GENERAL FREQUENTLY ASKED QUESTIONS (FAQs) ABOUT THE CAT1
1. What is the Consolidated Audit Trail (CAT)? added 3/21/18
2. Where can information regarding the CAT be found? added 3/21/18
is a consolidated order tracking system that would capture customer and order event information for orders in NMS Securities and OTC Equity Securities, across all markets, from the time of order inception through routing, cancellation, modification and execution. As required by SEC Rule 613, FINRA and the national securities exchanges (collectively, the Participants) jointly adopted a national market system plan, called the CAT NMS Plan, to govern the creation, implementation and maintenance of the CAT. When complete, the CAT will be the world’s largest data repository for securities transactions tracking approximately 58 billion records of orders, executions, and quote life-cycles for equities and options markets on a daily basis. Participants and Industry Members will be required to report into the CAT Reportable Events, including quotes, orders, executions, and allocations, as well as customer data associated with these orders.
3. How can I submit comments or questions about the CAT? added 3/21/18
The Participants have established a dedicated website for the CAT: www.catnmsplan.com. A variety of information regarding the CAT, including the CAT NMS Plan, Technical Specifications, and FAQs, can be found on the CAT website.
Comments and questions regarding the CAT may be submitted via telephone or email to the CAT Help Desk. Information regarding the CAT Help Desk is available on the CAT website at: https://www.catnmsplan.com/home/contact-us-help-desk/. The email address for the CAT Help Desk is firstname.lastname@example.org, and the telephone number for the CAT Help Desk is (833)-CAT-SERV or 833-228-7378. The hours of operation of the CAT Help Desk are from 9am – 5pm ET on weekdays (except for US equity market observed holidays).
1. Has a legal entity been established to conduct the activities related to the CAT? added 3/21/18
2. How is the CAT NMS, LLC managed? added 3/21/18
The Participants conduct the activities related to the CAT in a Delaware limited liability company referred to as the CAT NMS, LLC. The Participants jointly own on equal basis the CAT NMS, LLC. The LLC Agreement, along with its appendices, is the CAT NMS Plan.
3. Does the industry have a role in the management of the CAT? added 3/21/18
The CAT NMS Plan provides that the CAT NMS, LLC will be managed by its Operating Committee. Each Participant appoints one member of the Operating Committee and each Participant appointee has one vote. The CAT NMS Plan sets forth certain provisions relating to the Operating Committee, including identification of those actions requiring a Majority Vote, a Supermajority Vote or a unanimous vote, and the management of conflicts of interest.
4. Does the CAT NMS, LLC have any officers? added 3/21/18
The CAT NMS Plan requires the establishment of an Advisory Committee charged with advising the Participants on the implementation, operation and administration of the CAT. Under the Plan, the Advisory Committee has the right to attend Operating Committee and Subcommittee meetings (unless they are held in Executive Session) and submit its views prior to a decision by the Operating Committee. The composition of the Advisory Committee includes: (a) broker-dealers of varying sizes and types of business, including a clearing firm; (b) an individual who maintains a securities account; (c) an academic; and (d) institutional investors.
The CAT NMS Plan requires the CAT NMS, LLC to appoint a Chief Information Security Officer (CISO) and Chief Compliance Officer (CCO), each of which is an employee of the Plan Processor, reporting directly to the Operating Committee and with fiduciary duties to the CAT NMS, LLC. The CISO is Vas Rajan, and the CCO is Shane Swanson.
C. TIMELINES AND IMPLEMENTATION
1. When will Participants begin reporting data to the CAT? added 3/21/18
2. When will large Industry Members begin reporting data to the CAT? added 3/21/18
The CAT NMS Plan requires that Participants begin reporting Participant Data to the CAT by November 15, 2017. The Operating Committee requested an extension of this reporting deadline to November 15, 2018. Although the SEC has not granted this extension to date, the Participants are working toward reporting Participant Data by November 15, 2018.
3. When will Small Industry Members begin reporting data to the CAT? added 3/21/18
The CAT NMS Plan requires Industry Members (other than Small Industry Members) to begin reporting Industry Member Data to the CAT by November 15, 2018. The Operating Committee requested an extension of this reporting deadline to April 13, 2020. Although the SEC has not granted this extension to date, the Participants are working toward this April 13, 2020 reporting date.
The CAT NMS Plan requires Small Industry Members to begin reporting Industry Member Data to the CAT by November 15, 2019. The Operating Committee requested an extension of this reporting deadline to April 20, 2021. Although the SEC has not granted this extension to date, the Participants are working toward this April 20, 2021 reporting date.
D. PLAN PROCESSOR
1. What is the role of the Plan Processor? added 3/21/18
2. Who is the Plan Processor for the CAT? added 3/21/18
The CAT NMS Plan describes the responsibilities of the Plan Processor for the CAT. CAT NMS, LLC has entered into an agreement with Thesys CAT LLC obligating Thesys CAT LLC, as the Plan Processor, to perform the functions and duties contemplated by the Plan, including the management and operation of the CAT.
Thesys CAT LLC, a subsidiary of Thesys Technologies, LLC, is the Plan Processor for the CAT.
E. CAT FUNDING
1. How is the cost of the CAT being funded? added 3/21/18
2. How does the CAT funding model set forth in the CAT NMS Plan work? added 3/21/18
Currently, the Participants are funding the CAT-related costs themselves. The CAT NMS Plan, however, contemplates a funding model in which both Participants and Industry Members contribute to the funding of the CAT. Although the Participants have filed fee filings with the SEC to impose CAT Fees on Participants and Industry Members, the Participants have withdrawn these fee filings at this time. The Participants anticipate filing revised fee filings in the near future.
The CAT NMS Plan contemplates a bifurcated funding model, where costs associated with building and operating the CAT would be borne by (1) Participants and Industry Members that are Execution Venues through fixed tier fees based on market share; and (2) Industry Members (other than Execution Venue ATSs) through fixed tier fees based on message traffic.
With respect to Execution Venues for NMS Securities and OTC Equity Securities, the Operating Committee will establish at least two, and no more than five, tiers of fixed fees based on the Execution Venue’s NMS Stock and OTC Equity Securities market share, as calculated by share volume. Execution Venues that execute transactions in Listed Options will pay a fixed fee depending on the Listed Options market share of such Execution Venue, with the Operating Committee establishing at least two, and no more than five, tiers of fixed fees based on an Execution Venue’s Listed Options market share, as calculated by contract volume. With respect to Industry Members (other than Execution Venue ATSs), the CAT NMS Plan provides that the Operating Committee will establish fixed fees to be payable by such Industry Members based on the message traffic generated by such Industry Member. The Operating Committee will establish at least five and no more than nine tiers of fees for Industry Members (other than Execution Venue ATSs).
1. What securities are required to be reported to the CAT? added 3/21/18
2. Who is required to report CAT Data to the CAT? added 3/21/18
The CAT NMS Plan requires Participants and Industry Members to report CAT Data to the CAT for NMS Securities and OTC Equity Securities. NMS Securities includes any security or class of securities for which transaction reports are collected, processed and made available pursuant to an effective transaction reporting plan (effectively, equity exchange listed securities), or an effective national market system plan for reporting transactions in Listed Options. OTC Equity Security means any equity security, other than an NMS Security, subject to prompt last sale reporting rules of a registered national securities association and reported to one of such association’s equity trade reporting facilities.
3. What order data are Participants and Industry Members required to report to the CAT? added 3/21/18
Participants (which are the national securities exchanges and FINRA) and Industry Members (which are members of a national securities exchange or FINRA) are required to report CAT Data to the CAT.
4. What orders are reportable to the CAT? added 3/21/18
The CAT NMS Plan, via Sections 6.3(d) and 6.4(d), requires Participants and Industry Members to report to the CAT certain details for the:
Original receipt or origination of an order;
Routing of an order;
Receipt of an order that has been routed;
Modification or cancellation of an order; and
Execution of an order.
Detailed guidance for submitting data to the CAT will be set forth in the Technical Specifications.
5. When must CAT Reporters report order data to the CAT? added 3/21/18
The CAT NMS Plan defines the term “order”, by reference to SEC Rule 613(j)(8), to mean
Any order received by a member of a national securities exchange or national securities association from any person;
Any order originated by a member of a national securities exchange or national securities association; or
Any bid or offer.
6. What customer information must Industry Members report to the CAT? added 3/21/18
The CAT NMS Plan states that Industry Members must report to the CAT Recorded Industry Member Data by 8:00 a.m. ET on the Trading Day following the day the data was recorded, and that Industry Members must report to the CAT Received Industry Member Data by 8:00 a.m. ET on the Trading Day following the day the Industry Member CAT Reporter receives such data. The CAT NMS Plan also states that Participants must report Participant Data to the CAT by 8:00 a.m. ET on the Trading Day following the day the Participant records such Participant Data. Both Participants and Industry Members may voluntarily report Participant Data and Industry Member Data, respectively, prior to the applicable 8:00 a.m. ET deadline. The Operating Committee intends to provide guidance as to the meaning of Trading Day for purposes of reporting to the CAT.
7. Are CAT Reporters required to report Customer-IDs to the CAT? added 3/21/18
The CAT NMS Plan currently requires Industry Members to provide Firm Designated IDs, Customer Account Information and Customer Identifying Information to the CAT.
As set forth in the CAT NMS Plan, a Firm Designated ID is a unique identifier for each trading account designated by Industry Members for purposes of providing data to the CAT, where each such identifier is unique among all identifiers from any given Industry Member for each business date.
Customer Account Information includes, but is not limited to:
Account number (except in certain circumstances);
Date account opened; and
Large Trader identifier, if applicable.
Customer Identifying Information means information of sufficient detail to identify a Customer, including, but not limited to, (a) with respect to individuals: name, address, date of birth, individual tax payer identification number (“ITIN”)/social security number (“SSN”), individual’s role in the account (e.g., primary holder, joint holder, guardian, trustee, person with the power of attorney); and (b) with respect to legal entities: name, address, Employer Identification Number (“EIN”)/Legal Entity Identifier (“LEI”) or other comparable common entity identifier, if applicable; provided, however, an Industry Member that has an LEI for a Customer must submit that Customer’s LEI in addition to other information of sufficient detail to identify a Customer.
In light of security concerns, however, the Operating Committee is analyzing alternative approaches to providing Customer information.
Detailed guidance for submitting Customer information to the CAT will be set forth in the Technical Specifications.
8. When must Industry Members submit Customer information to the CAT? added 3/21/18
No, the Participants obtained exemptive relief from the requirement in Rule 613 for a CAT Reporter to report the Customer-ID(s) for each Customer. Instead, the CAT NMS Plan requires Industry Members to report only the Firm Designated ID for each new order submitted to the CAT, rather than the Customer-ID, and the Plan Processor would associate the specific Customers and their Customer-IDs with individual order events based on the reported Firm Designated ID. The Firm Designated ID is a unique identifier for each trading account designated by Industry Members for purposes of providing data to the CAT, where each such identifier is unique among all identifiers from any given Industry Member for each business date.
9. Are market maker quotes required to be reported to the CAT? added 3/21/18
Under the CAT NMS Plan, each Industry Member must submit an initial set of Customer information for Active Accounts to the CAT upon the Industry Member’s commencement of reporting to the CAT. Each Industry Member must submit to the CAT any updates, additions or other changes to the Customer information on a daily basis for all Active Accounts. In addition, on a periodic basis, each Industry Member will be required to submit to the CAT a complete set of all Customer information.
In light of security concerns, however, the Operating Committee is analyzing alternative approaches to providing Customer information.
10. Are Industry Members required to report a Legal Entity Identifier (LEI) for their Customers to the CAT? added 3/21/18
Yes, market maker quotes are required to be reported to the CAT. Under the CAT NMS Plan, an Options Market Maker’s quotes in Listed Options will be reported to the CAT by the relevant Options Exchange in lieu of reporting by the Options Market Maker. Options Market Makers will not need to separately report these quotes, although they will be required to report to the Options Exchange the time at which a quote in a Listed Option is sent to the Options Exchange (and, if applicable, the time of any subsequent quote modification and/or cancellation where such modification or cancellation is originated by the Options Market Maker). The Options Exchanges are required to report such time information to the CAT in lieu of reporting of such time information by the Options Market Markers to the CAT. Equity market makers, however, are required to report their quotes to the CAT themselves.
11. Are Industry Members required to report order allocation information to the CAT? added 3/21/18
An Industry Member is required to report an LEI for a Customer that is a legal entity to the CAT if the Industry Member has an LEI for a Customer. The CAT NMS Plan does not require a Customer to obtain an LEI if it does not have one, it does not require a Customer to provide an LEI to an Industry Member; and it does not require the Industry Member to request an LEI of its Customer.
12. Are primary market transactions required to be reported to the CAT? added 3/21/18
The CAT NMS Plan requires Industry Members to report to the CAT an Allocation Report when an order is executed in whole or in part. The CAT NMS Plan defines an Allocation Report as a report made to the CAT by an Industry Member that identifies the Firm Designated ID for any account(s), including subaccount(s), to which executed shares are allocated and provides the security that has been allocated, the identifier of the firm reporting the allocation, the price per share of shares allocated, the side of shares allocated, the number of shares allocated to each account, and the time of the allocation. An Allocation Report is not required to be linked to particular orders or executions.
13. Will introducing brokers be required to report to the CAT or can they rely on their clearing firms? added 3/21/18
The CAT NMS Plan does not require the reporting of audit trail data for Primary Market Transactions. As required by the CAT NMS Plan, on May 15, 2017, the Operating Committee provided the SEC with a document outlining how primary market transactions could be incorporated into the CAT.
14. Can Industry Members contract with third parties to report CAT Data on their behalf? added 3/21/18
Introducing brokers are required to the report CAT Data to the CAT. The CAT has no exemptions for small firms or firms that route all orders to a single clearing firm like OATS has today. However, introducing brokers may contract with third parties to submit CAT Data on the introducing broker’s behalf.
Yes, Industry Members are permitted to use third-party service providers to report the required data to the CAT on their behalf. If an Industry Member uses a third-party servicer provider to report to the CAT, the Industry Member remains ultimately responsible for complying with the regulatory obligation to report to the CAT.
G. OTHER DATA
1. Will SIP and OPRA data be included in the CAT? added 3/21/18
2. Will Options Clearing Corporation (OCC) data be included in the CAT? added 3/21/18
Yes, the CAT is required to collect SIP and OPRA data. Specifically, the CAT NMS Plan requires that the CAT collect (from a Securities Information Processor (“SIP”) or pursuant to an NMS Plan) and retain on a current and continuing basis, in a format compatible with the Participant Data and Industry Member Data, all data, including the following: (1) information, including the size and quote condition, on quotes, including the National Best Bid and National Best Offer for each NMS Security; (2) Last Sale Reports and transaction reports reported pursuant to an effective transaction reporting plan filed with the SEC pursuant to, and meeting the requirements of, Rules 601 and 608; (3) trading halts, Limit Up/Limit Down price bands and Limit Up/Limit Down indicators; and (4) summary data or reports described in the specifications for each of the SIPs and disseminated by the respective SIP.
3. Will CAT tie the audit trail data to clearing data? added 3/21/18
OCC data regarding symbology and corporate actions will be included in the CAT.
No, clearing data is not within the scope of SEC Rule 613 or the CAT NMS Plan.
H. ACCESS TO/USE OF CAT DATA
1. How will the SEC and Participants access the CAT Data for regulatory purposes? added 3/21/18
2. What are the requirements for accessing historical CAT Data? added 3/21/18
The CAT NMS Plan requires the Plan Processor to provide the SEC and Participants access to the CAT for regulatory and oversight purposes and to create a method of accessing CAT Data that includes the ability to run complex searches and generate reports. The CAT NMS Plan requires regulator access by two different methods: (a) an online targeted query tool with predefined selection criteria to choose from; and (b) extractions of data via a query tool or language allowing querying of all available attributes and data sources. Appendix D of the CAT NMS Plan sets forth additional requirements concerning regulator access.
3. How many regulatory users are expected to access CAT Data? added 3/21/18
The CAT NMS Plan requires that the Plan Processor keep CAT Data online in an easily accessible format for six years.
4. Will the CAT provide the regulators with access to uncorrected data for surveillance? added 3/21/18
The CAT NMS Plan requires the CAT to support a minimum of 3,000 regulatory users and at least 600 such users accessing the CAT concurrently without an unacceptable decline in performance.
5. Will CAT Reporters have access to their own submitted data? added 3/21/18
The CAT NMS Plan requires the Plan Processor to store and retain Raw Data submitted by CAT Reporters. Such Raw Data will be available to the SEC and Participants for regulatory purposes.
The Plan Processor will provide CAT Reporters access to their submitted data for error correction purposes only.
1. What is the definition of customer under the CAT NMS Plan? Who is the customer for purposes of the CAT: the end customer, the introducing broker or the clearing broker? added 3/21/18
2. What is the definition of a Small Industry Member? added 3/21/18
The CAT NMS Plan defines a “Customer” as (a) the account holder(s) of the account at a registered broker-dealer originating the order; and (b) any person from whom the broker-dealer is authorized to accept trading instructions for such account, if different from the account holder(s). This is the same definition as set forth in Rule 613(j)(3).
The CAT NMS Plan defines a Small Industry Member as an Industry Member that qualifies as a small broker-dealer as defined in SEC Rule 613. The SEC defines a small broker-dealer as a broker or dealer that: (a) had total capital (net worth plus subordinated liabilities) of less than $500,000 on the date in the prior fiscal year as of which its audited financial statements were prepared pursuant to §240.17a-5(d) or, if not required to file such statements, a broker or dealer that had total capital (net worth plus subordinated liabilities) of less than $500,000 on the last business day of the preceding fiscal year (or in the time that it has been in business, if shorter); and (b) is not affiliated with any person (other than a natural person) that is not a small business or small organization as defined in SEC Rule 0-10.
J. TECHNICAL DOCUMENTATION
1. How will the technical requirements for reporting to the CAT be provided to the industry? added 3/21/18
2. When will the Industry Member Technical Specifications be published? added 3/21/18
The Plan Processor, subject to the oversight of the Operating Committee, is responsible for developing detailed data and interface specifications for data to be submitted to the CAT by CAT Reporters. These Technical Specifications will be posted on the CAT website.
A draft of the Industry Member Technical Specifications is available for discussion purposes only on the CAT website: www.catnmsplan.com. Updates regarding the Industry Member Technical Specifications will be provided on the CAT website as they are available.
1. What steps are being taken to ensure that the CAT is secure given heightened cybersecurity concerns? added 3/21/18
2. Will the CAT be required to satisfy the requirements of Reg SCI? added 3/21/18
The CAT NMS Plan requires the Plan Processor, subject to the oversight of the Operating Committee, to develop a comprehensive information security program that addresses the security and confidentiality of all information accessible from the CAT and the operational risks associated with accessing the CAT. Appendix D of the CAT NMS Plan sets forth minimum data security requirements for the CAT that the Plan Processor must meet. In addition, as required by the Plan, the Plan Processor has designated a Chief Information Security Officer (CISO), who is responsible for, among other things, creating and enforcing appropriate policies, procedures, and control structures regarding data security.
Yes, the CAT is considered an SCI System and it must be operated in compliance with the requirements in Reg SCI applicable to an SCI System. In addition, the CAT NMS Plan requires the Technical Specifications to satisfy all applicable regulations regarding database security including provisions of Reg SCI.
L. CLOCK SYNCHRONIZATION AND TIMESTAMPS
1. What are the CAT clock synchronization standards for CAT Reporters? added 3/21/18
2. What are the timestamp requirements for reporting information to the CAT? added 3/21/18
The CAT NMS Plan requires Industry Members to synchronize their Business Clocks at a minimum to within 50 milliseconds of the time maintained by the National Institute of Standards (NIST), with the exception of Business Clocks used solely for Manual Order Events or the time of allocation on Allocation Reports, which must be synchronized to within one second of the NIST clock.
The CAT NMS Plan requires Participants to synchronize their Business Clocks at a minimum to within 100 microseconds of the time maintained by the NIST, consistent with industry standards, with the exception of Business Clocks used solely for Manual Order Events, which must be synchronized to within one second of the NIST clock.
3. If I am an agency broker-dealer and I send my orders through a third-party service provider’s system (e.g., Bloomberg), what clock synchronization compliance obligations do I have with regard to the third-party service provider’s clocks and my own clocks? Do I need to do anything with regard to the internal systems (e.g., internal PCs or servers) or clocks within in my own firm to satisfy the clock synchronization requirements? added 3/21/18
The CAT NMS Plan requires CAT Reporters to report CAT Data to the CAT in milliseconds. To the extent that a CAT Reporter’s order handling or execution systems utilize timestamps in increments finer than milliseconds, then such CAT Reporter is required to utilize such finer increments when reporting CAT Data to the CAT.
An Industry Member must satisfy the CAT clock synchronization requirements for all of its Business Clocks. Business Clocks are defined as clocks used to record the date and time of any Reportable Event required to be reported under SEC Rule 613. If an Industry Member relies on a third-party service provider’s clocks to record the date and time of any of the Industry Member’s Reportable Events required to be reported under SEC Rule 613, such clocks are considered to be the Industry Member’s Business Clocks for purposes of the CAT clock synchronization requirements. Accordingly, the Industry Member has the ultimate responsibility for ensuring that such Business Clocks satisfy the CAT clock synchronization requirements. Industry Members also must satisfy the documentation, certification and violation reporting requirements related to clock synchronization as set forth in the Compliance Rule with regard to such third-party service providers’ clocks. Industry Members will need to obtain information regarding clock synchronization procedures from their third-party service providers to satisfy these requirements.
In addition, to the extent that the Industry Member has any Business Clocks other than those of the third-party service provider, then the Industry Member must satisfy the CAT clock synchronization requirements, as well as the documentation, certification and violation reporting requirements related to clock synchronization set forth in the Compliance Rule, with regard to those Business Clocks.
M. RETIREMENT SYSTEMS
1. Will any existing SEC or SRO reporting systems be eliminated once the CAT is operational? added 3/21/18
The CAT NMS Plan requires the Participants to submit rule filings to eliminate or modify any rules or systems that would be redundant of the CAT. In May 2017, certain Participants filed with the SEC rule filings to eliminate or modify certain redundant rules and systems, including rule filings related to FINRA’s Order Audit Trail System (“OATS”) and the Electronic Blue Sheets (“EBS”). In light of the delay in the commencement of CAT reporting, these rule filings were withdrawn. Nevertheless, the Participants intend to revisit the retirement of systems filings as the reporting commencement date approaches.
1. Will there be third-party auditing requirements to make sure the CAT is working properly? added 3/21/18
The CAT NMS Plan requires the appointment of an appropriately qualified Independent Auditor of national recognition, subject to the approval of the Operating Committee by Supermajority Vote. Among other things, the Independent Auditor, in collaboration with the CCO, is required to create and implement an annual audit plan (subject to the approval of the Operating Committee) which shall at a minimum include a review of all Plan Processor policies, procedures and control structures.
Additionally, data centers housing CAT Systems (whether public or private) must, at a minimum, be AICPA SOC 2 certified by a qualified third-party auditor that is not an affiliate of any of the Participants or the Plan Processor. The frequency of the audit must be at least once per year.
1 These FAQs have been prepared for general information purposes only to permit you to learn more about the CAT. The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.
2 All capitalized terms are defined as set forth in the CAT NMS Plan.