SEC set to impose new fees on brokers to pay for audit-trail system

The Securities and Exchange Commission is poised to impose new fees on brokers to help pay for an expansive market-surveillance system. 

The plan to fund the audit-trail system to track billions of daily equities and options trades faces stiff opposition from industry trade groups and heavyweight players including Citadel Securities and Virtu Financial Inc. Banks and others that act as brokers or asset managers have complained that they would face the bulk of the fees.

The proposal replaces an earlier method of calculating fees that would have been based on market share. It would go into effect immediately if approved Wednesday by at least three of the five commissioners. 

Fees would vary depending on whether they’re assessed on equities, options or over-the-counter equities. They’re based on share volumes, though some industry groups have said a percentage of notional value would be a fairer way to assess the fees. 

The system, known as the Consolidated Audit Trail, is intended to more easily track market tumult and help ferret out fraudsters. Its contours were primarily drafted by exchange operators, including the New York Stock Exchange and Nasdaq Inc., that will also pay fees. The Financial Industry Regulatory Authority Inc. also provided input.


The SEC first began kicking around the idea of an audit-trail system more than a decade ago, but the May 2010 “Flash Crash” that sent markets on a roller coaster of volatility spurred the agency to move forward.

It initially approved the creation of the database in 2012, but implementation was delayed by the pandemic as well squabbles among exchanges, banks and brokerages over security, infrastructure, funding and other issues.

The Securities Industry and Financial Markets Association, the trade group representing brokers, filed new comments on Tuesday asking the regulator to essentially delay the vote until asset managers get clarity on how the fees, likely to be assessed on retail and other traders, will affect investment returns. 

The SEC “has not fully considered these ultimate economic effects on industry members’ clients and other end investors,” wrote Lindsey Weber Keljo, head of Sifma’s Asset Management Group.

The group also flagged the new system’s mounting tab — estimated at $500 million at the end of last year — as another cause for concern. Sifma called for an independent party to review the database’s costs.

Brokers are already doing much of the required trade reporting but haven’t been paying the fees needed to launch the database. Exchanges have been footing the bill for the audit-trail system so far.

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