Bidders for U.S. market surveillance system make presentations

NEW YORK Tue May 13, 2014 7:44pm EDT

NEW YORK May 13 (Reuters) - Ten bidders seeking to manage a new surveillance system that could track all U.S. equity trading activity have presented proposals to the exchanges overseeing the project, a source told Reuters on Tuesday, and the field should be reduced to five by September.

The bidders had two hours each to give presentations last week to a selection committee of more than 40 representatives from all the U.S. stock and options exchanges, said a person familiar with the presentations.

The presentations for building and managing the Consolidated Audit Trail, an order tracking system known as the CAT, occurred over three days in an undisclosed New York City location.

Regulators demanded an audit trail after it took months to pull together the data needed to investigate the "flash crash" of May 2010, when the Dow industrials plummeted 700 points in minutes, before quickly recovering most of the decline.

The Securities and Exchange Commission approved the process to select a winning bidder in February, after adopting a rule in July 2012 requiring creation of the audit trail.

An advisory committee to the exchanges of 12 firms, most of which are brokerages, will be informed of the presentations on May 21, said the source who was not authorized to speak publicly about the matter.

After the field of 10 bidders is narrowed to a shortlist of five, an "optimal" plan for the audit trail will be submitted for SEC approval, according to the rules for the selection process. The submission date is expected by Sept. 30.

Once approved, some bidders may be allowed to revise their proposals. A round of voting will reduce the shortlist of five to two, then another round will produce the winning bidder.

The Financial Industry Regulatory Authority (FINRA), which is part of the selection committee, has been considered a front-runner to win the bid because it already manages a less robust market surveillance system called the Order Audit Trail System.

FINRA has imposed restrictions to avoid any conflicts of interest.

"FINRA has put very clear walls between their bid team and the selection process," the source said. "It's very, very stringently managed." (Reporting by Herbert Lash; Editing by Ken Wills)