It’s a CAT race out there.
The Securities and Exchange Commission said it will offer an exemption from reporting “personally identifiable information” like names, addresses, and birth years to the Consolidated Audit Trail, the system that allows regulators to track US trading activity.
The CAT was formed in the wake of the “flash crash” of 2010 when big-name shares lost hundreds of billions in a matter of minutes, causing the Dow Jones to drop around 9% in under an hour.
CAT, also known as Rule 613, requires national securities exchanges “to provide certain detailed information to a newly created central repository” so the SEC can better identify potential upcoming disruptions, market manipulators, and regulate extreme market events.
In its announcement, the Commission said the personally identifiable information exemption “will help mitigate potential security risks” since “bad actors have become increasingly sophisticated and, in the event of a breach, may be able to use the names, addresses, and years of birth to impersonate a customer or broker-dealer and gain access to a customer’s account.”
That’s not how everyone sees it, though.
In a statement aptly titled “Declawing the CAT,” SEC Commissioner Caroline A. Crenshaw sharply criticized the move.
“The CAT helps make our markets safer, more efficient, and can act as a powerful tool in ferreting out wrongdoing. Yet today, by eliminating critical data collection, we undermine its use and our own effectiveness,” she said. “We are wiping away the fingerprints from the scene of the crime.”
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She continued, claiming that eliminating the “collection of the most basic customer identifying information” will impair “regulators’ ability to understand suspicious activity, unwind events, or stave off market disruptions.”
Personally identifiable information was originally required for CAT collection “to facilitate the generation of unique anonymized customer IDs,” the SEC noted in its release, and the Commission argued that the trail “will still be able to generate reliable and consistent anonymized customer IDs” without personally identifiable information.
“Despite today’s action, bad actors and other miscreants who engage in insider trading, market manipulation, and other schemes should be forewarned that the Commission has more than sufficient investigative tools to hold them accountable,” SEC Acting Chairman Mark Uyeda said in a statement.
Crenshaw, however, argued that the new order “leaves unanswered the most basic questions.”
She went on: “For example, will it be more difficult for regulators to spot fraud? How much harder will it be to identify certain types of market manipulation? Will it be more difficult to identify and address concerns relating to certain foreign ownership?”
“In times of market disruption and ongoing fraud or manipulation, loss of time means loss of money and loss in market confidence,” Crenshaw continued. “There is no question that this decision is a loss for markets and investor protection.”