Planes, Trains and Automobiles – CARDS, CATS and Catching Up

I spent the majority of the early October traveling. I witnessed crowds of people line the hallways of Midway Field. Folks serpentine around corners at Union Station Chicago. Delayed travelers slept across seats at Lambert Field. I languished in the back seat of an Uber car stuck in traffic in Charlotte. Oh the joys of travel! But there are joys – I met up with my fellow Verus Consultant team. I enjoyed the rain as it came down sideways in Chicago. The rocking of the Amtrak train heading for St. Louis soothed me. On a warm autumn Saturday afternoon I met the newest member of my family. But now I am back in the office and I’m catching up on my regular duties of reading recently published regulatory news.

I attended the SIFMA Compliance and Legal Regional Seminar in Charlotte. There a panel of presenters, comprised of regulators and attorneys discussed the hot topics in enforcement. Under intense scrutiny in the industry right now are penny stock, senior investors, suitability concerns, risk and internal controls. It was noted that enforcement actions are up fifteen-percent (15%) from last year.

Some lively discussion ensued during another panel discussion related to investors entering their senior years and the actions broker-dealers and advisors should take to protect the assets accumulated by seniors. Regulatory and Senior Compliance Officers discussed the need for enhanced surveillance tools to focus specifically on the investing activities of persons over the age of 65. Targeted advisor training to recognize diminished capacity and engaging additional members of the family is recommended. One firm formed a committee to review product lines and have restricted certain products offered to seniors while another firm developed a detailed escalation plan for advisors to follow when the advisor sees trouble on the horizon.

Then on to Chicago for the annual Bond Dealers of America conference. The hot topic at this meeting is the significant amount of regulation directed at the municipal bond market in 2014. Echoing the discussion at SIFMA C&L were the topics of suitability, risk and internal controls. Dealers discussed staffing and other resource challenges in this new environment. The MSRB’s Best Execution proposal was vigorously debated on several panel discussions. The regulators pushing for it and the dealers trying to put a proposal – based on the equities market -into context of the debt market. Equity and debt are two different animals in the way they trade, and the markets do not work the same.

While all this active discussion was happening, FINRA published for comment their revised proposal for the Comprehensive Automated Risk Data System (CARDS). On the same day the Self-Regulatory Organizations (SROs) published the long awaited plan for Consolidated Audit Trail (CAT).

FINRA through CARDS proposes to require broker-dealers to report in an automated fashion, on a regular basis, every aspect of their business except the actual identity of a customer. Reportable data elements include:


Money and security movements

Account transfer

Account holdings of securities

Security reference data, and

Profiles of accounts

Account suitability information

FINRA executives claim that no personal identifiable information will be required to be reported; however, each customer’s account number must be reported. This proposal is contested by our industry’s trade groups and others including Representative Scott Garrett, Chairman of the House Financial Services Sub-Committee on Capital Markets and Government Sponsored Entities. Echoing what many are saying, Rep. Garrett stated “before moving forward with this proposal, there needs to be a much better explanation of why this burdensome rule is necessary in the first place and what steps are being taken to protect investors’ personal financial information.” The comment period for this proposal ends on 1 December 2014.

The plan for the other metadata collection initiative, Consolidated Audit Trail (CAT) was released to the SEC for their approval. CAT will require broker-dealers, exchanges, and other market participants to report to the central repository detailed information about orders in the equities market, with eventual expansion to the debt market. Details of an order from the inception or receipt from the customer, and any changes to that order until execution will be required to be reported daily to CAT. The CAT system, regulators believe will allow them to promptly reconstruct market activity for any security, thus providing them with a clear window into any suspected malfeasance or other wrong doing in the market place. It is anticipated that it will take three (3) years post-SEC approval of the plan for system completion and cost between $30 million and $91.6 million to build and annual maintenance costs of $51.1 million.

Check back here in the near future for more information on these two initiatives. You can always contact us at This email address is being protected from spambots. You need JavaScript enabled to view it.”> or 855-968-3787 for more information.