Co-authored by Tanja Samardzija
On July 11, the Securities and Exchange Commission held an open meeting and adopted Rule 613, which requires U.S. exchanges and the Financial Industry Regulatory Authority (FINRA) to submit a national market system (NMS) plan for creating, implementing and operating a single, market-wide consolidated audit trail system. The consolidated audit trail system will collect and accurately identify every order, cancellation and trade execution for all exchange-listed equities and options across all U.S. markets. The consolidated audit trail will increase the data available to regulators investigating illegal activities such as insider trading and market manipulation, and it will significantly improve the ability to reconstruct broad-based market events in an accurate and timely manner.
Among other things, the rule mandates that the NMS plan require the following:
- Orders and trades must be reported to the central repository by 8 a.m. Eastern Time following the trade day.
- Each broker-dealer and exchange must be assigned a unique, cross-market identifier to be reported to the central repository along with every reportable event.
- Each customer (as well as any customer adviser who has trading discretion over a customer’s account) must be assigned a unique, cross-market customer identifier to be reported to the central repository for every order originated.
- The exchanges, FINRA and their members must synchronize their business clocks to be in millisecond or finer increments.
- Accounts must be identified when reporting to the consolidated audit trail, but not the ultimate beneficial owners as was originally proposed.
Two of the five SEC Commissioners did not vote in favor of the rule because they believe that the mandates of the rule do not go far enough. The dissenters were Commissioner Elisse B. Walter and Commissioner Luis A. Aguilar.
The new rule becomes effective 60 days after its publication in the Federal Register. The exchanges and FINRA are required to submit the NMS plan to the SEC within 270 days of the rule’s publication in the Federal Register. Once the SEC approves the NMS plan, the exchanges and FINRA are required to report the required data to the central repository within one year, and members are required to report within two years. Certain small broker-dealers will have up to three years to report the data.
To view the SEC Press Release and Fact Sheet, click here.