The Securities and Exchange Commission (SEC) has approved a National Market System (NMS) plan to create a comprehensive database of all trading activity in the U.S. equity and options markets. This database is known as the Consolidated Audit Trail (CAT).

Proposed by FINRA and the national security exchanges to comply with new regulations related to broker-dealer compliance, specifically SEC Rule 613, the NMS plan details the methods by which self-regulatory organizations (SROs) and broker-dealers will record and report market information. The supplied data will provide the complete lifecycle of all orders andtransactions for all exchange-listed equities and options across all U.S. markets. The NMS plan also outlines how the accuracy and security of the data in the CAT will be maintained.

The CAT will aid regulators by collecting and identifying every order, cancellation, modification, and trade execution for all orders and transactions in the U.S. equity and options markets. Regulators will have timely access to comprehensive trading data, allowing them to better conduct research, recreate market events, monitor market behavior, and detect and investigate misconduct.

Prior to approval, the SEC modified the NMS plan in response to comments and recommendations from FINRA, the national securities exchanges, and the public. These modifications include:

  • Strengthening many of the data security requirements of the NMS plan, including the requirements pertaining to personally identifiable information.
  • Tightening the clock synchronization standards for SROs to be within 100 microseconds of the time kept by the National Institute of Standards and Technology. Tightening the standards will help regulators to better sequence order events across multiple exchanges.
  • Requiring SROs to assess industry standards for clock synchronization based not on the industry as a whole, but instead on the type of system or market participant. SROs must then submit a report to the SEC annually that reflects the findings of that assessment.
  • Expanding the membership of the advisory committee to include an additional institutional investor representative and a representative of a service bureau that provides CAT reporting services.
  • Reducing the burden on broker-dealers of reporting to multiple systems by moving up the deadline for SROs to submit proposals to retire data reporting systems that the CAT will render obsolete.

Now that the NMS plan has been approved, the SROs have two months to select a plan processor to build and operate the CAT.  SROs will be required to begin reporting to the CAT within one year of the plan’s approval, with large broker-dealer compliance following the next year and small broker-dealer compliance following the year after.  Affected broker-dealers will be required to establish and implement related policies and procedures.

For more information on the Consolidated Audit Trail, please visit the CAT NMS Plan website.