In response to market participants, the regulator approved modifications to bring down key costs for the Consolidated Audit Trail
Grygo is the chief content officer for FTF & FTF News.
It’s been a while since I wrote about the ambitious and controversial big data, U.S. securities transaction monitoring project known as the Consolidated Audit Trail (CAT), which has been helping regulators FINRA and the Securities and Exchange Commission (SEC) monitor U.S. equity and options markets, exchanges, participants, transactions, and more.
CAT issues have receded as other regulatory concerns have taken the spotlight and have been dealt with out of the glare of controversy. One such CAT issue that got resolved rather quietly concerned key, ongoing costs of the system.
In one of his last acts as SEC Chair Gary Gensler issued a statement, dated Dec. 12, 2024, about “CAT Cost Savings,” and the SEC’s approval of a key amendment to the 2016 National Market System Plan that set CAT in motion.
“I am pleased to support this amendment estimated to save $21 million annually while maintaining the core functionality of CAT,” Gensler says in the statement. “This amendment modifies requirements related to linking market maker quotes for equity options. In addition, it also makes changes to storage and retention requirements. Beyond these cost savings measures, a number of commenters made additional suggestions. While we are not addressing these further suggestions in this order, I do support exploration of these and potentially other cost savings measures.”
To recap the process that led to these changes, securities industry participants, including major exchanges, proposed on March 27, 2024 amendments designed to implement certain cost-saving measures. The proposed provisions “would change processing, query, and storage requirements for options market maker quotes in listed options,” according to the SEC. The proposed changes would permit the movement of “raw unprocessed data and interim operational copies of CAT Data older than 15 days to what the Participants described as a more cost-effective storage tier.”
To say the least, industry participants and the SEC worked out the details and by December of last year, agreed to 63 pages of changes that encompass the:
- Processing, query, and storage requirements for options market maker quotes in listed options;
- Storage for raw unprocessed data, interim operational data, and/or submission and feedback files older than 15 days; and
- Codification and expansion of exemptive relief permitting deletion of industry test data older than three months.
The final proposal predicted that enactment of these changes “will result in meaningful cost savings …. The Participants estimate that the cost savings will be $21 million in the first year, which is 11 percent of the total operating costs of CAT in 2023. The Participants state that they believe their assumptions and estimates are reasonable.” The SEC has some reservations about the estimates but agreed the savings were worth the changes.
In his statement, Gensler says that “no tool, though, should be static. Technology and business models are constantly evolving. Thus, it is important to regularly evaluate the requirements of the CAT with an eye towards ensuring the system is cost-effective while still preserving core regulatory functionality.”
The SEC’s actions got a partial thumbs up from SIFMA, in particular from Ellen Greene, managing director, equity and options market structure, at the securities industry advocacy group.
Ellen Greene
“Much of the cost savings are attributable to a modification of the requirements related to linking market maker quotes for equity options. In addition, it also makes changes to storage and retention requirements,” Greene says. “SIFMA advocated for this action, and we will continue our advocacy opposing the CAT funding scheme. We also continue to advocate for the implementation of the long-pending data protection rule and wholesale review of the collection of personally identifiable information, or PII, which puts investors’ data at serious risk of a data breach without the data protection rule in place.”
So, while all’s well that ends well this time, this is not the last CAT story.
The full text of the current changes can be found here: https://shorturl.at/VU89n
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