Broker-dealers that have spent months preparing to report data to the SEC's consolidated audit trail next month now have a reprieve of sorts, with the SEC allowing firms to focus more of their time and energy on the COVID-19-induced market mayhem.
On March 17, the Securities and Exchange Commission released a no-action letter saying staff will not enforce CAT implementation deadlines, the next of which is April 20 when broker-dealers are required to submit data to the CAT on trades they execute on behalf of clients — including institutional investors. The letter applies through May 20 but could be extended.
"To allow firms to maintain focus on operational readiness and reduce operational risk, we are issuing this no-action letter so that personnel who are working on CAT matters but are important to maintaining critical operations and implementing business continuity plans can focus their attention on those immediate needs," Brett Redfearn, the SEC's trading and markets division director, wrote in the letter to the CAT NMS operating committee. CAT NMS is the group formed by U.S. exchanges to establish a plan to implement the consolidated audit trail.
Any "member of a national securities exchange or national securities association that handles orders or quotes in NMS equity securities, (over-the-counter) equity securities or listed options" must register for the CAT along with any third-party CAT reporting agent that "is or will be authorized to submit data to the CAT on behalf of an industry member," according to information on the CAT NMS website.
For industry members that have completed the required production readiness certifications and are ready to begin reporting as of April 20, the CAT will be ready to accept CAT reports as previously scheduled, the CAT NMS operating committee said in a statement acknowledging the SEC's no-action letter. The committee also said that completion of production readiness testing and certification generally should occur 14 calendar days prior to reporting.
Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association in Washington, said in a statement that he appreciated the SEC's decision because it will "allow industry members to focus resources on market stability and business continuity planning."
For months, myriad tests have been conducted in preparation of the April 20 deadline. It's a massive undertaking that requires time and resources and the testing process has been going smoothly, sources said.
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, had mixed emotions about the implementation delay.
"It's disappointing for us from a high level because we're ready and this is something we've worked toward," Mr. Nevotti said. "But the flip side is, everyone needs to focus on their core business right now and continuing to operate in this world of uncertainty and market volatility."
COVID-19 has no impact on FINRA CAT LLC's readiness or operations, a spokesman said in an email. The exchanges selected the Financial Industry Regulatory Authority as plan processor in February 2019, which then created FINRA CAT to build the audit trail.
Ellen Greene, New York-based managing director of equity and options market structure at SIFMA, said the recent market volatility and increase in the number of employees working remotely has had an impact on firms. "I think everyone is so focused on the market right now that large scale implementation projects like CAT become more challenging," she said.