July 10 (Bloomberg) -- The 32-year wait for a comprehensive record-keeping system to monitor trading across U.S. equity and options markets is approaching a conclusion.
The Securities and Exchange Commission is meeting tomorrow to consider adopting a proposal issued three weeks after the stock rout of May 6, 2010, to build a single system to track all order and trading data. The so-called consolidated audit trail will enable the reconstruction of market crises and analyze trading on 13 equity exchanges, 10 options markets and more than 200 broker-dealers that execute stock away from public venues.
Momentum for the proposal increased after it took the SEC and Commodity Futures Trading Commission five months to complete a report on what became known as the flash crash, in which the Dow Jones Industrial Average briefly plunged 9.2 percent. While the CFTC needed several weeks to compile its data, a 20-person SEC team spent three months collecting and processing quote and trade data that arrived in different formats from exchanges and brokers, according to Gregg Berman, senior adviser to the director of the SEC’s division of trading and markets.
“This is very significant,” Edward Kwalwasser, New York- based senior counsel at Proskauer Rose LLP and a former New York Stock Exchange and SEC official who worked on the commission’s market oversight and surveillance system known as MOSS in the early 1980s, said in a telephone interview. “When we did MOSS the technology wasn’t available to accomplish our ends. Today it clearly is. This will give the SEC a real running start in being able to surveil all the markets in a fair way.”
Regulators currently keep tabs on the markets and monitor trading using data collected in different formats. The consolidated audit trail would be a centralized data hub that captures “customer and order event information” throughout the life cycle of a transaction, according to the proposal. An aspect of the plan requiring data to be submitted to the repository in real time was dropped in February after exchanges and brokerages said it would be too costly and unnecessary for enforcement actions that may take days or weeks to conduct.
The SEC will consider issuing a rule tomorrow instructing the exchanges and Financial Industry Regulatory Authority, which oversees about 4,400 brokers, to “develop, implement and maintain a consolidated audit trail” for all equity securities and options, according to a notice from the agency released July 6. The system will collect data “across all markets, from the time of order inception through routing, cancellation, modification or execution,” according to the statement.