“A consolidated audit trail that accurately tracks orders throughout their lifecycle and identifies the broker-dealers handling them will provide us with an unprecedented ability to effectively oversee the markets we regulate,” said SEC Chairman Mary Schapiro.
The SEC has already implemented circuit breakers to halt trading when a company's shares move 10% in five minutes. Still, Ms. Schapiro has pressed for tools that would allow faster and broader oversight of trading activity. After the 2010 market disruption, it took a 20-person SEC team three months to collect and process quote and trade data that arrived in different formats from exchanges and brokers.
The two Democrats on the SEC, Elisse Walter and Luis Aguilar, opposed the measure, saying it doesn't go far enough.
Ms. Walter said the SEC should have required real-time trade reporting, which exchanges fought as too costly. The rule adopted Wednesday would require data to be reported by 8 a.m. the following day.
Gregg Berman, a senior adviser to the director of the SEC's division of trading and markets, told commissioners at the end of their meeting that real-time reporting doesn't provide better information than the next-day standard.
“The only advantage of real-time data is that an analysis might start sooner but not that it will be better,” he said.
The SEC's approval leaves it to self-regulatory organizations including Finra, which oversees 4,400 brokers, to develop the specifics of how the consolidated audit trail will work in practice. The SEC must approve the plan before it can be implemented.