SEC Approves Proposed Joint NMS Plan Regarding the Consolidated Audit Trail (with Lofchie Comment)

The SEC approved a joint industry plan from participating SROs and Exchanges including FINRA, NYSE, BATS-Y Exchange, and Nasdaq, governing the process of selecting a plan processor and developing a plan for the consolidated audit trail ("CAT").The 19 SROs and Exchanges (the "Participants") collectively filed a plan on September 3, 2013, to create, implement and maintain a CAT with respect to the trading of NMS securities that would capture customer and order event information for orders in NMS securities across all markets. The rule was filed pursuant to Exchange Act Section 11A ("National Market System for Securities; Securities Information Process") (Regulation NMS) and Rule 608 thereunder ("Filing and Amendment of National Market System Plans").

The Plan was proposed in part, as a response to Exchange Act Rule 613 ("Consolidated Audit Trail" or "CAT") which outlines a broad framework for the creation, implementation and maintenance of the consolidated audit trail, including the minimum elements that the SEC believes are necessary for an effective consolidated audit trail. In instances in which Rule 613 sets forth minimum requirements for the consolidated audit trail, the Rule provides flexibility to the SROs to draft the requirements of the CAT NMS Plan in a way that best achieves the objectives of the Rule. Specifically, Rule 613 incorporates a series of twelve "considerations" that the Participants must address in the CAT NMS Plan, including:

• the specific details and features of the CAT NMS Plan;
• the Participants' analysis of the CAT NMS Plan's costs and impact on competition, efficiency and capital formation;
• the process of developing the CAT NMS Plan;
• information about the implementation of the CAT NMS Plan; and
• milestones for the creation of the consolidated audit trail.

Lofchie Comment: The significance of the Consolidated Audit Trail goes far beyond its regulatory uses. The larger questions are these: (i) who pays for its development, (ii) who owns the information contained in the CAT and has a right to sell that information and (iii) what limits may be put on the sale and on associated fees? SIFMA previously has published its "White Paper" on the creation of the CAT, which argues most significantly that the CAT should be an industry utility to which the exchanges do not have ownership rights superior to those of the broker-dealers.

See: SEC Approval.See generally: SIFMA landing page on the Consolidated Audit Trail.