top of page
  • Writer's pictureASA Newsroom

ASA in The Wall Street Journal: The SEC Wants to Spy on Your Portfolio

by Warren Stephens & Paul C. Reilly

As an American, you have a right to privacy—unless you own stock. The Securities and Exchange Commission has created a centralized database to track the personal and financial information of every U.S. investor. Congress should immediately stop this unconstitutional power grab.

The scope of the Consolidated Audit Trail, or CAT, a regulation the SEC issued in 2016 but implemented only recently, is breathtaking and unprecedented. In the words of the SEC press release, the regulation instructs regulated financial institutions to identify “every order, cancellation, modification and trade execution for all exchange-listed equities and options across all U.S. markets.”

The SEC issued this rule in response to the 2010 “flash crash,” ostensibly to surveil markets. If the CAT stopped at that, it would have been a useful tool to protect markets from fraud and manipulation. But the commission decided to collect American investors’ personally identifiable information, such as account and Social Security numbers, and share it. The CAT data will be available to self-regulatory organizations, such as stock and options exchanges, and about 3,000 outside contractors as well as to the SEC itself.

We objected to this expansion of the database, and so did many others, including the American Civil Liberties Union. Why should the government, without any evidence of wrongdoing, surveil Americans’ balances to see every trade they make? Before CAT, regulators needed legal cause and a subpoena to force a financial firm to divulge a customer’s personal and financial information.

As leaders of financial firms with millions of customers across the U.S., we dedicate significant resources to protect customer data and oppose any policy that erodes the personal liberties of Americans safeguarded by the Fourth Amendment.

We also share SEC Commissioner Hester Peirce’s concern that hackers may try to exploit the CAT “for their nefarious ends.” The urgency of this threat is clear from the repeated cyberattacks on numerous U.S. government institutions in recent years by hackers backed by China, Russia and North Korea.

We expressed these concerns to the SEC for years and have been ignored, but some in Congress share our objections. Rep. Barry Loudermilk and Sen. John Kennedy recently introduced legislation to stop the unconstitutional collection of U.S. investors’ personal information by the CAT. We hope other lawmakers will follow their lead. Regardless of political party, safeguarding Americans’ privacy should be ample reason to take action.

The SEC is a securities regulator with a three-part mission: to protect investors; to maintain fair, orderly and efficient markets; and to facilitate capital formation. It doesn’t have the legal authority to supersede the Constitution and spy on ordinary Americans’ portfolios.

Letting it seize that authority anyway could lead to the addition of a fourth, sinister mission part: to judge investor virtue. The CAT will give the SEC a window into the core values of every American investor. Those values span the political spectrum. As political activism plays a larger role in investing and regulatory agendas, will investors whose holdings don’t reflect the values or beliefs of those in power have reason to fear retribution?

Americans have always had a right to privacy and protection from government overreach, thanks to our Bill of Rights and hundreds of years of legal precedents. This legacy has motivated Americans to resist any form of personal surveillance. Our customers have a right to invest without fear—and without the SEC peering into their portfolios whenever it feels like it.

Mr. Stephens is chairman, president and CEO of Stephens Inc. Mr. Reilly is chairman of the American Securities Association.

This article originally appeared in The Wall Street Journal.


About the American Securities Association

American Securities Association, based in Washington, DC, represents the retail and institutional capital markets interests of regional financial services firms who provide Main Street businesses with access to capital and advise hardworking Americans how to create and preserve wealth. ASA’s mission is to promote trust and confidence among investors, facilitate capital formation, and support efficient and competitively balanced capital markets. This mission advances financial independence, stimulates job creation, and increases prosperity. The ASA has a geographically diverse membership of almost one hundred members that spans the Heartland, Southwest, Southeast, Atlantic, and Pacific Northwest regions of the United States.


bottom of page