FR 2024-29912

The document discussed is a notice from the Securities and Exchange Commission (SEC) regarding changes to the National Market System Plan, specifically about the Consolidated Audit Trail (CAT). These changes aim to implement cost-saving measures for managing data related to financial market transactions. The amendments primarily focus on reducing expenses associated with storing and processing options market maker quotes and test data.

General Summary

The SEC has approved amendments to optimize the management of the Consolidated Audit Trail (CAT), a comprehensive market monitoring system. The changes are designed to reduce costs by revising how data, particularly from options market makers, is processed and stored. They permit moving less frequently accessed data to more cost-effective storage solutions and shorten the retention period for industry test data from five years to three months. These steps are expected to save approximately $21 million in the first year alone.

Significant Issues and Concerns

One of the key concerns is that the projected savings may not fully account for historical data adjustments, which could lead to inaccurate estimates. There is also a risk that moving data to cheaper storage tiers could result in delays when retrieving information for regulatory purposes, potentially impacting time-sensitive investigations or oversight activities.

The provision that excludes specific data from user-friendly interfaces like DIVER may place an additional burden on regulatory users. Without the specialized skills required to use alternative access tools, retrieving necessary data may become more challenging. This shift could increase reliance on staff with programming capabilities, potentially slowing regulatory processes.

Furthermore, there is the issue of potential cost transfers to regulators that have not been thoroughly quantified. This omission might understate the proposal's actual cost impact on regulatory bodies, as they might need additional resources to access and process the data effectively.

Impact on the Public

The general public might not directly interact with the changes in the National Market System Plan. However, the overall efficiency and effectiveness of financial market regulation could be affected. Cost savings in operating the CAT might be beneficial if they lead to lower costs passed onto consumers, but any reduction in regulatory oversight capabilities could have negative implications for market integrity and investor protection.

Impact on Specific Stakeholders

For large financial institutions and market participants, the cost-saving measures could represent positive developments by decreasing the operational expenses associated with contributing data to the CAT. These savings might translate into reduced fees or operating costs for these entities.

Conversely, smaller market participants who rely more on straightforward data access tools like DIVER might experience a negative impact. The moved data to less accessible storage options could hinder their ability to comply with regulatory requirements efficiently if they lack the necessary technical skills or resources.

In conclusion, while the amendments bring significant cost savings, they also pose challenges that could affect the effectiveness of regulatory oversight and lead to disparities among stakeholders in the financial markets. The SEC's actions strive to balance these considerations, though the impacts will need to be closely monitored to ensure market integrity is not compromised.

The document discusses the financial aspects related to amendments in the National Market System Plan, specifically focusing on cost-saving measures concerning the handling of data related to Options Market Maker quotes in listed options. The document lays out a multi-faceted approach to cost reduction that incorporates several financial estimates and projections.

The Participants, which include various exchanges and regulatory bodies, have proposed changes to certain data processing operations that are estimated to save approximately $20 million annually in the first year. This includes savings from reducing data storage needs and simplifying data processing tasks which were previously more extensive. The changes mainly involve altering the way Options Market Maker quotes are processed and stored, which is anticipated to cut these specific costs from $24.4 million down to about $4 million annually.

A significant portion of these estimated savings, about $12 million, accounts for reductions in linkage and data processing costs. Specifically, linkage processing expenses are expected to drop from approximately $27,000 per day to $0, leading to annual savings of roughly $7,128,000. Similarly, data processing costs are projected to be reduced substantially, cutting daily expenses from $27,000 to $9,000, which translates into annual savings of $4,752,000.

Furthermore, approximately $8 million of cost savings is projected from decreasing the storage footprint by eliminating versioned quote data. This aligns with comments from the Financial Information Forum and SIFMA, who express concern that past data handling was unnecessarily costly, especially as it involved maintaining lifecycles of options market maker quotes that rarely ended in trades.

Additionally, the document predicts further savings through optimized storage of less frequently accessed data by moving it to the Glacier Deep Archive, estimated to save $1 million annually. Separately, the proposal to eliminate Industry Test Data older than three months is expected to result in another $1 million per year in savings.

These financial projections are not without contention. There are concerns over potential cost transfers to regulatory bodies, given that regulators might incur additional costs to process the same data due to the proposed changes. This may not have been fully quantified or reflected in the savings estimates. Furthermore, the potential impact on smaller market participants, who might rely more heavily on straightforward data access tools like DIVER, has not been adequately addressed in financial terms.

There are also considerations about the accuracy and reliability of these cost-saving estimates due to technological changes in data storage costs and market data volume growth. The complexities introduced by the need for more advanced data access tools might present unanticipated challenges and costs for less well-resourced market participants. Finally, while the methodologies for calculating savings are outlined, the transparency and consistency of these approaches could affect their perceived reliability.