Inside the Latest CAT and CAIS Reporting Issues

Evolving Regulatory Expectations for CAT and CAIS

The regulatory landscape for broker-dealers continues its rapid evolution, particularly regarding CAT (Consolidated Audit Trail) and CAIS (Customer Account Information System) reporting requirements. In this episode of the Oyster Stew podcast, our experts unpack the latest regulatory developments, including the push to remove personally identifiable information (PII), the persistence of Blue Sheet requirements, and the real-world implementation challenges facing firms today.

The Push to Eliminate PII from CAIS Reporting

The most pressing issue confronting broker dealers is the potential removal of personally identifiable information (PII) from CAIS reporting. While the regulatory intention is clear – protecting sensitive customer data from cybersecurity threats – the implementation path forward remains unclear. Industry members are eager to move forward but lack clear technical specifications from FINRA. Adding complexity is the current voluntary approach, which could force clearinghouses to build optionality into their systems to accommodate clients with different reporting preferences.

Listen Now

Join Oyster experts as they provide real-world insight into the shifting CAT and CAIS landscape, including:

• The current regulatory focus on removing PII information from CAIS reporting
• Implementation uncertainty – where FINRA guidance falls short
• Member firms grappling with the scope of PII removal at account and customer levels
• Blue sheets and CAIS – redundant reporting and integration challenges
• CAT reporting’s critical role in market surveillance during volatile trading periods
• How the multi-year phased implementation approach provides a potential model for future regulations

Despite implementation challenges, the phased approach has allowed firms to adapt gradually to new requirements, potentially providing a template for future regulatory initiatives. For firms navigating this complex landscape, staying informed about upcoming changes and maintaining flexible systems will be crucial to successful compliance.

Preparing Your Firm for What’s Next

With more changes on the horizon, success depends on staying informed, investing in flexible systems, and building a scalable compliance framework. Whether your firm is facing challenges with PII removal, timestamp accuracy, or data reconciliation, Oyster Consulting’s trading and regulatory compliance experts deliver customized guidance and strategic insight to ensure your compliance program is both effective and sustainable.

Streamline Compliance with Oyster Solutions CAT Reporting Software

Oyster Solutions, our proprietary governance, risk, and compliance software, offers powerful tools to simplify CAT reporting and enhance oversight. The platform integrates with your systems to automate validations, flag reporting exceptions, and generate actionable reports. With built-in workflows, audit trails, and testing capabilities, Oyster Solutions helps firms streamline their reporting obligations and reduce regulatory risk. As CAT and CAIS data reporting obligations continue to evolve, our technology and expert support ensure your firm stays one step ahead.

Transcript

Transcript provided by TEMI

Libby Hall: Welcome to today’s episode of the Oyster Stew Podcast. I’m Libby Hall, Director of Communications for Oyster Consulting.  In today’s episode, Oyster Consulting experts Ralph Magee and Steve Kuhs explore current issues with CAT and CAIS reporting, including:

• The current regulatory focus on removing PII information from CAIS reporting and how member firms are handling the scope of PII removal at account and customer levels
• The uncertainty around implementation timelines and technical specifications from FINRA
• The continued use of Blue Sheets, creating duplicative efforts and integration challenges
• CAT reporting’s critical role in market surveillance during volatile trading periods

Let’s get started – Ralph?

Ralph Magee:  Good afternoon. This is Ralph McGee here at Oyster Consulting. I am the subject matter expert here for Oyster on CAT and CAIS reporting, and today I have asked Steve Kuhs to join me here to discuss a couple of things about CAT reporting that we’re seeing. We’re going to talk about the current regulatory market of both CAT and CAIS. And then, in either this podcast or a subsequent podcast, we’re going to talk about the anatomy of having a strong cat reporting system and some things that you guys should look out for as industry members. Steve, I’d like to welcome you today. If you wouldn’t mind giving the listeners an update on your past experience and how long you’ve been here at Oyster.

Steve Kuhs: Absolutely. Thank you, Ralph. I joined Oyster in 2023 to bring some more assistance to Ralph in the CAT-CAIS and trade reporting realm. Prior to that, I had 25 years of brokerage operations experience. I was primarily responsible for my firm’s compliance with and adoption of both CAT and CAIS from the rule’s creation to its inception. I started out as a self-clearing broker dealer and eventually evolved into an introducing broker dealer. And once I was done with that, I joined Oyster here so that I could help out others with the knowledge that I’ve learned over these last 25 years.

Ralph Magee:  That’s great. And truth be told, you were a client, correct?

Steve Kuhs: Actually, that’s true, yes. So, full disclosure, we were looking for somebody to help us with our CAT-CAIS implementation and we reached out to Oyster and through that collaborative effort, we built the tool that we now have today that others are taking advantage of. So as a client, I was very, very happy with the ability of Oyster, then later joined the team.

Ralph Magee: Well, we’re glad to have you. Let’s talk a little bit about the current regulatory market that we’re seeing both in CAT and CAIS. It been interesting. You know, we’ve got a lot of observations that are going on with working with our current clients and talking to potential clients that are out there. We’ve got some exemptive requests that are out there that are looking to expire on some timestamps and some recommendations going forward from some of the advocacy groups. What are you hearing out there, Steve?

Steve Kuhs: A lot of the same. So, a lot of focus is on the rule change to CAIS to pull out some of that PII information and it’s not very clear from our friends at FINRA as to how that’s going to actually roll out. We haven’t seen a technical specification and what we hear from our clients is they want to move on, sooner rather than later. And they’re looking for ways to implement that on their own, outside of maybe even their current CRAs.

Ralph Magee: A lot of talk that I’ve heard from the clients that I work with on a day-to-day basis, what’s going to happen with that data that’s out there, that’s been out there, that’s been reported. What do you think the industry is going to do with that? We’ve talked a little bit about timing too. So, we’re hearing a lot of complaints about speed to market. Would it be something that, I would think, to express as how quickly will FINRA be able to get those technical specs out? And then in addition to that, how quickly will or how long will the industry members have to code for that specification. Steve?

Steve Kuhs: Right now, as the Exemptive rule says, it’s not a mandatory removal of that information – it’s a voluntary choice. And so that adds extra complications. The industry as a whole had tried to code for it because you might have to build optionality, especially if you’re a large clearing house, you could have some clients that want to report and some clients that don’t. So, the industry needs to see some clarity there so that we can understand if this is black or white. Should we be sending this information or not?

Ralph Magee: And that scope of the PII is still in question too. So, we’ve got some FDID level addresses that may or may not be pulled out. I know we’ve seen advocacy groups such as the FIF go out and say, can you clarify this for us? What exact addresses do we have to report, or can we pull out and do an interim reporting value for? And which ones can we not? Is that only on the account level? Does this apply to the customer level as well? Correct?

Steve Kuhs: Absolutely.

Ralph Magee: Talk about Blue Sheets, being in your position, sitting more recently in a broker-dealer setting than myself. How do you feel about Blue Sheets continuing? It seems to be some duplicate information that’s out there right now in CAIS and, potentially, some things that could be requested on the Blue Sheets. What are your thoughts there?

Steve Kuhs: Selfishly, I was not a fan of Blue Sheets. Because of the structure of it, we were never able to really build a quality tool to pull that information together. And in some cases, you find yourself with a situation where not all that information resides on one system, and so your firm may have to do some collaboration of its own back-office systems through its OMS, its back-office system just to get that data together. So, there’s a build there that’s happened. I do like that it’s a one-time request, and I think that’s more of what the industry wants to see. They don’t want to give this information and have it held away from them indefinitely. It’s just too big a target for threat actors out there, which is why we’re seeing this, the relief and the removal of the PII. So, I was really hoping that CAIS would solve this, but really CAIS just asked for too much and is holding it for too long. And so, you’ve got a situation where we really do need to come up with as an industry, a bridge between giving the information that the regulators need to identify who’s doing these trades and not holding onto it or creating a database that could be potentially fraught with bad attention.

Ralph Magee: Sure, yeah. It’s finding that balance between the two, though the information as required today is in CAIS for the regulators to access very quickly without having to request it. It’s the risk that most people think outweighs the benefit of having that there on an immediate basis.

Steve Kuhs: Right. And so, the industry is sort of faced with a challenge there because they don’t want to get that information up at the levels it is. And we’ve got the rule that’s going to allow them not to do that. But at some point, that information needs to be requested. If you go back to how the rule was and why the rule was created, it was the flash crash, and they tried to put together exactly what happened and who did, what trades and when. And they weren’t able to do that with OATS. The trail wasn’t clear enough. And so, they still need that level of UL granularity and that’s what CAT was meant to solve. And we’re seeing that today with the volatility in the markets currently being spurred by tariffs. We’re seeing movements that are exactly the kind that the CAT rule was created to help monitor and surveil. So, it is an important rule. We need to find a way to comply with it, but we have to find the right way to do it smartly.

Ralph Magee: Yeah, I think firms need to realize that this is still, both on CAT and CAIS, this is something that’s constantly evolving. I know later this month we’ve got an industry update that’s going out, a software update, if you will, where some of the requirements are going to change with a rollout in April here that’s impacting certain market making quote events and things like that. And then of course, we’ve talked a little bit about the exemptive request that’s out there that should expire the granularity of certain timestamps that are currently captured to the nanosecond that could expand on that. So, to your point of what you brought up earlier, maybe it’s too far ranging. So, what is the extra benefit that the industry would obtain, or the regulators would obtain, to have those granularities of those timestamps out further than the six digit decimal spaces? What is there really to gain there and how much more does it cost the industry as a whole to store that data? You have any thoughts there?

Steve Kuhs: No, not on that one.

Ralph Magee: Okay. Yeah. I just think nanoseconds are pretty far out.

Steve Kuhs: Yeah. I agree. So, my main problem is that I agree with everything you said. You get to the point where you’ve accomplished the goal and you don’t need to keep working.

Ralph Magee: Yeah, exactly. All right. Well, that’s definitely something that we want to keep our clients updated on and have this regular type of discussion with them. It’s an ever-changing marketplace that I think that we find ourselves in. I think it will continue to be that way. This has been a multi-year implementation that we’ve seen. I think for the most part, in my opinion, it’s been done rather well. There’s been some decent communication coming from FINRA CAT, which would be the plan sponsor. And I think that will continue. Lastly, one question I have for you. Do you see counting CAIS and this multi-year implementation being something that FINRA or other providers will try to emulate going forward? We’re now six and a half years into this implementation here. Do you think we’ll see another implementation of this scale in the near future?

Steve Kuhs: Well, I hope that they do a little better job on picking the plan provider at the start, but putting aside that, I do think that the rollout of the rule and the stages that they did it, did allow the industry time to implement the rule and get used to it and learn with the regulators how they wanted to capture and present this data. So, it’s been a long rollout, costly rollout, but I think once FINRA got hold of it, it started to drive the ship. It’s been successful and I think it is something that should be emulated if we need to do another rule rollout of this scope.

Ralph Magee: Great.

Libby Hall: If you found today’s discussion helpful, don’t forget to subscribe for more episodes where we dive into industry strategies and best practices. For more information about our experts, visit our website at oysterllc.com. Thanks for listening.