Consolidated Audit Trail (CAT)

Regulatory Obligations and Related Considerations

Regulatory Obligations:

FINRA and the national securities exchanges have adopted rules requiring their members to comply with Exchange Act Rule 613 and the CAT NMS Plan FINRA Rule 6800 Series (Consolidated Audit Trail Compliance Rule) (collectively, CAT Rules), which cover reporting to the CAT; clock synchronization; time stamps; connectivity and data transmission; development and testing; recordkeeping; and timeliness, accuracy and completeness of data requirements. Regulatory Notice 20-31 (FINRA Reminds Firms of Their Supervisory Responsibilities Relating to CAT) describes practices and recommended steps firms should consider when developing and implementing their CAT Rules compliance program.

Related Considerations:

• Do your firm’s CAT Rules WSPs: (1) identify the individual, by name or title, responsible for the review of CAT reporting; (2) describe specifically what type of review(s) will be conducted of the data posted on the CAT Reporter Portal; (3) specify how often the review(s) will be conducted; and (4) describe how the review(s) will be evidenced?
• How does your firm confirm that the data your firm reports, or that is reported on your firm’s behalf, is transmitted in a timely fashion and is complete and accurate?
• How does your firm determine how and when clocks are synchronized, who is responsible for clock synchronization, how your firm evidences that clocks have been synchronized and how your firm will self-report clock synchronization violations?
• Does your firm conduct daily reviews of the Industry Member CAT Reporter Portal (CAT Reporter Portal) to review file status to confirm the file(s) sent by the member or by their reporting agent was accepted by CAT and to identify and address any file submission or integrity errors?
• Does your firm conduct periodic comparative reviews of accepted CAT data against order and trade records and the CAT Reporting Technical Specifications?
• Does your firm communicate regularly with your CAT reporting agent, review relevant CAT guidance and announcements and report CAT reporting issues to the FINRA CAT Help Desk?
• Does your firm maintain the required CAT order information as part of its books and records and in compliance with FINRA Rule 6890 (Recordkeeping)?
• How does your firm work with its clearing firm and third-party vendors to maintain CAT compliance?

Exam Findings and Effective Practices

Exam Findings:

• Inaccurate Reporting of CAT Orders – Submitting information that was incorrect, incomplete or both to the Central Repository, such as:
  • account holder type;
  • buy/sell side;
  • cancel quantity;
  • route event quantity (e.g., reporting an old quantity that had been modified to a different amount);
  • trading session code;
  • new order code;
  • department type code (e.g., reporting “A” for agent, when the firm does not execute orders);
  • time in force;
  • handling instructions (e.g., reporting new order events as Stop on Quote (SOQ) or Stop Limit on Quote (SLQ)); and
  • representative indicator (i.e., reporting the representative indicator to reflect a representative order when the order in a firm account was not created for the purpose of working one or more customer or client orders).
• Late Resolution of Repairable CAT Errors – Not resolving repairable CAT errors in a timely manner (i.e., within the T+3 requirement).
• Inadequate Vendor Supervision – Not establishing and maintaining WSPs or supervisory controls regarding both CAT reporting and clock synchronization that are performed by third-party vendors.

Effective Practices:

• Supervision – Implementing a comparative review of CAT submissions versus firm order records; and utilizing CAT Report Cards and CAT FAQs to design an effective supervision process.
• Clock Synchronization Related to Third Parties – Obtaining adequate information from third parties to meet applicable clock synchronization requirements.¹³

Additional Resources

• CAT NMS Plan
• FINRA
  • Consolidated Audit Trail (CAT) Topic Page
  • Equity Report Cards
  • Regulatory Notice 20-31 (FINRA Reminds Firms of Their Supervisory Responsibilities Relating to CAT)
  • Regulatory Notice 19-19 (FINRA Reminds Firms to Register for CAT Reporting by June 27, 2019)
  • Regulatory Notice 17-09  (The National Securities Exchanges and FINRA Issue Joint Guidance on Clock Synchronization and Certification Requirements Under the CAT NMS Plan)