--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 jacob.bunge@dowjones.com
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