Framework for Audit Trail Expected By Years End
October 17, 2012
Participants in an industry-wide effort to create a central repository of trade details on stock and options transactions for regulators say they expect to put out a request by mid-December for technical proposals to create that system.
The drafting of the request for proposals will take until late November, a group of exchanges and the Financial Industry Regulatory Authority said, in a document produced as part of two days of working out the industry’s response to a mandate from the Securities and Exchange Commission issued in July to create a so-called “consolidated audit trail” of trading activity.
The timetable is set out by a group that met at the Bayard’s meeting place in Hanover Square on Monday and Tuesday of this week. The group includes all major stock and options exchanges including: BATS BYX Exchange, BATS BZX Exchange, BOX Options Exchange, C2 Options Exchange, Chicago Board Options Exchange, Chicago Stock Exchange, EDGA Exchange, EDGX Exchange, International Securities Exchange, Nasdaq OMX BX, Nasdaq OMX PHLX, National Stock Exchange, New York Stock Exchange, NYSE Arca, NYSE MKT and the Nasdaq Stock Market. The group also includes the Financial Industry Regulatory Authority.
The SEC charged FINRA and the exchanges with producing a National Market System plan to create the database that details both the costs and the “technological specifics” of its operation.
The audit trail system was proposed in May 2010, shortly after the Flash Crash that saw the Dow Jones Industrial Average plunge nearly 1,000 points. The staffs of the SEC and the Commodity Futures Trading Commission, using existing resources, took five months to deliver their report on what caused the crash.
A nightly-updated central repository of all trading data would allow regulators to recreate market activity more swiftly and analyze the information for causes of market disruptions or abuse.
If the participants keep to schedule, they will review bids and make a preliminary selection of a technical supplier of the system by mid-February of next year; publish the overall plan for the system for public comment by mid-March; and file the plan with the SEC by April 26.
The RFP will cover:
• How data from reporting entities will be transmitted to, and ingested by, the processor of the information.
• The technology applications and tools that will be used to process and store data.
• How data will be validated and errors corrected
• How events will be linked and stored for use by regulators
• How customer information will be stored and specific security protocols to be used
The system will require “customer identifiers,’’ to make it possible to track when an account is opened and update information on customer activity as time goes on.
Each order will have to “identify the customer that originated the order” and the SEC mandate requires detail on who is holding an account at a broker-dealing originating an order and any person from whom the broker-dealer is authorized to accept trading instructions for such account, if different from the account holder.