The Blubber

A new SEC market-tracking database is a “massive, unprecedented government surveillance system” that could cost the financial services industry billions of dollars and compromise investors’ privacy, per Citadel.


Citadel Securities and the American Securities Association, a consortium of brokerage firms, have petitioned the 11th US Circuit Court of Appeals to review the Securities and Exchange Commission's (SEC) approval of the funding model for a database. This request comes in response to what they describe as "widespread investor concerns about transparency, governance, costs, and data privacy."

In a recent filing, the trade group and the market-making firm, founded by billionaire Ken Griffin, argued that the Atlanta-based appeals court should rule the funding plan unlawful. They contend that the plan and the database itself exceed the statutory authority granted to the SEC and were implemented without congressional consent. They also expressed concerns that the tracking tool would collect the personal information of every investor trading in US securities.

The brief states, "Not surprisingly, this program’s threats to privacy and civil liberties have set off alarm bells across the political spectrum, which have only grown louder as the public learns of the SEC’s repeated failures to safeguard its own systems against foreign hackers. Incredibly, however, the Commission created this Big Brother regime without any approval, direction, or appropriation from Congress."

The SEC, however, declined to comment on the ongoing litigation, maintaining that the database is necessary to safeguard the market's integrity.

The Consolidated Audit Trail (CAT) requires brokers and exchanges to report all trades, including those involving options, equities, and over-the-counter securities, to track the entire life cycle of each transaction. The goal is to identify the causes of market turmoil, especially market manipulation.

CAT faced numerous obstacles over more than a decade, including disputes over funding, concerns about investor privacy, and delays due to the pandemic. The SEC approved the funding model in September, which will be financed by a fee on each market transaction, depending on the type of security.

ASA CEO Chris Iacovella has criticized the fees as a "tax on American investors" and has characterized the database as an unconstitutional collection of personal and financial data. Citadel Securities and the ASA argue in their brief that the CAT violates the Exchange Act by placing the entire cost burden on broker-dealers, without a reasonable allocation of expenses. They also criticize the SEC's reliance on outdated economic analysis and its failure to estimate the database's cost to investors.

Additionally, the brief mentions the SEC's recent cybersecurity issues, including a compromised social media account, highlighting the regulator's vulnerabilities to hackers.