In an amicus brief, SIFMA outlines its support of the litigation brought by the American Securities Association and Citadel against the SEC for the approval of the CAT NMS Plan funding model.

The brief, which was filed by SIFMA, the Alternative Management Association, the Committee on Capital Markets Regulation, the Investment Company Institute, the Managed Funds Association, and Virtu Financial, raises the following points:

• The SEC’s order is invalid because it inequitably and unjustifiably imposes massive costs on broker-dealers and investors while affording them no genuine role in establishing the CAT’s budget.
  • The Commission failed to address the effect of the CAT’s structure on CAT costs.
  • The Commission failed to adequately consider alternative cost-control mechanisms.
• The allocation of more than two-thirds and potentially 100% of CAT costs to broker-dealers is contrary to law and arbitrary and capricious.
  • The Commission’s allocation of costs is inequitable and unreasonable.
  • The Commission failed adequately to consider the effect of participants passing through their share of costs.

SIFMA president and CEO Kenneth E. Bentsen, Jr., said: “The CAT funding model approved by the SEC is deeply flawed and we support the litigation challenging it for several reasons.

First, as explained in our June 2023 comment letter, the funding model provides for inequitable allocation of CAT costs between industry member broker-dealers and the SROs. Taking into account industry member funding of FINRA, the model assigns over 80% of CAT costs to industry member broker-dealers.

Second, as outlined in our May 2023 comment letter, we strongly disagree with the SROs determination of which industry member broker-dealer will be assessed CAT fees.  We believe the most reasonable way to allocate CAT costs among industry members is to make the industry member that originated the ultimately executed order the one responsible for CAT fees.

And third, as noted in our July 2023 comment letter, rising CAT costs, which currently have no legal limit or mechanism for control that is being implemented, need to be addressed.

“When fully implemented, the CAT will be the largest database of retail and institutional trading data ever created.  It also will include personal information on every retail brokerage customer in America, as well as identifying information for every pension fund, mutual fund, and other institutional account in America. For years SIFMA has pointed out time and again the need to address fundamental issues with the CAT, weighing in on the security of investors’ personal data, liability and funding, among other topics.  It is essential to get this right.”

Source: SIFMA