The SEC is looking to avoid further delays on its consolidated audit trail project with proposed guidance that would require participating U.S. exchanges to file and publish an implementation plan as well as quarterly progress reports.
CAT will be a single database for all equity and options trades executed on U.S. exchanges. It's intended to allow regulators to track illegal or manipulative trades and show a way to quickly determine what caused large, sudden losses in trading value, such as the flash crash of May 6, 2010. That event resulted in the loss of nearly $1 trillion in U.S. equity value in the Dow Jones industrial average in a little more than 30 minutes.
The project has been hit with several setbacks since the SEC approved creating it in 2012. Of note, the timeline for when broker-dealers will be required to submit data to the CAT on trades they execute on behalf of clients — including institutional investors — has been pushed back to April 2020 from previous deadlines of November 2019 and November 2017.
In September, the SEC proposed guidance that would require self-regulatory organizations, made up of exchanges and securities associations, to file and publish an implementation plan and quarterly progress reports.
"CAT needs to be implemented without further delays," said SEC Chairman Jay Clayton in a statement. "The proposed amendments are designed to bring greater transparency and accountability to the implementation of the CAT."
Jim Nevotti, Chicago-based president of Sterling Trading Tech, a provider of trading platforms, risk and compliance technology and trading infrastructure products for the global equities, equity options and futures markets, said shifting deadlines hurt business.
"You plan for a rollout, which means that you're allocating resources away from revenue-generating projects toward regulatory projects and then when it gets delayed it's frustrating," he said.
But despite past delays, the project is moving much smoother today and there is no reason for the added regulations on this front, said Jim Toes, president, Security Traders Association, New York.
"There's a disconnect from what we see — this process is moving along — to a reaction by the com- mission that doesn't seem like it's really matching what the situation is," Mr. Toes said. "They're kind of dropping the hammer here, asking for these quarterly updates and that's usually something a regulator or anyone does if they're not satisfied with the progress being done at that point in time. There was a time where the commission was not satisfied with how this was progressing…and they were well within the right for having that opinion, but that's like two years ago."
The SEC preliminarily estimates that each self-regulatory organization will incur one-time consultation costs of $8,200 for the implementation plan, and ongoing annual costs of $33,000 for quarterly progress reports until CAT is fully implemented, according to its proposal.
James C. Dolan, chief compliance officer at Luminex Trading & Analytics LLC, Boston, said after years of delays, the SEC simply wants to see the project completed. The SEC is trying to ensure that the self-regulatory groups don't get too comfortable, he said, "and they continue to keep the pedal to the metal to get this thing done," he said.