Characterizing the Consolidated Audit Trail as merely a “big project” understates the technological and project management challenges that come with building the largest, most complicated data storage project in the history of the US capital markets.
When operational, the CAT will house an estimated 30 petabytes of sensitive market-related data that will enable the self-regulating organizations (SROs) and market regulators to understand on a microscopic level the day-to-day impacts, operations and activities of all of the US equity and US options participants.
In part two of TABB Group’s three-part research series, “Consolidated Audit Trail (Part II): Problems and Pitfalls,” co-authors partner, COO Alex Tabb and technology research analyst Shagun Bali say that few vendors have the technical expertise to engineer, construct and manage a massive data environment as large as the CAT, as well as the equities and options market structure expertise to pull off such a formidable challenge.
”The only thing that may be more difficult than designing, developing and implementing the CAT will be the project and relationship management skills needed to get the approximately 1,800 market data providers on board and compliant within the SEC Rule 613 timelines,” says Bali.
Accomplishing this on time and on budget is no small task. Cost estimates range from $30 million to build and $30 million per year to run, upwards of $525 million for the first five years, without a clear understanding how participants will pay for construction, and only a few hints of how the CAT will sustain itself financially once built.
The first and most important challenge the SROs need to address is the CAT funding issue. There is no clear understanding of how the participants will pay for the construction of the CAT, and only a few hints on how the CAT will sustain itself financially once completed. However, no matter how you slice it, “all roads lead to Rome,” or in this case, all CAT funding mechanisms lead to the broker/dealers.,” Bali says
As part of its research, TABB reached out to 100 industry participants from the capital markets community to collect their sentiment and concerns regarding the CAT, research that highlights how the community recognizes the benefits, but are concerned about the details, problems, pitfalls and pain points requiring attention and solutions.
Secondary to cost, the industry is most concerned about data security, control and governance, especially broker/dealers who want set rules and guidelines covering how the SRO’s will utilize their data. Beyond funding, options data – 60% of the data will come from the options market – is adding complexity.
Multiple solution sets exist and while none of the proposed options are ”wrong,” some are more “right,” especially considering the project’s size, scale, scope and complexity. “CAT is necessary,” says Bali,” but the bigger question for many on the sell-side starts with, “can we afford it?” What the broker/dealers tell TABB is that they need a solution from the SROs, reassuring them it will lighten their investment burden.
For CAT to succeed, says Bali, everyone involved – the SEC, SROs, broker/dealers and the CAT processor – needs to be in harmony. ”The SROs need the support of the broker/dealers, addressing all the issues at hand and suggesting plans alleviating their concerns.”
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