Consolidated Audit Trail (CAT) Compliance Explained: A Complete Guide for Broker-Dealers

 Regulatory reporting in U.S. securities markets has never been more complex. The Consolidated Audit Trail (CAT) — established under SEC Rule 613 of Regulation NMS — represents one of the most significant reporting regimes for broker-dealers in decades. It fundamentally changed how trade and order data is collected, stored, and used by regulators to monitor market activity. Securities and Exchange Commission

In this guide, we’ll break down:

  • What the CAT is
  • Why it matters
  • Who must comply
  • Key compliance challenges
  • Best practices for CAT compliance
  • The role of technology and RSMS

What Is the Consolidated Audit Trail (CAT)?

The Consolidated Audit Trail (CAT) is a central repository that collects detailed order, quote, and trade data across all U.S. equity and listed option markets. The goal is to create a comprehensive audit trail capturing every order’s entire lifecycle — from origination to routing, modification, cancellation, and execution — with precise timestamps. Securities and Exchange Commission

Under Rule 613, the SEC required all self-regulatory organizations (SROs) and FINRA to submit a National Market System (NMS) plan that enables this consolidated reporting. Once implemented, CAT replaced older systems like the Order Audit Trail System (OATS), introducing significantly more transparency into market surveillance. Securities and Exchange Commission

Why CAT matters:

  • Market integrity: Provides regulators with a granular dataset to detect manipulation, layering, spoofing, insider trading, and other misconduct.
  • Audit readiness: Facilitates quicker and more accurate reconstructions of market events.
  • Investor protection: Enhances regulatory capabilities to protect investors and uphold fair markets.

Who Must Comply?

Every broker-dealer that originates or handles orders in:

  • National Market System (NMS) equities
  • Over-the-counter (OTC) equities
  • Listed options

…is required to report to CAT. There are no exemptions based on firm size or trading activity type — proprietary and market-making trades are included too. FINRA


Crucially, firms cannot assume their clearing firms will automatically report on their behalf. If an introducing broker elects this route, a formal written agreement and robust oversight must be in place to ensure data is accurate, complete, and timely. FINRA

Key CAT Reporting Obligations

CAT reporting revolves around several core components:

1. Order & Trade Events

Every order event — creation, modification, execution, cancellation, routing — must be captured and reported to CAT with:

  • Unique identifiers
  • Millisecond-level timestamps
  • Accurate linkage of events to orders and accounts

These requirements ensure every step of trading activity is traceable. Securities and Exchange Commission

2. Clock Synchronization

Accurate timestamps require synchronized business clocks across systems and vendors — often a compliance trap for firms relying on third-party tech. FINRA

3. CAIS Reporting

The Customer and Account Information System (CAIS) is a critical part of CAT that captures customer information data submitted by firms. As of the latest regulatory updates, all firms must fully comply with CAIS reporting obligations, and firms need strong controls around hashing, formatting, and timely updates. FINRA

4. Timeliness & Accuracy

Data must be submitted next-day (by the morning after the trade), accurately, and corrections must be made within prescribed windows if errors are detected. Securities and Exchange Commission

Common CAT Compliance Challenges

Despite firm obligations, regulators continue to identify compliance issues in routine audits and oversight reports. These include:

Incomplete Reporting

Failing to submit all reportable events, especially modifications or cancellations. FINRA

Late Corrections

Errors not corrected within the required timeframe. FINRA

Inaccurate or Incomplete Data

Fields like timestamps, order type, handling instructions, or account identifiers are often misreported or missing. FINRA

Insufficient Supervision

Lack of effective Written Supervisory Procedures (WSPs) or oversight of third-party CAT reporting agents. FINRA

Recordkeeping Gaps

Failing to retain underlying records that support CAT data submissions. FINRA

Best Practices for CAT Compliance

Achieving and sustaining CAT compliance requires systematic controls and continuous monitoring:

1. Written Supervisory Procedures (WSPs)

Establish clear WSPs tailored to CAT reporting processes, including defined responsibilities, review protocols, and escalation practices, especially where third-party vendors are involved. FINRA

2. Data Mapping & Validation

Maintain a rigorous mapping of internal systems to CAT data fields. Conduct daily reconciliations against CAT Reporter Portal entries. FINRA

3. Feedback Archival & Correction Workflow

Archive CAT feedback and implement robust workflows for timely corrections. FINRA

4. Clock Drift Monitoring

If relying on external vendors for timestamp synchronization, obtain daily logs and audit clock drift within compliance thresholds. FINRA

5. Internal Audits & Surveillance

Regular internal reviews and reporting checks detect issues before regulators do.

The Role of Technology: RSMS & CAT Compliance

Manual controls alone won’t scale with the volume and complexity of CAT reporting. That’s where Regulatory Submission Management Systems (RSMS) come in.

A modern RSMS platform can:

  • Automate data extraction, transformation, and reconciliation
  • Validate CAT submissions against internal sources like OMS/EMS
  • Track exceptions and automate corrective workflows
  • Provide audit trails and documentation for regulatory inquiries
  • Support CAIS reporting requirements and data governance initiatives

These systems not only ensure compliance today — they position firms for future regulatory expectations and reporting expansions.

CAT Compliance as a Strategic Advantage

While compliance is often viewed as a cost center, a proactive CAT compliance strategy can deliver real business value:

✅ Reduced regulatory risk and fines
✅ Improved data quality and governance
✅ Faster response times to regulatory inquiries or exams
✅ Scalable infrastructure that supports other reporting regimes

Conclusion

The Consolidated Audit Trail represents a major shift in regulatory reporting for broker-dealers. Compliance is not optional — it’s an ongoing, disciplined process backed by structured supervision, technology, and internal controls. Firms that invest in strong CAT compliance frameworks not only meet regulatory obligations but also strengthen their data integrity, risk management, and operational resilience.

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