By Ben Bain and Annie Massa
(Bloomberg) --U.S. stock and options exchanges want a long-delayed project to beef up regulators’ ability to monitor trading to be postponed for another year.
They’re supposed to start supplying data on trading to the Consolidated Audit Trail on Wednesday, but they want a reprieve until Nov. 15, 2018, according to a letter sent by exchanges and the Financial Industry Regulatory Authority to the Securities and Exchange Commission. The system is supposed to help the SEC catch manipulators and diagnose the causes of market routs.
The last-minute attempt to stall the project comes amid heightened concerns about cybersecurity -- an issue underscored for many in the industry by the hack of Equifax Inc.’s database of credit reports and the breach of the SEC’s Edgar system of corporate filings.
The beleaguered CAT project -- among the biggest databases ever conceived -- was first discussed before the infamous May 2010 Flash Crash, one of the worst routs in stock market history. It took months for regulators to sort out a cause for that plunge, a process made more difficult by the dramatic acceleration in the pace of trading to speeds incomprehensible to humans.
The new database could help sort out future crashes. But getting the project going has been a laborious process. A vendor to build it was only picked in January, and exchanges and brokers are still fighting over how they’ll pay for it.
For his part, SEC Chairman Jay Clayton said last month that he had outstanding questions related to the CAT and that the SEC wouldn’t accept data from the massive system until they were answered. Chris Carofine, a spokesman for Clayton, declined to comment on the request for a delay.
‘Serious Concerns’
Last week, the Securities Industry and Financial Markets Association, whose members include big brokerages, asked the SEC to delay the system. Sifma said the “plan raises serious concerns around data protection and the ability to confidently secure the critical information it will contain.”
A year ago, SEC commissioners led by then Chair Mary Jo White voted unanimously to approve the system’s plan, which included a Nov. 15 deadline for exchanges to begin feeding data into the system. Large brokers are supposed to start submitting information, which will include sensitive client data, in November 2018.
Thesys Technologies, which is building the system, has previously defended the cybersecurity protections it’s building into the CAT and has argued that it will be more secure than the current data repositories managed individually by exchanges. But it’s now in favor of postponing the project. Thesys believes a delay is “in the best interest of all stakeholders,” Silvia Davi, a spokeswoman for the company, said in an emailed statement.
Some greeted the idea of a further delay with suspicion, arguing that it would hamper the already slow progress of the database project. Ty Gellasch, executive director of the Healthy Markets Association, an investor advocacy group, said that he hopes the process won’t drag on indefinitely.
“We could easily be right back here in another year,” Gellasch said.
To contact the reporters on this story: Ben Bain in Washington at [email protected] ;Annie Massa in New York at [email protected] To contact the editors responsible for this story: Nick Baker at [email protected] ;Jesse Westbrook at [email protected]
