An SEC Computer to Peer Into Wall Street's Dark Pools

Around 2:30 p.m. on May 6, 2010, the U.S. stock market began to crash. It fell 600 points in five minutes, erasing about $800 billion in value. The market largely rebounded by day’s end, but investors were spooked. It took the U.S. Securities and Exchange Commission more than four months to piece together what had happened: A single trader’s order to unload $4 billion in futures contracts caused a price dip that set off a cascade of automated selling. The Flash Crash, as it was dubbed, made obvious what had been true for years—the stock market is so fragmented that computers processing orders at lightning speed can trigger a selloff before anyone spots a problem. “The idea that the regulator of the largest-capital market in the world didn’t have a consolidated view across all the different trading venues … seemed to be a glaring issue that needed to be remedied,” says former SEC Chair Mary Schapiro.

Four years later, bidding is under way to build a powerful computer to give federal regulators that fuller view of the way the market works. The Consolidated Audit Trail, or CAT, will be one of the largest databases in the world, designed to funnel 50 billion daily records into an archive. The computer will track every stock quote, order, and trade, including when and where transactions occur, the brokers who handle them, and the customers they represent. The CAT will pull data from the 18 U.S. public stock and options exchanges and the private trading venues run by banks, known as dark pools, that don’t have to immediately report data to the SEC.