An SEC official said Thursday that the commission is close to proposing new rules for a consolidated audit trail of activity across national stock exchanges, calling it “a top priority.”
The proposed changes are expected to hit high-frequency trading firms hardest. That’s because costs of the consolidated audit trail, or CAT, would be spread across all firms in the national market system, as well as waves of orders sent to exchanges by high-speed automated trading systems.
“Historically, with a lot of the NMS plans, trades have been how you allocate costs among markets. And I think one of the issues we’re going to be dealing with is, given the nature of CAT,” is cost allocation, said Thomas Gira, Executive Vice President for Market Regulation at the Financial Industry Regulatory Authority.
High-frequency traders are know for placing thousands of orders, then canceling most of them before making a single trade. Because exchanges bear the burden of these orders in the form of storage and retrieval costs, a more blended cost allocation method must involve high frequency traders taking on part of that burden.
The CAT is estimated to cost $4 billion to build and $2 billion per year to operate.