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Thursday, May 27, 2010

Encouraging Noises from the SEC

Posted by John Bates

Washington, D.C., May 26, 2010 — The Securities and Exchange Commission today proposed a new rule that would require the self-regulatory organizations (SROs) to establish a consolidated audit trail system that would enable regulators to track information related to trading orders received and executed across the securities markets. http://www.sec.gov/news/press/2010/2010-86.htm

I support the SEC's intention to improve real-time market surveillance and establish a consolidated audit trail system. It's always been a worry that regulators do not have real-time access to all securities market data, but it's good to see that they are about to address the issue.


The SEC estimates it would cost the trading industry $4 billion to implement and $2.1 billion in annual maintenance to establish this system. But the US taxpayer is already fed up with the government using 'their' dollars to bail out banks and shore up an ailing financial system. They are unlikely to cheerfully approve of another government agency getting billions more of their dollars.

However, I'm not sure the solution has to be so costly. The markets have come a long way with standard protocols like FIX but also ways of normalizing heterogenous protocols in real-time. Time series database technology, to consolidate and retain all the information on quotes, orders and trades, has been scaling up for years to handle massive increases in volumes.  And low latency, high speed, monitoring technology exists and is already in place at some of these destination venues and trading participants.

I would love to see the SEC working together with other regulators, like CFTC to form a committee of market participants, exchanges, ECNs and market practitioners to hammer out a cost-effective and timely solution. May 6th could potentially happen again and the regulators must be prepared. I believe a solution could be achieved quickly and by using less taxpayer dollars than the SEC might initially think.

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