Citadel Securities sues to freeze $119 million in disputed CAT fees

Citadel Securities is seeking a court order to freeze over $119 million it says was unlawfully collected from broker-dealers by a securities industry surveillance entity.

The firm filed suit on January 16, 2026, in federal court in Washington, D.C., targeting Consolidated Audit Trail, LLC, the private company that owns and operates the SEC's sprawling market surveillance system. The legal action follows a July 2025 ruling by the Eleventh Circuit Court of Appeals that vacated the SEC's 2023 funding order for the Consolidated Audit Trail—a database that collects and stores the trading history of all Americans who trade equities or options.

According to court filings, CAT LLC amassed more than $300 million in fees from broker-dealers under the now-vacated order. Citadel Securities, a broker-dealer registered with the SEC, says it was compelled to pay $56.4 million. The firm contends that CAT LLC retains over $119 million in reserve and intends to draw down roughly $40 million each quarter this year to cover operating costs—a pace that would empty the coffers by August 2026.

At the heart of the dispute is a constitutional argument rooted in the private nondelegation doctrine, which limits the government's ability to transfer federal authority to private parties. Citadel Securities argues that CAT LLC—a nominally private entity jointly owned and operated by 27 self-regulatory organizations, including FINRA and 26 for-profit national securities exchanges—is wielding government power without meaningful oversight from the SEC. Permitting CAT LLC to spend the disputed funds before the agency can weigh in, the firm argues, would reduce any future review to "a largely academic exercise."

The numbers underscore how dramatically the project has ballooned. When the SROs and SEC estimated costs in 2016, they projected $37.5 to $65 million to build and $36.5 to $55 million per year to operate. In reality, CAT LLC spent nearly $1 billion on development before the system was even operational, according to court filings, and operating expenses have consistently hovered around $200 million per year. CAT LLC itself has acknowledged that "no other comparable system or database of this scale … and complexity exists anywhere in the world."

Citadel Securities also maintains that CAT LLC violated the terms of the CAT NMS Plan by stockpiling a reserve that vastly exceeded the SEC-imposed ceiling of 25 percent of the annual budget. Under the original 2025 budget of $248.8 million, the maximum permissible reserve stood at $62.2 million. Yet CAT LLC has admitted it ended 2025 with a reserve balance of $119,128,336—nearly double the limit and equivalent to 48 percent of the budget.

The day before filing suit, Citadel Securities filed a petition for rulemaking with the SEC, asking the agency to direct CAT LLC not to spend down the reserve without prior approval and to return the unlawfully collected funds to broker-dealers.

CAT LLC has pushed back. In a letter to the SEC dated January 14, 2026, the entity defended both the balance of the reserve and its plan to spend it, asserting "that 'fees' as used in the phrase 'to offset future fees' is synonymous with costs incurred to operate the CAT."

The SEC, for its part, is now conducting a comprehensive review of the CAT. Chairman P. Atkins announced the review in May 2025. A proposed new funding model submitted by CAT LLC in September 2025 remains pending before the Commission.

No ruling has been issued. The case is pending in the U.S. District Court for the District of Columbia.

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