In an effort to curb compliance costs associated with trading oversight requirements, the U.S. Securities and Exchange Commission (SEC) issued an order granting relief to industry self-regulatory organizations to reduce the operating costs of the consolidated audit trail (CAT) initiative.
The SEC initially adopted rules to establish the CAT — which requires national securities exchanges and SROs to participate in a plan to create a modernized audit trail system — to provide regulators with access to comprehensive trading data, enabling adequate market surveillance, oversight and enforcement.
However, the regulator said the costs of operating the system have been steadily rising in recent years and it is now trying to reverse that trend.
SEC chairman Paul Atkins noted that the CAT’s annual operating costs have climbed to an estimated US$228 million this year from the US$55 million forecast when it was established in 2016, making participation in the equities and options markets more expensive.
“Both the commission and the participants that operate the CAT need to take very seriously their roles in reducing these seemingly endless cost increases,” he said. “CAT must be more efficient and cost-effective.”
The regulator’s order aims to address rising costs by easing requirements on the processing of late records, allowing exchanges to cease providing certain functionality, deleting certain CAT data and more cost-effectively storing older data.
The SEC said the changes are estimated to enable annual savings of between US$20 million and US$27 million on the CAT budget.
Atkins noted that he has also instructed the regulator’s staff to undertake a comprehensive review of the CAT to identify additional possible cost savings.
“While I am pleased to support today’s exemptive relief, I want to reiterate that this is just the start. More changes are needed, and I look forward to reviewing the staff’s recommendations,” he said.