CAT Numbers are Out of Whack

After four years of waiting for the self-regulatory organizations to submit their plan for the Consolidated Audit Trail, the Securities and Exchange Commission unanimously approved to release it for comment.

In the next few days, the plan will appear in the Federal Register and the SEC will have 180 days from then to select a plan processor to run the CAT, which will be a Delaware-registered LLC owned equally by the self-regulatory organizations.

CatAccording to Commissioner Michael Piwowar, the proposed plans will include hundreds of questions about how the selected plan processor would create, implement, and manage the CAT.

Hopefully, the industry will come through with useful comments because the current proposal is full of… has a lot of performance overhead that the industry can use to negotiated down the benchmark.

Currently, reporting entities would need to synchronize their time stamps for their electronic orders to within 50 milliseconds of the time kept by the National Institute of Standards and Technology’s atomic clocks. Manual orders only need to be within one second of NIST time.


That much slippage in the time stamps would make the CAT all but useless.

With that level of precision, regulators would only be able to find the trade sequence of eight percent of unrelated trades, according to SEC Commissioner Kara Stein,

“Nasdaq states that all exchanges trading Nasdaq securities need to synchronize their matching engines their matching engines and quotation systems within 100 microseconds,” she said in her opening comments. “This is a much stricter standard 500 more stringent than the one put before us today.”

Under MiFID II’s regulatory and technical implementation standard (RTS 25), if an exchange’s gateway-to-gateway latency time is greater than a millisecond, then the clocks must be within one millisecond of UTC. It also must be time stamped with a millisecond accuracy.

If the latency is equal or less than a millisecond, the clocks must be within 100 microseconds of UTC and have a time stamp accuracy of a microsecond or better.

I know the 50-millisecond accuracy is part of a negotiation strategy, but please there’s no need to insult people.