The CAT is out of the bag ….

For all who know the origin of that phrase (hint: Navy) it doesn’t have the best of overtones.  With regard to the Consolidated Audit Trail, that’s not the case.  Rule 613 enacted by the SEC last year, requires a single-order tracking/audit system for all National Market System (NMS) securities and comes with several silver linings. The Self-Regulatory Organizations (SROs) and Broker-Dealer community may be overlooking the significant up-side of CAT in their haste to bash it as the current administration’s latest attempt to save the free markets.  In fact, CAT has the opportunity to transform how market data is delivered to the regulators.

CAT, when properly designed and implemented, could make regulatory reporting “hands free” … imagine iCloud for order tracking and audit. At the Securities Industry and Financial Markets Association (SIFMA) Tech conference just this week, SEC regulators have mentioned that CAT could eliminate the Electronic Bluesheet System (EBS) and possibly even Large Trader (LT) reporting. The EBS replacement alone will take tremendous cost out of the Broker-Dealer business as they spend significant time and resources responding to requests for data. Large Trader reporting requirements are still uncertain, but the SEC has shown willingness to allow the industry to solve LT requirements with CAT – thus giving Broker-Dealers room to breathe.

Make no mistake though, regulators and the public stand to benefit the most from CAT.  In the current environment, the availability of trade data to support effective and speedy surveillance and enforcement efforts is a myth. Imagine if the regulators could search for the data they need as easily as we download a song from iTunes. The industry should embrace, not resist, implementation of CAT.  To fight it only strengthens the argument that the industry has something to hide … and in the case of CAT, for no good reason at all.

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