INSTITUTIONAL FINANCIAL SERVICES

CONSOLIDATED AUDIT TRAIL (CAT)

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CAT OVERVIEW

CAT TIMELINE

KEY CAT CONSIDERATIONS

SIA PARTNERS – CAT SERVICE OFFERINGS

SIA PARTNERS – RELEVANT QUALIFICATIONS

MORE ABOUT SIA PARTNERS

CAT OVERVIEW

WHY IS THE CAT BEING IMPLEMENTED?On May 6, 2010 the Dow Jones plummeted 1,000 points in a mat-ter of minutes. A one-trillion dollar equity loss that rebounded 70% by the end of the trading day. This is known as the Flash Crash, and it made clear to the SEC and exchanges that additio-nal measures needed to be taken to protect markets from the spoofing risks of high frequency trading algorithms.

WHAT IS THE CAT?On July 11, 2012, the U.S. Securities and Exchange Commission (SEC) voted to adopt SEC Rule 613 requiring FINRA and the na-tional securities exchanges (SRO's) to jointly submit a National Market System (NMS) plan to create, implement, and maintain a consolidated audit trail (“CAT”) that would allow regulators to track all activity in U.S. equity and listed options markets.

WHO IS IMPACTED?The CAT NMS Plan requires SRO’s to adopt rules requiring its members to comply with all the provisions. Specifically, bro-ker-dealers conducting business in the U.S equity and options markets will be required to report order events for equities and options markets on a daily basis, including orders, quotes, can-cels, routes (including internal routes), and allocations.

• The CAT impacts National Securities Exchanges (i.e., BOX, CBOE, CHX, ISE, IEX, MIAX, NASDAQ, NSX, NYSE) and Natio-nal Securities Associations (i.e., FINRA)

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HOW IS YOUR FIRM IMPACTED?Firms can be impacted by a number of factors while preparing for CAT reporting, including:

Design of new risk management frameworks

Assessment of technical and architectural designs

Understanding internal data flows and source systems

Testing internal units, systems, and integration

Comprehension of changes to control environment

The costs associated with implementing the new system

Broker-dealers must define their readiness and planning efforts, determine budgets, and establish governance structures. The process of implementing the CAT will lead to direct and indirect improvements as existing systems and their process are revi-sited and re-examined. During this time the industry will confront many of the issues that led to the requirement of the consoli-dated audit trail.

CAT presents many challenges to U.S broker-dealers. To comply, firms will be required to implement new tech-nology and reengineer their existing operating model.

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CAT TIMELINEThe SRO's implemented a phased rollout for CAT adherence for a proper transfer of industry rule and allows firms to continue with compliance programs in flight with minimal change and disrup-tion. The CAT roll-out, and accompanying processes & activities are expected to continue through 2022.

2020Tech Specs V1.0

& Reporting Scenarios V1.0 published

10/2018

2019Tech Specs V2.1

& Reporting Scenarios V2.0 published

05/2019

Industry Members registration with FINRA

CAT deadline06/2019

Industry Testing for Phase 2A/2B begins

12/2019

Internal Testing for Phase 2A/2B begins

09/2019

Phase 2B Options Go Live06/2020

Phase 2A Equity Go Live04/2020

Go LiveIndustry Communications

Internal Testing

Industry Testing

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2021 2022Internal Testing for Phase 2C begins

09/2020

Internal Testing for Phase 2D begins

03/2021

Industry Testing for Phase 2D begins

06/2021

Phase 2D Complex Options Go Live

12/2021

Phase 2C Complex Equities Go Live

04/2021

Industry Testing for Phase 2C begins

01/2021

Go LiveIndustry Communications

Internal Testing

Industry Testing

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KEY CAT CONSIDERATIONSThe CAT program will require firms to change transaction management and reporting, impacting a number of areas and processes within an organization. To achieve successful implementation, firms will require the framework and resources to facilitate program development.

BAU Process: Transaction reporting requirements are going to impact the different func-tions and processes of entities concerned (i.e., front office, middle office)

Counterparty Connectivity: Reporting process requires all the chain participants to ex-change information and work together by leveraging a standard format

Cost: CAT reporting requirements will add to the significant increase in data being reported. Therefore, high costs associated with implementing a new infrastructure

Data Management: Transaction reporting requirements will produce a whole new volume of data that will require storage

Data Standardization: Customer Account data received from multiple internal and vendor systems is required to be formatted using a standardized approach in an effort to ingest the information using a centralized repository

Exception Management: Implementing efficient rejection management procedures and processes for resolving issues

Information Retrieval: Customer Account information needs to be accessed from a cen-tralized repository for the purposes of regulatory reporting. The centralized repository will need to pull in data from various sources

Reporting Quality: Policies and procedures must be implemented to review and change the reporting process when new standards / requirements are published. Over time, standards can change, as well as projects or other parameters

Business and Organizational

Technical and Data

Management

Reporting Process

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SIA PARTNERS CAT SERVICE OFFERINGSSia Partners can support firms in their CAT compliance initiatives in several ways. We have outlined the approaches for providing assis-tance below:

Coordinate with regulators and industry members

Leverage network to obtain industry best practices

CAT Insight

Create testing approach

Develop testing plan and test scripts

Oversight of test execution (daily calls and status reporting)

Conduct vendor testing

Testing Support

Gather functional and non functional-requirements

Document business scenario mapping for internal / external vendor systems

Design exception management process

Reconcile active client accounts in front office systems against client data repositories

Business Analysis

Obtain budget approval support

Engage in stakeholder management

Setup program structure

Register Organization with the Plan Processor (FINRA CAT)

Program Setup

Develop a control framework (i.e., Permissible, Assertive, Audit Trail) to manage and correct data, and reporting exceptions

Engage with Order Sending Organizations (OSO’s) to determine CAT services provided

Develop implementation plans

Go-live support

Target Operating Model Design and Implementation

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SIA PARTNERS RELEVANT QUALIFICATIONSA selection of Sia Partners' credentials around CAT and other relevant Projects

Consolidated Audit Trail – Compliance Integration Lead

Engaged the National Securities Associations to provide transparency around regulatory requirements for the client

Participated in Industry working groups to discuss technical specifications and proposal of additional requirements

Documented firm wide policies and procedures

Facilitated business engagement by drafting and distributing functional and nonfunctional requirements

Global Investment

Bank

PROJECTCLIENT

Control Framework – Volcker

Facilitated process re-engineering efforts across several business lines and regions, iden-tifying key risk indicators and performance metrics to develop enterprise and business unit policies and procedures, training, and control checklists in order to create more efficient operational processes

Developed and established a risk and control framework and global implementation plan for the operations team to ensure proper monitoring and communication of risk ongoing compliance

Identified possible suppliers of Governance Risk and Compliance (GRC) software and as-sembled business requirements to effectively implement and monitor the program status

Global Investment

Bank

Middle and Back Office Target Operating Model Design and Implementation

Designed and implemented a Target Operating Model to define new process flows, policies and procedures, and a new governance framework between Compliance, Ops, Business Units and IT for regular oversight and issue resolution

Established a standard metrics reporting framework and templates for various client screening functions that allows for the regular production and distribution of metrics

Wealth/Asset Manager/

Trust Company

Global Investment

Bank

Blue Sheets – Remediation and Regulatory Inquiry Support

Developed an efficient data collection and reconciliation process to quickly pinpoint im-pacted Blue Sheets and isolate missing Blue Sheets data

Created a reconciliation tool and trained client staff to incorporate the process into their monthly Blue Sheets validation and quality assurance activities

Coordinated with numerous stakeholders across various departments (legal, compliance, technology) to ensure a unified approach for data collection, analysis, and re-submission

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SIA PARTNERS OVERVIEW OF OUR U.S. ADVISORY SERVICESWe help clients build, assess and implement strong capabilities for today and for the future

Risk, Regulatory and Finance Services

COO Advisory (Control assessment, process optimization, automation enablement)

CFO Advisory (Performance management, risk and internal controls, financial process efficiency)

CIO Advisory (Governance, IT strategy / innovation, IT efficiency and security, IT cost optimization, Digital IT)

Human Resources (Change management, training)

Procurement and Sourcing (Supplier relationship management, RFQs / RFPs, cost reduction planning)

Pricing and Revenue Management

Marketing and Customer Experience

Process Reengineering Services

Diagnostic Tools (Regulatory / Risk / Cybersecurity assessments, Process optimization, Automation enablement)

Data Management (Data Science, Dashboarding, Data Quality and Reporting Automation)

Software Implementation (Industry-specific platforms, Moody’s Analytics for Credit Risk, Axiom Regulatory Reporting)

Digital Transformation (RPA, AI, Blockchain, Smart Workflow, Chatbots, Cloud, and Digital IT Enablement / Procurement)

Change Management (Project Management, Policies and Procedures, Training and Education, Digital Transformation)

Capabilities and Methodologies

Operational Risk Management (Third-Party Risk Management, Model Risk Management, Conduct and Culture)

Financial Risk Management (Credit, Market, Liquidity, Insurance)

Compliance, AML and Financial Crime Management (KYC, Sanctions screening, Transaction monitoring)

IT Risk Management (Cybersecurity, Data privacy, BCP)

Finance Management (SOX, Accounting standards, Regulatory reporting)

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C O N TA C T U SERIC BLACKMAN

Partner+1 (917) 769 - 6278eric.blackman@sia-partners.com

CRAIG MOYLAN

Managing Director+ 1 (732) 614 - 2794craig.moylan@sia-partners.com

ANKIT SHAH

Senior Consultant+1 (201) 926 - 7857ankit.shah@sia-partners.com

Sia Partners is a next generation consulting firm focused on delivering superior value and tangible results to its clients as they navigate the digital revolution. With over 1,400 consultants in 16 countries, we will generate an annual turnover of USD 280 million for the current fiscal year. Our global footprint and our expertise in more than 30 sectors and services allow us to enhance our clients' businesses worldwide. We guide their projects and initiatives in strategy, business transformation, IT & digital strategy, and Data Science. As the pioneer of Consulting 4.0, we develop consulting bots and integrate AI in our solutions.

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