WASHINGTON, May 19 (Reuters) - 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 groups.
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 trail.
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)