The U.S. Securities and Exchange Commission (SEC) has issued an order providing conditional exemptive relief aimed at trimming the operating expenses of the Consolidated Audit Trail (CAT), a massive database designed to track all equity and options trades in the U.S. markets. Announced on September 30, 2025, this move comes in the wake of ongoing criticisms over the system’s ballooning costs and a recent court ruling that upended its funding structure.

The CAT, mandated by Rule 613 of Regulation NMS following the 2010 Flash Crash, was intended to enhance market surveillance by creating a comprehensive audit trail of trading activity. However, since its inception, the project has been plagued by delays, technical issues, and escalating expenses that have far exceeded initial projections. The 2025 budget approved by the CAT’s Operating Committee initially topped $248 million, but prior adjustments had already reduced forecasts to around $196 million. With the new exemptive relief, the SEC estimates an additional savings of $20 million to $27 million for the year.

Key Changes in the Exemptive Relief

The order allows the self-regulatory organizations (SROs) participating in the CAT NMS Plan to implement several cost-cutting measures without compromising essential regulatory functions. These include:

• Halting Interim Lifecycle Linkages: Participants will no longer need to create temporary linkages for trade data unless specifically requested by regulators, reducing unnecessary processing overhead.
• Relaxed Re-Processing Requirements: Easing rules around handling late-submitted records to minimize redundant data corrections.
• Eliminating Certain Query Tool Features: Discontinuing advanced functionalities in the online targeted query tool that were deemed non-essential.
• Data Management Optimizations: Deleting obsolete CAT data and adopting more economical storage methods for older records.

These steps build on previous cost-saving initiatives approved by the SEC, signaling a broader push toward efficiency in a system that has drawn fire for its financial burden on the industry.

Leadership Weighs In

SEC Chairman Paul S. Atkins emphasized the urgency of reform, stating, “Both the Commission and the participants that operate the CAT need to take very seriously their roles in reducing these seemingly endless cost increases. CAT must be more efficient and cost-effective, especially after the recent decision by the U.S. Court of Appeals for the Eleventh Circuit that vacated the 2023 Funding Model Order governing the CAT.” Atkins added that this relief is “just the start” of needed changes.

Jamie Selway, Director of the SEC’s Division of Trading and Markets, echoed this sentiment: “Today’s Commission action begins an overdue journey to reform and rationalize the CAT. The Division will continue to engage participants and industry members to facilitate needed improvements to reduce costs for investors.”

The Catalyst: A Court Ruling Shakes Up Funding

The exemptive relief follows a July 2025 decision by the U.S. Court of Appeals for the Eleventh Circuit, which vacated the SEC’s 2023 Funding Model Order. The court found flaws in the SEC’s economic analysis and cost allocation method, which aimed to distribute CAT expenses among exchanges, brokers, and other market participants. The ruling included a 60-day stay to allow the SEC time to revisit the model, but it has left the funding mechanism in limbo, prompting calls from industry groups like the Securities Industry and Financial Markets Association (SIFMA) to halt fee collections entirely.

SIFMA, which has long criticized the CAT’s lack of transparency and accountability in budgeting, welcomed the SEC’s cost-reduction order as a positive development. However, the association has argued that the system’s costs—driven by expansive data collection requirements—continue to burden investors without sufficient oversight.

Commentary: A Necessary Trim, But Is It Enough?

This SEC action represents a pragmatic response to mounting pressures on the CAT, a program that has become synonymous with regulatory overreach and inefficiency. Conceived to prevent market manipulations and flash crashes by logging trillions of daily trade events, the CAT’s ambitions have collided with reality: costs have spiraled from initial estimates in the hundreds of millions to ongoing annual expenses that rival small government agencies. Critics, including former SEC commissioners, have pointed out that no funding allocation is perfect, and the system’s price tag ultimately gets passed to investors through higher fees.

The Eleventh Circuit’s vacatur highlights deeper issues, such as inadequate cost-benefit analyses and privacy risks from collecting personal investor data—concerns echoed by industry advocates who argue the CAT should stop gathering retail investor details altogether. While the exemptive relief shaves off a meaningful chunk of expenses (potentially 10-14% of the revised 2025 budget), it feels like treating symptoms rather than the disease. The CAT’s core design, with its vast data requirements and complex linkages, invites perpetual bloat unless fundamentally restructured.

Under Chairman Atkins, who has signaled a pro-efficiency stance, this could mark the beginning of a CAT overhaul. But with the funding model still unresolved, expect more legal skirmishes and debates over who foots the bill—exchanges, brokers, or end-users. In a market where speed and innovation outpace regulation, the CAT’s survival may hinge on proving its value outweighs its hefty tab. Industry stakeholders like SIFMA are right to push for accountability; without it, the CAT risks becoming another cautionary tale of good intentions derailed by unchecked spending.