Oats retirement imminent as Cat maintains data quality, Finra says

The Financial Industry Regulatory Authority has signaled that it may be ready to announce a retirement date for its Order Audit Trail System (Oats), which is being phased out in favor of the Securities and Exchange Commission-mandated Consolidated Audit Trail (Cat).

Finra has previously said the earliest possible retirement date for Oats would be June 30, and officials say they are still working toward this deadline. The next industry update call to discuss the Cat is scheduled for mid-June, but officials say they expect to be able to communicate something more definitive before that call.

As early as 2017, in anticipation of the SEC’s Cat, Finra proposed sunsetting the Oats system once the regulator saw “180 days of acceptably accurate Cat data,” said William Wollman, executive vice president of risk oversight and operational regulation at Finra, speaking at the 2017 Sifma Ops conference.

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, 2020, 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 an industry update call last week, Finra officials said the data accuracy requirements for the Cat have now 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].”

Now that those statistical requirements have been met, Finra is in the middle of evaluating other factors, such as how participants are transitioning to standardized Cat reporting specifications, and the ability to use Cat data to meet regulatory obligations. Finra has also begun transitioning its own surveillance patterns to use Cat data.

Once Finra is satisfied that all the requirements have been met, it will submit a rule filing and publish a regulatory notice announcing the retirement date, which may be as early as—but not sooner than—June 30. After the official retirement date, Finra will continue to keep Oats running for several weeks to handle any error corrections or late reports, before fully switching it off, says Jon Kroeper, executive vice president of quality of markets at Finra.