Challenge to the SEC’s Consolidated Audit Trail

Amicus Brief Supporting the Plaintiffs and Their Argument That the SEC Did Not Have Statutory Authority

For several years, the Securities and Exchange Commission has been supervising the creation of the Consolidated Audit Trail, or “CAT.” The CAT is an electronic repository of every order and every transaction on the stock exchanges. One part of the data to be captured for each order and transaction is personal identifying information of the customer.  

The SEC ordered the stock exchanges and the broker-dealer regulatory organization to design, build, and fund the CAT. The purpose is to help the SEC, the stock exchanges, and the broker-dealer regulatory organization perform their regulatory functions such as market surveillance, investigation and enforcement activities, and market reconstruction and analysis. The SEC has constant access to the information in the CAT.

The decision to create the CAT alarmed many in the investor community, and in April 2024 several plaintiffs sued the SEC in federal court in Texas to hold the CAT unlawful. The plaintiffs have several objections. One of the main ones is that the CAT has become a tool of mass surveillance of individual investors in violation of the Fourth Amendment’s prohibition against unreasonable government searches and seizures. Another is that the SEC did not have statutory authority to order the creation of the CAT. A case in a different court raises concerns about the massive costs of the CAT, which are in the billions of dollars and which investors ultimately bear. 

I filed a brief of amicus curiae in the Texas court to support the plaintiffs and their argument that the SEC did not have statutory authority. The SEC ordered the CAT based on its power to establish a national market system in securities, but the purposes of the CAT are not consistent with Congress’s stated objectives for a national market system. The SEC created the CAT for regulatory and enforcement purposes and not to meet the national market system objectives of helping securities traders find the best prices and executions. 

The amicus brief is here. 

---

Andrew N. Vollmer is a distinguished senior fellow with the Mercatus Center at George Mason University; former deputy general counsel of the Securities and Exchange Commission; former professor of law, general faculty, at the University of Virginia School of Law; former partner in the securities enforcement group of Wilmer Cutler Pickering Hale and Dorr LLP.