On May 17, 2023, as part of FINRA’s 2023 Annual Conference, staff from FINRA’s Market Regulation and Member Supervision Departments, along with representatives from FINRA CAT, participated in a panel entitled “Consolidated Audit Trail (CAT): What You Need to Know.”[1]
Much of the panel’s discussion focused on CAT Industry Members’ obligations to completely and accurately report data to the CAT and the CAT-related considerations and effective practices previously detailed in the 2023 Report on FINRA’s Examination and Risk Monitoring Program. The panelists encouraged firms to: (i) actively review feedback made available on the CAT Reporter Portal, (ii) perform comparative reviews of their CAT-reported data against related order and trade data, (iii) ensure strong vendor oversight from both a CAT reporting and clock synchronization perspective, and (iv) self-report issues to FINRA CAT, particularly those issues which do not result in error feedback.
The panelists indicated that CAT compliance will continue to be a regulatory focus in service of regulators’ increased reliance on CAT data for market surveillance and market event reconstruction. To that end, the panel advised that firms should prepare on at least three fronts. First, firms should expect their CAT programs to be assessed during their examinations, with reviews to include: (i) analyses of the full lifecycle of a sample of orders to identify missing or erroneous events, (ii) sampling of the accuracy and completeness of certain “high value” CAT data field deemed imperative to FINRA’s market surveillance (including, but not limited to: handling instructions, accountHolderType, and fdids), and (iii) assessing the adequacy of firms’ CAT-related supervisory procedures and processes, including with respect to issue management, clock synchronization, and comparative reviews of CAT-reported data versus related books & records data. Second, firms should expect to receive informal inquiries from FINRA that flag potential CAT reporting issues detected through FINRA’s Rapid Remediation program (through which FINRA conducts weekly reviews in hopes of detecting and addressing issues quicker than it could through the traditional inquiry process). According to the panelists, FINRA has issued over 400 Rapid Remediation requests over the last three years. Finally, firms can expect for FINRA CAT to provide additional error feedback once CAT Phase 2e goes live, including a new validation comparing fdids on transaction reporting to the fdids in CAIS to identify gaps or inconsistencies.[2]
Please contact the authors if you have any questions regarding CAT-related compliance or enforcement.
[1] The panelists included: David Chapman (VP, FINRA Market Regulation), Nadja Skelton (Examination Manager in Trading and Execution of FINRA’s Member Supervision Department), A. Duer Meehan (CCO, FINRA CAT), and Paul McKenney (VP, FINRA CAT).
[2] Jon Kroeper (EVP, Quality of Markets Section of FINRA’s Market Regulation Department) stated during a separate panel that FINRA is also starting to send “soft touch” inquiries on detected Phase 2e reporting issues to help firms address them in advance of the forthcoming go-live.