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Seizing cloud opportunities: The consolidated audit trail

Regulatory reporting and data management

The consolidated audit trail is finally here. Learn how creating a strategic technology plan now can help you lead in your industry, navigate compliance risks, seize broader opportunities presented by CAT, and ultimately disrupt through innovation.

Seize broader opportunities

The consolidated audit trail (CAT) is here. And now is the time to act. Several compliance deadlines are on the horizon, and on November 15, 2018, large US broker-dealers will be required to start reporting to the central repository. Given the level of effort and costs involved in standing up a new non-financial regulatory reporting program, individual firm timelines are even shorter. There are important implications for front- to back-office operations, controls, technology strategy, data architecture, and analytics capabilities.

Historically, competing priorities and large data requirements led many firms to build separate data stores for each repository, resulting in increased costs and inefficiencies. Unless firms start planning now, costly and inefficient practices will likely continue as experienced during previous regulatory mandates, such as the swaps data repository from the Commodity Futures Trading Commission in the United States and the trade repository from the European Market Infrastructure Regulation framework in Europe.

The fundamental choices integral to implementing a solution for CAT will likely have a lasting impact on a firm’s capabilities, such as utilizing more sophisticated trading analytics and streamlining execution validation. 

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The creation of CAT

The creation of the CAT concept was in response to the events of the “Flash Crash” in May of 2010. The Securities and Exchange Commission (SEC) wanted to enhance their capabilities to reconstruct the trading events of the day in order to determine the cause or causes of market disruptions. In that effort, the SEC passed Rule 613: Consolidated Audit Trail, of which the basic requirements of US broker-dealers is to report every equity and options trade life cycle event.

When completed, the CAT will be the world’s largest data repository of securities transactions. All US broker-dealers are required to implement CAT-compliant reporting protocols into a new and/or existing reporting program by November 2018 for large broker-dealers and November 2019 for small broker-dealers.

The securities industry has seen increases in the volume and complexity of data, data storage, and data management. Many firms are working to take advantage of the insights available from these data sets using advanced analytics tools. However, the costs and complexity of managing the enabling technologies have been difficult for internal resources and infrastructure.

Cloud technologies, such as Infrastructure as a Service and Platform as a Services, enable companies to take advantage of the cost efficiency, scale, elasticity, automation, and orchestration that both private and public cloud infrastructure platforms provide.

With the massive data requirements of equity and options reporting to CAT, firms should consider embracing new opportunities in technology such as data management practices and cloud-based infrastructure and platform provisioning, which can allow the strategic use of data for competitive advantage.

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Designing for the future

When establishing the next-generation solution architecture to support CAT requirements, the following architecture and solution design principles are fundamental to an effective solution:

  • Agility and scalability
  • Flexibility
  • Adaptability
  • Cost management
  • Security
  • Accuracy, consistency, and completeness

CAT requirements provide firms with the opportunity to enhance or transform their non-financial regulatory reporting processes. Since CAT reporters will need to understand the sources and accuracy of their regulatory submissions to CAT, there’s an opportunity to determine how best to incorporate or replace legacy reporting systems. The timing of the retirement of duplicative systems is still a work in progress. It’s likely that, in addition to CAT reporting, organizations will be required to operate and manage duplicative regulatory reporting systems for some time.

The overhead of managing multiple disparate reporting repositories while ensuring a high level of data quality, reliability, and consistency across all these reporting systems significantly increases the complexity and costs of regulatory reporting.

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Moving to the cloud

Firms across multiple industries are taking advantage of cloud technologies to reduce their costs related to staffing, training, maintenance, and infrastructure by taking advantage of cloud-based infrastructure and application services. One of the impediments to the use of cloud technologies for broker dealers has been the uncertainty of regulatory approval for storage of data in the cloud. Since the data will reside in the cloud once reported, broker-dealers now have the opportunity to take advantage of cloud-based architectures.

Moving data to the cloud creates a tremendous amount of value in terms of tools, infrastructure, and flexibility and allows for the rapid deployment and metered cost structure that make meeting regulatory requirements, such as CAT, faster and more cost efficient.

In addition to regulatory mandates, trade analytics and surveillance can take advantage of a flexible big compute, leading-edge data platform that enables experimentation with and use of more advanced algorithms.

These techniques usually require cost-prohibitive hardware-based acceleration technologies such as graphics processing units, field programmable gate arrays, and distributed architectures. They also rely on the ability to store massive amounts of data, such as current and historical options and equities life cycle events. A cloud-based, on-demand, high-performance architecture helps efficiently transform, store, and analyze all data.

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Strengthening surveillance

CAT will provide regulators with a complete end-to-end picture of a broker-dealer’s equities and options trading activities for the first time. The plan processor has expertise with advanced analytical functionality allowing the regulators to surveil this activity.

CAT provides an opportunity for firms to strengthen their own internal surveillance programs—before their regulators understand their activities better than they do. To avoid falling behind regulators, broker-dealers should embrace this as a call to action. CAT is an opportunity to mature internal surveillance and analytics programs and further enhance current surveillance practices.

To learn more about the strategic opportunities presented by the consolidated audit trail, download the full report.

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