Google Inc. (GOOG:US), Infosys Ltd. (INFO), International Business Machines Corp. (IBM:US) and the Financial Industry Regulatory Authority plan to bid on a project to build a comprehensive market oversight system for U.S. securities.
Exchange operators NYSE Euronext (NYX:US), Nasdaq OMX Group Inc. and Bats Global Markets Inc. also said they would submit bids, as did high-frequency trading technology provider Tradeworx Inc., which supplies a system to the Securities and Exchange Commission that compiles information from private data streams about quotations and trades. The list of 31 candidates was published on the website for the so-called consolidated audit trail that the exchanges and Finra are developing.
The audit trail, one of former SEC Chairman Mary Schapiro’s main projects, will track all securities orders and trades in the U.S. from start to completion and give the agency and other regulators a powerful system to monitor markets and reconstruct crashes. The exchanges and Finra said in November they would submit the plan in December 2013, eight months later than initially expected.
“This is a milestone since the key inputs of the consolidated audit-trail plan will result from this request-for- proposal process,” Manisha Kimmel, executive director of the New York-based Financial Information Forum, a group of brokers, exchanges and vendors in the securities industry that focuses on operational and technology issues, said by phone. The firm that wins the bid will have a “definite impact on the CAT process from an operational angle and the fact we’re now going to get multiple perspectives on this is very positive,” she said.
Cinnober Financial Technology AB, a Stockholm-based company that offers trading and clearing platforms, will bid for the project, according to the list. MillenniumIT, owned by the London Stock Exchange Group Plc (LSE), will also bid. The Colombo, Sri Lanka-based unit provides systems to the LSE, London Metal Exchange, Icap Plc and Turquoise, an alternative venue owned by the London market operator, the company’s website said.
“It’s good to have competition,” James Angel, a finance professor at Georgetown University in Washington, said in a phone interview. “A lot of the names are the usual suspects such as Finra and Nasdaq and other financial players, but some aren’t. It’s an interesting mix of financial-data companies, exchanges and big IT companies.”
The SEC, hurt by criticism that it doesn’t have the data to analyze high-speed computerized trading, approved a rule in July requiring the exchanges and Finra, known as self-regulatory organizations, to produce a plan to establish the audit trail. The SEC must approve the submission by the 17 exchanges and the private-sector regulator, which oversees almost 4,300 brokerage firms, before it can be built.
SEC Chairman Elisse Walter said she hopes the audit-trail initiative can be expanded beyond stocks and options to include equities traded in the U.S. without being listed on American exchanges, bonds and futures. In addition to monitoring markets and analyzing market crashes, a well-constructed data initiative could be used to inform how new regulations are written, she said in a speech on Feb. 19.
“I can’t overestimate the importance of CAT,” Walter said. “Comprehensive public and non-public data about the market, coming from a single system, could be the most important regulatory development in my lifetime.”
The self-regulatory organizations tasked with proposing the plan for the consolidated audit trail can bid for the job of constructing and managing it. Finra said last year it wanted to build and administer the data system.
A document prepared for a conference for potential bidders on Jan. 29, before the publication of the official request-for- proposal, or RFP, included a disclosure that said exchange or Finra officials attending the meeting would represent the views of the group instead of their organization. Some personnel may assist with the group’s efforts and an SRO’s RFP response, the document said.
The exchanges and Finra said last month they would establish an advisory group to offer input on the audit-trail development process and consider how the plan may affect brokers and the broader industry. Participants will include individuals from the Financial Information Forum, Securities Industry and Financial Markets Association, and Security Traders Association, according to the notice.
That group may discuss issues such as customer identification codes, different scenarios for how orders are handled within the data system, conflicts of interest and funding alternatives for the audit trail, the notice said. It’s different from the SEC-mandated advisory committee that will be formed once the regulation governing the audit trail goes into effect.
The group responsible for the audit-trail plan will hold a conference for organizations submitting bids on Friday. Bids are due on April 25, according to the group’s website.
Thomson Reuters Corp. and SunGard Data Systems Inc. will also seek to win the contract to build and manage the audit trail. The former is a data and news provider while the latter offers trading and risk management systems. Bloomberg LP, the parent company of Bloomberg News, competes with Thomson Reuters in supplying financial news and information.
Other firms offering consulting, telecommunications, data and technology systems that intend to submit offers for the audit-trail initiative include Sapient Corp. (SAPE:US), Wipro Ltd., Grant Thornton LLP, Capgemini Financial Services USA Inc., BT Group Plc (BT:US) and GXS Inc. GXS, a spinoff of General Electric Co., helped develop the Basic computer language, according to a company history on its website.
Broad interest in the audit-trail project isn’t surprising, Sang Lee, managing partner at Boston-based research firm Aite Group LLC, said in an e-mail.
“For those technology vendors and exchanges with substantial technology business, it gives them the opportunity for revenue generation as well as becoming the central hub for data collection and dissemination,” he said.
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