(Bloomberg News) The U.S. Securities and Exchange Commission adopted a rule today that would build a single system to monitor and analyze trading activity across U.S. equity and options markets.
In a 3-2 vote, the SEC's members agreed to require securities exchanges and the Financial Industry Regulatory Authority to create a so-called consolidated audit trail that 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 trades away from public venues. The effort is part of the agency's response to the May 6, 2010, stock rout that temporarily erased $862 billion in U.S. equity value.
"A consolidated audit trail that accurately tracks orders throughout their lifecycle and identifies the broker-dealers handling them will provide us with an unprecedented ability to effectively oversee the markets we regulate," said SEC Chairman Mary Schapiro.
The SEC has already implemented circuit breakers to halt trading when a company's shares move 10 percent in five minutes. Still, Schapiro has pressed for tools that would allow faster and broader oversight of trading activity. After the 2010 market disruption, it took a 20-person SEC team three months to collect and process quote and trade data that arrived in different formats from exchanges and brokers.
Schapiro, a political independent appointed by President Barack Obama, had to rely on the support of Republican Commissioners Troy Paredes and Daniel Gallagher to adopt the rule. The two Democrats on the SEC, Elisse Walter and Luis Aguilar, opposed the measure, saying it doesn't go far enough.Real-Time Reporting
Walter said the SEC should have required real-time trade reporting, which exchanges fought as too costly. The rule adopted today would require data to be reported by 8 a.m. the following day.
"Not striving" for a real-time reporting regime "seems to ensure that the industry remains one step or one day ahead of the regulators," Walter said.
The Securities Industry and Financial Markets Association had opposed real-time monitoring. The next-day standard adopted by the SEC "is a more manageable and cost-effective approach to this kind of system," Randy Snook, SIFMA's executive vice president, said in a statement after the vote.
Gregg Berman, a senior adviser to the director of the SEC's division of trading and markets, told commissioners at the end of their meeting that real-time reporting doesn't provide better information than the next-day standard.'Only Advantage'
"The only advantage of real-time data is that an analysis might start sooner but not that it will be better," Berman said.
Regulators currently keep tabs on the markets and monitor trading using data stored in different formats. The consolidated audit trail would be a centralized data hub that captures order information throughout the life cycle of a transaction.
The SEC's approval leaves it to self-regulatory organizations including Finra, which oversees 4,400 brokers, to develop the specifics of how the consolidated audit trail will work in practice. The SEC must approve the plan before it can be implemented.
"We are not going to throw this rule over the transom and say to the SROs come back to us with whatever you think works here," Schapiro said at the closing of today's meeting. "We're going to stay intimately involved. We're going to have to push and pull and make sure that the plan meets our standards."