By Richard Morrison, Competitive Enterprise Institute
Today is the deadline for filing regulatory comments on the Securities and Exchange Commission’s Consolidated Audit Trail (CAT) program. The CAT is a massive database mandated by the SEC (via Rule 613) to track all orders, cancellations, modifications, and trades across U.S. equity and options markets. It aggregates tens of billions of daily records from self-regulatory organizations (SROs) and broker dealers and is used by regulators to reconstruct market events after the fact and investigate potential violations of securities laws. It is also a bloated, expensive burden with significant constitutional problems. My comment letter recommends that it be eliminated entirely.
As part of its current “concept release” issued in April, the Commission solicited comments on whether changes should be made to the CAT that respond to “civil liberty, privacy, and confidentiality concerns; cost-efficient technology solutions; and cybersecurity considerations.” The answer is an overwhelming yes. For the reasons described in my letter—and many additional ones described by others in the current regulatory docket—the time has come for the SEC to bring an end to this entire enterprise.
Even the shortest summary should cause anyone who cares about limited government some alarm. The CAT has First Amendment issues relevant to Supreme Court precedent like Americans for Prosperity Foundation v. Bonta (2021) and NAACP v. Alabama (1958). It has major Fourth Amendment problems because, as my colleague Wayne Crews said, it shifts from surveilling specific suspects to surveilling everyone. It even has Fifth Amendment concerns relating to property takings and self-incrimination.
Maintaining a giant database full of information on presumptively innocent Americans also presents significant cybersecurity problems. The agency has had its own issues with maintaining its EDGAR database and locking down other digital properties, like a former chairman’s X account. And these concerns aren’t limited to regulation of financial transactions. Smart analysts like Shoshana Weissmann have written about the dangers posed by huge, unwieldy government databases in the context of age verification for digital media. Her concerns are relevant to the SEC as well. The CAT has been subject to multiple legal challenges and objections over the decade and a half that it’s been in process, notably from my dogged friends at the New Civil Liberties Alliance. They—and Senior Litigation Counsel Peggy Little especially—are a great source for a deep dive on the program and its deficiencies.
Richard Morrison is a senior fellow at the Competitive Enterprise Institute, where his work focuses on the relationship between economic and political freedom.
