SEC approves 'Hubble Telescope' for securities markets

The U.S. Securities and Exchange Commission logo adorns an office door at the SEC headquarters in Washington, June 24, 2011. REUTERS/Jonathan Ernst (Reuters)

By John McCrank

NEW YORK (Reuters) - The U.S. Securities and Exchange Commission voted on Tuesday to approve a massive stock and options trading database, prompted by the 2010 "flash crash," aimed at helping regulators police the increasingly fast, fragmented and complex markets.

The creation of a Consolidated Audit Trail establishes a regulatory central database for every trade order, execution, modification and cancellation, as mandated by the SEC in July 2012.

The CAT's creation was overseen by all U.S. stock and options exchanges, as well as the Financial Industry Regulatory Authority, which are known as self-regulatory organizations (SROs).

"The import of today's action cannot be overstated," SEC Chair Mary Jo White said prior to the vote. "With the approval and ultimate implementation of CAT, the Commission's regulatory capacity strongly embraces 21st Century technology, enabling the Commission and the SROs to harness data and technology to more effectively oversee market participants."

Billions of shares trade every day at near light speed and a large imbalance or glitch in the mostly automated markets can quickly snowball into a major problem.

The CAT will help regulators better address market disruptions by more efficiently tracking trading across stock and options markets, increasing the ability to spot and investigate market misconduct and improving the effectiveness of market research.

"The CAT would essentially be the Hubble Telescope for the securities markets," said SEC Commissioner Kara Stein.

The CAT became a priority for the industry after the so-called Flash Crash in 2010, which wiped out around $1 trillion from the stock market within minutes before an almost equally rapid rebound. It took regulators months to piece together the data needed to attempt to diagnose what caused the event.

Regulators at the time said unsettled market conditions early in the day, combined with a massive, aggressive sell order for the popular E-mini S&P 500 futures security by mutual fund manager Waddell & Reed, helped trigger the selloff.

But on Nov. 9, more than six years after the event, a London-based trader was convicted of manipulating U.S. futures markets after pleading guilty to federal charges that he contributed to the flash crash.

The SROs now have 60 days to choose a plan processor and then a year to begin sending in data to the repository.

The CAT has been a major focus for White, who on Monday said that she would leave the SEC around the same time President Barack Obama leaves the White House in January 2017.

(Reporting by John McCrank; Editing by David Gregorio and Alan Crosby)