Dan DeFrancesco: The Art of the Deadline

My first indication of how regulation deadlines in the capital markets work came very early in my career at Waters. Having covered sports for the past two years at The Journal News, a daily newspaper in New York’s Hudson Valley, the capital markets and the technology that powers them, were an unfamiliar space to me. 

So when I dove into my second feature, a story outlining the consolidated audit trail (CAT) and the six finalists vying for a chance to build it, one of my biggest concerns was around the CAT’s deadlines. I was worried that the self-regulatory organizations (SROs) and the Financial Industry Regulatory Authority (Finra), which together are tasked with picking one of the finalists to build the CAT, would select a winning bid before my story, scheduled to run in November 2014, was live. I will pause here for you all to laugh at me. 

I could almost hear my sources smirking at me through the phone line when I called to make sure a finalist would not be selected before my story went live. Here we are, over a year later, and we are seemingly no closer to picking a group to build the CAT.

Call me naïve. Call me optimistic. In my mind, a deadline had been set and it needed to be met. At the time, the SROs and Finra had already been granted two extensions when it came to submitting the National Market System (NMS) Plan, which details how to create, implement and maintain the CAT. How much longer could they really delay the process?

Deadlines

It is time for the regulators to push back. After all, too many missed deadlines and everyone suffers.

For those who have been in the industry for a while, it might seem like a foolish question to ask, but understand where I’m coming from. As a journalist, deadlines are sacred. They are not flexible. If I miss one, all of my colleagues have to work harder to make up for it and I run the risk of incurring the wrath of my editor. 

So it seems natural that, with the obvious need for a system like the CAT, getting it up and running would be a top priority for the industry. But that’s not the way things go in the capital markets when it comes to regulations and their deadlines. Just look at the European Union, which announced this November that it was set to delay the introduction of Mifid II by as much as a year. 

Patience or Apathy? 

Deadlines, and the art of pushing them back, are essentially a cat-and-mouse game between regulators and the firms they affect. Talk to a regulator and they’ll tell you that such-and-such a regulation absolutely, positively needs to be implemented as soon as possible. In fact, according to them, it’s a miracle the industry has been able to function and not completely crumble without these certain set of rules in place.

On the other hand, a firm will tell you that it simply cannot afford to spend another penny on compliance. The budget is so tight that there is no way it could implement another platform or solution into what is already a massive legacy system to meet some new regulatory requirements. 

These are exaggerated takes for both sides, but they’re not that far off. The truth, as is the case almost always in life, is somewhere in the middle. 

And while I originally sided with SROs and Finra in May, writing an opinion piece about the benefits of showing patience during the CAT selection and development process, I think enough is enough.

In October, The Wall Street Journal reported that the US Securities and Exchange Commission’s (SEC’s) top choice to oversee technological development of the CAT reneged on his acceptance of the position. Later that month, a conference panel featuring four of the six CAT bidders voiced concerns around the system’s data security and the best way to report information to the CAT (click here).  

The SROs and Finra have dragged their feet for too long. It is time for the regulators to push back. After all, too many missed deadlines and everyone suffers.