SEC chairman lays out big data technology initiatives
Understaffed and outspent, the Securities and Exchange Commission is making an "unprecedented" investment in technology to protect investors and keep up with the fast pace and complexity of financial markets, says SEC Chairman Elisse Walter.
In a Feb. 19 speech at the American University School of Law in Washington, D.C., Walter said the SEC's new Market Information Data Analytics System and Consolidated Audit Trail will collect vast quantities of public and non-public data about the market in order to level the playing field.
"These new tools are giving us the ability to examine the way our markets function with greater precision and detail than we have ever seen," said Walter. "They allow us to plumb routine filings for irregularities and aberrations that might signal illegal acts or suspect accounting."
For its part, MIDAS captures all orders posted on the national exchanges, including modification and cancellation of those orders, as well as trade execution of those orders and all off-exchange executions, resulting in what Walter calls an "unprecedented aggregation" of trading information data.
"MIDAS is becoming the world's greatest data sandbox," she said. "And the staff is planning to use it to make the SEC a leader in its use of market data."
In terms of investor protection, the SEC sees MIDAS as a system providing "dramatically better insight" into the function of the high-speed financial markets – information that regulators plan to share with the public. Although, how the commission plans on disseminating that data is still under evaluation by Walter's staff.
CAT, the SEC's other major technology initiative, is a market-wide effort requiring national securities exchanges and other self-regulating financial organizations to implement a system to significantly enhance the ability of the SEC to monitor and analyze trading activity.
"Where MIDAS collects vast quantities of public data, CAT will capture non-public data as well — not just trades and when they were executed, but also, for example, the identities of the parties to the trades," stated Walter.
A single system like CAT providing comprehensive public and non-public data about the market "could be the most important regulatory development in my lifetime," she said.
In order to stabilize markets and to protect them from automated and computer-driven trading that can go awry, the SEC is requiring measures such as circuit breakers that halt trading when a stock price moves too far, too fast, and a "limit up-limit down" mechanism designed to prevent excessive volatility in individual stocks.
In addition, the SEC is accelerating work on a regulation aimed at improving systems compliance and integrity. Dubbed Reg SCI, this proposed rule would replace an existing Automation Review Policy, transforming voluntary guidelines into mandatory rules.
Although details of the proposal are still under discussion, Walter said the new rules will require, among other things, that core technology of the exchanges, significant alternative trading systems and clearing agencies meet certain standards. And, she expects the rules will require that these entities conduct business continuity testing and that they provide certain notifications regarding systems disruptions and other events.
-read transcript of Walter's speech