SEC Approves Rule Requiring a Single, Consolidated Audit Trail System to Track Trading Activity

On July 11, 2012, the Securities and Exchange Commission announced that it approved Rule 613 pursuant to the Securities Exchange Act of 1934 requiring the national securities exchanges and the Financial Industry Regulatory Authority (collectively, the “SROs”) to develop a detailed, comprehensive plan for creating, implementing, and operating a single, market-wide consolidated audit trail system.  The rule requires that the system, when implemented, collect and accurately identify every order, cancellation, and trade execution for all “National Market System” securities.  

Currently, there is no single, readily accessible database regarding orders and executions.  Instead, such information must be compiled from separate audit trail systems established by the various SROs that cover orders only in their respective markets.  Presently, preparing such a compilation can be a long and tedious process.  For example, according to comments from SEC Chairman Mary L. Shapiro, after the Flash Crash of May 6, 2010, it took dozens of highly-trained economists, financial professionals, and data technologists four months to assemble and process information necessary to fully analyze just a few hours of trading on a single day. 

While the rule was approved, Commissioner Aguilar did not support the rule, stating in part that “today’s rule falls short of establishing the process that investors deserve. . . . I am concerned that the [proposed rule] fails to set appropriately specific requirements to ensure the creation of a comprehensive market surveillance system . . . .”

The rule will become effective 60 days after publication in the Federal Register and requires the SROs to submit their plan for the consolidated audit trail system to the SEC within 270 days after publication of the SEC adopting release in the Federal Register.  The plan will not be implemented unless and until approved by the SEC.


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