Citadel is now fighting the SEC on the market surveillance system known as CAT, which enables regulators to track trading activity.
Citadel Securities is spearheading an industry pushback against a proposal from exchanges like the New York Stock Exchange and Nasdaq that would require traders to help fund a new market surveillance system, known as the Consolidated Audit Trail (CAT), which has already incurred nearly $1 billion in costs.
Brokers are urging regulators to halt new billing schedules that would mandate their financial contributions to the CAT system, which serves as a comprehensive record of all activity in U.S. equities and options markets—often compared to a “Hubble Telescope” for financial markets.
Until now, exchanges have covered the costs of the CAT.
However, if the U.S. Securities and Exchange Commission (SEC) does not intervene soon, brokers will start receiving bills from the exchanges beginning Tuesday, as the exchanges seek to recover a portion of the promised costs.
The CAT was established after the 2010 flash crash, which made it difficult for investigators to determine the cause of a market drop that erased nearly $1 trillion in value.
The system has been fully operational since 2022, according to Financial Times.
The SEC directed national exchanges and Finra, which oversees brokers, to create the CAT, with the expectation that the trading industry would eventually bear a significant share of the expenses.
Last year, the SEC approved a plan requiring broker-dealers to cover two-thirds of the costs, while exchanges would cover the rest.
Initial payment plans were submitted in January but were suspended pending review, which has yet to be completed.
Last month, exchanges and Finra withdrew their initial payment plans and submitted revised ones with minor changes.
Unless the SEC issues another suspension, brokers will receive bills in October based on September’s trading volumes.
Several regulatory filings and letters from industry groups, including Citadel Securities, Virtu Financial, the American Securities Association, and Sifma, have urged the SEC to suspend the billing process.
Citadel Securities, led by Ken Griffin, warned the SEC that it might seek legal action if the billing is not halted by next week.
Also Read: “The Game is Rigged”, Says Ex-Citadel Data Scientist
The company criticized the new filings as an attempt to extract significant amounts from broker-dealers.
Citadel previously challenged the legality of the CAT funding model in a Florida court, in partnership with the ASA.
That case is still ongoing.
Exchange representatives, including those from the NYSE, Nasdaq, and Cboe Global Markets, declined to comment, as did Finra and the SEC.
However, exchange officials noted that they were instructed by the SEC to implement the CAT and that cost-sharing with the industry was always part of the plan.
They argue that increasing trading volumes have contributed to rising costs.
One executive involved in the CAT project stated, “We’re just recovering our costs. There’s no profit here,” emphasizing that the industry had been resistant to funding the system.
Brokers have raised concerns not only about the costs but also about accountability for any costly missteps during the CAT’s development, as well as the system’s annual operating budget, which now nears $200 million—about five times the original estimates from 2016.
In a market where big player such as Citadel have manipulated prices in their favor, reported inaccuracies, and have taken advantage of the industry — opposing any regulatory means that track its trading activity has been part of their mission for years.
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Also Read: BlackRock Is Now Hit With 54 Counts of Securities Violations
Other Market News Today
Billionaire Mark Cuban has now scrutinized the SEC for only protecting Wall Street, stating “I wouldn’t trust them to do the right thing ever”.
During a Reddit ‘Ask Me Anything’ (AMA) in the WallStreetBets forum in February 2021, billionaire investor Mark Cuban expressed strong criticism of the U.S. Securities and Exchange Commission (SEC).
In a post from his verified account, Cuban stated, “The SEC is a mess.
I wouldn’t trust them to do the right thing ever.
It’s an agency created by and for lawyers to win cases rather than to act in the interest of investors.”
He further criticized the SEC for prioritizing Wall Street over the protection of everyday investors.
Cuban argued that if the SEC truly focused on investor safety, it would establish clear guidelines regarding insider trading and market manipulation.
Instead, he claimed, “they would rather litigate to regulate,” suggesting that the SEC prefers to develop rules through lawsuits, which leaves the public uncertain and favors Wall Street.
Today, the SEC remains under scrutiny.
Gary Gensler, the current chair, has been advocating for new regulations aimed at enhancing market transparency and protecting investors.
While these initiatives aim to tackle emerging risks, they have sparked controversy within the hedge fund and banking industries.
Critics argue that the new regulations can be overly complex.
The SEC chair has been unable to solve issues retail investors have been facing for decades now — much of which revolves around the manipulation of stock prices by hedge funds short on securities.
Mark Cuban’s criticism of the SEC underscores an ongoing debate regarding the agency’s role and effectiveness.
As the SEC works to adapt to contemporary financial challenges, its success will hinge on finding the right balance between enforcement and market facilitation.
Whether it can respond to retail investors and rebuild trust is still uncertain, but its efforts to evolve are essential for its future influence.
Also Read: Exposures At Hedge Funds Now Surge To Over $28 Trillion
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