October 5, 2020
There is a cost efficient alternative to the Consolidated Audit Trail known as compliance with the Net Capital Rule 15c3-1.
The risks associated with the rise of algorithmic trading in the past decade are not mitigated with consolidated audit trail but a utilization of a system which can calculate the effect on Net Capital in Real Time.
If the regulatory net capital requirement is reached then a transmission can be sent to the exchange to stop trading for the mpid involved.
In November of 2000 I received patent 6144947 for such a system. I submitted the system to the SEC with the argument it was superior to CAT as it is preventative.
Robust comments were submitted in February 2012:
https://www.fdic.gov/regulations/laws/federal/2011/11c288ad85.pdf
The SEC did not utilize the system and eight months after the SEC received the investors Knight Capital Group lost $440 million dollars when their system breached regulatory capital requirements.
But per the Securities and Exchange Act the SEC is to protect the investors, which not only include investors publicly traded firms but also the investors in brokers and dealers including Knight Capital Group.
The consolidated audit trail does not protect the investor of the broker-dealer as it does not shield the investor from risk. It is in fact harmful to the investor as it reduces investor returns. It has made the investor subservient to the regulator.
But a centralized system which can regulate broker-dealer solvency just on the basis of firm long and short positions would protect the investors, and would be done at the lowest average cost.
The SEC is constantly asking for more money because of "dispersed regulation". They do not regulate but delegate the calculations of segregation and solvency to the broker dealer. There are never enough examiners to regulate all the firms all the time. It gets done on a historic basis.
But if broker dealers would data without the personally identifiable information to one centralized system, then only one system, then just one system needs to be monitored.
Please find as much to the letter to Mary Jo Bennett:
https://mail.google.com/mail/u/2/#search/sec?projector=1
Latour Trading went for 2 years without calculation of Net Capital and the SEC fined Latour $8mm
https://blog.themistrading.com/2014/09/the-curious-case-of-latour-trading/
But as the patent is enabling and the SEC defied the executive order stating to use the more efficient technology the SEC itself is responsible.
I had uploaded a letter to Attorney General William Barr to look into the legality of Consolidated Audit Trail last week. The letter states the SEC did not have authority to approve constitutionally vague FINRA Rule 2010.
As the Consolidated Audit Trail does not protect the investor but hurts the investor, and it by its defeatist nature assume the SEC cannot protect against a flash crash does not make increase make market more stable, it would also appear the SEC does not have legal authority to put an oppressive cost burden on investors.
No one should submit one cent and or one "bit" of data to Consolidated Audit Trail until until Attorney General William Barr advises on the defiance of the executive order on efficiency and whether or not it is the SEC's Scope of Authority to mandate the garbage system.
Investors of Broker-Dealers are investors who the SEC is protect as well. Either the industry gets pissed off or pissed on. Time for industry to fight back and stick up for itself.
(Attached File #1: s71020-7877675-224133.pdf)