What Distinguishes a Reportable Event from a Non-Reportable One in the CAT Framework for RFQs? ▴ Question

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Concept

The regulatory architecture of the Consolidated Audit Trail (CAT) operates on a precise principle of actionability. The distinction between a reportable and a non-reportable event within the Request for Quote (RFQ) protocol hinges on the transformation of a communication from an inquiry into a firm, electronically executable expression of trading interest. An RFQ itself, as a solicitation for liquidity, is an antecedent to a potential transaction and remains outside the reporting mandate.

The system’s focus is on the lifecycle of an order. Therefore, the reporting obligation activates at the moment a response to that solicitation solidifies into a tradable instrument.

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The Threshold of Actionability

A response to a bilateral price discovery request becomes a CAT-reportable event when it meets two primary criteria ▴ it represents a firm commitment and it is immediately actionable by the recipient. A firm commitment is a price and size that the responder is obligated to honor. Immediate actionability means the solicitor can execute against that quote without any further confirmation or action from the responding dealer. This delineates a clear boundary.

An indicative quote, a verbal discussion over the phone, or a message requiring a final “done” from the responder all fall outside this boundary. The system is designed to capture the birth of an order, and an actionable quote is functionally identical to a new order sent to a specific counterparty.

The CAT framework’s reporting trigger for RFQs is the conversion of a responsive quote into a firm, electronically executable order.

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Systemic Role of Communication Protocols

The method of transmission is a critical determinant in the reporting calculus. The CAT framework places significant weight on communications transmitted via standard electronic formats, such as the Financial Information eXchange (FIX) protocol. Such formats provide a structured, unambiguous data record that a system can interpret and act upon without manual intervention.

This structured nature is what enables a quote to be “immediately actionable.” In contrast, unstructured communications like instant messages or emails lack the systemic certainty required for automated execution and thus typically fall outside the reporting requirement, pending specific regulatory relief expirations. The protocol is the medium, and in this context, the medium defines the reportability of the message.

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Strategy

An institution’s strategy for engaging with off-book liquidity sourcing must be built upon a deep understanding of its CAT reporting obligations. The objective is to architect a workflow that optimizes for execution quality and information control while ensuring flawless compliance. This involves making deliberate choices about communication channels and internal system configurations to manage the regulatory footprint associated with different forms of quote solicitation.

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Architecting Compliant Liquidity Sourcing

A firm’s operational strategy must systematically differentiate between RFQ workflows that generate reportable events and those that do not. This requires a conscious design of communication protocols. A desk might strategically utilize both FIX-based RFQ platforms for standardized instruments and less formal channels for highly bespoke or illiquid positions. The choice of channel becomes a strategic decision, balancing the efficiency of electronic actionability against the reporting implications.

A robust supervisory framework, as mandated by FINRA, is essential for this process. The firm’s Written Supervisory Procedures (WSPs) must clearly define the approved protocols for different transaction types and the corresponding reporting logic for each.

Strategic management of RFQ workflows involves balancing execution efficiency with the precise reporting requirements of the CAT NMS Plan.

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How Does Protocol Choice Impact Information Leakage?

The selection of an RFQ protocol carries direct consequences for information leakage and market impact. Fully electronic, actionable RFQs that generate reportable events create a permanent, traceable data trail within the CAT system. While this provides regulatory transparency, it also means the firm’s trading interest is recorded.

Firms must weigh this against the benefits of accessing firm liquidity. Protocols that involve manual handling or are non-actionable may offer more discretion in the short term but can introduce operational friction and may still be subject to future reporting requirements as exemptions evolve.

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Comparative Analysis of RFQ Workflows

The following table outlines the strategic considerations for different RFQ communication methods within the CAT framework.

RFQ Workflow Type	Communication Protocol	CAT Reportability Status	Strategic Implication
Actionable Electronic Response	FIX Protocol	Reportable as a new order event	Provides access to firm liquidity with high execution certainty; requires robust automated reporting infrastructure.
Indicative Electronic Quote	FIX, API	Non-Reportable	Allows for price discovery without creating an immediate order record; requires a secondary step to place the final order.
Manual Response	Phone, Instant Message	Currently Exempt (subject to change)	Offers maximum discretion for complex or sensitive trades; introduces operational risk and lacks systemic audit trails.
RFQ Platform Inquiry	Proprietary Platform	Depends on platform’s structure	The platform provider may have reporting duties, altering the firm’s direct reporting burden.

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Execution

The precise execution of CAT reporting for RFQs requires that a firm’s Order Management System (OMS) and Execution Management System (EMS) are correctly calibrated to identify and flag reportable events. The technical implementation hinges on capturing specific data fields at the moment an actionable quote response is received, treating it as the origination of a new order for reporting purposes.

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Technical Implementation for Reporting

When an RFQ response is identified as a reportable event, it must be submitted to the Central Repository with all the required data elements of a new order. A critical data field in this context is the solicitationFlag. This flag must be set to ‘true’ to indicate that the order originated from a solicitation.

Failure to correctly populate this flag constitutes a reporting violation. Firms must work with their technology vendors to ensure their systems can parse incoming quote messages, evaluate them against the criteria for actionability, and automatically generate the corresponding CAT report with the correct flags and timestamps.

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What Are the Core Attributes of a Reportable RFQ Response?

A firm’s compliance architecture must be configured to monitor for a specific set of attributes that define a reportable RFQ response. The system’s logic must validate the presence of these elements before triggering a reporting event.

Firmness ▴ The response contains a non-indicative price and size that the sender is obligated to honor.
Actionability ▴ The recipient can execute the trade through a single electronic action without further communication.
Electronic Format ▴ The communication occurs over a structured channel like FIX, not via a manual method.
Solicitation Context ▴ The system must link this new order event back to the initial RFQ, populating the solicitationFlag correctly.

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Event Reporting Scenarios

The operational workflow for handling RFQ responses dictates the specific CAT reporting outcome. The table below details the reporting requirements for common scenarios, highlighting the critical distinctions in execution.

Scenario	Systemic Action	CAT Event to Report	Key Data Field
Winning Actionable Quote	Solicitor executes against the received actionable quote.	New Order Event (from Responder), Order Execution (for both parties).	solicitationFlag=true
Non-Winning Actionable Quote	Solicitor receives but does not act on an actionable quote.	New Order Event (from Responder), Order Canceled Event (from Responder).	solicitationFlag=true
Indicative Quote Received	Solicitor receives a quote that is not immediately executable.	No reportable event for the quote itself.	N/A
Verbal Quote on Phone	Parties agree to terms over the phone.	Exempt from reporting under current relief.	N/A

Accurate CAT reporting execution for RFQs demands that a firm’s trading systems correctly identify actionable quotes and populate the solicitationFlag.

Firms must conduct rigorous testing of their reporting logic, especially ahead of compliance deadlines for new phases of CAT. This includes validating that both winning and non-winning actionable quotes are captured and reported correctly, as both represent firm expressions of trading interest. The failure to repair reporting errors by the T+3 deadline is a common finding in regulatory examinations and underscores the need for robust post-reporting reconciliation processes.

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References

FINRA CAT, LLC. “RFQ Overview Phase 2c & 2d CAT Reporting.” CAT NMS Plan, 4 Mar. 2021.
FINRA. “Consolidated Audit Trail (CAT).” FINRA.org, 2023.
FINRA CAT, LLC. “CAT Reporting Technical Specifications for Industry Members.” CAT NMS Plan, 24 Jul. 2024.
FINRA. “2022 Report on FINRA’s Examination and Risk Monitoring Program.” FINRA.org, 2022.

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Reflection

The architecture of your firm’s compliance and trading systems is a direct reflection of its strategic priorities. Understanding the nuances of the CAT framework for bilateral price discovery is foundational. The deeper challenge is to see this regulatory requirement as a design parameter for a superior operational system. How does your current workflow for sourcing liquidity not only meet but leverage these reporting structures?

The data generated through compliance can become a source of internal intelligence, refining your understanding of counterparty behavior and execution quality. The ultimate objective is a state where regulatory compliance and peak operational performance are two outputs of the same unified, intelligently designed system.