SEC Stunned To Discover No One Wants To Pay To Be Surveilled

"Hey, pay for this thing you hate" is apparently not the best enforcement mechanism.
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A bunch of things have happened in the years since equities markets flash crashed. We learned that it was a Kansas mutual fund at fault, before learning later that it was actually a strange British guy living in his parents' flat. There were also some elections, and stocks went up. Now it's been seven years (can you believe it?) and one thing still hasn't changed: The SEC still hasn't really done anything.

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OK, the feds have done some stuff. But the big-ticket, we're-really-getting-serious-now response was the Consolidated Audit Trail, or CAT, a database proposed a few weeks after the flash crash that would gather together trading data from exchanges and dark pools far and wide and plop them into a colossal excel file that might not serve to prevent any future flash crashes but would at least allow us to point a fat finger at the correct culprit.

That effort has floundered. Which, given the SEC's initial proposal, might have been suspected. The original plan first envisioned that the nation's dozen-odd exchanges would put aside their usual pastime of constant bickering and agree on a structure that would suit them all. Then they'd have to collectively decide on a private-sector contractor to run the whole thing. This took seven years. And of course, the SEC would have to, like, approve its own plan. That took six years.

Now there's that whole money thing:

The long effort to make it easier to catch cheaters and diagnose the causes of mysterious crashes in the U.S. stock market just suffered another setback. The Securities and Exchange Commission is reviewing how exchanges plan to pay for the massive database, known as the Consolidated Audit Trail, with fees from brokers, banks and other traders. The decision came after financial firms complained that their concerns were ignored by the exchanges.

As it turns out, asking one group of self-interested businesses – exchanges – to set prices for another group of self-interested businesses – trading firms – stokes certain disagreements between these self-interested businesses. And it's hard to imagine anyone besides a few SEC enforcement staff really want to see this thing up-and-running to begin with. For market participants, there are numerous cons – increased surveillance, mandatory fees, compliance costs – and just one pro – namely, getting the SEC to stop pestering them to finish their homework.

So maybe we'll have a functioning CAT in time to assign blame when the 2020 Flash Crash comes around.

Wall Street Wins Round in Fight With Exchanges Over Audit System [BBG]

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