Access the latest news, analysis and trends impacting your business.
Explore our insights by topic:
Additional Broadridge resources:
View our Contact Us page for additional information.
Additional Broadridge resource:
Your submission has been received. We will contact you soon.
One of our sales representatives will email you about your submission.
Your sales rep submission has been received. One of our sales representatives will contact you soon.
Your submission has been received. One of our customer service representatives will contact you soon.
The Consolidated Audit Trail (CAT) is one the most comprehensive regulatory obligations that firms participating in the U.S. equities and options markets have had to implement. Capital markets firms must re-evaluate how they operate – otherwise CAT will increase the operational complexity and compliance costs that firms are already burdened with.
Firms that have to comply with CAT reporting can approach this as just another burden or an opportunity to transform and improve their operating capabilities. Firms can leverage the implementation efforts to improve on three main themes: (1) improve their data collection capabilities to effectively prepare for future regulatory requirements and asset class expansions of CAT; (2) simplify, consolidate and retire previous platform builds and fragmented processes that will be obsolete due to CAT; and (3) repurpose data collected for strategic business initiatives and functions related to equities and options trading.
Compliance is always a priority
Firms are looking for innovative ways to achieve greater business value and operational advantage by assessing their business strategies and operating models. This process leads to workflow automation, operating cost reductions, and technology improvements. As these key priorities take hold, freed-up human capital can be re-deployed to evaluate new growth opportunities and work on solving bigger business problems.
CAT solution implementation, approached strategically, will drive this change. Currently firms are caught in a difficult situation, the final draft of the CAT requirements and the compliance timeline continue to be uncertain targets. Whatever the final shape of the requirements, the timelines will be tight based on the scope of CAT to meet the regulatory need for market transparency. This puts the onus on firms to plan now and think strategically about their approach, or be squeezed with tight deadlines and limited IT budgets and resources.
Meeting the timeline will be especially challenging for firms who have not taken a strategic approach in the past to meet regulatory requirements. They will be pressed by the effort and cost of maintaining disparate solutions and different operating processes across regulations which will ultimately decrease budget and resources available to deal with CAT.
Impact of CAT
Firms face four main challenges in meeting CAT requirements: (1) high trade volumes and the associated data they will generate; (2) shifting timelines; (3) the complexities of legacy systems and particularly complex event sequence requirements; and (4) cost. Although the industry cost burden will be shared among all participating firms, many will see a significant rise in capital investment to create the systems and operating capabilities to be compliant with CAT. Those who are currently exempt from recording and reporting requirements under current regulations will no longer receive the same treatment for CAT, which will increase their compliance burden and change their operating cost structures.
Firms continue to feel the urgency to carefully examine their regulatory reporting structures. With significant cost as well as system and operational complexity at stake, senior business executives are making it a higher priority to leverage these required investments for greater business efficiency and growth. CAT ultimately will facilitate the creation of the most comprehensive set of order and trade event information ever compiled and stored within a firm. As a regulatory mandate, CAT also requires high standards for data quality and integrity – transforming the collected data into a natural source for analytics and other data intensive initiatives, such as machine learning, that require high quality and complete data sets.
The CAT initiative will force data to be more organized, better managed and easier to use and access. This will not only meet the regulatory requirements, but will drive improvements in firm-wide enterprise data strategies. A successful implementation will require multiple disciplines to be brought into play including project management, data management, the qualitative insights of an expert team, and solution design.
Management consulting can help
Firms will need help to identify impacted systems and gaps in data, creating the right linkages and prioritizing potential changes. Given the uncertainty of final specifications and timelines, what does remain clear is the need for firms to fully understand and identify the sequence of events throughout the trade lifecycle – from the creation of a new order, to the aggregation and disaggregation of complex order, to final account allocation.
In addition, they will need data management policies and practices to ensure data is not only managed correctly to ensure compliance, but available to business users in a well-governed, controlled manner. And finally, firms will need to implement a CAT reporting model.
Challenges of CAT
Often relying on a fragmented system topology consisting of a patchwork of vendors and proprietary in-house systems, many firms will be faced with a long list of pre- and post-CAT deployment work to identify all systems affected, as well as consolidate and sunset systems. They will also need help with assessing quality, optimizing processes and devising an overall blueprint for change.
A new data store
The full accounting of an order, from start to finish as prescribed by CAT, is truly different. More comprehensive than OATS and blue sheet submissions, and far from a “check the box” regulation, CAT will create a new and more complete data store. This complete data set offers firms a new opportunity to mine and analyze data on clients, exchanges and counterparties with which they trade, all in one place. But data is only valuable to a firm if it is clean, trusted, controlled and accessible under proper processes. Therefore, the CAT effort must focus on accurately linking, managing and aggregating data as part of a firm’s larger data strategy. This new data store will allow compliance and regulatory operations to play a more strategic role within the firm in terms of using insights to drive growth, revenue and positive change.
Trading, sales, marketing, finance and strategy people will be interested to know what is in the CAT comprehensive dataset. It can be used to show metrics such as where concentrated trade risk resides, where best prices are achieved, and how trading habits or performance changes over various timeframes. In addition, performance reporting can be generated for each trade action to examine how order flow is handled for best execution and related metrics at a level of detail better than previously available.
A right approach
CAT reporting implementation will be costly due to its vast scope and complexity. CAT is more than just another regulatory reporting requirement – it is an opportunity to gain a lasting advantage from the resources firms must dedicate to it. They key is for firms to shift their perspective of CAT from a compliance event to a systematic way to access a more complete set of quality, trusted data for analysis and other key data initiatives that drive business strategies and revenues. As the industry waits for the next CAT directive or milestone, firms can start by taking a look at their own process automation, operations, clearing model and future needs, and plan their next strategic business or technology initiative.
Many firms, however, will be challenged in achieving this transformation based on their current operating models, technology infrastructure and staffing constraints that are a result of previous compliance initiatives. To overcome these challenges, firms need to engage with industry expert services to create the changes necessary to make CAT implementation more than just another regulatory compliance exercise.
Experts can help firms keep that broader focus while ensuring delivery of CAT reporting or any other regulatory requirement that emerges. The right combination of industry knowledge and technology expertise, gives firms the ability to discover new opportunities, avoid potential obstacles down the road, and innovate ways of taking advantage of CAT to achieve future business efficiency and growth. Firms benefit greatly from the expert supplier’s large-scale conversion experience, financial data insights, integration expertise, cybersecurity know-how, and scale.
At a time like this, firms need high-caliber insight and support to drive business transformation. Regulatory reporting is like death and taxes, but this time, firms have a real shot at getting a return on their investment in the form of long-term business value.