CAT's Future Still Cloudy as NMS Committee Declines to Name New Processor

As the saga of the Consolidated Audit Trail (CAT) continues, the committee handling the project left the industry in limbo on February 20, as it refused, or said it was unable to answer, key questions during a highly anticipated webcast.

Despite the lack of a new technical lead following news that Thesys CAT will no longer be the plan processor, deadlines and technical guidelines for the industry to start reporting trades to the database remain the same, the operating committee said.

Questions around who will continue Thesys’ work on the CAT went unanswered, with the CAT NMS (National Market System) committee saying that it “is not in a position to announce the new processor” at this time. The self-regulatory organizations (SROs) that make up the committee must all agree on the new processor before an announcement can be made, though the committee notes it may be able to provide another update next month.

In the meantime, Thesys remains the processor until a replacement is named.

Industry sources have told WatersTechnology the new processor will most likely be the Financial Industry Regulatory Authority (Finra), which is said to already be in discussions to take over. Thesys was dropped by the Securities and Exchange Commission (SEC) at the end of January in a move that shocked the industry. Finra, which already runs the Order Audit Trail System (Oats), a system for collecting trade data from exchanges, was considered to be the frontrunner to run the CAT before Thesys won the bid.

The committee declined to answer questions around the selection of a new processor during the call but assured industry participants that it is “working in good faith with the information [they] have.”

The committee also did not reveal whether the new processor will be required to build new technology for the CAT, though it noted whoever wins the contract must adhere to the technical specifications already laid out. This means messaging protocols established while Thesys was the processor will remain, along with other technical guidelines.

In addition, the committee shot down proposals to move to an Oats-like format for reporting to the CAT. Smaller broker-dealers are still required to submit data for validation to CAT NMS before undergoing testing, which is set to begin in December 2019, with larger broker-dealers due to begin reporting this November.

The CAT, billed as the largest database of trade information in the world, has been through several delays since its inception. Thesys CAT, then an arm of proprietary trading firm Tradeworx, was confirmed as the processor in January 2017—even though a request-for-proposal was released in 2013—but was working on a tight schedule. Concerns over security and privacy, plus a prolonged search for a chief information security officer to oversee approvals of its security protocols, hounded the project. In the run-up to the November 2017 deadline, CAT NMS sought to delay the project, but these new deadlines were not approved by the SEC. Nevertheless, Thesys and CAT NMS followed their new deadlines despite technically being non-compliant.

After the November 2017 deadline, the CAT finally went live for SROs a year later, though only in a limited capacity. Full functionality was supposed to begin on January 31. Staggered industry reporting is still set to begin in November this year but is “subject to SEC objection and staff feedback.” In January, the SEC hired Manisha Kimmel as a special advisor, reporting directly to chair Jay Clayton, with a brief explicitly focused on pushing the CAT forward. Several days later, it was announced that Thesys would not be the plan processor for the next phases and that a search was underway for a replacement.