“At a certain point, things have to move forward and we can’t let old technology hold us back as an industry,” says Wald.
“I think that it’s a big technological undertaking and depending on how mature your systems are and what you have to do to retro-fit them to be able to codify properly to the specification and to capture all of that data, it’s a great challenge and I think that’s why it has taken so long because people have been given time to get their systems right and to develop the platforms that they need to be able to accommodate it.”
The US Securities and Exchange Commission (SEC) announced in May new amendments to the CAT national market system (NMS) plan, requiring Financial Industry Regulatory Authority (Finra), exchanges and self-regulatory organisations (SROs) to file a complete implementation plan for the initiative along with quarterly progress reports. The amendments are intended to increase transparency and accountability to implementation.
“The biggest concern around the CAT is risk and privacy. Requiring the delivery of so much tradable market-moving data in one place has got the potential for people wanting to take advantage of that and to get into that data, so the need to have this data be highly protected I think is probably the biggest outstanding issue that’s yet to be seen in terms of how it’s going to work,” says Wald.
Some players – both market participants and commissioners – have expressed concern over the initiative. SEC Commissioner Hester Pierce published a dissent following the regulator’s latest iteration of the program, stating that it would be a mistake to expedite the implementation after years of difficulties. She expressed concern over the privacy of investor’s personal information, as well as disapproval of the commission’s use of financial penalties to encourage adoption.
Meanwhile, the American Securities Association (ASA) has filed a lawsuit against the SEC over concerns of investor data being subject to identity theft and other breaches of privacy.
“We obviously have concerns about data security and privacy. There’s no question that there is so much relevant information in one place; making sure that that’s secure is paramount to all market participants,” says Wald, adding that data security is a shared responsibility between market participants and regulators.
“What I believe is they’ve made this amendment to specifically address the data security concerns that many people have voiced. And I think that this is where it’s going to stand. I don’t believe at this point that CAT will be delayed much longer. It’s here, and it will be here very soon.”
As significant amounts of time and resource have been invested into preparing for the rule, the plan should go forward with the possibility of evolving over time, says Wald. Considering market volatility seen in March and April, there is more work to be done to promote stability.
“If there’s another flash crash, it will enable the SEC to analyse this kind of forensic data more immediately and more efficiently with respect to locating the source of it. But overall the market’s evolved quite a bit – CAT’s come along way through many iterations, including these latest amendments. I think ultimately we’re very hopeful that it does help regulators across the board to be able to forensically determine what’s actually happening in the marketplace with a much broader purview on everything from parent order origination to every aspect that the order took within the microstructure.”