Reason
· collected 2026-10-06 · by Thomas J. Powell
The federal government built a system that records the lawful trading activity of tens of millions of Americans, invades their financial privacy, and makes investors pay for the surveillance.
asserted
investors → build → surveillance
The Securities and Exchange Commission (SEC) calls it the Consolidated Audit Trail, or CAT.
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Commission → call → it
Now the agency is considering "fundamental changes" to the setup.
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agency → consider → setup
It should eliminate the system instead.
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It → eliminate → system
CAT, launched in 2020, records almost every order, modification, cancellation, and execution by tens of millions of investors.
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CAT → launch → investors
The SEC requires these records so regulators can search trading activity and reconstruct it long after a trade occurred.
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trade → require → it
The records are collected before there is probable cause, reasonable suspicion, or even an allegation of wrongdoing.
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records → collect → wrongdoing
Lawful activity is gathered first and searched later.
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activity → gather → ?
Even the SEC has acknowledged that CAT raises civil liberties, privacy, confidentiality, and cybersecurity concerns.
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CAT → acknowledge → liberties
Congress did not authorize the SEC to create this system or appropriate money to run it.
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Congress → authorize → it
The agency instead required brokers and exchanges to build and pay for it, with costs that can reach investors.
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that → require → investors
That is a tax in all but name, imposed without the vote or the appropriation the Constitution requires.
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Constitution → impose → vote
And even Congress cannot authorize a search the Fourth Amendment forbids.
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Amendment → authorize → search
A trading record also cannot explain why someone made a trade.
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someone → explain → trade
Though it predated CAT, the SEC's case against Mark Cuban shows why that matters.
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that → predate → Cuban
The SEC sued Cuban in 2008 over trades he made in 2004.
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he → sue → 2004
He fought the case for five years and later said he spent approximately $12 million in legal fees before a federal jury found him not liable.
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him → fight → fees
Under CAT, regulators no longer need to begin with a well-known individual or a conspicuous transaction.
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regulators → need → individual
The system creates a searchable record of trading activity across the market, allowing the government to reconstruct the actions of ordinary investors long after the fact.
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government → create → fact
Cuban's case shows how a chronology of communications and trades can become the foundation for a serious allegation.
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chronology → show → allegation
CAT makes it possible to assemble those chronologies far more broadly and systematically.
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it → make → chronologies
The record shows what happened, but it does not show what the investor knew.
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investor → show → what
The SEC has reduced some privacy risks.
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SEC → reduce → risks
In 2025, it eliminated requirements to report customer names, addresses, and years of birth for most U.S. natural persons.
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it → eliminate → persons
Early this year, it approved additional changes requiring previously reported identifying information to be deleted or made inaccessible to regulators.
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information → approve → regulators
But anonymized identifiers still link trading activity to customers, enabling regulators to obtain someone's identity through brokers.
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identifiers → link → brokers
Removing names does not erase that history.
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Removing → remove → history
Removing names also does not remove the cost.
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Removing → remove → cost
Brokerage firms still must maintain systems to report to CAT, reconcile records, and correct errors.
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firms → maintain → errors
Firms can absorb those expenses or pass them along through higher prices or fewer services.
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Firms → absorb → prices
For smaller firms, absorbing the expense can be harder.
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absorbing → absorb → expense
A reporting system and the staff to run it do not cost proportionately less just because a firm has fewer clients.
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firm → report → clients
A large brokerage can spread those costs across a broad business.
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brokerage → spread → business
A boutique helping young companies raise capital has less room to do so.
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companies → help → room
That expense can affect which offerings reach investors.
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offerings → affect → investors
A small offering may no longer be worth pursuing once another compliance cost is added.
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cost → pursue → ?
When a firm walks away, an entrepreneur loses a path to public capital, and investors lose a chance to participate.
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investors → walk → chance
The SEC can narrow access to the market without prohibiting a single offering.
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SEC → narrow → offering
An agency charged with facilitating capital formation should account for those lost opportunities as carefully as it counts the enforcement benefits it claims.
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it → charge → benefits
The U.S. Supreme Court rejected the SEC's positions on its administrative-proceedings regime in SEC v. Cochran (2023) and SEC v. Jarkesy (2024).
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Court → reject → Jarkesy
…and 12 more, not listed.
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