MFA submits letter to the SEC on the CAT Concept Release

MFA submitted a letter to the Securities and Exchange Commission (SEC) in response to the concept release regarding the Consolidated Audit Trail ("CAT") and related funding mechanisms ("CAT Concept Release").

MFA provides the following points concerning CAT:

• CAT has grown significantly beyond expectations: When the Commission approved the CAT, it did so based on expectations that the system would require relatively modest development and ongoing operating costs. In practice, however, the CAT has expanded considerably in both scope and complexity.
• Litigation and subsequent developments: The CAT's funding model has also been challenged in American Securities Association and Citadel Securities LLC v. U.S. Securities and Exchange Commission, where the U.S. Court of Appeals for the Eleventh Circuit vacated the Commission's 2023 funding order as arbitrary and capricious, citing its failure to justify shifting costs to broker-dealers and its reliance on outdated economic analysis. MFA, together with other industry groups, submitted an amicus brief raising concerns regarding the inequitable allocation of CAT costs.
• CAT Concept Release - an 0pportunity to fundamentally revisit the CAT: The Commission seeks to revisit the funding framework for the CAT in light of the system's significantly increased costs and the concerns raised by market participants regarding the current allocation of those costs through a concept release. The CAT Concept Release reflects the Commission's recognition that the current funding structure may not adequately account for the CAT's evolution into a large-scale regulatory system used primarily by the Commission to carry out its oversight and enforcement responsibilities.
• The SEC should fully fund the CAT: MFA believes that the most appropriate and effective solution is for the Commission to assume full financial responsibility for the CAT. The CAT is fundamentally a regulatory system created to support the Commission's oversight and enforcement responsibilities. While market participants provide data, the primary user and beneficiary of the system is the Commission itself. As such, it is appropriate for the costs of the CAT to be borne by the Commission as part of its core regulatory functions.
• Incremental revisions are not sufficient: The Commission has taken steps to refine the CAT funding framework, including efforts to improve transparency and introduce certain cost controls. While these efforts are constructive, they do not address the fundamental issue: the CAT continues to be funded primarily through fees imposed on market participants who neither control the system nor are its primary beneficiaries.