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FinOps Report: FINRA’s CAT: Customer Account Data Management Challenge


Alexandra Hamer

Alexandra Hamer

Peter Gargone, chief executive of n-Tier, comments on FINRA’s CAT Customer Account Data Management Challenge in a recent FinOps Report article.

Reporting correct customer data for the next phase of the requirements of the US Financial Industry Regulatory Authority’s Consolidated Audit Trail (CAT) system will end up being a time-consuming and costly exercise in data management for US broker-dealer regulatory reporting, trade compliance and IT managers.

US broker-dealers are likely spending all their time addressing interfirm and TRF linkages and think of April 2021 and July 2022 as too far off to worry about, yet trade compliance experts caution that waiting too long to prepare is a bad idea. With the time for lining up budget requests for 2021 just around the corner firms need to allocate funds for the customer account information preparation. Those funds will be for data cleansing software, payment for CAT reporting agents, and additional middle office staff.

Customer account information is the final phase of the CAT reporting system, which started to take shape after the May 2010 market crash and in 2012 the Securities and Exchange Commission adopted Rule 613 requiring national exchanges and brokers to report on executed equities and options trades to a central repository. In November 2016, the SEC approved a national market system (NMS) plan to create a single database known as the consolidated audit trail to enable regulators to more thoroughly track all trading activity in US equities and options. CAT will receive and retain the trade and order lifecycle of listed equities and options and over-the-counter equity securities.

Broker-dealer middle offices must make certain they locate the right trade to the right underlying fund and that the large trader ID code is linked to unique 40-digit alphanumeric identifiers for each underlying trading account or entity IDs called FDIDs. “Brokerages might rely on multiple order management systems from different vendors and not have a process in place to consolidate all of the information,” says Fields. The larger the firm, the higher the chance for errors. “There could be a single LTID and multiple FDIDs or multiple LTIDs and FDIDs or duplicative LTIDs,” says Peter Gargone, chief executive of n-Tier, a New York-based firm focused on data management for regulatory reporting. “The LTIDs might not match with the FDIDs or an FDID could be missing. For firms which have several hundred accounts matching the LTIDs to FDIDs might not be hard, but it could become problematic for firms with several thousand clients.” Although the CAT system will store the LTIDs, it will not store the FDIDs. Instead, the CAT system will convert them into CCIDs. Gargone, whose firm is a FINRA-approved CAT reporting agent, says that n-Tier’s clients can use its software to validate data across different systems for CAT reports, CAIS reports and EBS reports from internal reference data, trading, and settlement systems.

To read the full article, click here.

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