The SEC is launching a major review of the surveillance system shortly after reining it in financially.
The controversial Consolidated Audit Trail (CAT) will remain under scrutiny by the Securities and Exchange Commission even though the SEC recently finalized a set of cost-savings and related measures intended as ways to control the big data surveillance system. The regulator also implemented exemptive relief from certain requirements under the Securities Exchange Act of 1934.
Grygo is the chief content officer for FTF & FTF News.
But the SEC is “soliciting public comment in support of a comprehensive review of CAT and other SEC audit trails and related data sources used in the regulation of U.S. securities markets,” according to a recently issued concept release.
“The concept release seeks comment on topics including, but not limited to, CAT funding and cost management, the regulatory purpose of the CAT, the structure and governance of the CAT, the design and scope of the CAT, and the cybersecurity and data privacy of the CAT and other audit trails and related data sources,” according to the SEC. The regulator also wants comments “regarding the appropriate balance between privacy and confidentiality considerations, civil liberties protections, and regulatory need.”
The CAT system began in 2012, following the 2010 Flash Crash. That event spurred demand for a U.S. securities-market 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. Ultimately, FINRA CAT, LLC, a subsidiary of FINRA, was created to oversee CAT operations, while the U.S. National Securities Exchanges, alternative trading systems (ATSes), and executing brokers cover CAT’s funding.
“Before the implementation of the CAT, cross-market audit trail information had significant limitations, and analysis of cross-market trading activity was often a cumbersome, complex, and time-consuming process that was prone to error,” the SEC explains.
The comprehensive review will encompass many developments “in the nearly ten years since the CAT NMS Plan was approved,” such as:
- Since the CAT system was launched, other audit trails and data sources, such as the Order Audit Trail System (OATS), have been retired;
- The annual costs of “operating the CAT have grown well beyond the Commission’s 2016 estimate, in part because markets have experienced much higher volumes and more trading activity than anticipated;
- “The SEC has received suggestions from the SROs and other market participants about potential considerations for, and improvements to, audit trails and/or related data sources, including petitions for rulemaking related to the operation and funding of the CAT. In addition, there have also been legal challenges to the CAT.”
While it’s a little early to gauge reactions to yet another review of the CAT system, Kenneth E. Bentsen, Jr., president and CEO of the securities industry trade associations SIFMA, says he supports the move via a prepared statement. SIFMA represents the concerns of broker-dealers, investment banks, and asset managers operating in the U.S. and global capital markets.
Kenneth E. Bentsen, Jr
“We have long called for a public review of the CAT, which would address, among other topics, the costs of the CAT, its governance and funding, and the scope and security of the data held within the CAT,” Bentsen says. “SIFMA has previously made in-depth recommendations which would lead to a more efficient and cost-effective CAT without compromising its intended regulatory purpose, and we look forward to further commenting on today’s concept release and engaging further with the SEC on this issue.”
The SEC is seeking comment “from all interested parties on the general and specific questions raised in the concept release, as well as on any other aspects of audit trails and related data sources either currently in use or that should be created,” officials say. “The Commission also welcomes comments on any costs, burdens, or benefits that may result from such regulatory responses.”
The full concept release can be found here: https://shorturl.at/4530N
To submit your comments, click on this link: https://shorturl.at/sx9tU
Public comment will be open for 60 days after publication of the concept release in the Federal Register, according to the SEC.
Is your company featured in this article? Contact us about reprints or licensing.
