How Does CAT Reporting Differ from the Previous OATS System? ▴ Question

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Concept

The transition from the Order Audit Trail System (OATS) to the Consolidated Audit Trail (CAT) represents a fundamental redesign of the U.S. financial market’s surveillance capabilities. OATS was a system built for a simpler era, primarily focused on monitoring order activity for equities traded on Nasdaq. Its architecture, while effective for its intended purpose, was ill-equipped to provide regulators with a holistic view of a market that had become increasingly fragmented, automated, and complex. The “Flash Crash” of May 6, 2010, starkly revealed the limitations of a siloed surveillance apparatus, making it exceedingly difficult for regulators to reconstruct the sequence of events across multiple trading venues in a timely manner.

CAT was conceived as the systemic answer to this challenge. It is an infrastructure designed to create a single, comprehensive repository of every order, quote, and trade across all U.S. equity and options markets. This system mandates reporting from a wider range of market participants, including national securities exchanges and firms previously exempt under OATS, ensuring there are no gaps in the data.

The core objective of CAT is to provide the Securities and Exchange Commission (SEC) and Self-Regulatory Organizations (SROs) with a unified, cross-market view of the entire lifecycle of an order, from its inception to its final execution or cancellation. This granular, all-encompassing perspective is engineered to enhance market integrity, facilitate more effective surveillance, and enable swift, data-driven analysis of market disruptions.

The Consolidated Audit Trail provides a panoramic, high-fidelity view of all U.S. equity and options market activities, replacing the more narrowly focused lens of the OATS system.

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Strategy

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A New Paradigm in Market Surveillance

The strategic shift from OATS to CAT is defined by a significant expansion in scope, granularity, and participant coverage. OATS was primarily a FINRA-centric tool, applicable only to its member firms and focused on OTC and Nasdaq-listed securities. CAT, by contrast, applies to every U.S. registered broker-dealer and covers all National Market System (NMS) securities, including equities and listed options, as well as OTC equities. This expansion eliminates the blind spots inherent in the previous system, providing a complete picture of trading activity across the national market system.

A pivotal strategic enhancement is the introduction of comprehensive customer and client identification. OATS tracked orders but lacked a mechanism to efficiently link them back to the ultimate customer initiating the trade. CAT rectifies this by requiring the reporting of customer-identifying information, which is used to generate a unique Firm-Designated ID (FDID) for each client.

This allows regulators to trace trading activity to its source, a critical capability for investigating manipulative practices and understanding market dynamics. Furthermore, CAT mandates the reporting of a wider array of events, including quoting activity for OTC equities and data on allocations, which were not within the purview of OATS.

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Comparative System Architectures

The operational and technical demands of CAT represent a substantial upgrade from the OATS framework. The new system requires timestamps with millisecond granularity, a significant increase in precision from the second-level granularity of OATS. This level of detail is essential for accurately sequencing events in today’s high-frequency trading environment. The error correction window has also been compressed, requiring firms to correct any reporting errors within three business days (T+3), compared to the five days allowed under OATS.

The following table outlines the key strategic differences between the two systems:

Feature	Order Audit Trail System (OATS)	Consolidated Audit Trail (CAT)
Participant Scope	FINRA member firms only.	All U.S. registered broker-dealers and national securities exchanges.
Security Scope	Nasdaq and OTC equity securities.	All NMS stocks, listed options, and OTC equity securities.
Customer Data	No direct customer identification required.	Requires customer-identifying information and establishes a unique customer ID.
Reportable Events	Primarily order lifecycle events.	Includes order events, plus options data, allocations, and OTC quoting activity.
Timestamp Granularity	Seconds.	Milliseconds.
Error Correction	T+5 (Five business days).	T+3 (Three business days).

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Execution

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Operational Reporting the New Data Structure

Executing compliance with CAT reporting necessitates a profound overhaul of a firm’s data architecture and reporting workflows. The system moves beyond the single-file submission process of OATS, introducing a more flexible framework that accepts multiple file formats, such as JSON and CSV. Firms are now required to submit two distinct file types ▴ trade data files and a metadata file. The metadata file acts as a manifest, listing the trade data files being submitted and the number of records in each, which allows for multiple submissions from the same firm within a single day to be linked together.

The depth of required data fields is substantially greater under CAT. While OATS focused on the core elements of an order, CAT requires a more detailed set of attributes to construct a complete lifecycle. This includes new data elements designed to provide clarity on order handling and routing, as well as the linkage to the originating customer.

The transition to CAT requires firms to re-engineer their data capture and reporting mechanisms to accommodate a wider array of securities, participants, and data points with higher precision.

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Key Reporting Fields and Their Implications

The operational execution of CAT reporting hinges on the accurate capture and submission of numerous data fields that were not required under OATS. These new fields provide regulators with unprecedented insight into market activity.

firmDesignatedId (FDID) ▴ This is a unique identifier assigned by a broker-dealer to each of its customers. The FDID is the cornerstone of CAT’s ability to track activity back to a specific market participant, enabling a comprehensive view of a customer’s trading across all venues.
Timestamp Requirements ▴ CAT requires two timestamps for manual order events, capturing both when the order was received and when it was recorded. This dual-timestamp requirement provides a more accurate picture of manual order handling times and potential delays.
Allocation Reporting ▴ The requirement to report post-trade allocations is a significant addition. This allows regulators to see how large block trades are distributed among different accounts, providing insight into investment decisions and potential conflicts of interest.
Options and Quoting Data ▴ The inclusion of listed options and OTC equity quoting activity provides a more complete view of market-making and liquidity provision. This data is critical for analyzing market structure and identifying manipulative quoting behavior.

The following table provides a comparison of select data reporting requirements, highlighting the increased complexity of the CAT system.

Reporting Area	OATS Requirement	CAT Requirement
Customer Linkage	Indirect, required multiple inquiries.	Direct linkage via Firm-Designated ID (FDID).
Manual Events	Single timestamp.	Dual timestamps (time of receipt and time of recording).
Proprietary Orders	Not captured for non-FINRA members.	All proprietary orders are captured and distinguished from customer orders.
Data Formats	Proprietary format.	Flexible formats, including JSON and CSV.
Exemptions	Certain exemptions for small firms and specific order types.	No exemptions for broker-dealers.

CAT’s granular data requirements, including millisecond timestamps and comprehensive customer identifiers, create an unparalleled audit trail for regulatory analysis.

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References

Broadridge Financial Solutions. (2019, January 10). CAT vs. OATS.
InfoReach, Inc. (2020, May 6). Consolidated Audit Trail ▴ The Transition from OATS to CAT.
Hexn. (2023, June 29). Order Audit Trail System (OATS) – Definition, Purpose, and Importance.
Exegy. (n.d.). The Consolidated Audit Trail ▴ What Firms Need to Know.
SIFMA. (n.d.). Firm’s Guide to the Consolidated Audit Trail.

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A Systemic View of Market Integrity

The implementation of the Consolidated Audit Trail is a monumental step in the evolution of market regulation, reflecting a systemic understanding that market integrity is contingent upon complete and accessible data. The architectural principles of CAT ▴ comprehensiveness, granularity, and cross-market linkage ▴ provide a powerful toolkit for oversight. For market participants, the transition requires more than just a technical upgrade; it demands a shift in perspective. Viewing compliance not as a reporting burden, but as a contribution to a more stable and transparent market ecosystem, is the first step.

The true potential of this vast data repository lies not only in its ability to detect misconduct but also in the insights it may offer into the intricate mechanics of modern markets. How might your firm leverage the discipline required for CAT compliance to enhance its own internal data governance and operational oversight?