SEC Opens Comments on Market Manipulation Database

For years, the Securities and Exchange Commission has been discussing building a database of information about stock and options trading activity. The Consolidated Audit Trail (CAT) system took another step closer to creation when the SEC voted to open the plan to public comment yesterday.

The goal of CAT is to allow the SEC to better detect market manipulation and insider trading. It currently takes the SEC months to sift through the high volume of market data that is generated on the stock and options exchanges. There are an estimated 58 billion transactions on exchanges every day, plus additional trading in private venues.

The need for tools to assist the SEC in the analyzation of market data has already led to the collection of market data through MIDAS, which helps the government reconstruct market events, monitor mini-flash crashes and assist with other functions. Whistleblowers have also been a temporary stopgap solution to the problem, alerting the U.S. Government to some specific cases of manipulation through the Dodd-Frank reward programs.

If the system achieves its goal, the exchanges and brokers will report data to CAT. It will cost around $100 million to build and an estimated $1.7 billion annually in compliance costs for brokerages. According to the present timeline, it will be rolled out to the various parties between 2017 and 2019. In early years, there would be an expected rate of inaccuracy on data of as much as 5 percent as brokers implement the reporting process.