The Consolidated Audit Trail (CAT) is coming. And soon.

The much anticipated and awaited securities audit trail that is being billed as a means to help monitor and police stock market trading will begin operation for file submission in April.

Here is the official Finra timeline:

Years in the making, CAT is expected to fill multiple needs for myriad market participants but many questions linger. Is it enough? Is it worth the cost?

Peter Gargone, n-Tier Founder and Chief Executive Officer sat down with Traders Magazine’s Editor John D’Antona Jr. and spoke about the aforementioned issues as well as offered his opinions.

TRADERS MAGAZINE: What are some of the main issues brokers have faced in meeting the CAT deadline? Technology? Security?

Peter Gargone: Security and liability for potential security breaches are an ongoing concern for brokers ahead of the CAT deadline. Brokers are working to ensure there are robust operational and technical processes in place to monitor and manage the reporting accuracy. Successfully implementing a technological solution that can handle the volumes of exceptions and corrections expected to result from the rollout of CAT is also top of mind. In CAT’s latter phases, brokers remain concerned about the occurrence of rejects from cross- firm data linkage.

TM: Can the CAT be the answer the SEC wants or envisioned? Or does it fall short?

Gargone: It is still to be determined whether CAT will satisfy the SEC’s particular requirements. As an overall initiative CAT will undoubtedly provide a more complete and accurate view of activities in the market. Still, the value provided by this additional data will depend on the level of data accuracy and data quality achieved by the industry.

TM: What has the technology spend been like for the industry or brokers? – More than thought? Less? Can it be recouped?

Gargone: We feel most firms have budgeted appropriately for the CAT initiative. However, when firms look at the overall spend across different regulatory requirements, both domestic and international, the costs are continually rising.  For firms that take a holistic approach to regulatory operations and data accuracy, we believe the regulatory risk and operational efficiencies gained by now having complete and accurate data will allow firms to recoup some of that overall spend.

TM: When it comes to the CAT – will this be the final version? Or will there be a CAT 2.0 as glitches arise?

Gargone: As with any complex regulation we would expect a period of adjustments and clarifications. This has undoubtedly been the case with predecessor regulations such as OATS, EBS, and LOPR, which have undergone many years’ worth of changes based on industry feedback.

In a Linkedin article published Thursday, NYSE Chief Operating Officer Michael Blaugrund said that the industry is asking or a more modern means of tracking stock trading activities. He responded that his exchange should build it.

Here is the article in its entirety…

The consolidated tape is a hallmark feature of the U.S. equity markets, providing investors a simple, single mechanism to understand the state of displayed liquidity and recent transactions across many venues. Conceived more than 45 years ago, it has played an important role in making American equity markets accessible, transparent, and resilient.

But over the past 45 years, technology and market structure have changed dramatically. Regional stock exchange floors have been replaced with multiple New Jersey-based data centers. Armies of sales traders looking at prices on screens have been replaced by algorithms consuming “non-displayed” data feeds. And retail investors who once called their broker to ask for a quote are increasingly trading through smart phone apps or digital assistants.

Given the degree of marketplace change, it is more than appropriate to ask whether the consolidated tape, which is operated through entities called securities information processors, or SIPs, needs to be modernized. Based on the industry’s concerns about the differences between SIP and proprietary market data, the answer is clearly “Yes”.

What should this modernization look like? NYSE recently filed a comment letter recommending that the Commission undertake rulemaking to:

• Expand SIP content to include depth-of-book data, odd lots and auction information. We also recommend displaying protected quotes in terms of shares (not number of round lots)
• Reduce the administrative burden on subscribers by establishing fees based on distinct products instead of user classifications.
• Establish competing consolidators in multiple data centers to minimize geographic latency and create incentives for continued improvement.
• Eliminate unanimous voting requirements under the current Plans.
• Update revenue allocation to reward displayed quotes that result in trades.

To those who follow market structure developments closely, these reforms should look very familiar. They are largely based on previous recommendations of major industry groups, the SEC’s Equity Market Structure Advisory Committee, and the US Department of Treasury’s report on Capital Markets, and the NYSE.

We are embracing the proposals previously made by these organizations in an effort to fast-track reform. The current tape plans have already made meaningful progress on governance matters, including strengthening the role of industry advisors, establishing conflict of interest policies, and ensuring robust audit and information barrier policies for data administration. Instead of beginning a years-long process of debating (and potentially litigating) more novel governance changes, let’s just get to the work of developing the modern SIP which the industry has already requested.

Changes of this magnitude are policy decisions that the SEC should affect via rulemaking, not indirectly through changes to NMS plan governance. SEC-established rules provide a legitimacy to the process that SRO-crafted NMS Plans lack. We believe that much of the industry shares our vision of the end state for the SIP, and we are hopeful other voices will join us in asking the SEC to conduct rulemaking to accelerate its arrival.

SEC Rule 613 was adopted to require national securities exchanges and SROs to submit a national market system (“NMS”) plan to create, implement, and maintain a Consolidated Audit Trail (CAT) with respect to the trading of NMS securities, that would capture customer and order event information for orders in NMS securities, across all markets, from the time of order inception through routing, cancellation, modification, or execution.  The primary goal of Rule 613 is to improve the ability of the regulators to surveil and accurately track trading activity in equities and options markets. 

Over the past year FIX and FIF members have collaborated to provide guidance to firms for their CAT implementation by producing recommended mappings for CAT-FIX messages identified in the CAT NMS Plan (Phase 2A-Equities).  Please click here to view the mappings.

During this exercise participants also identified gaps related to data reporting required by the CAT NMS plan, these gaps have been addressed within a FIX extension pack.

One of the key data elements required for data reporting to CAT, is FDID (Firm Designated Identifier), “a unique identifier for each trading account designated by Industry Members for purposes of providing data to the Central Repository, where each identifier is unique among all identifiers from any given industry member for each business date.”  FIX/FIF Cat working group identified a standardized use of FIX to communicate FDIDs across different market participants, please click here to view.

FIX Publishes Online Specification

The baseline spec has been refactored for FIX Version 5.0 Service Pack2 Volume1. Previously only available in Word/PDF documents, it is now available as online versions. Next steps are to enhance the baseline to include all FIX Extension Packs published after Version 5.0 SP2. Click here for more.

Dan Charney, co-president of Cowen and Company, said the US diversified financial services firm has aggressive ambitions to grow in Europe as it launched a suite of liquidity seeking and execution algorithms in the region.

Charney told Markets Media: “Our aspirations in the US are to be in the top 10 for high- and low-touch trading and to be the premier bank outside the bulge bracket. We have every expectation that we will reach the same relevance in Europe over time.”

He continued that the firm celebrated its 100th anniversary in 2018 and so takes a long-term view. “We realise it is a marathon, not a sprint.”

Cowen made seven senior hires, led by Matt Cyzer, in October last year to expand its international sales and trading team. Cyzer and his colleagues joined from Deutsche Bank after the German firm closed its equites business. At Deutsche Cyzer was head of EMEA execution services. Previously he had been president, head of Europe at BTIG where he led the equities sales and trading group and ran the overall expansion of the European business between 2012 and 2018.

Cyzer, chief executive of UK-headquartered Cowen Execution Services Limited, told Markets Media: “Before joining I was aware of how successful Cowen was in the US, especially over the last couple of years, and of the firm’s credibility with clients. We knew that if the US platform could be replicated in Europe it would be a home run.”

Jason Oien, head of electronic trading services at Cowen, said part of the reason for firm’s US success was due to a lack of conflicts and being agnostic on execution venues.

“We do not make markets and when we acquired Convergex in 2017 we closed its dark pool to ensure we did not have conflicts of interest,” Oien added. “We only care about executing in the right place for the right reason, which is finding the highest quality liquidity.”

In Europe Cowen does not operate a mutilateral trading facility and it is not a systematic internaliser. MiFID II, the European Union regulations which came into force in 2018, banned broker crossing networks and required broker-dealers to set up systematic internalisers in order to provide principal liquidity to clients.

Oein continued that the firm had been in conversations over the last weeks and months with a range of asset management clients regarding expanding in Europe.

“Clients are more than happy for us to replicate our US model,” he added. “We aim to make the trading experience as globally consistent as possible.”

Algo suite

This week Cowen said it has launched its full suite of liquidity seeking and execution algorithms that are specifically tailored for the European market.

Cyzer said: “This is an exciting moment  and rounds out our European offering. We are building for what the market will look like in five years time, rather than just responding to MiFID II.”

Tom Campbell, head of electronic trading in Europe, told Markets Media that the algo suite reflected the innovations in European market structure since MiFID II, such as the growth in periodic and continuous auctions, and the advent of SIs.

“The algos are underpinned by our US excellence but are nimble and adjust to different liquidity in Europe,” Campbell said. “We use machine learning so the algos rebalance intraday as liquidity changes.”

Cowen has also introduced its “heatmap” technology in Europe, a routing logic which maximises the efficiency of dark pool liquidity sourcing.

“We have a dark heat map for individual stocks which is unique,” added Campbell.

The firm said stock-specific routing and intraday machine learning technology means clients can trade faster and with less market impact as a result of the heat map.

Growth

Cowen led opening ceremonies the London Stock Exchange this morning in celebration of becoming a new member firm.

Cowen Inc., a diversified financial services firm opened London markets today. Joining the Market Open ceremony as a new member firm reflects @CowenGroupInc’s commitment to serving its clients and providing access to capital markets in the UK and Europe. https://t.co/JLzbXlcCa9 pic.twitter.com/VNXvvmOmUM

— London Stock Exchange (@LSEplc) January 24, 2020

Charney said “Today, with over 180 professionals in nine European cities, including 63 professionals here in London, we have built a full service, cross-border, capital markets, investment banking and research solution for our clients.  Additionally, through the successful integration of several acquisitions, we have ensured that our markets business is at scale and able to excel under MiFID II.”

He continued that Cowen has aggressive ambitions to grow outside the US in areas including prime brokerage, securities financing, outsourced trading and derivatives.

“Cowen is the fastest growing electronic trading firm in the US and we see the same enthusiasm in Europe,” Carney added.

Fidelity Investments the largest online brokerage firm with more than 23 million retail brokerage accounts, today announced availability of real-time fractional shares trading of stocks and ETFs (also known as dollar-based investing). This simplified way of investing, which is being rolled out to Fidelity’s retail customers beginning today and will continue over the next several weeks, allows investors to trade as little as 0.001 of a share using Fidelity’s Mobile^® app for iOS^® and Android^TM.

Fidelity is the only brokerage firm to offer zero online commissions for stock and ETF trades, zero account minimums, zero account fees for retail brokerage accounts, a higher cash sweep rate versus the other largest online brokerage firmsⁱ regardless of investable assets¹, and continues to forgo payment-for-order-flow from market makers for stock and ETF trades, helping facilitate industry leading price improvement for customers.

Fidelity will execute all fractional trades in real-time during market hours, meaning customers will always know the share price, unlike some firms that execute fractional trades at the end of a trading day or wait for multiple orders to add up to full shares. Fractional share or dollar-based trades, which must be market or limit order types and are good for the day only, are available in eligible Fidelity retail accounts, including brokerage, HSAs, IRAs, and self-directed brokerage accounts via a workplace retirement plan.

“Investing at Fidelity just got easier, and more accessible, with dollar-based investing,” said Scott Ignall, head of Fidelity’s retail brokerage business. “Leveraging Fidelity’s award-winning mobile apps and brokerage platform, customers can now own a piece of their favorite companies and ETFs based on how much they want to invest, independent of the share price.

“Fidelity’s size, private structure, and leading positions across various marketplaces (including retail, institutional, and intermediary) are unmatched in our industry and put us in a unique position to deliver greater value to our customers,” continued Ignall. “In addition, customers have access to unmatched stock and ETF research to confirm or generate new investing ideas.”

How Investors May Benefit from Dollar-Based Trading

Based on customer feedback, we expect investors to use dollar-based trading in a variety of ways, including:

• A customer saves $500 to begin investing in several high-priced companies they have been following for their diversified portfolio. With this new capability the price of a single share is not a concern, and the investor buys $100 worth of shares in five different companies, potentially helping with diversification.
• A customer may implement dollar-cost averaging, a strategy in which an investor divides the total amount to be invested across periodic purchases of a stock or ETF to help reduce the impact of volatility. With zero online commissions and the ability to buy in fractional shares or dollars, a customer could set up an automatic deposit from their paycheck or bank account into a Fidelity brokerage account and easily make multiple purchases of a stock or ETF over time, e.g. $50 each month, and pay nothing in commissions.

Dollar-Based Trade Ticket on Fidelity Mobile:

Dollar-based trading will be rolled out on Fidelity Mobile apps for iOS and Android, available in the App Store and on Google Play.

About Fidelity Investments
Fidelity’s mission is to inspire better futures and deliver better outcomes for the customers and businesses we serve. With assets under administration of $8.3 trillion, including discretionary assets of $3.2 trillion as of December 31, 2019, we focus on meeting the unique needs of a diverse set of customers: helping more than 30 million people invest their own life savings, 22,000 businesses manage employee benefit programs, as well as providing more than 13,500 financial advisory firms with investment and technology solutions to invest their own clients’ money. Privately held for more than 70 years, Fidelity employs more than 40,000 associates who are focused on the long-term success of our customers. For more information about Fidelity Investments, visit https://www.fidelity.com/about.

44% of the General Online Audience checked stock quotes on their handheld.

94% of the Active Investor Audience checks their stock quotes on a daily basis or more often.

27% of the General Online Audience doesn’t know if they are getting real-time or delayed stock quotes.

80% of ALL respondents check their stock prices from financial media.

50% of the Business Professional Audience wants more investment research.

To download the survey, please click here. To use and explore Barchart’s own tools and features made available for retail investors and traders, including both free and premium services, please visit www.barchart.com.