The SEC should deny the Securities Industry and Financial Markets Association's challenge to the CAT reporter agreement, which industry members must sign before connecting to the consolidated audit trail, according to an SEC filing by the group implementing the CAT.
The SEC-adopted CAT NMS plan grants CAT LLC, the group formed by U.S. exchanges to establish a plan to implement the CAT, "broad authority to do anything that may be necessary, proper or advisable to create, implement, and maintain the CAT," according to a regulatory filing Wednesday. The filing, by CAT LLC and certain self-regulatory organizations, was made public Thursday.
SIFMA has taken issue with a section of the CAT reporter agreement that limits the liability for SROs, made up of exchanges and securities associations, CAT LLC, and their officers, employees and agents "in the event of a CAT data breach or other conduct for which CAT LLC or the SROs are responsible," it said in its April 22 SEC filing.
SIFMA has asked the SEC to stay the application of the reporter agreement, which limits the SROs liability at $500 per reporting industry firm and requires that broker-dealers waive any claims of liability against the SROs before firms are permitted to submit data to meet CAT obligations, the SIFMA filing notes.
On Wednesday, CAT LLC said the reporter agreement is normal for a project such as this and the "customary limitation of liability and indemnification provisions are authorized by the commission-approved CAT NMS plan and consistent with the Exchange Act."
It added that SIFMA's filing also fails to make any showing of irreparable harm. "The prospect of defending against a hypothetical disciplinary action," an action that SIFMA fears industry members who choose not to sign the agreement will face, "is not irreparable harm," CAT LLC said.
Moreover, if the stay is granted, the CAT "would be forced to accept data from approximately 1,200 industry members without any reporting agreement, exposing CAT LLC and the participants to uncertain obligations and inappropriate risk that was never considered by the commission" when it approved the CAT NMS plan.
The 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.
The deadline for large broker-dealers and certain small broker-dealers to begin reporting equities trades is June 22. Starting July 20, large broker-dealers must submit options trades.
SIFMA has an opportunity to submit a reply brief and a decision from the SEC is expected before the June deadline. An SEC spokeswoman declined to comment Thursday.
As of April 17, 1,382 firms had signed the CAT reporter agreement, according to information on the CAT LLC website.
SIFMA supports the CAT and its regulatory intent but remains concerned "regarding the risks of sensitive customer information being compiled in one government-mandated database," said its president and CEO, Kenneth E. Bentsen Jr., in a statement last month.
A SIFMA representative could not immediately be reached for comment Thursday.
