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Federal Register / Vol. 86, No. 171 / Wednesday, September 8, 2021 / Notices
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order information to create an order lifecycle from origination or receipt to cancellation or execution. This category essentially combines all of the orderrelated linkages to capture an overall snapshot of order linkages in the CAT.14
FINRA proposed that there be at least a 95% pre-correction and 98% postcorrection rate for order linkages that are required in Phase 2a. FINRA has determined that during the applicable period there was a 99.66% precorrection and 99.93% post-correction rate for order linkages required in Phase 2a.15
Exchange and TRF/ORF Match Rates.
As described in the OATS Retirement Filing, an order lifecycle must be created to link orders routed from broker-dealers to exchanges and executed orders and trade reports.
FINRA proposed at least a 95%
precorrection and 98% post-correction aggregate match rate across all equity exchanges 16 for orders routed from Industry Members to an exchange and, for over-the-counter executions, the same match rate for orders linked to trade reports. FINRA determined that, during the applicable period, there was a 99.51% pre-correction and 99.87%
post-correction aggregate match rate across all equity exchanges for orders routed from Industry Members to an exchange and, for over-the-counter executions, there was a 99.34% pre14 See FINRAs Response to Comments, supra note 7.
15 FINRA noted that in Phase 2a, linkage is required between the representative street side order and the order being represented when the representative order was originated specifically to represent a single order received either from a customer or another broker-dealer and there is: 1
An existing direct electronic link in the firms system between the order being represented and the representative order, and 2 any resulting executions are immediately and automatically applied to the represented order in the firms system. As set forth in the OATS Retirement Filing, while such linkages are not required in OATS, FINRA believes that it is appropriate to evaluate them for purposes of retiring OATS because they represent a significant enhancement to the data currently available in OATS and will enhance the quality of the equity audit trail. However, FINRA
also explained in the Response to Comments that if all other proposed criteria have been met, FINRA
would not anticipate delaying OATS retirement based on Phase 2a representative order linkage error rates alone. In evaluating whether the standards for OATS retirement have been met, FINRA
determined that the error rates for the Phase 2a representative order linkages did not have a significant negative impact on the overall error rates for order linkages. Accordingly, FINRA did not need to separately evaluate or exclude Phase 2a representative order linkage rates in measuring the error rates over the applicable period. For example, if the intra-firm linkage error rate had been above 5% over the applicable period, FINRA would have evaluated whether the error rate was the result of unlinked representative orders to create an applesto-apples comparison to OATS.
16 See Amendment No. 1.

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correction and 99.53% post-correction rate for orders linked to trade reports submitted to the FINRA Trade Reporting Facilities and OTC Reporting Facility.
As set forth above, the error rates for Industry Member reporting over the applicable period were well below the maximum rates established in the OATS
Retirement Filing. FINRA also noted that the overall post-correction error rate for Phase 2a Industry Member reporting of 1.01% is comparable to the current overall OATS post-correction error rate, which generally is at or slightly below 1%. Therefore, FINRA has determined that, based on the error rates for Industry Member reporting, the CAT
Data meets the accuracy and reliability baseline standards required for OATS
retirement.
2 FINRAs Use of CAT Data In the OATS Retirement Filing, FINRA stated that while error rates are a key standardized measure in determining whether OATS retirement is appropriate, FINRAs use of the data in the CAT also must confirm that i there are no material issues that have not been corrected e.g., delays in the processing of data, issues with query functions, etc., ii the CAT includes all data necessary to allow FINRA to continue to meet its surveillance obligations, and iii the Plan Processor is sufficiently meeting its obligations under the CAT NMS Plan relating to the reporting and linkage of Phase 2a Data.
In the OATS Retirement Filing, FINRA stated that it has been planning for OATS retirement for several years and the necessary development work has been underway for some time.
FINRA also has been analyzing and testing production CAT Data for purposes of transitioning its automated equity surveillance patterns since the commencement of Phase 2a Industry Member reporting in June 2020 and through subsequent CAT milestone releases. For example, in addition to quantitative reviews, such as the error rate statistics discussed above, FINRA
has conducted a series of qualitative reviews of Industry Member CAT Data.
Such reviews include, among other things, comparing the count and distribution of Industry Member event reporting through CAT versus OATS
e.g., new order and execution events, and data elements such as buy/sell/sell short codes, and reviewing results of examinations, alert reviews, and investigations relating to the timeliness and accuracy of Industry Member reporting. Based on such qualitative data reviews, FINRA has concluded that Industry Member CAT Data, in the aggregate, is a sufficient replacement for
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OATS for purposes of FINRAs surveillance program.
As discussed in the OATS Retirement Filing, today, FINRAs surveillance patterns rely on the cross-market data model CMDM, which comprises linked OATS data, equity exchange data feeds from each of the exchanges with which FINRA has entered into a RSA, and transactions reported to FINRAs equity trade reporting facilities. The CMDM will be retired and replaced by a newly created surveillance data mart, the Pattern Optimized Datamart POD, which incorporates both equities and options data. At that point, FINRAs patterns will rely on CAT Data in POD, i.e., Plan Participant and Industry Member data reported in CAT
format and linked by CAT.17 FINRA
notes that the Plan Participants transitioned to reporting via the CAT
technical specification as of April 26, 2021, and full Plan Participant equities reporting and linkage validations in accordance with the CAT specification commenced on June 1, 2021.18
Successful completion of the transition to the CAT specification for Plan Participants is a prerequisite for FINRA
to retire the CMDM and leverage CAT
Data and linkages in POD for its surveillance patterns. As of the date of this filing, FINRA has completed all planned activities on schedule, including substantially completing the process of integrating CAT Data into POD and successfully running large amounts of production CAT Data for the month of May through POD.19 FINRA
anticipates completing additional activities before the proposed OATS
retirement date, including, e.g., planned user acceptance testing.20
17 FINRAs Response to Comments noted this dependency, stating that the process of transitioning FINRAs surveillance patterns to CAT
Data necessarily includes, among other things, ingestion of all Industry Member and Plan Participant data and linkages in CAT format. See Response to Comments, supra note 7, at 4. The Response to Comments further noted that the Plan Participants would be reporting to CAT via another mechanism until April 2021.
18 For example, according to the CAT Reporting Technical Specification for Plan Participants version 4.0.0r4 dated April 20, 2021, additional linkage error feedback for off-exchange trade reports was effective as of June 1, 2021. The Technical Specifications can be found on the CAT NMS Plan website at www.catnmsplan.com/sites/default/files/
2021-04/04.20.2021-CAT-ReportingTechnicalSpecifications-for-Participants-4.0.0-r4.pdf.
19 FINRA notes that additional POD releases are scheduled; however, these releases introduce minor enhancements to POD, as opposed to significant changes that would impact the way data is ingested or processed in POD.
20 FINRA notes that user acceptance testing is the final stage of any software development life cycle and enables actual users to test the system to confirm that it is able to carry out the required tasks it was designed to address in real-world situations.

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