New Consolidated Audit Trail (CAT) Reporting Obligations

December 27, 2018

FINRA recently reminded all member firms that receive or originate orders in National Market System (“NMS”) stocks, over-the-counter (“OTC”) equity securities or listed options that they must start reporting to the Consolidated Audit Trail (“CAT”). This alert provides a summary of key information related to the CAT rollout.

Introduction

On November 15, 2016, the Securities and Exchange Commission (“SEC”) approved the National Market Plan Governing the Consolidated Audit Trail (the “CAT NMS Plan”). The CAT tracks orders throughout their life cycle and identifies the exchanges and broker-dealers handling them. This allows regulators to more efficiently track activity in eligible securities throughout the U.S. markets.

Securities and Exchange Act of 1934 (“Exchange Act”) Rule 613 seeks to improve the ability of the SEC and the Self-Regulatory Organizations (“SROs”) to oversee trading in the U.S. securities markets. Under Rule 613(g)(2), each member of a national securities exchange or national securities association must comply with all the provisions of the CAT NMS Plan.

Reportable order events include, but are not limited to accepted orders, routes, replaced orders, canceled orders, and executions. The first phase of CAT Industry Member reporting is scheduled to begin on November 15, 2019. This phase requires all broker-dealers currently reporting via the Order Audit Trail System (“OATS”) to begin reporting equities data to CAT. Small broker-dealers that do not currently report via OATS must begin reporting equities data on November 15, 2020.1

Action Required

Beginning in December 2018, member firms have started to receive email notifications from the CAT NMS LLC Plan Processor, Thesys CAT. The email identifies contacts that the plan processor should use for registration with the CAT system. Starting in the first quarter of 2019, all firms with a CAT reporting obligation must register with the CAT system, regardless of when their obligation to report commences.

Industry Members should refer to the CAT Reporting Scenarios for Industry Members (“Reporting Scenarios”) document, which contains detailed reporting guidance on how to report various equity and options order handling and execution scenarios. The Reporting Scenarios document will be updated periodically as new scenarios are presented to the participants.

For more information, please contact your ACA consultant or Dee Stafford at (561) 628-5288 or dstafford@acacompliancegroup.com.

1The SEC defines a small broker-dealer as a broker or dealer that: (a) had total capital (net worth plus subordinated liabilities) of less than $500,000 on the date in the prior fiscal year as of which its audited financial statements were prepared pursuant to §240.17a-5(d) or, if not required to file such statements, a broker or dealer that had total capital (net worth plus subordinated liabilities) of less than $500,000 on the last business day of the preceding fiscal year (or in the time that it has been in business, if shorter); and (b) is not affiliated with any person (other than a natural person) that is not a small business or small organization as defined in Exchange Act Rule 0-10.