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New FINRA CAT Subsidiary to Develop Consolidated Audit Trail

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The Securities and Exchange Commission on Thursday published for comment a plan by the Financial Industry Regulatory Authority to update current rules to reflect FINRA’s new subsidiary, FINRA CAT LLC, which will develop and maintain the Consolidated Audit Trail.

FINRA CAT was created after FINRA was chosen as the new plan processor for CAT on Feb. 27.

On Feb. 1, CAT NMS LLC confirmed that it would be transitioning the CAT project to a new plan processor, and on Feb. 27, announced that it had selected FINRA.

As FINRA’s notice states, in its capacity as plan processor, FINRA is responsible for the development and operation of the CAT in accordance with the terms of the plan.

In addition to serving in its capacity as plan processor of the CAT, FINRA is required to fulfill its obligations as a participant of the plan.

“To that end, FINRA CAT LLC will further FINRA’s compliance with its regulatory obligations under SEC Rule 613 with respect to the creation, operation and maintenance of a central repository.”

FINRA, the notice states, “will fulfill its obligations as a participant of the plan, including among others, enforcing FINRA rules requiring its members to comply with the CAT NMS Plan, through FINRA (and FINRA Regulation Inc.) and not through FINRA CAT LLC.”

Stock exchanges announced in early February that they were poised to appoint a new processor to build the Consolidated Audit Trail, which will track market trading activity, and intended to fire the contractor they hired in 2017, Thesys Technologies LLC, as the project fell a year behind schedule.

FINRA stated in its recent report on how the broker-dealer self-regulator spent its 2018 fine money that $2.0 million went to comply with CAT, the system mandated by the Securities and Exchange Commission to track orders throughout their life cycle and identify the broker-dealers handling them.

The SEC hired Manisha Kimmel in late January to coordinate the SEC’s oversight of the self-regulatory organizations’ creation and implementation of the CAT.

CAT, created under Securities and Exchange Commission Rule 613 of Regulation NMS, “was really intended to promote the ability of regulators to have a consolidated view of the markets,” Robert Cook, president and CEO of FINRA, said last November at the 2018 Financial Markets Quality Conference at Georgetown University in Washington.