Farewell, Oats: Finra announces retirement date

The Financial Industry Regulatory Authority (Finra) has announced the September 1 retirement of its Order Audit Trail System (Oats), which is being phased out to make way for the Securities and Exchange Commission (SEC)-mandated Consolidated Audit Trail (Cat).

Finra is amending its rule book to eliminate Oats, it said in an email to subscribers on June 17. “Finra has determined that the accuracy and reliability of the Cat meet the standards approved by the SEC and has determined to retire Oats as of September 1, 2021,” the email said.

“Firms must continue to report to Oats all order events that occur on or before August 31, 2021. Reports submitted to Oats for order events that occur after August 31, 2021, will be rejected. In other words, August 31, 2021, will be the last ‘Oats business day’ …,” it continued.

Oats will continue to accept reports until September 16 for order events that occur on or before August 31.

Finra also announced the Oats retirement on its latest monthly Cat implementation update call on June 17. Officials said on the call that affected firms may have to consider certain technical requirements when preparing for the system’s demise. Finra director Dave Lesnick said that some firms are still submitting data across the Savvis network, owned by Lumen Technologies (formerly CenturyLink), which connects order-sending organizations to Finra facilities like Oats. Reporting firms had individual contracts with Savvis.

“You can use this date for terminating your contracts with them [Savvis], because that will no longer be necessary, provided that you don’t have any other reason that you are typically shipping data across there,” Lesnick said.

“Most firms were shipping data across the old Savvis network because it was one of the few places we allowed unencoded text by plain FTP. And there were certain tech restrictions on firms that required that. But that will no longer be needed, and that would probably be something that you’d want to incorporate into your plans.”

Lesnick also said companies may want to review their firewall rules to remove Finra servers. A list of the servers is available in the Oats technical specifications documents, on page 3-5, table 3-3.

“You can ping those servers, or have your network folks ping those servers, and find out the specific IP addresses and ports that are being used. And you may want to say those no longer need to be part of your firewall provisions,” he said.

Lesnick added that firms should review their relationships with firms submitting their regulatory filings on their behalf, as that will no longer be required after September 1.

Cat’s progress

Last month, WatersTechnology reported that as early as 2017, Finra proposed sunsetting the Oats system once the regulator saw 180 days of acceptably accurate Cat data. However, Oats remained operational for longer than expected as the Cat project was beset by delays, culminating in its overseeing body firing the original technology provider, Thesys Technologies, early in 2019, and enlisting Finra to replace it.

Finra set that level of acceptable accuracy as achieving a sustained error rate off 5% or less on a pre-correction (i.e., as submitted) basis, and 2% or less on a post-correction (i.e., measured at T+5 days after submission) basis. Those levels apply to rejection rates and data validations, intra-firm and inter-firm linkages, order linkage rates, and match rates on exchanges, trade reporting facilities, and over-the-counter reporting facilities.

By last year’s June 22 deadline for dealers to begin initial equities reporting to the Cat, error rates were already consistently well below the maximum tolerances allowed—0.1% for equities and 0.7% for options, compared to the maximum of 5%.

In May 2021, Finra officials said the data accuracy requirements for the Cat had been met, noting that between October 26, 2020 and May 17 this year, the error rates for all categories were “substantially below the thresholds required for retirement [of Oats].”

Once those statistical requirements were met, Finra evaluated other factors, and transitioned its own surveillance patterns to use Cat data, before submitting a rule filing to SEC and announcing the retirement date.

Oats was established in the late 1990s as a tape of order, quote and trade information for national market system stocks and over-the-counter equity securities. After the Flash Crash of 2012, the SEC established the Cat, which is intended to offer more transparency. Since the Cat covers everything that is reportable to Oats, industry participants, the SEC and Finra wanted to retire Oats as soon as the quality and surveillance criteria were met.