The consolidated audit trail (the CAT) has had more drama than the housewives of Beverly Hills and more lives than the average Garfield like tabby. Guidance to date from the Securities and Exchange Commission (SEC) and the self regulatory organizations (SROs), following the termination of the former Plan Processor at the beginning of February, Thesys Systems, and the announcement of the new Plan Processor FINRA at the end of February, has been to stay the course. Firms are advised to continue to work with the existing technical specifications, as there are no material changes anticipated prior to the testing date in December of 2019, with a first production date scheduled for April 2020.
So what does this mean? The phrase “keep calm and carry on" springs to mind. There will most likely be some slippage in the reporting dates but firms should press forward with the current technical specifications; there is a lot to be done and the complexity should not be under-estimated. Global firms, who already went through a similar exercise for MiFID II reporting, should be looking to leverage learnings from this and reuse tools and methodologies employed to accelerate their CAT reporting programs. Examples of how this can be effected include looking at MiFID II rules management and workflow, reporting requirements, meta data requirements, exceptions processing, and so on, to determine what can be reused.
The implementation of the CAT should not be viewed as just a reporting exercise; there are many business opportunities to leverage the data, and improve internal processes, that should be considered, such as:
- The CAT will require business process reengineering to ensure the front-to-back teams can correct trade errors by T+2 (vs. 5 days under current Order Audit Trail System (OATS) reporting) to avoid costly fines. Reporting mistakes may be complicated and may require sophisticated tools to help on resolution due to cross-system dependencies. Automation of these processes prior to submission on T+1 will minimize errors
- The raison d’être for the CAT is to provide the granular order and execution data for regulators and SROs to monitor for market manipulation. Reporting firms should be looking to leverage the data set for enhanced trade surveillance, using behavioral analytics to spot possible trading irregularities before the regulators come knocking
- Full audit trail of orders and executions can provide a wealth of data on client trends and behaviors. By leveraging machine learning, firms can start to identify the trading/investing patterns of their clients and anticipate their needs.
The CAT is coming; it is only a matter of when at this point. Take this small respite to carry out an introspective review of your program to ensure you are maximizing your potential benefits and not just performing a tick the box reporting exercise.