(FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet, a Nomura company.)
Is the Consolidated Audit Trail (CAT) the capital markets version of the California High-Speed Rail?
Well, not exactly. But there are some parallels.
The California High-Speed Rail (CAHSR) is widely cited as the biggest modern U.S. public project boondoggle, with costs ballooning to $126 billion, triple the original $45 billion that was approved by voters in 2008. Meant to connect Los Angeles and San Francisco, it has become known as the ‘train to nowhere’, and its start date was just recently postponed again, from 2032 to 2033.
The CAT was back in the news this week, when the US Securities and Exchange Commission issued a concept release soliciting public comment in support of a comprehensive review of the CAT and other audit trails and related data sources currently used in the regulation of U.S. securities markets. SEC Chairman Paul Atkins emphasized the need to reform the CAT by better balancing regulatory use, costs, funding, and security considerations.
To be sure, unlike the CAHSR, the CAT is up and running after a phased, four-year go-live period between June 2020 and May 2024. But the CAT has had a long and checkered history dating back to when it was first announced in 2012 as a way for regulators to better monitor and analyze trading activity.
An AI-generated summary notes that the Consolidated Audit Trail has faced a decade of delays, litigation, and massive cost overruns, with more than $500 million spent on development by late 2025. The CAT’s 2025 operating budget reached $272 million, more than five times the 2016 estimate.
Just last year, an appeals court struck down the CAT’s SEC-approved funding model from 2023, and the future of the CAT is further clouded by the ongoing review by the SEC, which has shown to be a decidedly ‘lite’ regulatory agency in the first year under Atkins.
One key criticism of CAT pertains to privacy and surveillance, as the database stores personal data including names, addresses, and full trading history. That effectively creates a ‘government registry’ that allows for the surveillance of everyday investors – not the kind of arrangement that a libertarian-leaning SEC Chairman would likely be a fan of.
Add it all up and just when CAT developers must have been breathing sighs of relief two years ago, the audit trail is again facing headwinds and is mired in controversy and uncertainty.
Can the CAT train make it through the perilous curve it’s now navigating?
