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Consolidated audit trail reporting timelines

Updates regarding industry member reporting and new plan processor

CAT NMS, LLC announced changes to industry member reporting timelines and a new plan processor. Learn more about the reporting changes.

February 12, 2019 | Financial services

2019 has started out to be very active for the Self-Regulatory Organizations (SROs) and the Consolidated Audit Trail (CAT) program. In February, the SROs announced changes to the timelines for industry member reporting to the CAT1 and on February 26, the SROs announced a change in the vendor for plan processor.2 This article is to help our readers to understand the impacts and areas that they should be focusing on to be compliant with the reporting obligations of Rule 613.

Updated reporting timelines
Updated timelines included changes to phases 2a and 2d of large industry member testing and reporting. Changes to timelines for phases 2c and 2d have not yet been announced.

For equities (Phase 2a), industry member testing (file submission and data integrity) is expected to commence in December 2019, with go-live in April 2020. Intra-firm linkage validations have a target go-live date of July 2020. Industry member-to-industry member linkage validation and exchange and TRF linkage validations are expected to go-live in October 2020.

For options (Phase 2b), industry member testing (file submission and data integrity) has a target go-live date of May 2020. Intra-firm linkage validations are expected to go-live in August 2020, with industry member-to-industry member linkage validations occurring in October 2020, and exchange linkage validations in December 2020.

There will be no material design changes to the IM technical specifications as approved by the operating committee and published in October 2018. Industry members should continue with their development efforts as originally planned.

Impacts to reporters

Continuation of tech specs
CAT NMS, LLC has committed to maintaining the structure of the industry member tech specs as previously published. This includes a continuation of the phased implementation approach for industry members—with four phases—starting with equity reporting, then simple options, then representative orders and allocations, and finally manual and complex options.

This is expected to allow a more predictable transfer from an industry member perspective and allows firms to continue with compliance programs already in flight with minimal change.

While the structure is remaining the same, there are some specific differences to be expected, as further explained below. Firms should remain engaged and continue to look to CAT NMS, LLC for updates.

Sub-phasing for equities phase 1
While overall, the phasing structure for implementation remains unchanged, CAT NMS, LLC did announce sub-phasing to the first phase of industry member reporting with four releases from December 2019 to December 2020, adding increasing complexity as described above. While this does allow firms to “crawl before you walk,” it also increases the number of releases and test phases that firms must plan for. In particular, this could cause concern for service providers and firms making use of third-party reporters who may have been planning for only a single release for the first phase, but who now must plan for multiple. Those making use of third-party reporting platforms should remain in close communication with their service providers.

It is important to note that the sub-phases announced are to add increasing levels of validation to industry member-submitted data. Industry members must still report all data for a given phase (i.e. phase 2a, 2b) at the first go-live date. The latter dates will include increasing validations on the part of the plan processor, starting with simple file-check validations (e.g. completeness) and leading up to full linkage to other industry members and the exchanges. CAT NMS LLC did explain that it will not be performing retroactive validations as part of this—for example, when IM-to-IM linkages are enabled for equities in production in October 2020, industry members will not receive errors, and will not be penalized for, any errors in IM-to-IM linkage from data submitted between April and October.

Parallel equity and options development
One of the more substantive changes is the closer coupling of the first two phases of development, equities, and simple options. While separate timelines are laid out for each, they are much closer together than the previously laid out plans and include overlapping periods. For example, the first sub-phase of equity reporting (file submission and data integrity) will go into test in December 2019 and into production in April 2020. The first sub-phase of options reporting (file submission and data integrity for simple options) will go into test concurrently with the first sub-phase of equities reporting, and into production in May of 2020, the same time as contemplated in previous rollout plans.

Firms must be ready to handle concurrent development cycles as opposed to the sequential phases previously discussed. Implementation programs must account for this, particularly as firms consider budgets for implementation.

Regulatory conformance period removed
Previous industry member rollout plans included a three month “regulatory conformance period” during which firms would be reporting to CAT, but during which the SROs agreed they would not bring enforcement action due to errors in reporting. This was intended to give firms additional testing time in a production-like reporting environment. The updated rollout plan does not include this concept due to increased development time and further phasing of rollout as previously described. Firms should take note of this and understand that applicable error rate and correction requirements will apply immediately upon production go-live for a given phase. Accordingly, firms should make sure they have robust testing programs and are fully participating in industry test phases to avoid any regulatory enforcement actions.

Continuation of implementation programs—interactions with new plan processor
Of course, the final major change announced was a confirmation in a change in plan processor from Thesys CAT, LLC to a subsidiary of FINRA. While FINRA is a well-known quantity to most firms, a major change in the middle of the firm’s implementation programs can of course cause concern.

Of course, the most recent announcement confirmed the change in the CAT plan processor. Given that CAT NMS, LLC has committed to maintaining the current industry member tech specs and implementation plan, firms should continue with their existing programs with minimal changes. Additionally, firms should remain engaged in the process so that they can be aware of any changes that may arise, and the impact it may have in their own CAT readiness program.

Next steps
Don’t slow the pace!

While timelines are subject to change, and there remains uncertainty regarding the transition to a new plan processor, the fundamental challenges of CAT readiness remain consistent and it is vital that firms do not take their feet off the gas in preparing for the challenges CAT presents. This means firms should continue to focus on CAT development, including specific areas such as:

  • Enhancing reporting capabilities to meet new requirements, including technology and regulatory operations reporting models
  • Understanding the impact of data privacy and security that increased customer data reporting will have on internal process and procedures, including establishing new controls where required and incorporating these requirements into existing business and technology control frameworks
  • Understanding and enhancing data governance from trade execution to reporting to reduce breaks in the reporting process, and to relieve the burden on the mandatory error handling and correction process
  • Seeking to understand and assess the impact of new technologies such as machine learning, automation, and cloud storage and processing to enhance current reporting methodologies

Get in touch

Deloitte has extensive experience in the area of non-financial regulatory reporting, and has a team of subject matter specialists who focus on helping firms prepare for the challenges that CAT presents. Since the inception of SEC Rule 613 in 2012, Deloitte has continued to provide services to broker dealers, vendors, and exchanges to provide program management, reporting requirements, cybersecurity design, and operational implementation of CAT and interpretation of the CAT NMS Plan.

 

Endotes
1 catnmsplan.com/wp-content/uploads/2019/02/CAT_Industry_Webcast_02.20.2019_vF.pdf
2 https://www.businesswire.com/news/home/20190227005710/en/CAT-NMS-Selects-FINRA-Consolidated-Audit-Trail

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