By Dow Jones Business News, March 06, 2013, 05:40:00 PM EDT
--NYSE, Nasdaq, BATS exchanges likely to bid to build trade-tracking system
--Other potential candidates include Finra, Google, IBM
--Brokers wary of conflicts and costs in audit-trail buildout
(Adds comments from industry group and NYSE spokesman as well as additional background details.)
By Jacob Bunge
More than two dozen stock exchanges and technology companies may vie for the task of building an electronic system to
monitor all U.S. stock trading, according to a document released late Tuesday.
The project, which U.S. securities market regulators have planned for years, is seen as a lucrative and high-profile
assignment, particularly for exchange groups that have pushed to develop financial software divisions to offset
slackened trading activity.
Banks and brokers are wary of the process, however, as some exchanges and market authorities that could bid for the
project also will help decide on awarding the job.
"We're concerned about the conflicts that exist," said T.R. Lazo, a managing director with the Securities Industry and
Financial Markets Association, a trade group that represents banks and securities firms.
The so-called consolidated audit trail first proposed by the Securities and Exchange Commission in 2010 aims to
centralize trading data that currently are scattered across 13 stock exchanges and dozens more private trading venues.
Regulators see the audit trail providing a clearer view into markets, helping to zero in on manipulation and replay
turbulent trading sessions. Last summer the SEC approved a rule requiring U.S. stock exchanges and the Financial
Industry Regulatory Authority to construct the system.
Exchange operators NYSE Euronext ( NYX ), Nasdaq OMX Group Inc. ( NDAQ ) and BATS Global Markets Inc. are among the firms
that submitted an intention to bid on the task, alongside technology heavyweights like Google Inc. ( GOOG ) and
International Business Machines Corp. ( IBM ), according to a list of 31 potential bidders posted late Tuesday to a
website dedicated to the audit-trail plan.
Another potential bidder is Finra, a private securities-market regulator that already runs an audit trail system that
collects stock-order information from brokers.
The builder of the processor will be chosen by a vote among so-called self-regulatory organizations, which include
U.S. stock and options markets as well as Finra. Exchanges angling to win the project can vote if they meet certain "
independence criteria," according to the audit-trail website.
The job is expected to be a windfall for the builder. The SEC's initial cost estimate for the audit-trail system was $
4 billion upfront and $2.1 billion annually, though market participants expect that figure to be lower after regulators
last year backed down on requiring data to be reported in real time.
Exchanges, brokers and Finra are expected to fund the project via fees, seen passed along to investors and traders.
Sifma's Mr. Lazo said the expense is a critical issue, particularly as the system's builder likely will continue to
collect revenue from maintaining the processor.
"We want it to be successful, but we want it to be done efficiently," Mr. Lazo said.
Sifma has called on the exchanges and Finra to publish details of the bids, though currently they aren't planned to be
made public, according to the audit trail website.
"The entire process is highly transparent and open for public comment," said Richard Adamonis, a spokesman for NYSE
Euronext, in a statement.
Veronica Augustsson, chief executive of Stockholm-based Cinnober Financial Technology AB, which also aims to bid on
the project, said potential conflicts among the exchanges could work in favor of independent vendors.
"If one of the major exchanges is going to be the provider...they can potentially see their competitors' data," Ms.
Augustsson said. "If I were another exchange, I would find that to be not optimal at all."
The planned consolidated audit trail will need to handle a daily torrent of data related to price quotes and
transactions in the domestic stock market, estimated to amount to an average 49.5 billion separate records of activity
per day, according documents detailing the plan.
Formal bids are due April 25, with the preliminary selection process seen completing in June and a formal plan
expected to be filed with the SEC in December. Once the plan is approved, the winning bid will be finalized, according
to timeline laid out by the exchanges and Finra.
Write to Jacob Bunge at firstname.lastname@example.org
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