SEC Proposes Consolidated Audit Trail System To Better Track Market Trades

May 26, 2010

The SEC proposed a new rule that will require the self-regulatory organizations (SROs) to establish a consolidated audit trail system designed to allow the SEC and other regulators to track information related to trading orders received and executed across the securities markets.

The SEC stated that a consolidated audit trail system will help regulators keep pace with new technology and trading patterns in the markets.  Currently, there is no single database of comprehensive and readily accessible data regarding orders and executions.

The SEC noted that securities markets are highly automated, and trading activity is widely dispersed across many trading centers.  Due to rapid technological advances, trades are now transacted in a matter of milliseconds.  Such dispersed, automated trading activity makes it more challenging for SROs and the SEC to conduct cross-market supervision of trading activities and oversight of the securities markets and market participants.

The SEC has determined that  there is no single database of comprehensive and readily accessible data regarding orders and executions. Instead, each SRO uses its own separate audit trail systems to track information relating to orders in its respective markets. And, the existing audit trail requirements vary significantly among markets. That means that regulators, when conducting a cross-market analysis, must obtain and merge together a large volume of disparate data from different entities. The SEC is proposing a uniform, consolidated cross-market order and execution tracking system.  The proposed consolidated audit trail will:

  • Provide regulators direct and timely access to uniform consolidated order and execution information for all orders in National Market System (NMS) securities from all market participants across all markets.
  • Enable SROs to better fulfill their regulatory responsibilities to oversee their markets and their members.
  • Enable the SEC to better carry out its oversight of the NMS for securities and to perform rapid and accurate market analysis.

In addition, under the proposed rule (Rule 613), SROs will file jointly with the SEC an NMS plan to create, implement, and maintain a consolidated audit trail. Then, the SROs will file proposed rule changes requiring their members to comply with the plan.

Among many new requirements, the proposed rule, which would initially apply to all NMS stocks and listed options, will require every exchange and FINRA, as well as their respective members, to provide certain detailed information to a newly created central repository regarding each quote and order in an NMS security, and each reportable event with respect to each quote and order.

The central repository will be created under the rule be jointly owned and operated by the exchanges and FINRA. The repository will receive, consolidate, and retain all data submitted by the SROs and their members.  The exchanges, FINRA and the SEC will have access to the data collected by the central repository for purposes of performing their respective regulatory and oversight functions.  If adopted, it is expected that the proposed rule will ultimately be expanded to cover other securities.

Click here to access the release proposing the rule.


Exchange-Traded Funds (ETFs), Mutual Funds, Regulatory