FIX Protocol, the operator of the FIX financial messaging protocol, has staked a claim to become the recognised reporting format for the proposed consolidated audit trail (CAT) in the US.
FIX's offer comes in response to plans by US regulator the Securities and Exchange Commission (SEC) to develop a single trail of trading data in response to the so-called flash crash on 6 May, where major US securities and indices tanked and sharply rebounded within 30 minutes. The SEC proposed the audit trail on 27 May 2010 and consulted the industry on the possible impact of the recommendations. The deadline for responses to the consultation was 9 August 2010.
According to FIX, using its standards for the consolidated audit trail would have less of an impact on trading firms than alternative protocols when reporting trades and executions to the SEC.
“It does not make sense to require firms to convert from a FIX format to a proprietary format for reporting,” read the FIX submission to the SEC. “The firms and the regulators would have to build cross reference tables which creates additional work and would not only be inefficient but subject to error and interpretations. FIX already tracks the entire lifecycle of an order or trade within an organization, and even across multiple organisations.”
FIX claims that it can provide further benefits, such as faster implementation and processing of information and a reduced burden on regulatory resources, if it is chosen to manage the audit trail.
Other responses to the proposed CAT were broadly supportive of the plan but warned of the potentially large cost implications to the industry. In its original proposal, the SEC noted that the initial cost of the CAT could be as much as $4 billion.
US market operators Direct Edge and BATS Global Markets, for example, questioned the need for real-time reporting of trading data, instead suggesting that end of day reporting would be more cost effective and provide better surveillance capabilities.
“The industry would likely be required to make substantial capital expenditures to develop new, robust communication infrastructures to satisfy real-time reporting,” wrote Eric Swanson, senior vice president and general counsel, BATS, in the firm's submission. “In contrast to the costs involved with real time reporting, BATS does not believe the benefits are commensurate.”
“Real-time data is also likely to have limited utility with respect to the conduct of surveillance as many reports are dependent on identifying the beneficial owner, which may be impossible to do on a real-time basis,” added Eric Hess, general counsel at Direct Edge and author of the firm's SEC response.
BATS also suggested leveraging the capabilities of existing audit trail mechanisms such as the Order Audit Trail System, developed by independent US securities regulator FINRA, as a way of realising significant cost savings.
Liquidnet, an agency broker and operator of a buy-side-only crossing network, also noted that security of the consolidated data trail would be an important factor in gaining industry support, suggesting that only the SEC, fellow regulator the Commodities and Futures Trading Commission and specified self-regulatory organisations should have access to the data.