February 14, 2025

Ms. Vanessa Countryman
Secretary
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549

Re: Latest SRO CAT Fee Filings and Comprehensive Review of the Consolidated Audit Trail (“CAT”)

Dear Ms. Countryman:

The Securities Industry and Financial Markets Association (“SIFMA”)¹ respectfully submits this letter to urge the U.S. Securities and Exchange Commission (the “Commission”) to pause all current and future CAT fees imposed on Industry Members under the current CAT Funding Model until the Commission has the opportunity to complete a comprehensive review of the current structure and operations of the CAT, including its funding and current cost.² We commend the Commission for its recent order granting exemptive relief from the sections of the National Market System Plan Governing the CAT (the “CAT NMS Plan” or “Plan”) that required reporting of certain personal identifying information (“PII”) to CAT.³ This step will increase the security of the CAT without eliminating regulators’ ability to conduct effective surveillance of the U.S. equity and option markets. Consistent with this recent action, the Commission should take additional steps to address other areas of concern regarding the CAT.

Specifically, SIFMA recommends that the Commission:

• Suspend, institute proceedings to review, and ultimately disapprove the recently submitted rule filings by the self-regulatory organizations (“SROs”) to establish fees for Industry Members related to certain costs of operating the CAT NMS Plan⁴ because the filings do not demonstrate that the fees are consistent with the requirements of the Securities Exchange Act of 1934 (the “Exchange Act”).⁵ Commission suspension of the current filings would be consistent with the Commission’s suspension of the January 2024 SRO fee filings related to historical CAT costs.
• Exercise its broad exemptive authority to pause any ongoing or future collection of CAT fees by the SROs, as well as prohibit the SROs from penalizing Industry Members for nonpayment of fees, by granting Industry Members exemptive relief from relevant portions of the CAT NMS Plan. As discussed below, this exemptive relief would be appropriate in the public interest, consistent with the protection of investors, the maintenance of fair and orderly markets, and the perfection of the mechanisms of a national market system.
• Require that all fees charged by the SROs for CAT must be filed pursuant to Section 19(b) of the Exchange Act and require formal SEC approval that such fees meet the applicable Exchange Act requirements prior to being effective rather than the current process of permitting fees to be filed with immediate effectiveness pursuant to Section 19(b)(3)(A) of the Exchange Act.
• Conduct a comprehensive review of the CAT, including the number and types of databases necessary for regulators to conduct surveillance of market activity, if any; any data elements necessary to be reported and stored; data security measures; and the proper approach to funding those oversight measures.
• After granting exemptive relief from all ongoing CAT Fees (historical and prospective), based on the ongoing serious concerns regarding the operations of the CAT and the legality of its Funding Model, request that the Eleventh Circuit Court of Appeals (“11th Circuit”) postpone any decision in the ongoing litigation between certain Industry Members and the Commission until the Commission can complete a comprehensive review of the CAT and its Funding Model.⁶

These steps are necessary and appropriate in the public interest and for the protection of investors because under the current CAT Funding Model, SIFMA members and investors ultimately will be left to pay most of the costs associated with operating the CAT and will not be able recover those costs even if the Commission later rethinks the CAT or if the CAT and/or its Funding Model is later determined to be invalid by the 11th Circuit.

New information has recently come to light that further supports SIFMA’s longstanding position that the fees that are to be allocated to Industry Members pursuant to these 19b-4 filings are not reasonable and, thus, are not consistent with Exchange Act requirements. In particular, the Commission granted exemptive relief from those sections of the CAT NMS Plan that required reporting of certain PII. This exemptive relief comes on the heels of a blog post by the CEO of FINRA confirming that a significant and costly portion of CAT, namely the continuous reporting and collection of PII from every individual investor, is not needed by FINRA (or the other SROs) for market surveillance purposes. If a central (and costly) component of CAT is not necessary for regulatory objectives, it is difficult to see how the costs for this component could be considered reasonable as required by the Exchange Act.

The Commission must specifically answer this question before approving these latest 19b-4 filings. In addition, the Commission should exercise its exemptive authority to pause all ongoing CAT fees imposed on Industry Members by granting Industry Members exemptive relief from certain portions of the CAT NMS Plan. A pause of all CAT fees would provide the Commission with an opportunity to address long-standing concerns held by policymakers regarding the CAT and its Funding Model while serving to protect Industry Members and investors from paying hundreds of millions of dollars in unrecoverable fees should the Commission ultimately take a different approach or should litigation against the CAT Funding Model be successful.⁷ The Commission also should request that the 11th Circuit delay any decision in the ongoing CAT litigation until the Commission completes its comprehensive review, as there are serious questions regarding the current structure and operation of CAT and whether its Funding Model is consistent with the Exchange Act.⁸

1. SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for
   industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org. [↩]
2. Capitalized terms not otherwise defined in this letter have the same meanings as they do in the CAT NMS Plan and/or the CAT Funding Model. See CAT NMS Plan as of Dec. 12, 2024, available at https://www.catnmsplan.com/sites/default/files/2025-01/LLC_Agreement_of_Consolidated_Audit_Trail_LLC-as-of-12.12.24.pdf; Order Approving an Amendment to the National Market System Plan Governing the Consolidated Audit Trail, Exchange Act Release No. 34-98290, File No. 4-698 (Sept. 6, 2023), 88 FR 62628 (September 12, 2023) (“CAT Funding Model”). [↩]
3. Order Granting Exemptive Relief, Pursuant to Section 36(a)(1) and Rule 608(e) of the Securities Exchange Act of 1934, from Certain Provisions of Section 6.4(d)(ii)(C) and Appendix D, Sections 9.1, 9.2 and 9.4 of the National Market System Plan Governing the Consolidated Audit Trail, Release No. 34-102386; File No. 4-698 (Feb. 10, 2025). [↩]
4. This series of SRO CAT fee filings seek to implement CAT Fee 2025-1 on Industry Members to partially offset the SROs’ costs of operating the CAT in the first half of 2025. See Appendix for citations to SRO rule filings. [↩]
5. 15 U.S.C. §§ 78f(b)(3), (4), (5), and (8); 78o-3(b)(5), (6), and (9). [↩]
6. Am. Sec. Ass’n et al. v. SEC, No. 23-13396 (11th Cir.) (filed Oct. 17, 2023). [↩]
7. Am. Sec. Ass’n et al. v. SEC, No. 23-13396 (11th Cir.) (filed Oct. 17, 2023). SIFMA continues to believe that the Commission’s order approving the funding model for the CAT is contrary to the Exchange Act and arbitrary and capricious. See Brief of Amicus Curiae SIFMA, Am. Sec. Ass’n et al. v. SEC, No. 23-13396 (11th Cir.) (filed Feb. 15, 2024). SIFMA accordingly reserves all rights. [↩]
8. In a separate litigation involving Commission rules, Acting Chair Uyeda recently “directed Commission staff to notify the Court of changed circumstances and request that the Court not schedule the case for argument to provide time for the Commission to deliberate and determine the appropriate next steps in these cases.” Statement of Acting Chair Mark T. Uyeda, Acting Chairman Statement on Climate-Related Disclosure Rules (Feb. 11, 2025), available at https://www.sec.gov/newsroom/speeches-statements/uyeda-statement-climate-change-
   021025?utm_medium=email&utm_source=govdelivery. [↩]