A much delayed surveillance system to monitor trading in the world’s largest equity market took a big leap forward on Tuesday with the selection of the group to build and operate the project.
Founded in 2009, Thesys Technologies, a trading technology provider, beat out the Financial Industry Regulatory Authority and SunGard Data Systems.
Called the “Hubble telescope” by one regulator, the so-called Consolidated Audit Trail, or CAT, will be a single data warehouse to collect the millions of orders and quotes that daily pass across US equity and options markets in real time.
It was born out of the 2010 flash crash when stocks gyrated rapidly for 20 minutes. The situation revealed that authorities had little understanding of the fractured, complex nature of modern markets, where data and trading can be executed faster than the blink of an eye across dozens of venues.
“We’re confident in Thesys’s management, technology and resources to implement this important regulatory initiative,” said the operating committee of the CAT, which consists primarily of US exchanges.
A spokesperson declined to comment on a timeline to begin building the CAT.
In November, the Securities and Exchange Commission approved a plan to introduce the CAT, leaving the choice of who will run the system as the next step. The regulator has estimated that the system could cost the industry $2.4bn initially and then $1.7bn a year to run.
Industry concerns over cost, size and complexity have dogged the CAT project. Some observers have expressed that it is still lacking certain elements. It would not, for example, include information on the futures market where the flash crash is believed to have begun.
“The current version of the CAT is kind of like a football stadium with no bathrooms: sure, the playing field and seats are built, but to be truly useful, it’s definitely going to need more features,” said Tyler Gellasch, executive director of Healthy Markets Association, a non-profit group focused on market structure reform.
He nonetheless was hopeful that the current iteration would “lay the foundation for improvements that can be helpful in the future”.
US stock exchanges and Finra must begin reporting to the CAT in 2018, while large broker dealers have two years and small broker dealers have three years.
Once completed, the CAT would be the world’s largest repository of securities transactions. It would have to be able to process more than 58bn records of orders and quotes a day.
Thesys is a unit of New Jersey-based Tradeworx, which provided the SEC’s surveillance program known as “Midas”. The Market Information Data and Analytics System collects and processes data from the consolidated records of the exchanges as well as about 1bn records daily from proprietary feeds.
Larry Tabb, founder of the Tabb Group, a capital markets consultancy, said that Thesys was the outside candidate.
“Thesys has great technology, but the challenge is that they are small, and this is a major project that will last years and could run — all in — into the billions [of dollars],” he said.
