Consolidated Audit Trail (CAT) Reporting Obligations

The audit trail exists so a regulator can reconstruct an order from origination to allocation across every venue it touched. That only works if every firm reports the same events, on the same securities, with the same defined terms.

What Is the Consolidated Audit Trail?

The consolidated audit trail rule requires each national securities exchange and each national securities association to file jointly a national market system plan governing the creation, implementation and maintenance of a consolidated audit trail (CAT) and a central repository.

FINRA's own rules then carry that plan into the member rulebook.

• CAT means the consolidated audit trail contemplated by the SEC's consolidated audit trail rule.
• The CAT NMS Plan means the National Market System Plan Governing the Consolidated Audit Trail, as amended from time to time.

The plan sets the mechanics. The SEC rule requires each member to comply with the approved plan's member provisions, and a trader's day-to-day duties are written in the member rules, which point back to the plan for the format and the operating detail.

Exam Tip: Gotchas

• The plan-filing duty binds the exchanges and the association, not the member. The SEC rule tells them to file a plan. It separately requires each member to comply with the approved plan's member provisions, and the FINRA rules implement those duties.
• The central repository is not the reporting firm. The member reports to the repository.

Who Is an Industry Member?

An Industry Member means a member of a national securities exchange or a member of a national securities association that is required to record and report information pursuant to the CAT NMS Plan and FINRA's consolidated audit trail compliance rules.

Two more defined terms name the data itself, and both point to the field lists rather than describing them.

• Recorded Industry Member Data is the data a member records and electronically reports to the Central Repository for each order and each reportable event, as applicable.
• Received Industry Member Data is the further data a member records and reports, such as clearing and customer information it receives. Together the two are Industry Member Data.

Exam Tip: Gotchas

• Membership alone does not make an Industry Member. The definition turns on being required to record and report under the plan and the compliance rules, so the status follows the reporting duty rather than the other way round.
• Recorded and Received data are separate categories with separate deadlines. Each has its own 8:00 a.m. Eastern Time deadline measured from a different event, which the timing lesson sets out.

Which Securities Does the Duty Cover?

An Eligible Security includes all national market system (NMS) Securities and all over-the-counter Equity Securities.

The reporting duty is then fixed on two limbs.

• Each Industry Member records and reports Industry Member Data for each NMS Security registered or listed for trading on such exchange, or admitted to unlisted trading privileges (UTP) on such exchange.
• Each Industry Member records and reports Industry Member Data for each Eligible Security for which transaction reports are required to be submitted to FINRA.

Exam Tip: Gotchas

• Eligible Security is wider than NMS security. It includes over-the-counter equity securities, so an audit trail duty can attach to a security that no exchange lists.
• The FINRA limb keys on the trade-reporting duty. If the security is an Eligible Security and transaction reports for it are required to be submitted to FINRA, the audit trail duty follows.

What Is a Reportable Event?

Reportable Event is an open definition. The rule says the term "includes, but is not limited to" the following.

• The original receipt or origination of an order.
• The modification of an order.
• The cancellation of an order.
• The routing of an order.
• The execution of an order, in whole or in part.
• The allocation of an order.
• The receipt of a routed order.

A Manual Order Event means a non-electronic communication of order-related information for which Industry Members must record and report the time of the event.

Exam Tip: Gotchas

• The reportable event list is open, so a new event type does not need a rule change to be reportable. The rules also allow other information or additional events to be prescribed under the plan.
• Allocation is a reportable event even where the member did not execute the trade. The allocation report duty attaches to performing an allocation to a client account, whether or not the member was the executing broker.

What Are the Material Terms of the Order?

Material Terms of the Order is the bundle of order attributes that must accompany several event reports. The FINRA definition says the term "includes" the following items.

The SEC's plan-level definition of the same term is stated in the wider form "shall include, but not be limited to", runs over the NMS security symbol, and carries neither the equities carve-out on the open or close indicator nor the market maker quotation carve-out on the listed option open or close item.

Exam Tip: Gotchas

• The two definitions are not word-for-word. The FINRA version reaches over-the-counter equity symbols and adds two carve-outs the SEC plan-level version does not print.
• The short-sale marking sits inside Material Terms. A sell order must carry long, short or short exempt as part of the order's material terms, not as a separate one-off field.

What Should You Check on Exam Day?

• Confirm the party: the SEC rule binds the exchanges and the association to file a plan, and each member must comply with the approved plan and the FINRA rules that implement it.
• Check whether the security is an Eligible Security, which covers all NMS securities and all over-the-counter equity securities.
• Treat the reportable event list as open; allocation and receipt of a routed order are both on it.
• Look for the short-sale marking and the size split inside Material Terms of the Order rather than as separate fields.