The Financial Industry Regulatory Authority (FINRA) has filed proposed rules with the Securities and Exchange Commission to adopt FINRA Rule 6800 Series, which is designed to implement the compliance rule regarding the National Market System (NMS) Plan Governing the Consolidated Audit Trail.
Pursuant to Regulation NMS, various exchanges have filed with the SEC a plan to create, implement and maintain a consolidated audit trail (CAT) to capture information related to customers and order events for transactions in NMS securities and over-the-counter (OTC) equity securities. The CAT will capture order information across all markets and throughout the life of an order (from inception to execution). Each exchange must enforce compliance with the plan with respect to its members or trading permit holders.
Members of a national security exchange or a national securities association required to comply with the Proposed Rules (Members) must submit identification information related to accounts that have had activity in NMS securities or OTC equity securities in the previous six months. Under the Proposed Rules, Members also must submit details of an order during the lifecycle of the order, including origination of the order, routing of the order, receipt of the routed order and execution of the order. Data to be reportable includes the data and time of such events, material terms of the order, identifying information of the customer and the market, and information around the cancellation, modification or allocation of orders. Material terms of an order include, among other things, security symbol, type, price and size; order type; and special handling instructions. Broker-dealers designated by the exchanges for the purpose of market making in certain options contracts are required to report the time at which their quotes in options contracts are sent to the exchange, material terms and information about subsequent modifications and cancellations. The Proposed Rules allow Members to use third parties to assist them in reporting and contain requirements around the synchronization of clocks used to record the date and time of events contained in the CAT.
If the Proposed Rules are approved by the SEC, most Members would be required to begin connectivity and acceptance testing as well as order data submission no later than August 15, 2018. Members that qualify as small broker-dealers under Securities Exchange Act Rule 01-10(c) would be required to begin connectivity and acceptance testing, as well as order data submission, no later than August 15, 2019. The Federal Register Notice related to and text of the Proposed Rules are available here.