[ by Howard Haykin ] The SEC voted Wednesday morning to require the national securities exchanges and FINRA to establish a market-wide consolidated audit trail - one that will enhance regulators’ ability to monitor and analyze trading activity. One might have thought that the SEC would have coordinated the effort to devise the methodology for the new Consolidated Audit Trail.  However, it will be the exchanges and FINRA that will jointly formulate and submit a comprehensive plan detailing how they would develop, implement, and maintain a consolidated audit trail that must collect and accurately identify every order, cancellation, modification, and trade execution for all exchange-listed equities and equity options across all U.S. markets. Currently, there is no single database... of comprehensive and readily accessible data regarding orders and executions.  Each SRO instead uses its own separate audit trail system to track information relating to orders in its respective markets, with requirements that vary significantly among markets.  As a result, this group select a single methodology for the system.

"A consolidated audit trail that accurately tracks orders throughout their lifecycle and identifies the broker-dealers handling them will provide us with an unprecedented ability to effectively oversee the markets we regulate." --- SEC Chairman Mary Schapiro.

When completed, the consolidated audit trail will provide several benefits to regulators, particularly the SEC.  It will ...

• increase the data available to regulators investigating illegal activities - insider trading, market manipulations, etc.
• significantly improve regulators' ability to reconstruct broad-based market events in an accurate and timely manner - like the 5/6/10 Flash Crash.
• significantly increase the ability of regulators to monitor overall market structure and assess how SEC rules affect the markets.
• reduce the regulatory data production burdens on SROs and broker-dealers by reducing the number of ad hoc requests from regulators presently.

Critical Rule Dates. The SEC will publish the rule text in the Federal Register:

• The Rule becomes effective 60 days from its publication date.
• The SROs then will have 270 days to submit the joint NMS plan, which the SEC presumably will approve.
• The SROs then will have to report the required data to the central repository within 1 year of the date the SEC approved the rule.
• Members of the SROs are required to report within 2 years, though certain small broker-dealers will have up to 3 years to report the data.

For further details, go to:  [SEC PR 12-134, 7/11/12]. To access C-I's write-up about the SEC's FACT SHEET,  click on:  [C-I RULE News Posting, 7/11/12, "SEC Fact Sheet].  The original Fact Sheet can be found in the SEC's 7/11 Press Release - see above link.