In the first of a comprehensive, three-part research series published today, TABB Group analyzes the current state of the Consolidated Audit Trail (CAT) selection process, mandated two years after the Flash Crash by the SEC in July 2012 through Rule 613.
Once fully implemented and serving as the single largest big data central repository of financial markets information for all US equities and options market data, the CAT will eventually eliminate the current Electronic Blue Sheets (EBS) and OATS (Order Audit Trail System) reporting systems to track approximately 58 billion records, including orders, executions and quote lifecycles for the equities and options markets each day.
“The CAT is a necessary tool for the 21st century,” says Alex Tabb, a TABB partner and COO, and Shagun Bali, a technology research analyst, co-authors of “The Consolidated Audit Trail: Reconstructing Humpty-Dumpty.”
As the largest data undertaking ever proposed for the US securities market, the CAT initiative is the SEC’s strategy to be more proactive, preventative and take a more comprehensive approach to market surveillance and reconstruction.. Its purpose is to allow regulators and exchanges to analyze, assess, ideate and reconstruct the markets in complete and timely detail.
“Once completed,” says Bali, “the CAT will consist of one gigantic pool of data that SEC regulators and exchanges can immerse themselves in to fully understand the nuances and intricacies of the US equities and options markets, providing them with the technology and capability to reconstruct trades and trading events with granular detail on a level never before available.
Though initiated by the SEC, the CAT is now in the hands of the 10 SROs – BATS, ICE, Nasdaq, CBOE, ISE, CHX, BOX, NSX, MIAXOptions and FINRA – who downsized the bidding list to a mix of five consortiums and one organization. They are in the process of selecting the CAT Processor and finalizing all of the technical details.
By letting an industry consortium take over responsibility for the CAT, Bali says the SEC will be able to meet its needs for an advanced analytical tool without imposing a new bureaucracy supported through taxes on the marketplace. “A lot of time and effort has gone into getting the market to approve and support this large initiative. Now it’s in the hands of the ten SROs to make sure that if Humpty-Dumpty falls off that wall, we can accurately reconstruct what occurred and ensure it doesn’t happen again in the future.”
Though the capital markets community-at-large supports the initiative, there is a considerable amount of concern over the lack of transparency in the process” warns Tabb.
The biggest questions still unanswered, he says, include who is going to foot the bill through the development phase and how broker-dealers are going to pay for the CAT. “Complying with OATS has been painful enough for the industry. No one’s wants to risk going bankrupt with the CAT implementation.”
The 11-page, 2-exhibit report can be downloaded by TABB Group Research Alliance Data and Analytics (DnA), Equities and Derivatives clients and pre-qualified media at http://www.tabbgroup.com/Login.aspx. For the Executive Summary, more information or to purchase the report, write to info@tabbgroup.com.
