Google to Face Off with FINRA, Exchanges in Audit Trail Bidding
March 6, 2013
Google, operator of the dominant set of data centers for indexing and searching for content on the World Wide Web, said it intends to submit a bid to build a consolidated audit trail of all stock and options quotes, orders and trade details for the Securities and Exchange Commission.
The Internet search giant will face off with a who’s who of the securities industry, including NYSE Technologies, the commercial arm of the company that owns the New York Stock Exchange; Nasdaq OMX Group, its chief rival in selling trading technology to exchanges around the world; and BATS Global Markets, an eight-year-old company that has used high-speed trading systems to take over about 10 percent of the nation’s trading in stocks on its two all-electronic national exchanges.
Those exchange operators will, in turn, be submitting bids in competition not just with each other, but the Financial Industry Regulatory Authority, the regulator of brokers whose chief executive, Richard Ketchum, signaled in early 2010 an interest in creating and managing a database that would hold all the nation’s trading details for review by itself and the Securities and Exchange Commission.
FINRA, BATS, Nasdaq and NYSE Euronext all face potential conflicts of interest in submitting their bids. They all are part of the industry group charged by the SEC with formulating the overall plan to create the audit trail and pick the best bid to produce and manage the system.
“For many good reasons including technical and market expertise, the SEC tasked the exchanges to develop and manage the Consolidated Audit Trail process under its oversight and approval,’’ said Richard Adamonis, senior vice president of corporate communications at NYSE Euronext, owner of NYSE Technologies. “The proposal, like the entire process, is highly transparent and open for public comment.”
The potential conflicts are not likely to be show-stoppers, however. "If they end up going with a firm that is part of the working group, they will have to come out with clear criteria in terms of how they won the project,'' said Sang Lee, managing partner of industry consultancy Aite Group. "I would say it is almost a disadvantage to be on the working group and also a bidder. At least, (such a bidder would) have a higher public perception hurdle to overcome."
The audit trail plan is a response to the May 6, 2010, flash crash, which revealed how ill-equipped the nation’s regulators were to analyze market disruptions.
The staffs of the SEC and the Commodity Futures Trading Commission took five months to piece together details of what happened on that date to trigger a 600-point drop in the Dow Jones Industrial Average in a matter of minutes that afternoon; and, a similarly speedy bounceback.
Also announcing their intents to bid are a variety of the industry’s best-known technology suppliers, including SunGard Data Systems, Cinnober Financial Technology and Tradeworx, which is already creating a real-time database of trade details on public markets for the SEC; financial information service Thomson Reuters; consultancies that include Capgemini Financial Services, Grant Thornton, Wipro, Infosys, and Sapient; and the International Business Machines Corporation, the largest provider of information systems services.