Application of New Information
The SEC may request transaction information including the newly-required LTID and execution time fields as soon as T+1. The inclusion of the LTID information should enable the SEC to reconstruct market situations in greater detail than it can currently. By using the LTID field, the SEC will be able to see activity from a single trader that may be distributed across multiple exchanges and ECNs through several brokers. The execution time field will allow the SEC to more easily reconstruct market situations in their true sequence, a task that is very cumbersome and imperfect given current data. In all, the proposed requirements should allow the SEC to much more quickly and easily gather critical pieces of data. This data can be requested and received by the SEC currently, but often after several iterations of requests and submissions with brokers.
Impact of Proposed Rule
For brokers, most impacts from the new rule should be seen downstream from order entry and execution systems. Given the proposed framework of the rule, LTIDs and associated account information will be provided to brokers periodically, not on an order-by-order basis. Therefore, the actual matching of order and execution data to LTID information will occur in the broker’s post-trade environment. While the actual matching in of LTID information will likely not be very difficult, the rule also calls for both content and process changes to the EBS data maintained by brokers. The additional content will be the LTID information and execution time; the process change is the required T+1 availability of EBS data. The EBS implementation challenges will likely vary significantly from firm to firm.
Conclusion
The comment period for the Large Trader rule is open until June 22. The SEC will then review the comments and consider that input as they craft the final rule language. The proposal indicates that these changes will become effective 6 months after the adoption of a final rule. If the rule is adopted substantially as proposed, we do not expect significant impact to order entry and execution systems. Downstream systems, however, will have to capture and track new data and be able to provide this larger amount of data to regulators far more quickly than is required today.
- Large Trader Reporting System http://sec.gov/rules/proposed/2010/34-61908.pdf, page 13-14
- Ibid, page 50
- Ibid, page 46
