SEC Cuts $50M+ From the CAT: What Broker-Dealers Should Do Now

The SEC Just Cut Up to $70 Million a Year From a System It Built

On March 27, 2026, the SEC approved an amendment to the National Market System Plan governing the Consolidated Audit Trail and granted exemptive relief from certain requirements of Rule 17a-1 under the Exchange Act. The Commission projects the change will produce approximately $50 million to $70 million in annual cost savings compared to the 2025 CAT budget. See the SEC press release and the Federal Register approval order.

But here is the part the headlines are missing. This is not a story about the SEC finding efficiencies. It is a story about the SEC unwinding a surveillance system it priced at $55.8 million a year in 2016 and that now costs $188 to $196 million a year to run. The amendment does not make the CAT cheaper to build. It makes the CAT collect less.

For every broker-dealer that funds the CAT and reports to it, the practical question is simple: which of your reporting obligations just changed, and which records are about to disappear. Here is what happened, why it matters, and what to do about it.

How a $55.8 Million System Became a $196 Million Problem

When the Commission approved the CAT NMS Plan on November 15, 2016, it estimated ongoing annual operating costs of approximately $55.8 million. Actual annual operating costs have since grown to approximately $188 to $196 million, with build costs exceeding $500 million, according to the Federal Register order.

That is roughly a four-fold overrun on operating costs alone. Broker-dealers and exchanges absorb those costs. So the cost-cutting is not charity; it is pressure relief on the industry that pays the bill.

The legal backdrop matters too. On July 25, 2025, the U.S. Court of Appeals for the Eleventh Circuit vacated the SEC's 2023 CAT Funding Model Order as arbitrary and capricious under the Administrative Procedure Act in American Securities Association & Citadel Securities, LLC v. SEC, No. 23-13396. The court stayed the vacatur for 60 days and remanded to the SEC.

The March 2026 amendment did not arrive in a vacuum. It followed a court loss on funding and a September 30, 2025 conditional exemptive relief order that began trimming CAT obligations. The trajectory is clear: the Commission is in retreat on the CAT, and it is reducing both what the system costs and what it captures.

The Eight Cuts That Change What Your Firm Reports and Retains

The amendment authorizes the Plan Participants to scale back specific functions. Several of these directly touch broker-dealer reporting workflows and record retention.

The data-retention change deserves the most attention

The amendment permits Participants to delete CAT data older than three years absent a regulatory request. For a decade, market participants have operated on the assumption that order and execution data flows into a permanent, queryable surveillance repository. That assumption no longer holds for older records.

Other authorized cost-saving measures include

• Ceasing interim lifecycle linkages. Participants may stop creating interim lifecycle linkages absent a regulatory request.
• Easing late-record reprocessing. The reprocessing requirements for late records are relaxed.
• Ceasing certain online query tool functionality. Some targeted query tool features go away.
• Ceasing reporting of rejected messages. Firms no longer feed certain rejected messages into the system.
• Relaxing certain processing deadlines. Timing obligations are loosened.

The full slate is described in the SEC release. The Commission estimates roughly $19.4 to $24.1 million in incremental savings beyond what the 2025 relief already produced.

Here is the distinction that matters. A cheaper CAT is not the same as a lighter compliance burden. Your firm still reports to the CAT. What changed is the shape of the data lake on the other side, and that has consequences for how you reconstruct your own activity during a dispute or examination.

What Broker-Dealers Should Do Before the Records Disappear

The instinct to treat this as good news and move on is exactly the wrong response. The CAT has functioned as a backstop record for many firms. As that backstop shrinks, the burden of reconstruction shifts back onto the broker-dealer.

First, do not rely on the CAT as your archive of last resort. With Participants now authorized to delete CAT data older than three years, your own Rule 17a-4 records become the only durable source for older order and trade reconstruction. Confirm your internal retention exceeds the new CAT horizon.

Second, map which of your surveillance and inquiry-response processes depend on CAT query tools. Some online targeted query functionality is being retired. If your compliance team pulls CAT data to respond to internal escalations or regulatory inquiries, identify the gaps now.

Third, revisit your rejected-message and late-record handling. The amendment eases reprocessing and ends certain rejected-message reporting. Update your reporting playbooks so your vendors and internal teams are not building to obligations that no longer exist.

Fourth, watch the funding fight. The Eleventh Circuit vacated the 2023 funding model, and the cost structure that determines your CAT fees remains in flux. Budget assumptions tied to CAT fees warrant careful review.

The broader signal is that the CAT itself is under comprehensive review. The SEC has solicited public comment on the future of the CAT and other audit trails, and firms with a stake in the outcome should consider engaging. The system you report to in 2027 may look materially different from the one you report to today.

Key Takeaways

• The savings come from collecting less, not building smarter. The SEC projects $50 million to $70 million in annual savings, but the mechanism is reduced data capture and retention, not lower build costs.
• CAT data older than three years is no longer guaranteed to exist. Participants may delete it absent a regulatory request, shifting long-term reconstruction back onto your own Rule 17a-4 records.
• The cost overrun is the real story. A system priced at $55.8 million a year in 2016 now costs $188 to $196 million a year, and the amendment is an attempt to reverse a four-fold overrun.
• The funding model is unsettled. The Eleventh Circuit vacated the 2023 CAT Funding Model Order in American Securities Association & Citadel Securities v. SEC, leaving CAT fee assumptions in flux.
• Reporting obligations changed, not just costs. Rejected-message reporting, interim lifecycle linkages, and late-record reprocessing requirements have all been scaled back, and your playbooks should reflect that.