What is the Order Audit Trail System - OATS

The Order Audit Trail System (OATS) is an automated computer system owned by the National Association of Security Dealers (NASD) used to record information relating to orders, quotes, and other related trade data from all equities traded on the Nasdaq, including over-the-counter (OTC) stocks. This system simplifies an order's progression from the initial receipt of the order to its eventual execution or cancellation, for easy tracking for auditing purposes.

In early 2017, FINRA proposed the phase out of OATS as a new system called the Consolidate Audit Trail (CAT) comes on line.

BREAKING DOWN Order Audit Trail System - OATS

The NASD created OATS to ensure that the time sensitive information relating to the events throughout the order execution process is recorded accurately.

From the FINRA website:

The Financial Industry Regulating Authority (FINRA) established the Order Audit Trail System as an integrated audit trail of order, quote, and trade information for all Nasdaq Market System (NMS) stocks and OTC equity securities. FINRA uses this audit trail system to recreate events in the life cycle of orders and more completely monitor the trading practices of member firms. Under FINRA Rules 7410 - 7470, FINRA member firms are required to develop a means for electronically capturing and reporting to OATS specific data elements related to the handling or execution of orders, including recording all times of these events in hours, minutes, and seconds, and to synchronize their business clocks. These Rules were approved by the Securities and Exchange Commission (SEC) on March 6, 1998.

For example, according to NASD rule 6953, all "computer clocks and time stamping devices must synchronize to within three seconds of the National Institute of Standards and Technology atomic clock. The atomic clock is highly accurate; it will not gain or lose one second of time in more than 60 million years.

Reporting Procedures

Regulations require firms to submit daily electronic OATS reports to FINRA​​​​​​​. OATS reports must be made the same day an order was received or on the day information becomes available to the firm. Daily electronic OATS reports can be made for single or multiple orders. Information collected on the OATS report includes:

  • Customer or firm order
  • Date and time of receipt
  • Order ID
  • Terms of the order (i.e. buy, sell, sell short, security, price, shares, account type and handling instructions)
  • If the order was received manually or electronically
  • If the order was routed manually or electronically
  • Where the order was routed for execution
  • If the order was an inter-market sweep order
  • Any modifications to the order including the date and time of any modifications
  • Execution information including partial executions, price, date, time, and capacity in which the firm acted in the trade

CAT Supersedes OATS

The Consolidated Audit Trail (CAT) under SEC rule 613 is now the required system for tracking trades from start to finish.

According to Deloitte, CAT isn’t simply OATS on steroids. It includes substantial additional requirements, such as options data, allocations, and customer data. These new data sets may require firms to rethink their target reporting architectures. Additionally, unlike OATS, the CAT has no exemptions to these reporting requirements.