Steps Toward Regulating the Cost of the CAT
The SEC has issued a new order granting conditional exemptive relief toward certain requirements under the Consolidated Audit Trail NMS Plan (“CAT NMS Plan”), Regulation NMS Rule 613, and Rule 17a-1 under the Securities Exchange Act of 1934. This relief enables the self-regulatory organizations (SROs) participating in the plan to significantly reduce operating costs for the Consolidated Audit Trail (“CAT”) while preserving its core regulatory function. (SEC)
What the Order Does: Key Changes to CAT Cost Structure
The SEC’s exemptive relief primarily addresses four major categories of cost-burden reduction for CAT operations: lifecycle linkages, late-report record re-processing, query tool functionality, and data storage/retention. (SEC)
Lifecycle Linkages:
Under the CAT NMS Plan as previously structured, participants had to create interim lifecycle linkages (order event identification and linking) by T+1 (next day) and final linkages by T+5. With the new relief, participants may cease creating those interim lifecycles unless requested by a regulator, and only final linkages by T+5 at 8 a.m. ET are required except for specified options market-maker quotes. (SEC)
Late-Report Re-processing Requirements:
Previously, full replay (assembling late-reported data into full lifecycles) and enhanced “Late to Lifecycle” processes were part of required operations. Under the new relief, the “Full Replay” process may be terminated except upon regulatory request. “Enhanced Late to Lifecycle” must be maintained only for trade dates within the prior three years, on a quarterly basis. No re-processing is required for data outside that window. (SEC)
Online Targeted Query Tool (OTQT) Functionality:
The order relieves the plan processor from maintaining certain OTQT functionality for participants and the SEC. However, user-defined direct queries, bulk extract, and certain MIRS tools remain subject to monitoring and reporting, and the full removal cannot occur until two months after the order is published in the Federal Register. (SEC)
Data Storage and Retention:
The relief allows participants to delete CAT data older than five years (instead of six), move data older than three years into a cost-effective storage tier (less accessible but available on request), delete all listed-options market quotes after one year, and delete interim operational data older than 15 days. (SEC)
Why the SEC Moved: Cost Pressures and Legal Background
The CAT was originally approved in 2016, with upper-end annual cost estimates around US $55 million. (SEC) However, by November 2024, projected annual costs for 2025 exceeded US $248 million. (SEC)
This escalation triggered industry concern and legal scrutiny. A key catalyst: the U.S. Court of Appeals for the Eleventh Circuit vacated the 2023 Funding Model Order for CAT on grounds of inadequate economic justification and improper cost allocation. (Reuters)
In the press release, SEC Chairman Paul S. Atkins emphasized the need for CAT to operate with “more efficiency and cost-effectiveness.” (SEC) The Commission also launched a broader review of CAT’s scope, cost drivers, and redundancies. (SEC)
Impact on Market Participants and Regulatory Oversight
For the SROs and broker-dealers participating in CAT, this order means a tangible reduction in compliance and operational cost burdens. The CAT budget for 2025 originally exceeded $248 million; as a result of this relief and earlier cost-saving amendments, the forecasted expense now falls an additional $20 million–$27 million below the roughly $196 million forecast.
From a regulatory oversight perspective, the order retains the CAT’s core functionality but relaxes certain obligations. Participants will still supply final lifecycle linkages, enable authorized regulatory users to request interim linkages, provide data access via defined query tools, and continue storing data for relevant trade-dates. But the flexibility afforded should ease operational burdens and storage costs.
Next Steps and Considerations for Stakeholders
For SROs and industry participants, it’s critical to review operations in light of the relief: adjust processes for lifecycle linkage creation and late-report re-processing, update query tool infrastructure and governance, and revise data-retention policies to align with the new timeline and storage tiers.
For broker-dealers, the cost reductions should eventually result in lower fees passed through from SROs (or at least slower growth in those fees). Monitoring how the cost savings translate into fee structure changes will be important.
For regulators and compliance professionals, the shift signals an evolution in the CAT regime: from heavy-cost, high-luxury data capture toward a more streamlined, cost-aware framework. That means oversight practices may need to adjust: queries and supervisory tools will focus on the remaining core functions, and regulatory users should stay alert to the possibility of ad-hoc requests for additional linkage or replay data.
For investors and market-structure observers, the order reflects a balancing act: preserving oversight capability through CAT while containing industry cost burdens that could otherwise be passed on to end-investors. The Commission’s broader review may yield further reforms around funding, governance, reporting requirements, or even scope of data collected. (SIFMA)
For more information, contact the securities lawyers at Sallah Astarita & Cox, at 212-509-6544 or visit Securities Lawyer
