FR 2025-04516

Summary of the Document

The Securities and Exchange Commission (SEC) is reviewing a proposed amendment to the National Market System Plan, which pertains to the management of the Consolidated Audit Trail (CAT). This proposed amendment, known as the CAIS Amendment, seeks to improve security and reduce operational costs by modifying how customer data is reported. Specifically, the proposal involves discontinuing the reporting of certain sensitive customer information, such as names, addresses, and dates of birth. The aim is to achieve approximately $12 million in annual cost savings while retaining the regulatory surveillance capabilities necessary for market oversight.

Significant Issues and Concerns

One of the primary areas of concern is the lack of a detailed breakdown of the estimated $12 million in annual cost savings. The document suggests that these savings will stem from operational changes but does not specify how these savings will directly benefit market participants or investors.

Another issue is the vagueness surrounding the one-time implementation fee, which is estimated to range between $4.5 million and $5.5 million. Without a clear breakdown of these costs, questions arise about potential wasteful spending and financial transparency.

Additionally, the proposed elimination of certain software programs that assist with regulatory queries raises concerns about the possible impact on regulatory surveillance capabilities. The document does not discuss alternative solutions or whether such eliminations might hinder the ability of regulators to fulfill their duties effectively.

Furthermore, the proposal is described using complex technical jargon, particularly concerning the transformation process of Social Security Numbers (SSNs) and Individual Taxpayer Identification Numbers (ITINs) into a unique Customer-ID. This complexity may make it challenging for readers unfamiliar with data processing to fully understand the implications.

Public Impact

For the general public, this amendment could have both positive and negative implications. Positively, reducing the amount of sensitive data handled by the CAT could enhance privacy protections for individuals. Less reporting of personal data to centralized systems also means reduced risk of privacy breaches and cyberattacks taking advantage of such data.

However, the public might have concerns about transparency and oversight. Ensuring that sensitive data is deleted securely and that regulatory oversight remains robust without certain data points is crucial. The document lacks specific information regarding data security protocols, leading to potential privacy and security concerns.

Impact on Specific Stakeholders

For industry members, particularly those smaller in scale, the changes could mean reduced costs over time since the CAT would demand less comprehensive data reporting. However, the transition might involve upfront costs or operational adjustments, especially if they choose to continue reporting certain information. This aspect is not well-addressed, leading to uncertainty regarding potential burdens.

Regulators, on the other hand, would need to adapt their methods of conducting surveillance and data analysis without the now-excluded data fields. While the amendment claims to preserve these abilities, the lack of detailed explanation leaves room for concern about the efficacy of regulatory practices.

Overall, while the initiative aims to streamline operations and improve data security, it also highlights several areas where clarification and detailed planning are needed to address stakeholder concerns effectively.

The document discusses a proposed amendment, known as the CAIS Amendment, to the National Market System Plan governing the Consolidated Audit Trail (CAT). This amendment is primarily focused on modifying how customer and account information is handled, with a significant emphasis on financial implications.

Summary of Financial Allocations

The amendment proposes that CAT LLC will achieve an estimated $12 million in annual cost savings. This reduction is expected by eliminating certain customer information from the CAT system, which includes names, addresses, and years of birth. These cost savings are primarily due to decreased operating fees payable to the Plan Processor, estimated at about $5 million per year, and reduced cloud hosting services fees, saving between $5 million and $7 million per year. The total operating budget for CAIS in 2025 is estimated to be $35.5 million, which breaks down into $20.7 million for operating fees, a $2.8 million annual license fee, and $12 million for cloud hosting services.

Issues Relating to Financial Allocations

1. Lack of Benefits to Investors: While the document outlines expected cost savings, it does not detail how these savings will trickle down to benefit investors or market participants. The focus remains on reducing CAT operating costs without explaining the direct advantages for stakeholders.

2. One-time Implementation Fee: The Plan Processor has proposed a one-time change request implementation fee of $4.5 million to $5.5 million. The document lacks a detailed breakdown of this cost, raising concerns about potential inefficiencies or wasteful spending.

3. Impact on Regulatory Capabilities: The proposed cost reductions, especially the elimination of software for regulatory queries of name, address, and YOB data, could impact the regulatory surveillance capabilities. The text does not detail if or how these capabilities might be replaced or enhanced elsewhere, leading to concerns about decreased effectiveness.

4. Ambiguous Cost Assumptions: The financial estimations are based on "certain assumptions" which are not clearly specified. This ambiguity may lead to uncertainty regarding the accuracy of projected cost savings.

5. Data Deletion and Security Costs: The proposal to delete certain customer data raises questions about data security. The document does not specify protocols to ensure safe and secure data removal, introducing potential risks and associated costs.

6. Unaddressed Industry Member Impact: There is no discussion on the potential financial impact on Industry Members who might continue to report information under different terms. This omission may lead to concerns regarding unforeseen costs or operational burdens on these participants.

7. Competition Analysis: While the text claims that there will be no adverse impacts on competition, there is a lack of thorough analysis backing this claim, particularly concerning any effects on smaller market participants. This absence leaves the financial implications on market dynamics inadequately addressed.

In summary, while the CAIS Amendment outlines substantial cost savings, the document lacks transparency and detail in several areas related to financial implications, impacting its overall clarity and accountability.