SIFMA Cautions Liability Provisions Under CAT NMS Plan Will Harm Investors

Washington, D.C., February 25, 2021 – A new report analyzing the economic impact of the proposed NMS Plan governing the Consolidated Audit Trail (CAT) concludes the proposed plan amendment, if adopted, would reduce investor welfare in two ways:

First, if the CAT does not bear the liability of data breaches, it is incentivized to invest less in data security to protect investors’ personally identifiable information and trading data in the CAT, which would place investors at greater risk of having their data compromised.

Second, requiring industry members to absorb litigation-related expenses for an event which they have no direct control over will lead to the inefficient purchase of insurance with additional costs likely passed downstream to investors.

The report notes that if the proposed NMS amendment is not adopted and the CAT LLC was subject to potential litigation by industry members in addition to be being subject to regulation, this would help internalize all of the costs in the event of a breach or misuse of CAT Data. As a result, CAT LLC would be incentivized to invest in the socially optimal level of protection. Any insurance purchased by CAT LLC would also be more efficient as it has full access to the CAT System and can subject itself to monitoring by insurers, mitigating the issue of asymmetric information.

“We have long believed those responsible for the CAT data should bear the liability for any security breaches.  It is imperative the CAT be held to the highest security standards to protect investors,” said Ellen Greene, SIFMA managing director, equity and options market structure.  “While SIFMA supports the goals of the CAT and our members have invested substantial resources toward its implementation, we cannot ignore the risks to sensitive customer information being compiled in one government-mandated database and we oppose efforts to shield responsibility for maintaining the security and privacy of such data.”

SIFMA has shared the report, titled “Economic Analysis of the Proposed Amendment to NMS Plan Governing the Consolidated Audit Trail” with the Securities and Exchange Commission.  The analysis was prepared by Professor Craig Lewis and supplements SIFMA’s January 27, 2021 comment letter on the SRO proposal to add a limitation of liability provision to the CAT Reporter Agreement.


SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate for legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit