SEC issues updated CAT reporting timeline

The Securities and Exchange Commission issued an exemptive order Monday establishing a new consolidated audit trail reporting timeline for broker-dealers due to the COVID-19 pandemic.

The order allows for equity and options reporting in phases, taking into account the complexity of reporting events, the SEC said in a statement. In order to "address the impact of COVID-19 while preserving progress toward existing milestones," the order also allows for a delayed start to CAT reporting conditioned upon compliance with certain other obligations, the SEC said. The obligations include milestones related to testing and releases of CAT functionality, as well as all other compliance dates for broker-dealer reporting to the CAT.

When fully operational, CAT will be the world's largest data repository of information on securities transactions, tracking all orders throughout their life cycle, according to the operating committee for the CAT. Moreover, it 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.

Broker-dealer reporting on the CAT went live April 13. On March 17, the SEC released a no-action letter saying due to the coronavirus pandemic, its staff will not enforce CAT implementation deadlines, the next of which was slated for April 20 when broker-dealers were required to submit data to the CAT on trades they execute on behalf of clients — including institutional investors.

On Monday, the SEC issued a new, phased reporting timeline:

• June 22, 2020: Initial equities reporting for large broker-dealers and small broker-dealers that currently report to the Financial Industry Regulatory Authority's Order Audit Trail System.
• July 20, 2020: Initial options reporting for large broker-dealers.
• Dec. 13, 2021: Full equities and options reporting for large and small broker-dealers.
• July 11, 2022: Full customer and account reporting for large and small broker-dealers.

Jim Nevotti, 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 the updated timelines make sense given the ongoing impact of the coronavirus on broker-dealers.

"Given the significant time and resources the industry has put into CAT reporting, we're pleased that full equities and options reporting will be in place by the end of 2021 and hope the schedule announced is not further delayed," Mr. Nevotti said in an email. "We understand the importance of CAT reporting, and after rounds of successful beta testing we're eager to get started with firms still upholding the June deadline."

Self-regulatory organizations made up of exchanges and securities associations, which formed CAT NMS to establish a plan to implement the consolidated audit trail, earlier this month requested a no-action relief extension until June 2 for the first phase of broker-dealer reporting and until July 20 for the second phase.

The SEC also issued an order Monday focused on introducing brokers that meet the net capital requirements for small broker-dealers under the Securities Exchange Act of 1934 but fail to qualify as small broker-dealers for the purposes of the CAT NMS Plan. The order provides exemptive relief permitting these firms to follow the CAT reporting timeline applicable to small broker-dealers, the SEC said.