Don’t Stop that CAT: Why the Industry Needs to Aggressively Push Forward with the Audit Trail
The need for the CAT to be a top priority.
![train_forward steam, forward, moving, full steam ahead, ahead, progress, train](/sites/default/files/styles/landscape_750_463/public/2017-02/GettyImages-519080356.jpg.webp?h=ee087d7a&itok=iJP7dcrN)
Progress – yes, actual progress – was made with the Consolidated Audit Trail (CAT) earlier this year as self-regulatory organizations (SROs) selected Thesys Technologies, the vendor arm of high-frequency trading firm Tradeworx, as the plan processor responsible for building and maintaining the massive audit trail responsible for tracking and storing information on every order, cancellation, modification and execution for exchange-listed equities and options in the US markets.
There is no doubt that selecting Thesys, which is partnering with IBM, Latham & Watkins, and Rosenblatt Securities on its bid, is a major step forward in the ultimate goal of getting the CAT up and running. However, now is hardly the time for the SROs and the Securities and Exchange Commission (SEC) to pat itself on the back for a job well done, as there is still plenty left to do.
Same Mistakes
As I covered in my feature, getting to this point with the CAT has been no easy task. Financial technology projects don’t happen overnight, but the lead up to building the CAT has been positively glacial.
I understand that this is a big endeavor, and I can appreciate the SROs and SEC wanting to make sure it was done right the first time, but waiting over four years to simply pick a firm responsible for building the audit trail seems a bit excessive.
You can debate whether the process was impacted by the delay – as some of my sources did in my feature – but there is no denying the change some bidders faced internally between when the initial bids were submitted and when the final decision was made. The three finalists vying to build the CAT all had significant shifts at the C-level or as a company. Further delays while building and implementing the CAT will only lead to more issues.
Granted, the CAT will run as a separate entity from Thesys, and is therefore protected from any volatility the plan processor might suffer. If, for example, Thesys is acquired and the acquiring firm is not interested in running the CAT, a new group can come in and continue to maintain the audit trail.
And while that’s all well and good once the CAT is up and running, that type of transition will be much harder to execute while it’s still being built. By no means am I predicting Thesys’ demise or acquisition, but these are all things that need to be considered when it comes to a project estimated to cost the industry multiples of billions of dollars.
Changing Technology
It’s not just a matter of the makeup of a company changing between now and the launching of the CAT. What about the actual technology?
That was a point brought up by one of my sources familiar with the process that I found to be particularly interesting. The source asked what would happen if, for example, transactions were done on the blockchain.
There is a good chance that how the markets operate 10 years from now will look significantly different to how they function today. That’s not some bold prediction; it’s simply playing the odds.
Look at the evolution we’ve seen in technology over the last 10 years. Do you have any reason to believe that trend is slowing down in any way? If anything, it’s increasing in speed significantly – both figuratively and literally.
According to almost all the sources I’ve spoken to, Thesys’ technology is outstanding, and I’m sure they’ve accounted for the fact that the CAT will need to be able to adapt and evolve in the coming years. Thesys’ use of the cloud also offers them the ability to be scalable and flexible.
But it’s easy to see how continued delays could make things difficult. There could be a situation where the SROs begin reporting data to the CAT on time but the broker-dealers, both large and small, push back on their deadlines and delay the process.
The CAT would then sit in a sort of limbo, collecting only some of the data it needs, while the technology in the space continues to evolve around it. It’s one thing to update a system while it’s already up and running, but it’s a completely different task to have to onboard new clients while simultaneously changing the very system they’ve just begun to report into.
All of this is in addition to the fact that the US currently has a sitting president that has voiced his dismay for more regulations in the financial sector. All the more reason why it’s important to get the CAT up and running as soon as possible, as it’s much harder to stop something once it has gotten started.
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@waterstechnology.com or view our subscription options here: http://subscriptions.waterstechnology.com/subscribe
You are currently unable to print this content. Please contact info@waterstechnology.com to find out more.
You are currently unable to copy this content. Please contact info@waterstechnology.com to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@waterstechnology.com
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@waterstechnology.com
More on Regulation
Chevron’s absence leaves questions for elusive AI regulation in US
The US Supreme Court’s decision to overturn the Chevron deference presents unique considerations for potential AI rules.
Aussie asset managers struggle to meet ‘bank-like’ collateral, margin obligations
New margin and collateral requirements imposed by UMR and its regulator, Apra, are forcing buy-side firms to find tools to help.
The costly sanctions risks hiding in your supply chain
In an age of geopolitical instability and rising fines, financial firms need to dig deep into the securities they invest in and the issuing company’s network of suppliers and associates.
Industry associations say ECB cloud guidelines clash with EU’s Dora
Responses from industry participants on the European Central Bank’s guidelines are expected in the coming weeks.
Regulators recommend Figi over Cusip, Isin for reporting in FDTA proposal
Another contentious battle in the world of identifiers pits the Figi against Cusip and the Isin, with regulators including the Fed, the SEC, and the CFTC so far backing the Figi.
US Supreme Court clips SEC’s wings with recent rulings
The Supreme Court made a host of decisions at the start of July that spell trouble for regulators—including the SEC.
This Week: FCA, Plato/Turquoise, Franklin Templeton, and more
A summary of the latest financial technology news.
Insurers deny cyber premiums are rising
Contrary to banks’ complaints, underwriters and brokers claim current market for policies is soft.