A supplier of risk management software to bulge bracket firms on Wall Street has proposed that the Securities and Exchange Commission rely on real-time data stored in a nationwide cloud of computing power and networks to create an effective audit trail of stock market activity.
FTEN, which provides risk management, routing, surveillance, compliance and market data services to market participants, proposed in a letter sent Monday to the SEC look to "already deployed and commercially available" systems that "capture order and execution data in real-time" from stock exchanges, electronic communication networks, alternative trading systems and dark pools to start creating the trail.
The data from all markets then could be "mapped" back to a unified format that would create a "normalized" set of data that regulators could review in real-time for signs of market disruptions or abuse.
FTEN says it could implement in 30 days a system like it recommends that would cover nearly three-fourths of the market and a complete system could be completed in four stages in 12 months.
"The position we are actually taking is we are already today providing much of what the SEC is looking for, but for private parties,'' said M. Gary LaFever, general counsel and chief corporate development officer at FTEN and one of the signers of the letter to the SEC from FTEN.
In its May proposal to create a consolidated audit trail, the SEC proposed introducing a purpose-built system that would cost $4 billion to set up and $2.1 billion a year to maintain.
"The market can't tolerate what is basically is a $4 billion tax. And there are other ways to do this that already exist today,'' said LaFever, in a phone interview with Securities Technology Monitor. "We're so bold as to claim that we could actually have in place within 30 days a system that covers 70-some percent of the marketplace. The reason is we already do this. It's just the people we show it to are the bulge-bracket firms who own the data so you're basically turning on a different monitor that would be providing the collective view to the regulators.''
Ted Myerson, the company's chief executive officer, said FTEN's "commercially deployed At-Trade secure data cloud" already aggregages data from 50 sources, with a wide variety of symbol directories, unifies it into a common format and feeds it back to private firms. Its "50 different normalization engines" for "50 different protocols" makes it possible to cover most market activity, from the beginning. Covering the rest is a matter of creating additional "normalization engines."
FTEN says it provides real-time risk management and surveillance on as many as 17 billion shares of stock a day in the United States. That, it says, equates to risk calculations involving $150 billion worth of shares a day.
FTEN did not put a price tag on what it would take the securities industry to build out a consolidated audit trail system based on its At-Trade cloud of compute power and online data. Last week, a group of U.S.-based companies calling itself TickLab Partners told the Securities and Exchange Commission it could create "a fully functional, consolidated audit trail" of capital markets activity for less than $100 million upfront and $100 million a year.
"If the industry is willing to take the same approach FTEN already has in place, then a cost in the ballpark of $100 million could be reasonable,'' said LaFever. "But until specifics are more clearly delineated focusing on price is the wrong approach."
Separately, Global Electronic Trading Company, the high-frequency trading firm known as GETCO, said Tuesday in a comment letter to the SEC that one way to keep costs down was to not require data in real time. "We do not believe that such information could be used in real time to stop or prevent improper trading activities (so) we also do not believe