Regulators Provide CAT Reporting Focus

By Ralph Magee

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In the past few weeks, the industry has been given additional guidance on how CAT reporting will be monitored by the regulatory body and the SROs. We were introduced to a new acronym, CMRWG, which is the Cross-Market Regulation Working Group. The CMRWG was recently formed to reduce unnecessary duplication in enforcement efforts. SROs have also used the CMRWG as a vehicle to discuss regulation related to CAT compliance rules.

The industry has also been given additional insight as to potential Surveillance patterns and Examinations. Firms selected for examination starting in July will be subject to a review of their CAT reporting for equities and options. It was also disclosed that FINRA is likely complete an initial comparison of CAT reporting to OATS reporting for firms required to previously report to OATS. Though there are obvious reporting differences, this could potentially identify deficiencies in a firm’s CAT reporting. Oyster has been recommending that our clients regularly complete source validations for CAT reporting, and we have built this into our CAT application currently in use by our clients. This continuous monitoring will provide more long-term value than a comparison to OATS reporting, which will be retired later next year.

The regulators will also use the monthly Equity and Options Report Cards to monitor CAT reporting, just as these had been used to monitor OATS reporting. However, FIRNA will be using a Rapid Remediation process for CAT reporting. Members should expect more frequent inquiries in an attempt to address underlying issues as soon as possible.

Firms should pay particular attention to their Policies, Procedures and Controls for CAT reporting.  Firms will want to identify by name or title who is responsible their procedures. The procedures should also detail the supervisory process. This process should be orderly and detail the frequency of the review, what kind of sampling or testing is being done and what kind of documentation and evidence of review is being produced. FINRA will also be looking to identify the Designated Principal at the firm and that is responsible for CAT reporting obligations. This is typically a series 24 licensed individual.

If the firm is using a third-party reporter, such as a vendor or a clearing firm, the responsibilities of each party should be clearly defined and detailed, and integrated into the firm’s compliance program.  Firms should also detail their reporting process, control process and any metrics or performance data used for oversight. Data submissions should be documented, and the policy should also detail the exception management process. It is also recommended that the firm detail how Firm Designated IDs (FDIDs) are assigned to accounts and trading inventories.

It is expected that examinations will include data integrity testing. This further supports Oyster’s stance on source file validations. On a recent call, FINRA identified the following fields as “high importance” data that examiners will be focusing on during firm exams and surveillance.

  • Account Holder Type
  • Capacity
  • Customer Display Tag
  • Event Price
  • Event Quantity
  • Event Time Stamp
  • Order Type Code

Random sampling will almost certainly be an additional measure used in examinations.

Firms are in the middle of CAT implementation. The industry has arrived at a critical time for monitoring this reporting initiative.  There are multiple reporting streams currently running parallel for CAT reporting. Complexity is on the rise and firms cannot afford to let their guard down. Responsibilities include compliance for 2a/2b reporting as well as Intra/Interfirm linkage, planning for LTID reporting, testing for exchange/TRF linkage and preparation for testing and preparations for phases 2c and 2d.

Oyster can help you assess how your firm is positioned for CAT readiness, manage your requirements assessment and implementation phases, interface with your own technology providers, and assist you in determining what and how your technology providers will report for you. We can also assist in testing data scenarios and data linkage, as well as creating an error repair process. Firms can also leverage Oyster testing tools to gather and analyze reported data and errors.

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About The Author
Photo of Ralph Magee

Ralph Magee Jr.

Ralph Magee Jr. is a securities industry professional with over 25 years of experience in the financial services industry. Ralph has led multifaceted teams in large-scale client remediation and clearing platform conversion-related projects. Ralph also uses his expertise in trade reporting providing large broker dealers project management and subject matter expertise related to the Consolidated Audit Trail (CAT).