Concept
Supervising the accuracy of Consolidated Audit Trail (CAT) reporting for Request for Quote (RFQ) workflows is a matter of systemic integrity. The core challenge resides in ensuring that a multi-stage, often manually intensive, liquidity sourcing process is translated with complete fidelity into the granular, machine-readable format demanded by regulators. An RFQ is a bilateral conversation, a sequence of invitations and responses that occur outside the continuous stream of a central limit order book. Each step ▴ from the initial solicitation to the final execution of a winning response ▴ generates data points that must be captured, sequenced, and reported correctly.
The supervisory function, therefore, is an exercise in data reconciliation and process validation. It ensures that the narrative of the RFQ, as it happened in the real world, matches the story told to the CAT.
The complexity arises from the nature of the RFQ itself. Unlike a standard marketable order that leaves an immediate, unambiguous electronic footprint, an RFQ can involve various communication methods, including phone calls or instant messages, particularly for institutional block trades. While requests for quotes are not reportable, the responses that constitute a firm expression of trading interest are, creating a critical delineation for reporting obligations. The supervisory best practice begins with a foundational understanding of this workflow and the specific CAT events it triggers.
It requires a firm to define, map, and then systematically validate the journey of an RFQ from a trading decision to a series of accepted data records in the CAT system. This process is about building a resilient bridge between the off-book, negotiated trading environment and the standardized, high-volume world of regulatory data reporting.
A robust supervisory system for CAT reporting in RFQ workflows transforms a compliance necessity into a verification of operational accuracy.
At its heart, effective supervision is proactive. It involves designing a system of checks and balances that can identify discrepancies before they become significant reporting errors. This includes validating not just the content of the reports but also their timeliness and sequence. For instance, a response to an RFQ must be linked to the correct solicitation, and the resulting execution must be correctly flagged as the culmination of that process.
The supervisory framework must be able to reconstruct this entire lifecycle from the reported data, a task that requires both sophisticated technological tools and informed human oversight. The ultimate goal is to create a verifiable audit trail that provides regulators with a clear and accurate picture of the firm’s trading activity while giving the firm confidence in its own operational and compliance processes.
Strategy
A successful supervisory strategy for CAT reporting in RFQ workflows is built on a risk-based approach and a detailed understanding of the underlying data. It moves beyond simple error checking to a comprehensive framework of validation, exception management, and continuous improvement. The first step is to develop and maintain detailed Written Supervisory Procedures (WSPs). These are the constitutional documents for the firm’s CAT compliance program.
According to FINRA, these WSPs must, at a minimum, identify the individual responsible for the review, describe the type and frequency of the reviews, and detail how those reviews will be evidenced. This creates a clear line of accountability and a documented process that can be consistently applied and audited.
Developing a Tiered Review System
A tiered review system is a highly effective strategy for managing the complexities of RFQ reporting. This approach allocates supervisory resources based on the frequency and criticality of the review, ensuring that potential issues are caught quickly without overwhelming the compliance function. The tiers can be structured as follows:
- Daily Reviews ▴ This is the first line of defense. The primary objective is to check the file submission status on the CAT Reporter Portal. Supervisors must confirm that all expected report files were submitted by the firm or its vendor and were accepted by CAT. Any file submission or data integrity errors identified at this stage must be addressed immediately to meet the T+3 correction deadline.
- Periodic Comparative Reviews ▴ This is a deeper, more substantive analysis. On a weekly or monthly basis, supervisors should conduct a comparative review of the accepted CAT data against the firm’s internal order and trade records. For RFQ workflows, this means reconciling the CAT reports with the firm’s Order Management System (OMS) or Execution Management System (EMS), as well as any other records of RFQ activity. This review validates the accuracy of key fields such as quantity, timestamps, and handling instructions.
- Thematic Reviews ▴ On a quarterly or semi-annual basis, supervisors should conduct thematic reviews focused on specific aspects of RFQ reporting. For example, a review could focus on the correct usage of the solicitationFlag and the accurate reporting of RFQID for all actionable electronic responses. Another could analyze the timeliness of error correction or the accuracy of account holder type codes. These deep dives help identify systemic issues or areas where additional training may be needed.
What Are the Core Components of an Effective WSP?
An effective WSP for CAT supervision is a detailed, actionable document. It should be a practical guide for the supervisory staff, leaving no room for ambiguity. The core components include:
- Clear Designation of Responsibility ▴ The WSP must name the individual or identify the title of the person responsible for the supervisory reviews. This ensures direct accountability.
- Detailed Review Procedures ▴ The document must specify exactly what is being reviewed. For RFQ workflows, this includes cross-referencing CAT data with internal blotters, checking for correct solicitationFlag usage, and verifying timestamps against clock synchronization logs.
- Defined Review Cadence ▴ The frequency of each type of review (daily, weekly, monthly) must be explicitly stated. This establishes a consistent and predictable supervisory rhythm.
- Method of Evidencing ▴ The WSP must describe how the review will be documented. This could involve checklists, sign-off sheets, commentary in a supervisory log, or storing screenshots of the CAT Reporter Portal. This evidence is critical for demonstrating compliance to regulators.
- Vendor Supervision Protocol ▴ If a third-party vendor is used for reporting, the WSP must include procedures for supervising that vendor. This includes reviewing the vendor’s performance, understanding their error correction process, and ensuring they provide the firm with sufficient data to conduct its own independent verification.
A strategic approach to supervision involves creating a data map that translates the firm’s internal records into the language of CAT.
The Importance of Data Mapping and Exception Management
A critical strategic element is the creation and maintenance of a data map. This document shows how the firm’s internal data fields in its OMS, EMS, and other systems correspond to the various fields required for CAT reporting. For RFQ workflows, this map is particularly important, as it must account for the unique data elements associated with solicitations and responses. This map becomes the key for conducting effective comparative reviews, allowing supervisors to translate between the firm’s internal records and the CAT data seamlessly.
Effective exception management is the process of identifying, investigating, and resolving discrepancies found during the review process. A robust strategy involves a systematic approach to this process, as outlined in the table below.
| Phase | Action | Required Evidence |
|---|---|---|
| Identification | An error or discrepancy is detected during a daily or periodic review (e.g. a mismatch between the order quantity in the OMS and the cancelQuantity reported to CAT). | Screenshot of the CAT Reporter Portal error, entry in the supervisory log with timestamp and description of the issue. |
| Investigation | The supervisor or a designated analyst investigates the root cause of the error. This may involve reviewing the internal order record, speaking with the trader, or contacting the reporting vendor. | Documentation of the investigation steps, including email correspondence, notes from conversations, and system log extracts. |
| Remediation | The error is corrected and resubmitted to CAT within the required timeframe (T+3 for repairable errors). | Confirmation of the corrected submission from the CAT Reporter Portal, evidence of the updated record in the firm’s internal systems. |
| Supervisory Sign-off | The responsible supervisor reviews the entire exception record and signs off, confirming that the issue has been resolved satisfactorily. | Dated signature (electronic or manual) on the exception report or in the supervisory log. |
This structured process ensures that every identified issue is handled consistently and that a complete audit trail of the resolution is created. This is the essence of a defensible supervisory system.
Execution
The execution of a supervisory plan for CAT reporting in RFQ workflows demands a granular, technology-assisted, and evidence-based approach. This is where the strategic framework is translated into daily operational reality. The focus is on creating a repeatable, auditable process that ensures the accuracy and completeness of the reported data. This involves a combination of automated checks, manual reviews, and a rigorous documentation discipline.
The Operational Playbook for RFQ Supervisory Review
A detailed operational playbook is essential for ensuring consistency and thoroughness in the supervisory process. This playbook should provide step-by-step guidance for the individuals responsible for CAT oversight. The following represents a model checklist for a comprehensive periodic review of RFQ-related CAT reporting.
- Data Set Collation ▴
- Internal Data ▴ Extract all RFQ-related order and execution data from the firm’s internal systems (OMS/EMS) for the review period. This should include timestamps, order quantities, client identifiers, and any internal RFQ or solicitation IDs.
- CAT Data ▴ Download the corresponding accepted CAT data from the CAT Reporter Portal for the same period. This should include all relevant order events associated with the firm’s reporting obligations.
- Reconciliation and Validation ▴
- Event Pairing ▴ Match each internal RFQ response event with its corresponding CAT report. For every actionable electronic response sent or received, verify that a MENO (New Order) or equivalent event was reported to CAT.
- Field-Level Verification ▴ Conduct a field-by-field comparison for a sample of RFQ-related events. This critical step ensures the integrity of the reported data. The table below details key fields for verification in an RFQ context.
- Lifecycle Reconstruction ▴ For a selection of RFQs, reconstruct the entire lifecycle from the reported CAT events. This involves tracing the initial response ( solicitationFlag=true ), any subsequent modifications or cancellations, and the final execution of the winning response. The reconstructed lifecycle must align perfectly with the internal records.
- Error and Exception Handling ▴
- Log Discrepancies ▴ Any identified discrepancies must be logged immediately in the firm’s exception management system, as detailed in the Strategy section.
- Root Cause Analysis ▴ For each discrepancy, a root cause must be determined. Was it a data entry error, a flaw in the reporting logic, a vendor issue, or a misunderstanding of the CAT technical specifications?
- Track Remediation ▴ Monitor the correction and resubmission of erroneous reports, ensuring the T+3 deadline is met. The resolution of each logged item must be tracked to completion.
- Evidencing the Review ▴
- Supervisory Checklist ▴ Complete a detailed supervisory checklist for each review period. This checklist should itemize each step of the review process.
- Documentation Package ▴ Compile a documentation package that includes the completed checklist, the data sets used for the review, the exception log with resolution details, and any relevant communications.
- Formal Sign-off ▴ The designated supervisor must formally sign and date the documentation package, attesting to the completion and findings of the review. This package becomes the definitive evidence of supervision.
How Can Firms Quantify Reporting Accuracy?
Quantifying reporting accuracy provides a measurable way to assess the effectiveness of the supervisory program and identify trends over time. Firms can implement a set of Key Performance Indicators (KPIs) for their CAT reporting function.
| KPI | Calculation | Target | Supervisory Action |
|---|---|---|---|
| File Acceptance Rate | (Accepted Files / Total Submitted Files) x 100% | 100% | Investigate any file rejection immediately. Review submission logic and vendor performance. |
| Record Acceptance Rate | (Accepted Records / Total Submitted Records) x 100% | > 99.9% | Analyze rejected records to identify patterns in errors. Focus thematic reviews on high-error fields. |
| Error Correction Timeliness | Average time (in days) to correct and resubmit repairable errors. | < 2 days | If average time exceeds target, review the efficiency of the exception handling workflow. |
| Comparative Review Mismatch Rate | (Mismatched Fields / Total Fields Reviewed) x 100% | < 0.1% | A high mismatch rate indicates a systemic issue with the reporting logic or data mapping. Requires immediate in-depth investigation. |
The ultimate execution of supervision is the creation of an unimpeachable evidentiary record that withstands regulatory scrutiny.
Key Data Fields for RFQ Workflow Verification
The comparative review must focus on the data fields that are most critical and most likely to be a source of errors in the context of RFQ workflows. Supervisors should prioritize the following:
- solicitationFlag ▴ This must be populated as true for all order events that are in response to a solicitation. A common error is failing to flag these responses correctly, which misrepresents the nature of the order.
- RFQID ▴ When available, this identifier links multiple responses to the same solicitation event. Verifying its consistent and accurate application is crucial for reconstructing the RFQ lifecycle.
- handlingInstructions ▴ This field should accurately reflect how the order is being handled. For example, an order that is part of a negotiated trade may have specific handling instructions that need to be reported correctly.
- timestamps ▴ All timestamps must be accurate and synchronized with the National Institute of Standards and Technology (NIST) standard. Supervisors must verify the timestamps of order receipt and execution against the firm’s synchronized clocks.
- accountHolderType ▴ This field must correctly identify the type of account placing the order (e.g. institutional, retail). Errors in this field can lead to significant misinterpretations of market activity.
By executing a supervisory plan with this level of detail and rigor, a firm can build a high degree of confidence in its CAT reporting accuracy. The process creates a virtuous cycle ▴ thorough reviews identify weaknesses, which leads to process improvements, which in turn results in higher data quality and a more efficient supervisory process over time. This is the hallmark of a mature and effective compliance function.
References
- “Consolidated Audit Trail (CAT) | FINRA.org.” FINRA, www.finra.org/rules-guidance/key-topics/consolidated-audit-trail. Accessed 4 Aug. 2025.
- “Regulatory Notice 20-31 ▴ FINRA Reminds Firms of Their Supervisory Responsibilities Relating to CAT.” FINRA, 15 Sept. 2020.
- “RFQ Overview Phase 2c & 2d CAT Reporting.” CAT NMS Plan, 4 Mar. 2021, catnmsplan.com/sites/default/files/2021-03/03.04.21-Industry-Webinar-Deck.pdf.
- “CAT Reporting Exemption ▴ Relief for Electronic Quote Responses.” Oyster Consulting, 24 May 2024.
- “Firm’s Guide to the Consolidated Audit Trail (CAT).” Securities Industry and Financial Markets Association (SIFMA), 20 Aug. 2019.
Reflection
The architecture of a supervisory system for CAT reporting is a reflection of a firm’s commitment to operational precision. Viewing this process as a mere compliance burden is a strategic error. Instead, consider it an integrated data quality engine. The disciplines required to ensure accurate CAT reporting for complex RFQ workflows ▴ the rigorous data mapping, the systematic reconciliations, the relentless pursuit of root causes for exceptions ▴ yield benefits that extend far beyond regulatory appeasement.
They enhance the firm’s understanding of its own operational flows, expose technological weaknesses, and ultimately, produce a more resilient and efficient trading infrastructure. The evidentiary record created is the output, but the systemic integrity it represents is the true asset. How does your current supervisory framework function not just as a compliance tool, but as a core component of your firm’s operational intelligence system?
Glossary
Consolidated Audit Trail
Data Reconciliation
Audit Trail
Written Supervisory Procedures
Exception Management
Tiered Review System
Cat Reporter Portal
Supervisors Should Conduct
Comparative Review
Supervisors Should
Thematic Reviews
Solicitationflag
Rfq Workflows
Reporter Portal
Vendor Supervision
Error Correction
Internal Records
Cat Reporting
Supervisory System
Cat Data
Management System
Documentation Package
Key Performance Indicators
Reporting Accuracy
Rfqid
