US SEC set to approve new fee rules on trading market data system

(Reuters) -Wall Street’s top regulator on Wednesday was set to approve new rules on funding a market surveillance system meant to split its development and operating costs between brokerages and stock exchanges.

The pending decision by the five-member U.S. Securities and Exchange Commission marks the latest fraught turn in a decade-long effort to complete the so-called Consolidated Audit Trail (CAT), a repository of investor and transaction data meant to give regulators overarching visibility into U.S. market operations.

The Commission is considering changes proposed in recent months by an organization controlling the CAT, which comprises US stock exchanges and a non-government regulator, that will charge fees based on the volume of executed trades in shares and options. This would be a shift away from a structure based on message traffic and market share, while allowing stock exchanges several years to recoup hundreds of millions already spent.

The new rules aim to split the cost burden into equal thirds between exchanges, buyers and sellers, according to SEC officials. They also would make buyers and sellers liable for “historical” fees representing investments made so far in developing the system. While the CAT system is partially operational, buyers and sellers have yet to begin paying in, officials said prior to the vote, officials said.

The investment industry has strongly opposed the changes, claiming they unfairly distribute costs that are due to rise and could be passed on to investors. The Securities Industry and Financial Markets Association told the SEC on Tuesday that costs through the end of 2022 amounted to $500 million, were estimated at $240 million for this year and were due to rise each year.

The organization pointed to “ever-escalating CAT costs and the lack of any mechanism” to control them, SIFMA said in a letter.

Meanwhile, conservative critics have derided the entire system, saying it jeopardizes investor privacy from government snooping and poses an inviting target for hackers aiming to steal investor data.

(Reporting by Douglas Gillison; Editing by Chizu Nomiyama)