Sen. Tim Scott, R-S.C., left, and Rep. French Hill, R-Ark.
Congressional Republicans asked the SEC to “launch a comprehensive review” of the consolidated audit trail, expressing concerns about the database’s funding, cybersecurity protections and collection of personally identifiable information.
The consolidated audit trail, or CAT, is a database for all equity and options trades on U.S. exchanges, and since 2020, broker-dealers have been required to submit data to the CAT on trades they execute on behalf of clients, including institutional investors.
On Feb. 10, the SEC under acting Chair Mark Uyeda issued an exemption from the requirement that such data include personally identifiable information, meaning the names, addresses and birth years of those responsible for a trade.
“However, there is more work to be done,” Republican lawmakers wrote in a Feb. 28 letter to Uyeda. “The prohibition on collecting investor PII must be formally codified (rather than via rescindable exemptive relief) and already-collected PII must be expunged.”
The lawmakers behind the letter include Senate Banking Committee Chair Tim Scott, R-S.C, and House Financial Services Committee Chair French Hill, R-Ark. Sens. Tom Cotton, R-Ark., Bill Hagerty, R-Tenn., John Boozman, R-Ark., and John Kennedy, R-La., as well as Reps. Bill Huizenga, R-Mich., Ann Wagner, R-Mo., and Barry Loudermilk, R-Ga., also signed the letter.
Uyeda "will respond to members of Congress directly," an SEC spokesperson said in an email.
The letter calls for enhanced cybersecurity measures on the CAT’s remaining data and states “the CAT's bloated out-of-control budget must be addressed.”
In September 2023, the SEC approved a revised funding model for the CAT, amending it so fees paid to fund the CAT would be determined by executed shares and divided evenly among three parties: the exchanges and alternative trading systems, the executing brokers representing buyers and the executing brokers representing sellers.
In their letter, the lawmakers call for the commission to “launch a comprehensive review that covers all aspects of the CAT,” including what they describe as its “inequitable funding structure,” which both Uyeda and Republican SEC Commissioner Hester Peirce voted against in 2023.
Following its approval, Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, said in a statement that the new funding model inequitably allocates the costs of the CAT between industry member broker-dealers and the exchanges.
"This unfair allocation of CAT costs is especially problematic given that industry members have no role in the governance, oversight or design of CAT and obtain no direct tangible benefits from its operation — indeed, the industry has not even been permitted to obtain or review CAT data used in the context of SEC regulatory initiatives," he said.
In their letter, the lawmakers also wrote “it would appear appropriate for the commission to pause and reconsider its position with respect to ongoing litigation related to the CAT, as it has done for other cases commenced during the Biden administration."
In April, conservative groups filed a lawsuit challenging the consolidated audit trail, arguing that the SEC’s data collection under the CAT violated the First, Fourth and Fifth amendments, as well as the Administrative Procedure Act.
Oral arguments were held Feb. 3 in the case — American Securities Association et al. vs. SEC — before the 11th U.S. Circuit Court of Appeals in Atlanta.
