The SEC’s new consolidated audit trail rule could help companies identify short sellers and better understand anomalous price moves.
Treasurers and investor relations specialists will soon have new insight into why their stock price behaves as it does. The Securities and Exchange Commission adopted a rule on July 11 to establish a consolidated system to collect information on all stock trades on registered exchanges.
The ruling, Rule 613, requires US exchanges and the Financial Industry Regulatory Authority (FINRA) to submit a national market system (NMS) plan for creating, implementing and operating a single, market-wide consolidated audit trail system.
“A consolidated audit trail that accurately tracks orders throughout their lifecycle and identifies the broker-dealers handling them will provide us with an unprecedented ability to effectively oversee the markets we regulate,” said SEC Chairman Mary Schapiro in a release.
The system will help regulators uncover and prosecute insider trading and market manipulation. It should also be helpful to companies stalked by third-party buyout firms and those in similar straits.
According to the SEC, the rule mandates that the NMS plan:
- Requires each national securities exchange and FINRA as well as their respective members to provide certain detailed information to a newly created central repository regarding each quote and order in an NMS security – and each reportable event with respect to each quote and order, such as its origination, modification, cancellation, routing, and execution.
- Requires certain data to be reported to the central repository by 8 am Eastern Time the following trading day – and be subsequently available in an aggregated format to regulators for their analysis.
- Requires all reportable events to be tagged and stored by the central repository in a linked fashion allowing regulators to accurately follow an order through its entire life cycle from generation through routing, modification, cancellation, or execution.
- Requires each broker dealer and national exchange to be assigned a unique, cross-market identifier to be reported to the central repository along with every reportable event.
- Requires each customer as well as any customer adviser who has trading discretion over a customer’s account to be assigned a unique, cross-market customer identifier to be reported to the central repository for every order originated.
- Requires SROs and their members to synchronize the business clocks they use to record the date and time of any reportable event, and require timestamps – reported for each event to the central repository – to be in millisecond or finer increments.