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Consolidated Audit Trail and OATS

FINRA OATS has been the major equities order activity surveillance system since the rules were introduced in 1998. The SEC is now rolling out a program to implement Rule 613, the Consolidated Audit Trail ("CAT"). When implemented, CAT will operate a lot like OATS ... requiring firms to report more securities, more activity data, customer account data, and with finer time precision.

Many firms experience some type of completeness and accuracy issues with their daily OATS reporting. FINRA TMMS exams and related fines can be a reminder of the importance of providing accurate reporting on a consistent basis. With the anticipated shift to a more complex reporting obligation, firms seeking to gauge their preparedness for CAT may wish to assess the capability of their current internal OATS reporting processes before assuming that CAT needs can be addessed with simple enhancements. Regulated firms should ask:

  1. Have we implemented processes which address daily errors and rejects within prescribed regulatory timeframes?

  2. Do we have processes for timely identification and resolution of specific events causing spikes in exceptions?

  3. Are trading infrastructure changes known in advance so that related activity capture and reporting changes can be implemented and tested to avoid introducing more exceptions?

  4. Is customer account information properly mainitained and accessible by the reporting processes?

  5. Do we have the ability to readily modify the rules determining which order lifecycle events are captured?

  6. Are our event linkage processes documented, transparent and maintainable?

  7. Do all related systems record the proper system clock detail and are they synchronized within expected tolerances?

Initial answers to these questions can help identify potential problem areas facing a firm which needs an ACT reporting system and is considering leveraging elements of its existing OATS processes. Pursuing an initial assessment early can help firms as they commence planning for CAT by identifying where the OATS processes lack the ability to accomodate CAT, and make decisions on whether tactical enhancements or more strategic wholesale improvements are needed before encroaching timelines work to limit options to less desireable approaches.

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