WASHINGTON May 19 A formal proposal for a
controversial rule that would beef up oversight of securities
brokerages could be ready as early as this summer, the head of
Wall Street's industry-funded watchdog said on Monday.
The plan, known as the Comprehensive Automated Risk Data
System, or CARDS, would require firms to submit vast quantities
of data to the Financial Industry Regulatory Authority (FINRA)
in an ongoing stream. FINRA could then use that data to analyze
everything from securities transactions and asset movements to
customers' risk tolerances and time lines.
FINRA expects to make "significant substantive changes" from
a draft proposal it announced in December, FINRA Chief Executive
Officer Richard Ketchum told reporters following his remarks at
FINRA's annual conference in Washington. "But it still will be
incredibly powerful and we're looking forward to moving it down
the road," Ketchum said.
FINRA's board must first approve the proposal, which the
regulator would then submit to the U.S. Securities and Exchange
Commission for review and approval.
Ketchum, in earlier prepared remarks, pushed back against
widespread criticism of the plan by Wall Street firms and trade
FINRA is "aggressively meeting" with firms to assess the
potential costs to the industry for the data collection plan and
its benefits, Ketchum said. "We are talking to many of you about
the real, bottom-line impact it may have on you," Ketchum said.
The regulator's meetings with firms have already led to some
changes from the original idea that its upcoming, more formal
proposal will reflect. For example, FINRA would no longer
require firms to submit their data through a clearing firm. That
would lower expenses associated with the plan for the roughly
2,000 firms that do not work with clearing firms, Ketchum said.
Those firms could instead, submit the details directly to FINRA.
FINRA would also not require firms to follow a uniform
format to submit data about the suitability of investments it
recommends for customers, Ketchum said. Firms had complained
that their data exists in different formats and that
streamlining them to a format that FINRA specifies would be an
onerous and costly effort.
Ketchum also responded to the industry's position that FINRA
should hold off on the plan until there is more clarity on
another data-driven surveillance system: the consolidated audit
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.
FINRA is one of 10 bidders seeking to manage the system,
known as the CAT. [ID: nL1N0NZ2BU]
The two systems, however, would be different, Ketchum said.
For example, they would collect different types of data. What's
more, CAT must function in real-time, but that may not be the
case for the CARDS system.
(Reporting by Suzanne Barlyn; Additional reporting by Herb
Lash; Editing by Cynthia Osterman)