The CAT’s New Diet: SEC Approves CAT Cost Savings Amendment

The Securities and Exchange Commission (SEC) approved the joint industry proposal (Proposed Amendment), spearheaded by Consolidated Audit Trail, LLC (CAT LLC), to amend the National Market System Plan governing the Consolidated Audit Trail (CAT), which marks another step in the SEC’s ongoing effort to reduce CAT costs. The SEC approved the seven-component amendment with certain modifications, and concluded that the Proposed Amendment, as modified, strikes a balance between cost reduction and preservation of the CAT’s core regulatory functionality and utility.[1] Additionally, the SEC codified exemptive relief previously granted for several requirements, as further outlined below, including data retention, lifecycle linkages, and recordkeeping.

Core Components of the Approved Amendment

The Proposed Amendment was projected to cut annual CAT operating costs by approximately $55 to $73 million relative to CAT’s then-current annual operating budget of approximately $188 million. The SEC approved all seven components of the amendment, with modifications to certain elements:

• Interim CAT-Order-ID Amendment (est. $2–$3 million annual savings): Eliminates routine daily delivery of interim CAT-Order-IDs; the Plan Processor will generate them only on an ad hoc, as-requested basis. The SEC modified this component to remove a proposed limitation that would have confined ad hoc requests to senior SEC officers only, and extended request authority to all authorized SEC personnel as well as plan participant regulatory users.
• Data Storage Amendment (est. $23.5–$32 million annual savings): Permits deletion of CAT data older than three years, options market maker quotes older than six months, interim operational data older than 15 days, and certain options SIP data older than six months. The SEC made targeted modifications to certain data availability provisions but otherwise approved this as the single largest cost-reduction component of the amendment.
• Late Data Re-Processing Amendment (est. $12.5–$17 million annual savings): Eliminates re-processing of late-submitted CAT data after final lifecycle assembly. The SEC modified this component, and restored certain provisions that CAT LLC had proposed to delete, to preserve regulatory users’ ability to access and analyze data related to late submissions.
• OTQT Amendment (est. $2.5–$3.5 million annual savings): Eliminates the Online Targeted Query Tool. The SEC agreed that the tool generates relatively low usage compared to its operational and cloud costs, and that its removal would not meaningfully impair regulators’ access to CAT data through other available tools.
• Rejected Message Amendment (est. $0.5 million annual savings): Eliminates the requirement for plan participants and industry members to report rejected messages to the CAT.
• Data Availability Amendment (est. $1.5–$2 million annual savings): Adopts a more cost-efficient timeline for data availability to regulators and adjusts certain CAT processing and availability requirements accordingly.
• Reference Data Amendment (est. $4–$6 million annual cloud savings): Adopts a reference-data-based approach for the generation of CAT Customer IDs (CCIDs), rather than a full elimination of CAIS and CCIDs. This approach retains the cross-market identifier while it reduces associated system costs. This component, which represented a significant departure from the Original CAT LLC Proposal, prevailed over the full CAIS/CCID elimination alternative in response to public comments on the Proposed Amendment.  The Original CAT LLC Proposal was not formally submitted to the SEC because the consensus from discussions with industry member groups was that certain aspects of it would impose compliance costs on industry members. The Reference Data Amendment was developed in direct response to those industry concerns, as the full elimination of CAIS/CCID alternative, while potentially yielding greater cost savings, raised concerns about likely increases in Electronic Blue Sheet (EBS) requests and associated costs to industry members.

Beyond cloud hosting savings, the SEC’s order confirms that total Plan Processor operating fees will fall from approximately $54 million to approximately $47 million, a $7 million reduction.

A Spending Cap for CAT

The SEC also approved a new spending cap provision (proposed Section 11.1(a)(iii) of the CAT NMS Plan). The provision states that any additions or modifications to the then-existing functionality or system operations of the CAT that would materially increase operating expenses must first receive approval under a CAT NMS Plan amendment pursuant to Rule 608(b) or by SEC order. Routine cost increases, such as annual adjustments to vendor and insurance fees, fall outside the cap’s scope.

Remaining Open Items

CAT LLC urged the SEC to seek additional comment on two components of the original CAT LLC proposal that did not make it into the final amendment: (1) full elimination of CAIS and CCIDs (versus the reference data model approach), and (2) a reduction of the linkage timeline from four days to two days. The SEC’s order makes clear that approval of the Proposed Amendment does not foreclose further cost reduction measures. As part of its ongoing comprehensive review of the CAT, the SEC expects to engage with plan participants, industry members, and the public on CAT cost issues.

The SEC’s Order is available here.