The SEC adopted amendments to facilitate the implementation of the Consolidated Audit Trail ("CAT"). The amendments impose public transparency and financial accountability requirements.

In accordance with the final amendments, FINRA and the securities exchanges will be required to publish a comprehensive CAT implementation plan and present quarterly progress reports that must be approved by a supermajority vote of the operating committee of CAT NMS, LLC.

Additionally, the SEC is establishing deadlines for four CAT implementation milestones and requiring a reduction in the fees that may be recovered from broker-dealers if the target deadlines are missed. Under the final amendments, the target deadlines are as follows:

  • July 31, 2020: Initial Industry Member Core Equity and Option Reporting;
  • December 31, 2020: Full Implementation of Core Equity Reporting Requirements;
  • December 31, 2021: Full Availability and Regulatory Utilization of Transactional Database Functionality; and
  • December 30, 2022: Full Implementation of CAT NMS Plan Requirements.

The amendments will go into effect 30 days after publication in the Federal Register.

Commissioner Peirce Statement

SEC Commissioner Hester M. Peirce dissented from the final amendments for, among other reasons, failing to address the "deeper problem" with CAT, which is the "significant cost[]" it presents to Americans' "liberty and privacy." She argued for the elimination of CAT completely, stating that it is "doubtful" whether CAT will advance the SEC's enforcement program. Instead, she recommended that if the SEC wants to improve its enforcement program, it should focus on improving its electronic blue sheets or FINRA's Order Audit Trail System. Additionally, Ms. Peirce noted that CAT has increasingly become a financial burden due to the delay in its implementation process.

Commentary

Commissioner Peirce delivers an intellectually powerful argument that bucks the go-with-the-flow on CAT. She has consistently argued that CAT is well-intentioned but ill-advised. See, e.g., SEC Commissioner Hester Peirce Questions Current Data Collection Practices.

Living in a world full of extremely sophisticated data thieves that may be backed by sovereign nations, it seems imprudent to collect and aggregate so much vital financial data in one place. Government agencies and SROs are not immune from hacking and CAT will be a treasure trove for digital blackboards.

Originally published 18 May 2020

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