A CAT-astrophic Funding Model? Court Sends SEC Back to the Drawing Board

The US Court of Appeals for the Eleventh Circuit (Eleventh Circuit) recently vacated the Securities and Exchange Commission’s (SEC) 2023 funding order for the Consolidated Audit Trail (CAT) (the 2023 Funding Order), stayed its decision for 60 days, and remanded the matter to the SEC for further proceedings.[1]

Court Finds SEC’s CAT Funding Approach Unreasonable and Based on Outdated Analysis

The Eleventh Circuit held that the 2023 Funding Order violated the Administrative Procedure Act (APA) because it (i) allowed self-regulatory organizations (SROs) to pass along all of their CAT costs to their members (primarily broker-dealers) while retaining control over CAT governance and budgeting, and (ii) relied on outdated economic analysis despite material changes in CAT costs and cost allocation. When the SEC approved the CAT in 2016, it projected significantly lower creation and operating costs than what materialized. More than $500 million has already been spent to build the still-incomplete system, and annual operating costs now approach $200 million. The court found the SEC’s failure to update its economic analysis or account for the revised cost allocation structure “unreasonable” under the APA.

CAT Costs Left in Place for Now, But SEC Ordered to Conduct New Economic Analysis

The decision temporarily preserves the status quo for CAT cost allocation but requires the SEC to revisit its economic analysis and cost-allocation model. The court emphasized that the 2023 Funding Order is internally inconsistent with earlier CAT approvals and permits SROs to shift the full economic burden to broker-dealers and their customers, contrary to original funding principles. The Eleventh Circuit stayed its vacatur for 60 days, giving the SEC an opportunity to conduct a revamped economic analysis and reconsider how CAT historical and prospective costs should be allocated among market participants.

The Eleventh Circuit’s opinion is available here.

[1] Am. Sec. Ass'n v. SEC, No. 23-13396 (11th Cir. July 25, 2025).