What You Need to Know
- Enforcement actions for technical violations of OATS reporting rules have been a FINRA mainstay for years, says attorney Schroeder.
- Aug. 31 will be the last OATS business day.
- FINRA has not established Sanctions Guidelines for violations of CAT rules, Schroeder said.
Effective Sept. 1, the Financial Industry Regulatory Authority is amending its rulebook to eliminate the Order Audit Trail System (OATS) rules as its members have switched to the new Consolidated Audit Trail (CAT) for trade reporting.
FINRA states in Regulatory Notice 21-21 that the accuracy and reliability of the Consolidated Audit Trail (CAT) meet the standards approved by the Securities and Exchange Commission and that it has determined to retire OATS, which includes FINRA Rule 7400 Series and FINRA Rule 4554 (Alternative Trading Systems — Recording and Reporting Requirements of Order and Execution Information for NMS Stocks).
The updated rule text will be available in the FINRA Manual as of Sept. 1.
Susan Schroeder, vice chair of the Securities and Financial Services Department at WilmerHale and former head of enforcement at FINRA, told ThinkAdvisor Monday in an email that “It will be interesting to see how this [eliminating OATS] impacts FINRA’s enforcement program.”
Enforcement actions for technical violations of the OATS reporting rules, Schroeder said, “have been a FINRA mainstay for years. Now that FINRA will rely on CAT instead of OATS for its trade surveillance, if FINRA takes the same approach to CAT reporting, the industry could see a number of FINRA enforcement actions for technical violations of the reporting rules, even where firms’ supervisory systems are reasonably designed and firms are using good faith efforts to comply with their new and complex obligations.”
Unlike OATS, Schroeder added, “FINRA has not established Sanctions Guidelines for violations of CAT rules so it is not clear what kinds of fines could result.”
The CAT is a regulatory reporting tool commissioned by the SEC and being developed by FINRA.
OATS includes order, quote, and trade information for all NMS stocks and OTC equity securities. CAT includes all equities and options data and will ultimately include more granular firm and customer data.