The US Securities and Exchange Commission (SEC) has approved a new rule that requires national securities exchanges and the Financial Industry Regulatory Authority (FINRA) to establish consolidated audit trail to better track trading activity.
The new rule aims to enhance regulators’ ability to effectively oversee the markets, the US market watchdog said.
Under the new rule, exchanges and FINRA will submit a broad plan providing details on how they would develop, implement, and maintain a consolidated audit trail that must collect and accurately identify every order, cancellation, modification, and trade execution for all exchange-listed equities and equity options across all US markets.
The new regulation will fulfil the absence of a single and comprehensive database that will be readily available for orders and executions, FINRA said.
Currently, audit processes vary as per the market conditions, which force regulators to obtain and merge together large volumes of disparate data from different entities when analyzing market activity.
SEC Chairman Mary Schapiro said, "A consolidated audit trail that accurately tracks orders throughout their lifecycle and identifies the broker-dealers handling them will provide us with an unprecedented ability to effectively oversee the markets we regulate."
The unified data base will also empower regulatory agencies to probe illegal activities such as insider trading and market manipulation, and will significantly improve the ability to reconstruct broad-based market events in an accurate and timely manner, claims SEC.
The new initiative will also reduce the regulatory data production burdens on self-regulatory organizations (SRO) and broker-dealers by reducing the number of ad hoc requests from regulators.