November 11, 2019

The Honorable Jay Clayton
Chairman
U.S. Securities & Exchange Commission
100 F Street, N.W.
Washington, D.C. 20549

Re: Consolidated Audit Trail – Liability and Access Issues

Dear Chairman Clayton:
Thank you for your continued engagement with SIFMA on the development of the Consolidated Audit Trail (“CAT”). This letter is to follow up on recent communications we have had with your office, including with Manisha Kimmel, as well as with Brett Redfearn on the CAT Reporter Agreement that the self-regulatory organizations (“SROs”) are requiring broker-dealers to sign. In addition, we continue to have significant concerns about the potential access to CAT data by the SROs.

We believe the SROs’ exemptive request to limit the CAT’s collection of personally identifiable information, or “PII” to customer name, address, and year of birth, is an important step in reducing the CAT’s PII risk, and we encourage the Securities and Exchange Commission (“Commission”) to grant that request. In addition, our firms are preparing diligently for CAT reporting, are they are hoping that the Commission can help us find a way to allow brokerdealers to establish connectivity and be ready for testing of their CAT reporting. In the meantime, however, recent events have highlighted the need for the Commission to address issues of liability and access in connection with the CAT.

The SROs have prepared a CAT Reporter Agreement for broker-dealers reporting to the CAT Processor, which will be operated by FINRA CAT LLC.1 The SROs will not allow brokerdealers to establish any connectivity to the CAT Processor or conduct any test reporting unless they execute the agreement. However, the agreement includes provisions effectively shielding the SROs from any liability in connection with CAT reporting.

Specifically, Section 5.5 of the CAT Reporter agreement states:
TO THE EXTENT PERMITTED BY LAW, UNDER NO CIRCUMSTANCES SHALL THE TOTAL LIABILITY OF CATLLC OR ANY OF ITS REPRESENTATIVES TO CAT REPORTER UNDER THIS AGREEMENT FOR ANY CALENDAR YEAR EXCEED THE LESSER OF THE TOTAL OF THE FEES ACTUALLY PAID BY CAT REPORTER TO CATLLC FOR THE CALENDAR YEAR IN WHICH THE CLAIM AROSE OR FIVE HUNDRED DOLLARS ($500.00).

We have had numerous communications with the SROs about our objections to the CAT Reporter Agreement based on liability issues, including a telephone conference of October 23, 2019. To date, the SROs’ response has been simply that firms have previously signed regulatory agreements with similar limitations on liability. However, the CAT is a much different, and much more extensive reporting system. Our member firms will be reporting a significant amount of sensitive transaction data and, ultimately, a significant amount of sensitive customer information. In other circumstances, the firms would conduct extensive due diligence of the party receiving the information, which they are not permitted to do with the CAT Processor.