Greater use of electronic trading and market volatility saw a record surge in trading data reported by the US capital markets watchdog in 2018, raising questions about regulators' ability to successfully and safely monitor markets.
The Financial Industry Regulatory Authority (Finra) reported a daily average of 66.7bn electronic records, which covers quotes for securities, actual transactions and cancelled bids.
The figure represents an 87% increase from the previous year, according to the Financial Times, and suggests a huge growth in the use of electronic trading.
A sharp rise in market volatility also contributed to the surge in volume, particularly in December when investors' fears over global trade and rising US interest rates saw average daily volumes peak at $135bn, almost double the previous record of $75bn.
Each time a price changes, electronic market makers, traders and brokers have to update their records accordingly and in real-time, therefore any period of volatility exacerbates the amount of data produced as does the increasing dominance of electronic trading.
As a result, concern is growing that there is too much data for regulators and supervisors to adequately monitor for evidence of market manipulation or to avert another flash-crash as was seen in 2010 on the New York Stock Exchange.
The flash-crash led the US Securities and Exchange Commission to put in plans to establish a consolidated audit trail (CAT) that would track every order in order to better monitor and understand market movements.
However the project has been dogged by operational issues. Just last week it was announced that the company contracted to build the repository, US-based startup Thesys Technologies, had been fired after losing the confidence of the SEC and the exchanges involved.
The firm was hired in 2017 but only launched the first stage of the project in November 2018, a year late and without much of the expected functionality.
The project will now been taken over by Finra and a new, as yet unamed vendor will be appointed in place of Thesys. The SEC has also hired a 'czar' to oversee the project, Manisha Kimmel, who is currently chief regulatory officer for Thomson Reuters Wealth Management division, according to LinkedIn.
The CAT case and the rise in the volume of trading data shows not only the sheer scale of the task facing all those involved but the compex politics that comes with a project involving regulators, exchanges, broker-dealers and trading technology vendors.
Editorial | what does this mean?