The regulator says it's improving the Consolidated Audit Trail while others fear it’s the beginning of the end.
The Securities and Exchange Commission (SEC) has finalized a set of cost-savings and related measures for the controversial Consolidated Audit Trail (CAT) through an amendment to the National Market System (NMS) Plan that governs the CAT system.
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The regulator is also implementing “exemptive relief from certain requirements of Rule 17a-1 under the Securities Exchange Act of 1934,” officials add.
The ambitious big data CAT system got underway in 2012 in the wake of the Flash Crash of 2010. That event spurred demand for a U.S. securities markets transaction monitoring project that could help the Financial Industry Regulatory Authority (FINRA) and the SEC scan U.S. equity and options markets, exchanges, industry participants, transactions, and more. FINRA CAT, LLC, a subsidiary of FINRA, oversees CAT operations, while the U.S. National Securities Exchanges, alternative trading systems (ATSes), and executing brokers cover CAT’s funding.
For this year, SEC officials also estimate that the amendment “will result in approximately $50 million to $70 million in annual cost savings as compared to the 2025 CAT budget, and approximately $19.4 to $24.1 million in incremental additional cost savings as compared to estimated savings with the implementation of cost savings exemptive relief granted by the commission in 2025.”
SEC officials say the “implementation of various cost savings measures” represents improvements to the controversial CAT system. Others, such as Better Markets, question the move.
“Late last Friday, the SEC issued an order that, among other things, deletes all data older than three years from the CAT. This is shocking. The SEC acknowledges euphemistically that this will ‘impact regulatory efficiency,’ which really means that it will prevent the SEC from catching crooks,” says Benjamin Schiffrin, director of securities policy for Better Markets, a non-profit, non-partisan, and independent organization focused on the financial reform of Wall Street.
Benjamin Schiffrin
“As the SEC recognizes, it accesses trading data ‘older than three years in the context of examinations, enforcement, and economic analysis.’ It also recognizes it will be harder to ‘acquire the relevant data’ after this change to the CAT. And most significantly, it recognizes that ‘the statute of limitations for federal securities fraud is generally five years from the date of the alleged fraud, and thus regulators need to access and analyze trading activity that is older than three years.’ It is hard to envision a more shameful change than letting the CAT delete data before the relevant statute of limitations expires,” Schiffrin says.
Schiffrin is not optimistic about the future of the ambitious system.
“It is now clear that the SEC is not going to propose an order to eliminate the CAT entirely, which might alert the public to its end game of de facto killing the CAT. Instead, the SEC is going to kill the CAT piece by piece. In the name of cost savings, it is going to continually reduce the CAT’s functionality and effectiveness,” Schiffrin says. “The SEC may not dismantle the CAT in one fell swoop, but the result will be death by a thousand cuts. The ultimate casualty will continue to be investor protection.”
Officials at the SEC decline to comment on Schiffrin’s remarks and refer to comments that are part of the latest announcement about CAT.
“The current annual CAT budget for 2026 is approximately $156 million. This budget incorporates the 2025 Cost Savings Exemptive order for the last 9 months of 2026, consistent with the expectation that the Exemptive Order will go into effect at the end of Q1 2026,” according to the SEC order.
The cost-savings measures, approved by the SEC, will allow CAT participants to:
- Cease creating interim lifecycle linkages absent request by an authorized regulatory user;
- Delete certain CAT data, including all CAT data older than three years;
- Ease requirements related to the re-processing of late records;
- Cease providing certain functionality associated with the online targeted query tool;
- Cease reporting of rejected messages received by Plan Participants;
- Relax certain processing deadlines for CAT data;
- Implement a revised approach for the generation of anonymized customer identifiers; and
- Implement a spending cap provision governing future changes to the CAT.
“This includes both the expected cost savings as well as the implementation costs stemming from the 2025 Cost Savings Exemptive order. However, the budget does not reflect savings and implementation costs stemming from the CAIS [Customer and Account Information System] Amendment, since the budget was created prior to the approval of the CAIS Amendment,” according to the SEC. (The CAIS is the database component of the CAT system that tracks customer and account identities.)
“Although the estimated savings from the CAIS Amendment are $7 to $9 million, the portion of these savings related to cloud savings might not be realized during 2026. However, the implementation costs of the CAIS Amendment would likely be incurred during 2026. On net, the Commission predicts that the CAIS amendment will result in a net cost increase of $0.5 million during 2026. If this estimated net cost increase is incorporated into the 2026 budget, then the $156 million budget would rise to $156.5 million.”
Paul S. Atkins
SEC Chairman Paul S. Atkins adds that the new order “is a step in the right direction, but there are still many more steps to be taken. The commission’s ongoing comprehensive review of the CAT will consider the sustainability of the CAT’s budget, and we expect the plan participants that operate the CAT and the industry to work together towards further cost savings.”
The full SEC order can be found here: https://shorturl.at/h6Nlz
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