No let up for CAT obligations

The latest Consolidated Audit Trail (CAT) reporting obligations went live on October 26. However, there’s no time to rest for firms, who are now tasked with preparing for the next set of requirements in January 2021. Having moderated a CAT webinar with leading industry experts from FINRA CAT, Morgan Stanley, RegEdge, and Cboe Global Markets shortly ahead of the deadline, I thought it would be useful to share some of the key learnings and takeaways from this session that may help firms prepare for the next deadline.

Firstly, it’s clear that when it comes to CAT, ‘good’ error reporting rates are still problematic. This is due to the sheer volume of order activity which needs to be reported. A firm may have a one percent error rate (although not without considerable effort) but if you are making hundreds of millions of trades per day, then this still gives you an unmanageable number of exceptions to deal with. And whilst the significant reductions in error rates the industry has achieved over the past few months are to be applauded, the last mile is always the hardest. Firms with error rates hovering around the three to four percent mark are going to have to do a lot more work to reduce those last couple of percentage points than they did in the early stages of preparation, where error rates could improve dramatically through the identification of issues which affected significant numbers of submissions or specific counterparties.

Furthermore, it’s also worth pointing out that firms who wish to avoid parallel OATS reporting are required to maintain error levels of less than five percent on initial reports and less than two percent on corrections over a 180 day period.

Efficiency also emerged as a key theme. Counterparty communication, if not managed effectively, has the potential not only to consume an enormous amount of resources, but also to derail reporting altogether. The way that CAT is set up means that both sides have an equal interest in resolving errors within the accepted timeline, so it’s vital that firms put in place streamlined and well organized systems and processes to facilitate fast interaction where required. The question of automation was also raised. It was made clear that what firms require is not complex, budget-busting machine learning but simple, fast automation which delivers a significant reduction in the number of exceptions. As a certified CAT reporting agent, Inforalgo (A Gresham Technologies company) has seen that the ability to provide data lineage to our customers gives them better insights into their data and enables problems to be resolved quickly and efficiently.

Given current pressures that firms are under – not only from CAT and other regulatory expectations, but also the business environment in general, it’s perhaps to be expected that the question of time would also come up. As mentioned, firms have no sooner tackled this go live deadline than the next is fast approaching. Add in the holiday season and suddenly January, when options interfirm linkage goes live, doesn’t seem too far away. One of the challenges of CAT lies in these phased deadlines, which require firms to manage both business as usual and new builds simultaneously. This necessitates careful and effective management of resources. It also means that whilst firms grappling with resource constraints might be tempted to try and make their legacy technology work for their CAT reporting, there is very little margin for error if they find closer to the deadline that it can’t deliver what they expect.

Ultimately, CAT is a regulatory requirement of a scale and ambition which is arguably new to the US market and firms need to take this into account when planning how they will keep up. Compliance doesn’t need to be painful or difficult, but it does require a considered approach and a real appreciation for the volumes of orders involved and what this means on a practical, day-to-day basis. As the next set of deadlines loom, I’d encourage firms to seek help sooner rather than later to avoid finding themselves in a tough spot in an already challenging time.

If you’re looking to reduce your CAT reporting error rates, or just seeking a fast, straightforward solution for connectivity and compliance, please reach out to me and the team here.

• Read more under:
• BankingTech
• Risk & Fraud Monitoring