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CAT and President Trump Executive Order 13771

Traders Magazine Online News, April 6, 2017

Thomas Jordan

On January 30th, President Trump signed Executive Order 13771 (Reducing Regulation and Controlling Regulatory Costs), which requires government agencies to repeal two regulations for each one enacted. Just three months earlier, in November 2016, the Securities & Exchange Commission approved a National Market System Plan which will implement the Consolidated Audit Trail, aka, CAT (a consolidated database of all details involved in every stock transaction in the U.S.). Generally, those Wall Street firms most familiar with CAT do not expect Trump’s Executive Order to derail CAT (SEC Rule 613) since it was formally adopted in July 2013 and is technically not subject to Executive Order 13771. 

However, it is still a good question to ask, what if Rule 613 or the CAT NMS Plan were proposed today with its extensive reporting requirements? Would it meet President Trump’s Executive Order? Well the good news is, yes, if it is done right.  For the same reasons, CAT is not likely to be repealed if it can be demonstrated to meet the tests of the Executive Order.

Does CAT meet the “Two-For-One Trump Test”?

The data that must be reported to CAT goes far beyond that which is currently OATS-reportable (FINRA’s Order Audit Trail System), as it will include options transactions, allocations reports and detailed customer information; and, CAT requires reporting by industry members that were previously exempt. CAT can eliminate OATS, COATS (FINRA’s Consolidated Options Audit Trail System), PHLX Rule 1022, as well as other exchange rules and key portions of Electronic Blue Sheets (EBS) and Large Trader Reporting (LTR).  Over the long term, as CAT continues to accumulate data and incorporate other asset classes such as debt securities and additional transaction types, it can eliminate all of EBS, LTR and many other current regulatory reporting requirements.

Getting It Right

This requires thoughtful interpretation of rules, carefully designed specifications and realistic schedules. Along with a concerted effort by the industry and the regulators to work together, here are some key considerations:

A defined reasonable timeframe for the retirement of regulatory reporting rules/systems which are duplicative of CAT reporting, especially focusing on OATS, EBS and LTR. The industry is working aggressively to ensure all prior needs are included or added to the CAT requirements or excluded where it is agreed there is no discernible benefit. The biggest fear is that some legacy system must survive because one or two minor data points were overlooked in building CAT. Duplicative reporting to legacy regulatory systems and to CAT must be as brief as possible to lessen the cost and burden to the industry.

All the Participants must deliver proposals to the SEC by May 15 describing their approach/criteria to eliminate or modify their duplicative reporting systems.  While reporting Industry Members (broker dealers) are clearly focused on retirement of OATS, we wonder if FINRA’s plan will include the fields more recently added to meet Rule 4554 requirements for ATS Reporting.

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