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SEC Proposes Consolidated Audit Trail to Track Suspicious Activity

At yesterday's open meeting, the Securities and Exchange Commission approved the issuance of rule proposals that would allow the SEC and self regulatory organizations to track trade data across multiple markets, products and participants simultaneously, in real time. This "consolidated audit trail," if adopted, would allow regulators to reconstruct trading activity rapidly and to analyze both suspicious trading behavior and unusual market events.

The proposal would require the self regulatory organizations like FINRA and the exchanges jointly to develop a national market system plan to create, implement, and maintain a consolidated audit trail. Also, the rules, if adopted, would require the SROs and their members to collect in a a newly created central database significant detailed information about each quote and order, including identifying the "ultimate customer" who generated the order. The information collected in the new system would capture in real time each step in the life of the order, from receipt or origination, through the modification, cancellation, routing and execution of an order, and also "tag" each order with a unique order identifier that would stay with that order throughout its life. This collected data would then be made available to the SEC and other financial regulators.

The proposing release approved by the Commission will be published in upcoming weeks.

The Commission's announcement and fact sheet on the proposed consolidated audit trail are available at: http://www.sec.gov/news/press/2010/2010-86.htm