SEC Issues Concept Release to Review CAT and Trade Data Collection

The SEC solicited comment on a comprehensive review of the Consolidated Audit Trail ("CAT") and other data sources used in the regulation of U.S. securities markets.

The SEC said its review was intended to examine the effectiveness, costs, and structure of existing audit trails and determine whether changes to governing rules are warranted. The SEC said that a central driver of the review was the significant gap between projected and actual costs. They said the annual cost of maintaining and operating the CAT grew well beyond the SEC's 2016 estimate.

In the concept release, the SEC explained that in 2012, it adopted Rule 613 ("Consolidated audit trail") to require self-regulatory organizations ("SROs") to jointly develop and submit a national market system plan to create, implement, and maintain the audit trail. The SEC said that the CAT was designed to give regulators timely access to comprehensive, linked trading data across the full lifecycle of all orders in NMS and OTC equity securities. The SEC stated that in July 2024, the SRO's represented to the SEC that the CAT had been fully implemented. 

The SEC asked for comment across several areas:

Regulatory Purpose: whether the CAT is necessary for regulators to fulfill their statutory obligations, and whether it could be eliminated in favor of a different audit trail;

Governance: whether the current NMS plan structure and Operating Committee voting arrangements remain appropriate. (FINRA raised concerns that affiliated exchange groups hold 21 of 27 votes on the Operating Committee, creating voting dynamics that may favor some participants over others);

Funding: whether the current model, which allocates costs evenly among SROs, executing brokers representing buyers, and executing brokers representing sellers, remains appropriate, and whether the SEC should instead own and operate the CAT using appropriated funds subject to congressional oversight;

Design and Scope: whether reporting requirements, data storage and retention periods, and lifecycle linkage timelines could be simplified or reduced to cut costs while preserving core regulatory utility;

Privacy and Cybersecurity: how to balance civil liberties and privacy concerns against regulatory need, particularly given that customer-level personally identifiable information was removed from the CAT in recent years.

In the release, the SEC also addressed the electronic blue sheet ("EBS") system - the primary mechanism for requesting transactional data outside the CAT - and whether it should be modified or replaced, as well as other data sources including clearing corporation reports and proprietary market data feeds.

The SEC noted that there have been legal challenges to the CAT and its funding model.