As he expressed appreciation for the SEC's efforts, and agreed that a consolidated audit trail ("C-A-T") is long overdue, SIFMA MD and Associate GC James McHale could not restrain himself from describing the proposal as "overly ambitious" and writing that other approaches would be just as effective - with significantly less burden and cost and that could be implemented much more quickly.  Of course, these are SIFMA's positions, and Mr. McHale prepared the comment letter on his employer's behalf.

• "Indeed, a consolidated audit trail is a much-needed improvement over today’s fragmented audit trail platforms."
• " ... the consolidated audit trail proposed by the SEC is more expansive and expensive than necessary to achieve its intended purposes."
• " ... the proposed consolidated audit trail would take many years to implement and would impose enormous costs on broker-dealers and SROs ..."
• "It is difficult to justify such a complex, time-consuming, and costly project without a clear understanding of how the SEC and the SROs would use real-time data."

Today's Fragmented Audit Trail Platforms.  These systems include:  FINRA's Order Audit Trail System, or “OATS”;  NYSE's Order Tracking System and Front End Systemic Capture, or FESC;  the Consolidated Options Audit Trail System, or "COATS";  Large Option Position Reporting systems, or "LOPR";  Electronic Blue Sheets;  and other SRO reporting and audit trail systems.

How SIFMA Would Modify the Proposal - See details below.

1. Lengthen reporting time frames where doing so would not thwart the key regulatory objectives of the SEC;
   
2. Eliminate nonessential data elements;
   
3. Build upon an existing audit trail, such as OATS, rather than create an entirely new system;
   
4. Coordinate the creation of a consolidated audit trail with the SEC’s large trader reporting system proposal;
5. Provide further guidance on governance of the consolidated audit trail, particularly as it relates to safeguarding confidentiality of audit trail data; and
   
6. Address issues raised by the consolidated audit trail concerning foreign traders, funding, and the new Office of Financial Research.

1.  Lengthen Reporting Time Frames.   As proposed, each national securities exchange and national securities association, and their members, would be required to provide the vast majority of audit trail data to the central repository on a real-time basis and provide post-execution information by midnight.  Eliminate the "Real-Time Reporting Requirement," and stay consistent with current protocols for trade execution and transaction processing - in particular, give B/D's until the next-day, settlement date, or a later deadline.

2.  Better Focus in Scope of the Consolidated Audit Trail.   The SEC could better focus the scope of the proposed C-A-T to enable the capture of the most pertinent information to ensure its workability and reduce its cost and time to market.  As proposed, the number of new data elements to be reported to the C-A-T has been vastly expanded. 

e.g. - A unique identifier for B/D's and national exchanges would simplify market surveillance.  At the same time, a reduced number of data elements in the C-A-T could achieve an appropriate balance between furthering the regulatory objectives of the C-A-T and mitigating costs for B/D's and the market overall.

3.  Expand an Existing Audit Trail Rather than Start from Scratch.   SIFMA believes that using a system like FINRA's OATS would be an efficient and effective route towards achieving a C-A-T - with implementation accomplished in a phased approach.  

4.  Coordinate the C-A-T with the Large Trader Reporting System.   SIFMA urges the SEC to coordinate the design and implementation of the C-A-T with the proposed large trader system - both of which are intended to enhance the SEC’s and the SROs’ capabilities to reconstruct market trading activity in NMS securities.  Properly designing the large trader reporting system as an interim step would address the near term needs of the SEC while laying the foundation and making progress towards the C-A-T. 

5.  Protect the Confidentiality of C-A-T Data.   Additional steps are needed to safeguard the privacy of data in the C-A-T;  the central repository arguably could be one of the largest, most commercially sensitive databases in existence. 

6.  Provide Guidance on Certain Items Left Unaddressed in the Proposal.   While the Proposal provides significant explanation and direction, certain key issues re: the C-A-T were left unaddressed.  These issues concern foreign traders, funding for the C-A-T, the newly created Office of Financial Research, and the standardization of security symbols.

Thank you, Mr. McHale.  For further details, click onto:  [ SIFMA Comment Letter, 8/17 ]