Concept Release on CAT and Other Audit Trails and Data Sources

Summary

SIFMA ¹ provided comments to the U.S. Securities and Exchange Commission (SEC) in response to its concept release seeking comment in support of its comprehensive review of the Consolidated Audit Trail (CAT) and other audit trails and related data sources currently used in the regulation of U.S. securities markets, including comments regarding the funding mechanisms for these audit trails and/or related data sources. ²

Excerpt

SIFMA commends the Commission for conducting this long-overdue comprehensive review of the CAT. The CAT is currently the market-wide audit trail for the trading of equities and listed options, as the prior market-wide audit trails for these markets have been retired due to the CAT’s implementation. SIFMA’s comments therefore focus on the CAT, and we include below certain recommendations regarding its future direction. Our primary recommendation is for the Commission to take over the funding of the CAT, as CAT funding continues to remain one of the CAT’s largest unresolved issues, and then eventually eliminate the CAT NMS Plan and make CAT subject to direct SEC control.\

Executive Summary

• Even though the self-regulatory organizations (“SROs”) nominally control the CAT, the Commission is the most significant beneficiary of the CAT and effectively controls it and yet has no responsibility for CAT funding. This NMS plan governance structure excludes Industry Members from any direct role in CAT operations even though they pay 80% or more of CAT costs.
• In the more than 10 years since the CAT was established, this structure has proven unworkable as the Commission has no incentive to control the size or scope of the CAT and the SROs acting under the CAT NMS Plan have no incentive to include outside perspectives in operating the CAT.
• To address these misaligned incentives, SIFMA recommends that the Commission immediately eliminate the current funding model and assume sole responsibility for CAT costs by including in its annual budget request from Congress the amount necessary to fund the CAT. After taking over CAT funding, SIFMA recommends that the Commission eliminate the CAT NMS Plan and directly operate the CAT.
• SIFMA also calls for increased representation of a broader range of stakeholders on a CAT Advisory Committee, including representatives from alternative trading systems (“ATSs”), retail brokers, market makers, and information security and technology experts.