BHL Bogen

BHL Bogen
BridgehouseLaw LLP - Your Business Law Firm

Tuesday, October 17, 2023

The SEC’s Consolidated Audit Trail – a Threat to Liberty and Privacy


In a world where data privacy is paramount, an alarming development is poised to reshape the landscape for American investors. The Consolidated Audit Trail (CAT), a comprehensive surveillance system created by the Securities and Exchange Commission (SEC) in response to the 2010 "flash crash," is set to collect and store vast amounts of personal and financial data of every U.S. investor. While ostensibly aimed at monitoring market activity, this initiative raises significant concerns about the erosion of individual privacy and potential security risks.

The CAT's Unprecedented Scope


The CAT, conceived in 2012 and launched in 2020, was designed to meticulously record every order, cancellation, modification, and trade execution for exchange-listed equities and options across all U.S. markets. While its initial purpose was to enhance market oversight, the CAT has evolved into a data behemoth that gathers American investors' personally identifiable information, including name, addresses, and birth year.


Data Security Concerns


The CAT's colossal size poses a significant data security risk. A breach of this magnitude could expose investors' trading activity and personal information, opening the door to potential exploitation by malicious actors. In a world where cybersecurity threats are a daily concern, the lack of robust safeguards for such a vast database is deeply troubling.


A Threat to Financial Privacy and Civil Liberties


Beyond security concerns, the CAT's creation infringes upon financial privacy principles and civil liberties. Trading is a form of value expression, and the CAT's sweeping surveillance interferes with Americans' Fourth Amendment rights to be free from unreasonable government searches and seizures.


The Need for Alternatives


While the SEC has legitimate reasons to monitor market activities, some alternatives would protect individual privacy without compromising its law enforcement ability. Suggestions include prohibiting personal information from the CAT database and allowing the SEC to request data from brokers on a case-by-case basis when necessary. Other proposals advocate for a more limited database focused on institutional investor trading or improving existing systems.


Stay informed and vigilant as we continue to monitor this important issue. Your privacy and civil liberties matter. Investors who want to protect their data from CAT must take measures. We will gladly support you in establishing your personal trading LLC.


Marius Krause, Law Clerk, BridgehouseLaw Charlotte

No comments: