The SEC's new "Consolidated Audit Trail" system, aimed at monitoring all U.S. stock trades, has sparked controversy over its potential infringement on privacy rights and its legality.
All stock trades conducted on U.S. exchanges are set to be monitored through a new system known as the "Consolidated Audit Trail" (CAT). The SEC has stated that the CAT mandate would enable regulators to "efficiently and accurately track all activity throughout the U.S. markets."
The announcement of the CAT plan was made by SEC Chairman Gary Gensler in September 2023, who noted the lack of a consolidated view of order information in exchange-traded securities prior to the creation of CAT. Initially proposed during the Obama administration in 2012, the plan was dormant under the Trump administration and has now been revived under the Biden administration.
However, the plan faced resistance from the New Civil Liberties Alliance (NCLA), a group of lawyers and retired judges, who view it as a violation of Americans' civil rights. On April 16, the NCLA filed a complaint, preceding a lawsuit, that criticized the CAT mandate as a mass collection of personal financial data and an overreach of the SEC's authority, potentially infringing on Fourth Amendment protections.
Scott Shepard, director of the Free Enterprise Project, expressed the importance of countering what he referred to as a new illegal power grab. The SEC, on the other hand, maintains that it has the authority to enact the CAT system and argues that it is vital for protecting investors and investigating market events like the 2010 "Flash Crash."
Former Attorney General William Barr and others have raised concerns about the privacy implications of the CAT database, which could grant extensive access to personal investment activities to numerous government employees.
In Congress, Senator John Kennedy (R-La.) criticized the SEC's move as tantamount to stalking investors, detailing the types of information brokers would be mandated to provide.
The cost of implementing the CAT program, feared to be in the billions, will be borne by brokerage firms and potentially passed on to consumers. There is also concern about the security of personal financial data in government databases, as the SEC itself has experienced hacks in the past.
Senator Sherrod Brown (D-Ohio), however, defended the system at a 2019 Senate Banking Committee hearing, arguing that the ability to protect personal information and pursue financial criminals is not mutually exclusive.
