SEC approves consolidated audit trail

The Securities and Exchange Commission (SEC) agreed Wednesday to create a new system that will cost billions but could make it easier to investigate unusual trading activity across securities markets. 

Stepping up its response following the "flash crash" earlier this month, federal regulators would be required to establish a consolidated audit trail that would compile cross-market data into one place, aimed at helping to better track billions of dollars in daily trades.

The plan would be phased in over the next three years and would cost the markets about $4 billion overall and $2 billion per year to operate, according to the SEC. 

"I am impressed that the release does not attempt to sugarcoat the real cost of this proposal," said Commissioner Kathleen Casey during the SEC's public meeting today.  

Regulators have been working out the details of the rule for more than a year but the SEC is speeding up some market changes in the wake of the 1,000-point drop on May 6. That incident is still under investigation, as the SEC and the Commodity Futures Trading Commission pore through billions of trades looking for an explanation. 

The plan would "for the first time ever, allow the SEC and other market regulators to track trade data across multiple markets, product and participants in real time," SEC Chairman Mary Schapiro said Wednesday. "It would allow us to rapidly reconstruct trading activity and quickly analyze both suspicious trading behavior and unusual market events."

The individual exchanges use a variety of different systems to keep track their own trading, and data is not compiled into a single database that would make it easier to analyze. A central system would help regulators track unusual trading and determine specific causes for gains and losses. 

The rule is open to a 60-day public comment period. The SEC is asking for proposed changes that could smooth the transition.