Trade Reconstruction Requirements (Reg AT & CAT)

Understanding trade reconstruction requirements

Trade reconstruction is the process of piecing together all elements of trading activity to create a complete picture of what occurred before, during, and after a trade. This includes:

• Order origination and routing
• Execution details
• Post-trade processing
• Market data at the time of trading
• Communications related to the trade

The primary regulations governing trade reconstruction are:

1. Regulation Automated Trading (Reg AT)
2. Consolidated Audit Trail (CAT)
3. MiFID II (for European markets)

Components of trade reconstruction

Order lifecycle data

Trade reconstruction requires capturing the complete order lifecycle, including:

Market data synchronization

Firms must maintain synchronized records of:

• Real-Time Market Data (RTMD)
• Order book states
• Transaction timestamps

CAT reporting requirements

The Consolidated Audit Trail requires firms to report:

Order events

• New orders
• Modifications
• Cancellations
• Executions
• Routes

Clock synchronization

All reportable events must be timestamped with:

• Millisecond precision
• Synchronization to NIST atomic clock
• Maximum clock drift of 50 milliseconds

Data retention

Firms must maintain:

• 5 years of online data
• 2 years of readily available data
• Complete audit trail of changes

Reg AT requirements

Regulation Automated Trading focuses on:

Source code retention

• Trading algorithm source code
• Development and testing records
• Production deployment logs

Risk controls

• Pre-trade risk checks
• Order throttling
• Kill switch functionality

Technology implications

Storage requirements

Trade reconstruction creates significant data storage demands:

• High-volume tick data
• Order messaging
• Market data snapshots
• Communication records
• Algorithm logs

Data management challenges

Organizations must implement:

• Efficient data compression techniques
• Fast data retrieval systems
• Data synchronization mechanisms
• Audit trail capabilities

Performance considerations

Systems must balance:

• Real-time capture requirements
• Storage optimization
• Query performance
• Compliance deadlines

Best practices for implementation

Data capture strategy

System architecture considerations

• Use of time-series databases for efficient storage
• Implementation of data governance policies
• Integration with surveillance systems

Impact on market participants

Trading firms

• Infrastructure investment
• Compliance costs
• Operational complexity

Technology providers

• Product development opportunities
• Integration requirements
• Performance optimization needs

Regulators

• Enhanced oversight capabilities
• Investigation efficiency
• Market abuse detection

Trade reconstruction requirements continue to evolve as markets become more complex and automated. Firms must maintain flexible systems that can adapt to new regulatory requirements while efficiently managing the growing volume of trading data.