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SEC to Consider Revised Funding Model for CAT

By Melanie Waddell

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In an open meeting on Wednesday, the Securities and Exchange Commission plans to consider whether to adopt a proposed amendment to the National Market System Plan governing the Consolidated Audit Trail to implement a revised funding model for CAT.

According to a notice on the SEC’s website, the agency will also consider whether to ”establish a fee schedule for CAT fees for the self-regulatory organizations that are participants to the CAT NMS Plan in accordance with the Executed Share Model.”

CAT is the SEC-mandated central repository of trades, quotes and orders for all U.S. exchange-listed and over-the-counter equity securities and U.S. exchange-listed options contracts across all U.S. markets and trading venues.

As of March 17, investors’ personal identifiable information, or PII, became available via the CAT.

Securities Industry and Financial Markets Association president and CEO Ken Bentsen said in January that letting such PII become available amounted to the SEC’s failure to implement changes to protect investor privacy.

In a letter to the SEC Tuesday, SIFMA Asset Management Group, like other commenters, said that it “is very concerned about the ever-escalating CAT costs and the lack of any mechanism to help control such costs. Regardless of who ultimately pays for CAT funding, the costs will have an economic impact on trading. Asset managers, therefore, share the significant concerns about the lack of an independent cost review mechanism for the CAT budget, which would help ensure that future CAT fees are fair and reasonable.”

According to SIFMA, “suggestions have been made by commenters on different approaches to help manage CAT costs, yet all of these suggestions have been disregarded by the participants. Given that there is no end date for the CAT, SIFMA AMG believes that it is critically important for the CAT to have an independent cost review mechanism to help ensure that the CAT engages in appropriate and cost-effective spending, consistent with the Exchange Act.”

The group added, “Unless the Commission can demonstrate that it has fully considered the ultimate economic impacts of the CAT Funding Proposal, including the impacts on end-investors as a result of passed-through costs, the Commission should not approve it.”

CAT has also faced scrutiny from lawmakers.

As part of the Senate Appropriations Committee’s financial services and general government 2024 appropriations bill, senators expressed concern about the SEC’s CAT, which they said “continues to collect an increasing amount of market-sensitive data and customer information including through” the system.

The committee said then that it encourages the SEC “to ensure the CAT has adequate breach notification policies in place so affected participants are promptly notified of critical security events,” and directed the agency to “provide a briefing data security enhancements to the CAT National Market System [NMS] Plan.”

A bill introduced on July 13 in the House would prohibit the SEC from requiring the CAT to collect personally identifiable information.

Melanie Waddell

@Think_MelanieW

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