The Securities and Exchange Commission unconstitutionally mandated the seizure of data of every purchase or sale of securities in the U.S. markets, a lawsuit filed Tuesday in a Texas federal court alleged.
The lawsuit, Davidson v. SEC, challenges the Consolidated Audit Trail, or CAT, which the SEC has been quietly working to implement for over a decade. Here’s what you need to know about CAT and the lawsuit.
Decades in the Works
CAT’s origins date back to 2010 and the Obama administration. That year, under the guise of preventing another “flash crash,” in which market indices dropped some 15 percent before quickly rebounding, the SEC first promulgated Rule 613. That rule directed the creation of CAT, a database that, as the SEC explained in a press release, would track “every order, cancellation, modification and trade execution for all exchange-listed equities and equity options across all U.S. markets.”
Rather than create the desired database itself, however, the SEC, by regulation, mandated that various “self-regulated organizations” (SRO), namely the Financial Industry Regulatory Authority (FINRA) and a dozen or so national securities exchanges, create CAT. Rule 613 specified the parameters for CAT and required the collection of data sufficient to identify the individuals conducting the trades, the dates and times of any orders placed, any material terms of the order, and details concerning the broker proceeding with the order.
Under CAT, the SEC will have access to the data to conduct later searches at will. It isn’t merely the SEC with access to
