SEC and exchanges in spat over surveillance system

SEC and exchanges in spat over surveillance system

A row has broken out between the US capital markets watchdog and a number of exchanges over the plan to impose a new market surveillance system on the US equities and options market.

The plan was first proposed back in 2010 as a response to the flash crash of that year but it has been hit by persisent delays.

The system known as CAT is designed to produce a consolidated audit trail and details of all orders and trades in the US equity and options markets and the first phase of reporting was scheduled to begin today.

However, following a last minute request this week from US equity exchanges, also known as self-regulatory organisations (SROs), for a further delay, the chairman of the Securities and Exchange Commission (SEC), Jay Clayton hit back.

In a statement reported by the Financial Times, he said he "was not in a position to support the issuance of the requested relief on the terms currently proposed".

Instead he urged the SROs to "continue their efforts to work cooperatively with each other and meet their responsibilities as promptly as practicable".

The CAT system is a highly ambitious plan in that it will create a central database holding all trade orders, including cancellations and modifications, as well as a wealth of highly sensitive personal information, including social security numbers.

It has consequently been likened to the creation of a Hubble telescope for financial markets. It has also raised a number of cybersecurity concerns amoing the SROs, a group which includes the New York Stock Exchange, Nasdaq and CBOE Global Markets. A letter sent on Monday laid out the concerns as follows:

“Recent high-profile security breaches, such as the breach at Equifax, have highlighted the vulnerability of systems holding large volumes of sensitive financial data to hacking and other forms of attack,” the letter said. “Because the capability of outside actors to launch such attacks is dynamic and evolving, the security measures taken to defend systems such as the CAT must also evolve.”

The exchanges also want a chief information security officer to be appointed before the data collection begins - a request which has yet to be met by the SEC which says that the search is still ongoing. 

While SEC chairman Clayton has criticised the exchanges for the late request for a delay, he has also stressed that protecting any submitted information is "of paramount importance" and he is "open to various paths for adressing cybersecurity matters". 

With no formal postponement to today's reporting deadline announced, it remains to be seen how many if any SROs will submit any information as requested. 


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