CAT NMS Plan progress moving forward

Though many in the industry would cite that progress on the CAT plan has been slow, for those of us who are following the effort closely, progress on the CAT plan continues at a steady pace.  On March 3rd, 2015, the SROs amended and restated the CAT plan submission.  The amended plan provides considerable insight into the overall progress of the plan including renewed cost estimates.  Before we dive into the amendments let’s look at some of the notable progress thus far: July 11, 2012 – The SEC adopts Rule 613 to require the National Securities Exchanges and National Securities Association to jointly submit a consolidated audit trail and central repository.

February 26, 2013 – The CAT participants published a request for proposal soliciting bids from parties interested in serving as the plan processor and submit their bids by March 5, 2013.  Initially 31 bidders submitted their intention to submit RFP’s.

September 4, 2013 The CAT participants filed with the SEC an NMS plan to govern the process for participant review of the bids submitted.  The SEC approved the NMS selection plan on February 21, 2014.

On March 21, 2014 – the CAT participants received ten bids in response to the RFP and over the course of several months the CAT Selection Committee whittled the list down to six shortlist bidders on July 1, 2014 including:

  • AxiomSL and Computer Sciences Corporation (CSC)
  • EPAM Systems, Inc.
  • FINRA
  • J. Streicher Analytics on behalf of the CATPRO Consortium: Hewlett Packard, Booz Allen, Buckley Sandler
  • SunGuard Data Systems, Inc.
  • Thesys Technologies, LLC

CAT participants during this time also established a website seeking industry feedback and to provide updates on the CAT plan. Participants also engaged multiple firms across a wide range of roles and expertise to assist with the project such as Deloitte & Touche as Project manager and Wilmer Cutler Pickering Hale and Dorr to serve as legal counsel in drafting the plan.  Participants have held approximately 608 meetings related to CAT.  CAT participants also created a Development Advisory Group “DAG” to serve as a gateway for feedback with CAT development.  DAG members include:

CAT Working group

The DAG has held 43 meetings to discuss, among other things, technical and operational aspects that CAT participants were considering for the plan. This includes capturing customer IDs, timestamps and server clock synchronization, reporting requirements for order handling scenarios, cost and funding, error handling and corrections, and potential elimination of rules made redundant by the CAT.

The amended plan establishes the CAT as a Delaware limited liability company known as CAT NMS, LLC of which the CAT participants will jointly own an equal share of the company.  The CAT may seek to become a 501(c)(6) “not-for-profit” trade association at a later date.  Each SRO currently registered with the Commission will be a plan participant.  Additionally any firm approved by the Commission as an SRO may become a participant of the plan after the effective date.

Notable features of the plan include:

  • A revised cost estimate of $234.8 million
  • 50 millisecond clock synchronization requirements
  • Full data retention for six years
  • Requirement that industry members report to the central repository within 2 years (3 years for small industry members) following the effective date and report records by 8:00am est on the trading day following the day such information is recorded.
  • Required a unique “Customer-ID” to be associated with each record
  • Fixed fees payable by industry members based on message traffic generated by such industry member.  The CAT Operating Committee will establish at least five and no more than nine tiers of fixed fees, based on message traffic

Of course a significant drawback to the plan is coverage is not cross asset-class and contains no provisions currently for products overseen by the CFTC.