CAT Reporting Requirements Approaches: How To Prepare 6 Months Out

The topic of the Consolidated Audit Trail (CAT) received a lot of attention at the recent SIFMA Operations Conference, and for good reason. SEC Rule 613 addressing suspicious trading and market abuse kicks in January 2018 – six months from now. At that time, investment banks, hedge funds and other buy-side firms will be required to create a comprehensive audit trail to allow regulators to accurately track all activity in the US markets.

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This is not a simple task. The guidelines require trading firms to fundamentally revamp how they manage, collect, profile and leverage their customer data – a challenge for even the most structured financial services firms who previously invested in a comprehensive data structure.

And while the industry is very familiar with OATS (Order Audit Trail Systems), FINRA will phase it out after the successful adoption of CAT. What’s more, the two are fundamentally different in what they report. OATS captured transactions on a trade basis; CAT will require linking those transactions back to the legal entity, a more complex process.

Thesys CAT Structure

The technical requirements issued by Thesys were essentially guidance and not entirely prescriptive. Firms cannot afford to wait. They need to begin the process by understanding and evaluating their own data set to quickly complete a root cause analysis.

We recommend moving forward with a few key steps to prepare your teams and leadership for the changes ahead. Specifically, firms should consider:

  • Establishing a program management office, if one isn’t in place. It’s helpful to dedicate the right expertise and resources to define the scope of needs and create a reporting framework.
  • Preparing for data challenges. Because SEC 613 is different from OATS, and the legal entity requirement is a time-consuming process, define your data set early on and ensure that you have valid customer data.
  • Defining the current front office work flow. This effort requires alignment with the middle and back office around work flows and customer data. To effectively prepare, get to know the workflow of the front office, as well.
  • Begin testing in October 2017. Test early and often. The regulators have high expectations for all market participants to deliver accurate and complete data.
  • Create a change order process. This program needs to be managed with continuous and active improvements and real-time evaluation. Create a charge order committee to validate changes and issues as the crop up.

The SEC is looking for accuracy and completeness of data. There is little room to fix inputs once the uploads have been completed. To get started, we’ve provided a timetable of upcoming milestones. We encourage you to start assessing and planning soon.

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The author

Alison Rooney

Alison Rooney

Associate Partner, New York

Alison began her career in debt and equity capital markets in the operations and trading groups. She led negotiations on behalf of her clients for sovereign debt transactions and designed some of the early derivatives pricing models. Over the tenure of her career, she has acted as an advisor and guide for her global investment banking clients across their major business transformation initiatives; providing engagement leadership as well as key account design and management. Alison’s core area of expertise resides in the trading environment and spans regulatory, risk, operations and data initiatives to support her clients’ organisational and business goals.