The trading team is seen at Tradeworx in offices in Red Bank, N.J. The Securities and Exchange Commission, in an effort to keep up with frenzied trading activity, purchased technology from Tradeworx to track the buying and selling of stocks. (Jennifer S. Altman/For The Washington Post)

The competition to build a computer system that would help federal regulators track trading activity appears fierce, with 31 firms signaling this week that they plan to submit bids for the project.

But there’s a twist.

Four of the firms that expressed an interest in bidding are also part of the consortium that will be picking the winning bid.

NYSE Euronext, Nasdaq OMX and an upstart stock exchange called BATS Global Markets said they may toss their hats in the ring. The Financial Industry Regulatory Authority, or Finra, which oversees the brokerage industry, also is interested.

Finra and the exchanges are part of a broader consortium that has been working on a plan to develop a “consolidated audit trail” that would give regulators access to trade data from the entire market.

The Securities and Exchange Commission directed the consortium to come up with a plan in response to the flash crash of May 6, 2010, when the stock market plunged nearly 1,000 points and whipsawed back up. It took the SEC about four months to unwind the billions of orders that took place that day.

The SEC’s inability to swiftly reconstruct the day’s events highlighted the deep technological divide between the regulator and the market it polices.

The agency mandated that the consortium — made up of 17 national exchanges and Finra — come up with a plan to monitor trading activity and present it to the agency for approval.

The system that the SEC envisions would have all broker dealers report their activities to a central repository so regulators can track orders as they bounce around the U.S. markets. The system also would identify those dealers and their clients.

Google and IBM were among the several technology companies that stepped forward as possible candidates. But the organizations creating the biggest stir were Finra and the exchanges, also known as self-regulatory organizations or SROs.

“We’re very happy to see that so many people are intending to bid, but there’s a potential conflict of interest with the SROs, who are both selecting [the winning bid] and in some cases bidding,” said T.R. Lazo, managing director of the Securities Industry and Financial Markets Association.

The consortium said on its Web site that members that are bidding can participate in the selection committee “if they meet a series of independence criteria which will be determined before voting takes place.” It also said the winning bidder will be subject to SEC approval.

People tracking the issue said they expected Finra and some exchanges to take part in the bidding process because of their expertise.

Finra, for instance, already has a system for reporting trade transactions, though it lacks the capabilities that the SEC is seeking.

“For many good reasons, including technical and market expertise, the SEC tasked the exchanges to develop and manage the Consolidated Audit Trail process under its oversight and approval,” Richard Adamonis, a spokesman for NYSE Euronext, said in an e-mail. “The proposal, like the entire process, is highly transparent and open for public comment.”

George Smaragdis, a Finra spokesman, said in an e-mail that the selection process is a group effort and that Finra will abide by the group’s decision.

The expression of interest from potential bidders is a first step in what is expected to be a multi-year process, and none of the firms are obligated to follow through with a bid.

When the bids do start rolling in, they will not be made public. Stakeholders and other interested parties will have an opportunity to weigh in when the consortium submits a winning bidder to the SEC for approval.