SEC Reduces Costs of Consolidated Audit Trail, Easing Financial Burden on Markets

What's Happening?

The Securities and Exchange Commission (SEC) has issued an order to reduce the operating costs associated with the consolidated audit trail (CAT). Initially approved in 2016, the CAT was designed to enable regulators to track orders and trading activity across U.S. markets. However, the project has faced numerous delays and challenges, with over $500 million already spent on its development. The 2025 budget for the CAT was originally set at over $248 million, but recent amendments have reduced forecasted expenses by $20 million, bringing them $27 million below the previous forecast of $196 million. This decision follows a federal appeals court ruling earlier this year that struck down the 2023 funding order for the CAT, citing violations of the Administrative Procedure Act. The court found that the funding model allowed self-regulatory organizations to pass costs onto their members while maintaining control over CAT governance and budgeting.

Why It's Important?

The SEC's decision to cut costs for the CAT is significant for the financial industry, particularly for broker-dealers who have been bearing the brunt of these expenses. By reducing the financial burden, the SEC aims to make the CAT more efficient and cost-effective, addressing concerns raised by the U.S. Court of Appeals for the Eleventh Circuit. This move could lead to increased transparency and accountability in the financial markets, as the CAT is intended to provide comprehensive data on trading activities. The cost reduction may also alleviate some of the financial pressures on smaller firms, potentially fostering a more competitive market environment.

What's Next?

The SEC's order is part of a broader effort to streamline the CAT's operations and reduce costs. SEC Chairman Paul Atkins emphasized the need for both the Commission and CAT participants to focus on cost efficiency. The SEC is expected to continue exploring additional cost-saving measures and may implement further changes to the CAT's governance and budgeting processes. Stakeholders, including broker-dealers and self-regulatory organizations, will likely monitor these developments closely, as they could impact their financial obligations and operational strategies.