A Good Week for CAT

Tom Jordan
President, Jordan & Jordan

This has been a good week for the Consolidated Audit Trail (CAT). How many times have we been able to say that since the CAT was mandated in 2012?

There are three significant reasons why this past week qualifies for this recognition:

  • The Government is back in business. This includes the important work of the U.S. Securities and Exchange Commission (SEC) whose mission is to protect investors, maintain fair, orderly, and efficient markets and facilitate capital formation. Our regulatory environment oversees the best capital markets atmosphere in the world. The SEC, other regulators and the industry must work together every day to maintain that leadership.
  • Manisha Kimmel was hired as Senior Policy Advisor to SEC Chairman Jay Clayton.  Manisha will assist the Commission in effectively overseeing the SRO’s implementation of CAT. A mistake was made in giving the shared responsibility of driving this initiative as an NMS plan to the SROs (21 exchanges plus FINRA) but having Manisha in a senior advisory role working with Trading & Markets and the SROs is making the best of the current state. In the interest of full disclosure, I know Manisha well because she worked for J&J and headed up the Financial Information Forum (FIF). Chairman Clayton could not have found a better person for this role. Manisha knows the business, the players, the CAT goals and is well respected by all who know her. Manisha can also assist with how to address Large Trader Phase 3 and SEC Rule 606 so that it is supportive of the larger CAT goal. Did I mention that she knows how to execute? Manisha gets important stuff done.
  • We will have a new Plan Processor. There will be many stories of who was at fault here, but no one will disagree that it just wasn’t working. Although we saw some recent progress because of the Industry Member Technical Specification Working Group, (IMTS Working Group), it was still too little, too late and too slow in getting issues resolved. A compliment to the SRO Operating Committee who terminated the contract with the former Plan Processor- it is not easy to reverse a decision that you made. So good for you that when you saw the evidence of late or unsatisfactory deliverables that you had the courage to admit that it was not working, so you must move on.

So, a good week, but we need many more good weeks to bring CAT home.

What is the way forward?

The new plan processor has not been announced but the inside betting this Super Bowl weekend is on
FINRA. One of the prime reasons for some of the positive momentum that we had in recent months was the IMTS Working Group co-headed by Shelly Bohlin of FINRA and Judy McDonald of Susquehanna.
Even after a new Plan Processor is selected, this work must continue in order to drive CAT to successful completion. 

CAT NMS, LLC has already announced no material changes to the industry member technical specifications.  This is good news as Broker Dealers and CAT vendor solution providers have started analyzing and coding the linkages to the current specifications. Any pivot to a new design or reconsideration of an OATS + would result in significant delays.

Having said that, there remain some issues around the edges that must be addressed. FIF has submitted around 150 clarifications and FAQs to the IMTS Working Group.  The order events and data dictionary should remain but reporting, data transmission clarity and packaging issues need to be addressed. The most significant issue to date is probably the absence of satisfactory error correction tools. We need an improvement from the OATS tool not a regression, especially considering the more aggressive T+3 timeframe.  A side benefit of FINRA as the processor is that the OATS-to-CAT conversion should be smoother and OATS retirement should be sooner. The going forward plan of no material changes but important logistical changes should limit delays to less than 6 months.

As my 7-year-old granddaughter sometimes says, “Get your Head in the Game”. We have a renewed focused plan with the industry consolidated behind the CAT deliverable, a new Plan Processor, Manisha in her new role and Shelly’s continued leadership on specification definition.

We have much to do but there is good reason to be confident about the way forward.