21/05/2024 4:12 AM


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Securities group asks SEC to intervene for brokers in audit-trail database fight

FILE PHOTO: The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst/File Photo

NEW YORK (Reuters) – U.S. brokers should not be forced to sign an agreement that could make them liable for breaches of a massive new industry trading database that they have no control over, a leading financial industry trade group told regulators on Wednesday.

Brokers must soon begin sending sensitive information derived from their clients’ trades to a new database called the Consolidated Audit Trail (CAT) that the Securities and Exchange Commission tasked exchange operators and the Financial Industry Regulatory Authority (FINRA) with building and operating.

But before they begin sending the information, the brokers must sign an agreement that limits the financial liability of the exchanges and FINRA, collectively called self-regulatory organizations (SROs), to $500 per reporting firm if there is a breach of that data.

That puts the brokers on the hook for any security breaches of the database, which they have no control over, said Kenneth Bentsen, chief executive officer of the Securities Industry and Financial Markets Association (SIFMA), which represents banks, broker-dealers and asset managers.

“SIFMA’s guiding principle is ‘they who hold the data bear the liability,’” Bentsen said in a statement.

SIFMA petitioned the SEC to stay the requirement that brokers sign the agreement before they begin sending the mandated data, which includes sensitive transactional and financial information of their customers, and open the process up to public comment.

The CAT will allow regulators to track all trades from their inception, pinpointing buyers, sellers, exchanges and brokers involved, with one former SEC commissioner likening it to a Hubble Space Telescope for the securities markets.

The project has faced years of delays, the most recent of which came on Monday when the SEC extended the deadline for broker-dealers to begin submitting reports to June 22, instead of May 20, due to disruptions caused by the coronavirus crisis.

Reporting by John McCrank; editing by Jonathan Oatis

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