Looking Forward To Retirement: Managing Duplicate Reporting Under CAT

Looking Forward To Retirement: Managing Duplicate Reporting Under CAT

Maryse Gordon

Senior Pre Sales Consultant at UnaVista, Information Services

Maryse has worked with financial software for 10 years and gained a wealth of knowledge and experience ranging from product development and support, to product management and Pre Sales. Staring her career at Hewlett Packard and progressing onto Logica, Maryse now represents UnaVista as a Business Development and Pre-Sales Manager covering the Regulatory Compliance, Risk and Controls, and Data Solution offerings. In demonstrating and delivering details on the application capabilities and supporting the overall sales process, Maryse actively contributes to the growth of the business, providing thought leadership and ensuring solutions are inline with industry appetite. Now based in the United States, Maryse plays a fundamental role in driving and generating new business for the organisation, identifying new opportunities for growth as well as supporting local client engagements.

Views 349

Looking Forward To Retirement: Managing Duplicate Reporting Under CAT

03.04.2017 12:00 pm

 

The SEC’s Rule 613, which created the Consolidated Audit Trail (CAT), is estimated to be the world’s biggest data repository for options and equity trade related data, collecting thousands of terabytes of data a year from U.S. self-regulatory Organizations (SROs)s and Broker Dealers. 

One question that has been raised is whether any existing reporting systems will be eliminated once the CAT is operational?

Currently, the industry spends an annual $1.6 billion2 running related regimes such as Order Audit Trail (OATS), Electronic Blue Sheet (EBS) and Large Trader Reporting (LTR). The SROs involved in the CAT proposal have been specifically tasked with analysing existing regimes3to find and eliminate duplicative systems as a result of the implementation of CAT. The Commission has put in place a four step plan for Participants to undertake a gap analysis of duplicative systems and  present findings to the Commission for review and implementation. Until such time that this plan is complete, firms can expect to satisfy both old and new reporting regimes simultaneously for up to 2.5 years post CAT go-live at an estimated cost of $55 million4. As a result, there is a possibility regulatory reporting teams may see a significant impact on regulatory reporting initiatives. Firms will need to think about certain factors when planning their CAT projects in order to mitigate any potential strains on reporting obligations across their organizations.

Quality Is Key

There are a number of drivers to prompt the retirement of duplicative reporting regimes, but the key condition will be that the CAT contains complete and accurate data that allows regulators to conduct surveillance and investigations of the markets. Firms should ensure that the quality of data being reported to the CAT Processor is of a high quality and accurately reflects their position and activities. 

There are a number of factors that can affect data quality, including the management of multiple source systems capturing data in varying standards and formats, poor quality proprietary and industry specific reference data, and unfitting business rules and logic used to transform data to meet a desired format for reporting. In implementing a new CAT reporting framework, organizations should ensure that the solution being used provides complete visibility and transparency over their reporting process. All touch points which could be a threat to data quality should be easily accessible, reportable and maintainable. Reporting error rates may play a part in defining a benchmark for CAT data quality. As a result, being able to effectively view, analyze and remediate data quality issues through an efficient exception management process will support key data integrity initiatives.  

Streamline Where Possible

Another aspect that should be considered to assist with managing duplicative reporting is to streamline the reporting process. Streamlining can cover the team operating the reporting, the governance structure, the compliance oversight, and the technology supporting the obligation. Dual reporting will introduce complexities such as “conflicting reporting requirements, varied correction [rules]…, legal and compliance confusion, costs of maintenance of duplicative reporting systems… .”5

Consolidating is a way to reduce costs, share knowledge across a wider audience, reduce maintenance efforts, and introduce consistency in management. This consolidation effort could have a positive impact on data quality, which as we know is a driver for retiring duplicative regimes. For example, an exception identified in one CAT could very well be an issue in OATS and vice versa, so combining the efforts in exception management would result in remediation under both regulations. 

Although the technical specifications for submitting data to the CAT Processor have not been finalised, there is a still a question as to whether data will be required in a uniform or non-uniform format. It is unclear if  there will be an opportunity to combine the OATS and CAT data elements into a single dataset for dual reporting in order to support the notion of consolidation. There is also a question as to whether any  changes will be made to duplicative systems, or whether there could be updates made to OATS and other regimes alongside CAT, requiring a dual maintenance effort. Technology can play a big part in streamlining data capture, normalisation, validation and reformatting to meet both the OATS and CAT data requirements. It will be up to firms to decide whether this re-modelling is worth the effort, and the next and final point in this article adds a compelling factor to this discussion.

Do Not Neglect Existing Data Issues  –Reconciliation Is Worth It

CAT data must meet minimum standards of accuracy and reliability.  This requirement has been seen as an incentive for “accurate CAT reporting because it could potentially allow industry members to retire redundant, and costly to maintain, systems sooner”6>. But does attention on CAT mean firms may lose focus on accurate OATS data? 

It is important to note that when a regulation is decommissioned, it does not necessarily mean that analysis on the historically collected data ceases. Firms can expect to still be investigated based on information reported under the old regime and penalised for any identified malpractice. 

Firms should make a positive attempt to ensure data consistency between OATS and CAT, and should consider implementing data reconciliation procedures to avoid discrepancies. The OATS reporting framework should benefit from the investments made in supporting CAT, and where firms identify faults in the reporting process, these should be rectified in OATS to avoid submitting inaccurate data under this regime. 

In 2015, FINRA fined a firm for reporting violations spanning a period of more then 8 years7. It is important to note, therefore, the quality of OATS data is not to be overlooked as it is unknown as to when fines under this regime will be retired. 

Food For Thought

Following public consultation, the Commission believes the revised plan could significantly shorten the duplicate reporting period and reduce the cost of servicing8. We must also consider the fact that all relevant OATS data must be available in CAT, all FINRA members must be reporting under CAT, and all asset classes must be in scope of CAT9. The bottom line is that the turning point will be when the CAT data quality reaches a good enough level. Until such a time, firms will need to be resourceful in dealing with the multiple reporting obligations, as the Commission and SROs will continue to rely on information collected through these regimes until “sufficiently complete, accurate and reliable data is available through CAT”.10

This article origionally appeared at: Unavista, London Stock Exchange Group

Latest blogs

Granville Turner Turner Little

The Lockdown Money Revolution

Many Brits have found that lockdown has been beneficial for their money, having cut back on personal spending and managing to put away some extra cash. According to eToro, Brits with unspent discretionary income are set to accumulate £75.5bn in Read more »

Sandra Higgins Sysnet Global Solutions

Are You ‘Prescribing’ the Right Security Solution to Your Merchants?

When it comes to leading a healthy lifestyle, eating the right food, taking regular exercise, and maintaining a positive mindset are key. However, despite these best intentions and practices, you still might not get all the nutrients your body needs Read more »

Robert Flowers DivideBuy

It Doesn’t Have to Be the End – How Retailers Can Grow in Light of COVID-19

It’s no news that the retail industry has been flipped on its head by the COVID-19 pandemic. Due to the lockdown, most in-store operations have been shut down, and nationwide furloughs, reduced pay and steady streams of income at risk have fuelled a Read more »

n/a n/a

4 Ways to Protect Your Small Business Against Cyber Attacks

Just because you are running a small scale business doesn’t mean you are beyond the reach of hackers and attackers. Many small businesses have this thought, which is why they do not invest in their cybersecurity. Unfortunately, every year small Read more »

Kirston Winters MarkitSERV, IHS Markit

IBOR transition update: €STR grabs a foothold?

In the latest development in the IBOR transition, on the weekend of July 25th, we saw the major CCPs perform the much-anticipated Euro discounting and price alignment transition from using EONIA to EuroSTR (a.k.a. €STR) for all Euro OTC interest Read more »

Magazine
ALL
Free Newsletter Sign-up
+44 (0) 208 819 32 53 +44 (0) 173 261 71 47
Download Our Mobile App
Financial It Youtube channel