The Securities and Exchange Commission (SEC) approved Wednesday a new rule requiring the national securities exchanges and self-regulatory organizations (SROs) like the Financial Industry Regulatory Authority (FINRA) to establish a marketwide consolidated audit trail that would allow regulators to better monitor and analyze trading activity.
Rule 613 requires the exchanges and SROs to jointly submit a comprehensive plan detailing how they would develop, implement and maintain such an audit trail. That consolidated audit trail, the SEC says, “would have to be able to collect and accurately identify every order, cancellation, modification, and trade execution for all exchange-listed equities and equity options across all U.S. markets.”
Because today’s securities markets are highly automated, with trading activity “widely dispersed” across many trading centers, and “trades transacted in a matter of milliseconds if not faster,” the SEC says it is more challenging for SROs and the SEC to conduct “cross-market supervision of trading activities and oversight of the securities markets and market participants.” Therefore, the agency saw the pressing need for a “uniform, consolidated cross-market order and execution tracking system.”
SEC Chairwoman Mary Schapiro said in comments at the open hearing to adopt the rule that “from virtually the day I arrived at the SEC three-and-a-half years ago, I have talked about the importance of a consolidated audit trail and I am enormously pleased that we are moving ahead to make it a reality.”
In today’s competitive marketplace, Schapiro said, “trading is dispersed across a variety of market centers ranging from public venues, to private dark pools, to individual broker-dealers,” with the vast majority of trading now being performed by “automated computer algorithms used by many different kinds of market participants.”
Regulators, she said, “must be able to corral this vast amount of disparate data in a way that allows us to monitor, correlate and analyze a vast stream of market events and transactions. The availability and quality of trading data are central to the SEC’s ability to protect investors, and to maintain fair, orderly and efficient markets.”