Cato Institute | Jennifer J. Schulp | Feb 17, 2023

Image: Unsplash/Lianhao Qu

What little financial privacy you have when trading stocks is about to get even smaller next month. When you make a stock trade, your broker already is required by the Bank Secrecy Act to maintain records of it, monitor your trading activity, and report any suspicion of illegal activity to the federal government.

• Starting in March, your broker will be required to directly report all of your trades, including your personal information, to a massive government database. If the Bank Secrecy Act concerns you—and even if it doesn’t—just wait until you hear about the Consolidated Audit Trail (CAT).
  • The Consolidated Audit Trail is intended to collect and accurately identify every order, cancellation, modification, and trade execution for all exchange‐​listed equities and options across all U.S. markets, allowing the Securities and Exchange Commission (SEC) to track orders and identify who made them.

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• This massive surveillance database is a financial privacy nightmare:  The CAT began collecting trading data in 2020, after years of development replete with challenges and controversies. It is scheduled to begin collecting customer information on March 17, 2023. Although the SEC has limited the scope of customer information to be collected—initial plans called for Social Security numbers, dates of birth, and account numbers—brokers must still provide customer names, addresses, and birth years which allows for easy identification of individual investors.
• Most of the criticism leveled at the CAT has focused on data security. The CAT will absorb information about tens of billions of trades daily, making it quite possibly the largest database in the world. Its sheer size will be an invitation for criminals, who then‐​SEC Chair Jay Clayton recognized in 2017 “could potentially obtain, expose and profit from the trading activity and personally identifiable information of investors.”
• The CAT threatens American investors’ privacy. Knowing that the SEC is watching your every trade is too great a cost for easier SEC enforcement. Despite the years of planning and expenses already incurred, the SEC should put the CAT back in the bag—or let it out only when declawed—to protect the liberties of American investors.

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