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NEW YORK (Reuters) – A financial industry trade group said on Wednesday it resolved a dispute with U.S. stock exchanges that had threatened to hold brokers liable for any breaches of a new trading database controlled by the exchanges and the Financial Industry Regulatory Authority (FINRA).
Brokers must soon begin sending sensitive client trading information to the database called Consolidated Audit Trail (CAT). The Securities and Exchange Commission (SEC) asked the exchanges and FINRA, collectively called self-regulatory organizations (SROs), to build and operate the database.
But before they begin sending the information, the SROs had insisted the brokers sign an agreement limiting the SROs’ financial liability to $500 per reporting firm in the case of a data breach.
That would have put brokers on the hook for any security breaches of the database, which they have no control over, said the trade group, the Securities Industry and Financial Markets Association (SIFMA).
SIFMA, which represents banks, broker-dealers and asset managers, had petitioned the SEC to suspend the requirement that brokers sign the agreement before they begin sending the mandated data, which includes sensitive financial information of their customers, and open the process up to public comment.
SIFMA said on Wednesday the SROs agreed to remove the language from the agreement limiting SRO liability for a breach of the database.
“SIFMA’s guiding principle is ‘they who hold the data bear the liability,’ and it was inappropriate and unfair for the SROs to unilaterally impose limits on their liability when they alone hold and control the data inside the CAT, the largest data base to ever be constructed,” the group said in a statement.
The CAT will allow regulators to track all trades from their inception, pinpointing buyers, sellers, exchanges and brokers involved, with one former SEC commissioner likening it to a Hubble Space Telescope for the securities markets.
The CAT has face years of delays. The idea for the project first gained traction after so-called flash crash in May 2010, which wiped out around $1 trillion from the stock market within minutes before an almost equally rapid rebound. It took regulators months to piece together the data needed to even attempt to diagnose what caused the event.
