Consolidated Audit Trail (CAT)

Regulatory Obligations and Related Considerations

Regulatory Obligations

FINRA and the national securities exchanges have adopted rules requiring their members to comply with Exchange Act Rule 613 and the CAT NMS Plan FINRA Rule 6800 Series (Consolidated Audit Trail Compliance Rule) (collectively, CAT Rules), which cover reporting to the CAT; clock synchronization; time stamps; connectivity and data transmission; development and testing; recordkeeping; and timeliness, accuracy and completeness of data requirements. Regulatory Notice 20-31 (FINRA Reminds Firms of Their Supervisory Responsibilities Relating to CAT) describes practices and recommended steps member firms should consider when developing and implementing their CAT Rules compliance program and related supervisory responsibilities pursuant to FINRA Rule 3110 (Supervision).

Related Considerations

• Do your firm’s CAT-related WSPs: (1) identify the individual, by name or title, responsible for the review of CAT reporting; (2) describe specifically what type of review(s) your firm will conduct of the data posted on the CAT Reporter Portal; (3) specify how often your firm will conduct the review(s); and (4) describe how your firm will evidence the review(s)?
• Does your firm periodically evaluate its supervisory controls to ensure they are reasonably designed to ensure compliance with CAT requirements, including, but not limited to, recordkeeping, reporting and clock synchronization?
• How does your firm confirm that the data your firm reports, or data that is reported on your firm’s behalf, is transmitted in a timely fashion and is complete and accurate?
• How does your firm determine how and when clocks are synchronized; are the firm’s procedures clear as to who is responsible for clock synchronization; how does your firm evidence that clocks have been synchronized; and how will your firm self-report clock synchronization violations?
• Does your firm conduct daily reviews of the Industry Member CAT Reporter Portal (CAT Reporter Portal) to review its file status to confirm the file(s) sent by the member or by its reporting agent was accepted by CAT, and to identify and address any file submission or integrity errors?
• Does your firm conduct periodic comparative reviews across all business lines of accepted CAT data against order and trade records and the CAT Reporting Technical Specifications?
• Are the number of periodic comparative reviews performed sufficiently representative of the firm’s overall CAT reporting volume?
• Does your firm communicate regularly with its CAT reporting agent, review relevant CAT guidance and announcements, and report CAT reporting issues to the FINRA CAT Help Desk?
• For any firms that have an agreement with a CAT reporting agent, has the firm confirmed that such agreement is evidenced in writing that specifies the respective functions and responsibilities of each party?
• Does your firm maintain the required CAT order information as part of its books and records in compliance with FINRA Rule 6890 (Recordkeeping)?
• How does your firm oversee its clearing firm and third-party vendors to maintain CAT compliance, including clock synchronization?
• When your firm identifies a reporting issue (e.g., reporting of erroneous events and CAT reporting errors that are not identified in data integrity validations, and that fall outside the scope of sections 7.6 (Corrections) and 6.4.3 (Deadline for Firm Initiated Corrections and Deletions) of the CAT Reporting Technical Specifications for Industry Members), does your firm self-report the issue identified via the Self-Reporting Erroneous Events form?
• Does your firm conduct periodic reviews of its compliance metrics (e.g., CAT Report Cards, error rates, CAT Compliance Thresholds)?
• Does your firm participate in testing related to the Central Repository, including any industry-wide disaster recovery testing following the schedule established under the CAT NMS Plan?

Findings and Effective Practices

Findings

• Incomplete Submission of Reportable Events: Failing to report certain Reportable Events, as defined by CAT, in a timely manner to the Central Repository (e.g., new order events, route events, execution events).
• Failure to Repair Errors Timely: Not repairing errors by the T+3 correction deadline.
• Failure to Submit Corrections: Not submitting corrections for previously inaccurately reported data, including data that did not generate error feedback from CAT.
• Inaccurate or Incomplete Reporting of CAT Orders: Submitting information that was incorrect, incomplete or both to the Central Repository, including but not limited to Event Timestamp, Event Type Code, Time in Force, Account Holder Type, Handling Instructions, Trading Session ID and Firm Designated ID (FDID).
• Unreasonable Vendor Supervision: Not establishing and maintaining reasonable WSPs or supervisory controls regarding both CAT reporting and clock synchronization that are performed by third-party vendors.
• Recordkeeping: Not maintaining or providing to regulators upon request, data reported to CAT, including but not limited to Time in Force (TIF), Customer Handling Instructions, Department Type, Trading Session, Firm Designated ID, Order ID and Route Destination.

Effective Practices

• Mapping Internal Records to CAT-Reported Data: Maintaining a “map” that shows how the firm’s internal records and blotters correspond to various fields reported to CAT.
• Archiving CAT Feedback: Archiving CAT feedback within a 90-day window so that firms can submit corrections, if necessary.
• CAT Supervision: Implementing WSPs requiring a comparative review of CAT submissions versus firm order and trade records (including for firms that rely on third-party submitters), conducting a daily review of the CAT Reporter Portal, regardless of the error rate percentage; utilizing CAT Report Cards and CAT FAQs to design an effective and reasonable supervision process; and, when relying on a CAT reporting agent, maintaining a written agreement that specifies the respective functions and responsibilities for exception management and error correction. 
• CAT Clock Synchronization: When relying on third-party non-broker-dealer vendors for synchronization of business clocks, obtaining synchronization logs daily from such parties and reviewing them to ensure that the clock drifts are within acceptable thresholds (i.e., 50 milliseconds).¹
• Customer and Account Information System (CAIS) Supervision: Establishing reasonable supervisory processes and procedures that address, for example:
  • monitoring both CAIS Reporter Portal and CAIS notifications for data formatting and inconsistencies;
  • monitoring that customer and account information is reported in an appropriately secure manner pursuant to CAT reporting requirements (e.g., customer input identifiers are not submitted to CAT or CAIS unless they have been properly transformed into a “hashed” Transformed Input ID (TID) prior to submission, customer account identifiers (FDIDs) do not reflect actual account numbers);
  • confirming that CAIS data is consistent with prior submissions for the same customer; and
  • repairing CAIS inconsistencies within the required time period (i.e., no later than 5 p.m. ET on the third CAT Trading Day after the Customer or Account Information became available to the firm).

• Self-Reporting: Self-reporting CAT reporting issues when your firm discovers them via the FINRA CAT Self-Reporting Erroneous Events Form or through the FINRA CAT Help Desk.

Additional Resources

• Consolidated Audit Trail (CAT) Key Topics Page
• CAT NMS Plan Website
• Regulatory Notices
  • Regulatory Notice 21-21 (FINRA Eliminates the Order Audit Trail System (OATS) Rules)
  • Regulatory Notice 20-41 (FINRA Amends Its Equity Trade Reporting Rules Relating to Timestamp Granularity)
  • Regulatory Notice 20-31 (FINRA Reminds Firms of Their Supervisory Responsibilities Relating to CAT)
  • Regulatory Notice 20-20 (FINRA Provides Updates on Regulatory Coordination Concerning CAT Reporting Compliance)
  • Regulatory Notice 19-19 (FINRA Reminds Firms to Register for CAT Reporting by June 27, 2019)
  • Regulatory Notice 17-09 (The National Securities Exchanges and FINRA Issue Joint Guidance on Clock Synchronization and Certification Requirements Under the CAT NMS Plan)
• CAT NMS Clock Synchronization