The Securities and Exchange Commission issued an order on January 23, 2026, extending temporary conditional exemptive relief from certain requirements in the National Market System Plan Governing the Consolidated Audit Trail. This extension, published in the Federal Register on January 27, 2026, grants industry members an additional two years—until January 31, 2028—to comply with specific linkage obligations for representative orders. The relief addresses persistent challenges in creating lifecycles between customer orders and representative orders in firm accounts, particularly where order management systems and execution management systems lack direct connections. This development underscores the SEC's efforts to balance regulatory oversight with practical implementation hurdles in modernizing market surveillance, potentially allowing time for long-term solutions while maintaining core audit trail functions.
Background on the Consolidated Audit Trail
The Consolidated Audit Trail originated from Rule 613 of Regulation NMS, adopted by the SEC on July 18, 2012. This rule mandated that national securities exchanges and associations—collectively known as Participants—develop a plan to build and maintain a comprehensive audit trail. The aim was to equip regulators with timely access to detailed trading data for analyzing market events, monitoring behavior, supporting decisions, and conducting surveillance and enforcement. The CAT NMS Plan, approved on November 15, 2016, outlined the framework for this system.
Appendix D, section 3 of the CAT NMS Plan requires the CAT to link customer orders to representative orders created in firm accounts to facilitate customer orders, such as those handled on a riskless principal basis. Representative orders are those originated in firm-owned or controlled accounts to work customer or client orders. However, the SEC recognized early implementation difficulties, particularly for industry members without integrated systems for order management and execution.
History of Exemptive Relief
The SEC first granted temporary relief in December 2020 through an order that exempted participants from these linkage requirements until July 31, 2023. This was based on the understanding that participants lacked the ability to create such lifecycles in certain scenarios. Subsequent orders extended and refined this relief. The July 2022 order superseded the initial one, clarifying conditions and extending the deadline to July 31, 2024, specifically for cases without systematic links between systems.
Further extensions followed: a May 2023 order pushed the deadline to January 31, 2025, followed by orders in November 2023, January 2025, and July 2025, each maintaining or extending the relief while mirroring prior conditions. The latest order, the seventh in this series, responds to industry feedback highlighting unresolved issues, such as the lack of methods to report linkages for specific representative order types.
In a May 29, 2025, letter to the SEC, the Financial Information Forum noted that without relief, industry members might face rejected reports, abandoned trading workflows, or non-reporting—outcomes that could disrupt equity markets. The SEC cited these concerns, along with the complexity of representative order scenarios and an ongoing comprehensive review of the CAT, as reasons for the extension.
Key Players and Legal Framework
The Participants include major exchanges and associations like Cboe exchanges, Nasdaq entities, NYSE groups, and the Financial Industry Regulatory Authority. Industry members, defined as members of these exchanges or associations, are directly affected by the relief.
The SEC's authority stems from Section 36(a)(1) of the Securities Exchange Act of 1934, allowing exemptions if necessary or appropriate in the public interest and consistent with investor protection. Rule 608(e) of Regulation NMS provides similar authority for exemptions related to national market system plans, emphasizing fair and orderly markets.
No direct legal precedents are cited in the order, but it aligns with the SEC's history of phased CAT implementation. For instance, earlier exemptions addressed similar technical challenges, reflecting a pragmatic approach to achieving Rule 613's goals without immediate disruption.
Implications and Perspectives
Short-term, this extension prevents compliance burdens that could lead to reporting errors or workflow changes, as warned by industry groups. It allows continued operation under current reporting practices, where representative orders are reported per existing FAQs and prior relief, without full lifecycle linkages.
Long-term, the relief buys time for developing solutions amid the SEC's CAT review, announced in 2025. This review, directed by the SEC Chairman, aims to assess the system's overall effectiveness. Perspectives vary: regulators may view it as essential for robust surveillance, while industry stakeholders, like those represented by the Financial Information Forum, emphasize the need for feasible reporting methods to avoid market inefficiencies.
Critics might argue that repeated extensions delay full CAT functionality, potentially weakening market oversight. Supporters, however, see it as a balanced step that prioritizes accuracy over haste, ensuring the audit trail's reliability.
In summary, the SEC's extension of exemptive relief highlights the ongoing evolution of the Consolidated Audit Trail, addressing technical hurdles while pursuing enhanced regulatory capabilities. Potential next steps include collaborative efforts between the SEC, Participants, and industry to devise permanent linkage methods. Challenges persist in integrating disparate systems, and debates may focus on whether alternative approaches can meet Rule 613's objectives without mandating full linkages. Ongoing monitoring and stakeholder input will shape future trajectories, potentially leading to plan amendments or further exemptions.
