Appeals Court Vacates SEC Audit-Trail Fee Rule After Citadel Challenge

A three-judge panel of the U.S. Court of Appeals for the 11th Circuit on 25 July struck down the Securities and Exchange Commission’s 2023 rule that set out how to fund the Consolidated Audit Trail, a vast market-surveillance database designed to give regulators a complete view of U.S. equity trading. The court found the SEC had not provided an adequate rationale for allowing stock exchanges to pass CAT operating costs to brokers and investors, calling the funding plan “arbitrary and capricious.” The decision sends the rule back to the agency for revision, delaying implementation of a fee schedule intended to recoup hundreds of millions of dollars already spent on the system. Citadel Securities and the American Securities Association, which led the challenge, welcomed the ruling, saying it averts what they described as an effective tax on every share traded. The SEC, now tasked with rewriting the cost-sharing formula, did not immediately comment. Mandated in 2012 after the 2010 “flash crash,” the CAT has faced repeated delays and industry pushback. The latest setback adds to the regulator’s recent legal defeats and leaves funding for one of its signature market-oversight projects in limbo.