In FINRA’s Notice to Members 20-31, members are asked to consider incorporating into their Consolidated Audit Trail (CAT) supervisory system “Daily review of the CAT Reporter Portal to: identify late trades.” While the FINRA CAT portal provides a count of events which were “Accepted Late,” it does not identify what constitutes an Accepted Late trade.
This can be concerning, considering that the average regional broker-dealer may submit 15,000 CAT events per day, and four of those events are reported by FINRA as Accepted Late. The broker-dealer must then sift through their reported events to identify the Accepted Late trades that represent only .0267% of their volume.
What causes a trade to be Accepted Late? A vast majority of the time it is a direct result of human error. An entered trade may have had an accepted time entered with the wrong month or date preceding the electronically entered time of the order. In some cases, standard time was used during entry when the time reported to CAT should be military time. We have also seen timing create late trades where events straddle the cutoff time for a CAT reporting day of 16:15:00.000000.
Repairing these events isn’t as straight forward as it may seem. The firm ROEID is generated off the Order Accepted timestamp. If that date precedes the event timestamp, the user cannot simply change the date or time without also adjusting the firm ROEID. Keep in mind, this is because this is the unique identifier of the event within a CAT reporting day.
If you are late, it is best practice to Identify, Review, Repair and Evidence these events to ensure your CAT reporting is accurate. Keep in mind, Accepted Late trades are considered in the firm’s error rate.
Oyster has identified several optional repairs:
- Delete the original event and resubmit a new event reflecting the accurate information
- Change the month or date on the existing event which will result in an error, then the firm can use the provided error event ID from FINRA to make the necessary repairs to the event.
- Take no action but evidence review. In some cases, an accepted late trade could be accurate reporting. An example of this would be a FDID change outside of the normal T+3 compliance window.
Oyster Consulting has worked with clients to systematically identify these events through a series of filters applied to their daily CAT reporting, using the Oyster Solutions CAT Application. This allows our clients to comply with the recommendation in the Notice. In addition, the application allows our clients to make repairs to these events, ensuring the accuracy of the submitted information. All of this can be documented within the Oyster Solutions CAT Application and used in a future audit of a firm’s CAT reporting.