SEC Approves CAT Plan, Will Select Firm to Build It Within 2 Months

Approval of the plan means self-regulatory organizations (SROs) have two months to select a plan processor to build and operate the CAT. Three firms—FIS, Thesys Technologies and the Financial Industry Regulatory Authority (Finra)—are vying for the opportunity to build it. The decision will be made through a two-round voting process in which each SRO has one vote.

SROs will have to begin reporting to the CAT within one year of approval. Large and small broker-dealers have to start reporting within two and three years, respectively, of approval.

"With the approval and ultimate implementation of CAT, the Commission's regulatory capacity strongly embraces 21st century technology, enabling the Commission and the SROs to harness data and technology to more effectively oversee market participants," said Mary Jo White, SEC chair, in a statement. "Through the CAT, regulators will have more timely access to a comprehensive set of trading data, enabling us to more efficiently and effectively conduct research, reconstruct market events, monitor market behavior, and identify and investigate misconduct."

Changes Made

The approval comes after some modification to the original plan, which was submitted for public comment on April 27. The Securities Industry and Financial Markets Association (Sifma) submitted a comment letter that criticized the plan during that period, identifying seven areas (elimination of systems, cost and funding, data security, implementation timeline, governance, data use and operational issues) it felt needed to be addressed before approval.

In its June issue, Waters analyzed the biggest hurdles the CAT was facing before receiving regulatory approval.

The SEC said in its announcement that it modified parts of the plan after considering public comments and recommendations from SROs.

The Commission tightened data security requirements of the NMS plan, specifically around personally identifiable information. The protection of data within the CAT is an issue that has been consistently brought up by industry members as many felt cybersecurity wasn't a top priority when the CAT was initially proposed in 2010.

The requirement for clock synchronization for SROs was shortened to within 100 microseconds of the time maintained by the National Institute of Standards and Technology. This was done to allow regulators to better sequence order events across exchanges, as opposed to just market-wide, according to the SEC.

The CAT advisory committee was also expanded by adding an additional institutional investor representative and a representative of a service bureau that provides CAT reporting services.

Finally, SROs will be able to submit proposals to retire certain regulatory data reporting systems quicker than before. The most notable of these platforms is Finra's OATS, which many believe will be obsolete once the CAT is up and running.

The NMS plan originally stated duplicative reporting could continue for up to two-and-a-half years after the CAT was live, which many felt wasn't necessary. The plan has been amended to allow SROs to file rule change proposals around the elimination of duplicative rules and systems within six months of plan approval.