By Bill Alpert

Soon after taking charge of the Securities and Exchange Commission this year, Republican administrators acted to partly blind a market surveillance system the agency had taken 15 years to build. Now, the Consolidated Audit Trail no longer collects identifying information on American traders.

Monday, four Democratic senators wrote to SEC Chair Paul Atkins, asking him to promise not to further disable the CAT, or shut it down altogether.

The SEC's February decision to stop including trader IDs with transactions tracked by the investigative tool "will significantly impair the agency's ability to understand market events and pursue bad actors, thereby jeopardizing the integrity of our markets," said the letter from Andy Kim (D., N.J.), Jack Reed (D., R.I.), Elizabeth Warren (D., Ma.), and Chris Van Hollen (D-Md).

"We request assurances from the SEC that it will continue to maintain the CAT in its current form as a critical investigation and enforcement tool designed to prevent illicit market manipulation, including by foreign actors," the senators wrote.

The SEC didn't immediately respond to questions about the letter.

As Barron's wrote in April, the CAT system gives the agency a timestamped record of every stock and option order as it makes its way from brokers to any of the country's roughly 50 exchanges and trading pools. It has already helped uncover insider-trading schemes and market manipulations that older surveillance systems would have missed.

Work on the audit tool began nearly 15 years ago, after it took the agency months to track down the trades that precipitated the May 2010 Flash Crash, in which the Dow Jones Industrial Average lost 1,000 points in 10 minutes. But building the CAT system's infrastructure has cost Wall Street far more than $1 billion, a price well above original projections. Broker-dealer firms have gone to court over the hundreds of millions in annual operating costs that they fear the system will bring.

The Democratic senators worry that Atkins might further curtail the audit tool, or shut it down, because that is the suggestion of the conservative manifesto Project 2025. Atkins helped draft the document before President Donald Trump named him as the SEC's chair.

Monday's letter from the senators asks the SEC to tell them whether the February halt to tracking of trader IDs has hampered the agency's ability to "monitor suspicious activity, unwind events, or stave off market disruptions."

"Is the SEC able to provide assurances that it will not follow the Project 2025 playbook and terminate the CAT," ask the senators, "or refuse to continue defending it in litigation?"

Republican members of Congress pushed the SEC from the opposite direction, in a Feb. 28 letter. The tool invades Americans' privacy and costs Wall Street too much, that letter said.

"The Commission should launch a comprehensive review that covers all aspects of the CAT," said the Republican legislators.

Write to Bill Alpert at william.alpert@barrons.com

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May 19, 2025 17:23 ET (21:23 GMT)

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