May 2, 2012 – The U.S. Securities and Exchange Commission is bolstering its use of high-tech analytical models to identify risky industry practices, and hopes to significantly increase its manpower and resources to develop these models.
According to testimony provided by SEC Chair Mary Schapiro, as the financial sector uses increasingly sophisticated technology and high frequency trading algorithms, “our ability to use statistical and trend analyses to identify potentially inappropriate or risky industry practices is essential to help inform our enforcement, examination, and rulemaking efforts.”
Her comments came before the Capital Markets and Government Sponsored Enterprises Subcommittee and Financial Institution and Consumer Credit Subcommittee of the U.S. House of Representatives Committee on Financial Services.
Schapiro said that the Commission’s Division of Risk, Strategy and Financial Innovation (RSFI) “plans to continue to develop and implement robust analytical models to identify regulated entities with high-risk profiles.”
The RSFI serves as the Commission’s high-tech think tank, and was created in September 2009 “to integrate financial economics and rigorous data analytics into the core mission of the SEC,” according to the agency’s website. The division relies on a variety of “academic disciplines, quantitative and non-quantitative approaches, and knowledge of market institutions and practices to help the Commission approach complex matters in a fresh light.” It also assists in the Commission's efforts “to identify, analyze, and respond to risks and trends, including those associated with new financial products and strategies.”
But to do that, it plans to significantly increase its academic manpower.
According to the SEC’s budget request for Fiscal Year 2012, the RSFI is asking for requests an additional 32 positions in FY 2012. As a result, the division would have a staff of 96, including a significant number of visiting academics and industry experts.
Approximately half of the requested resources will be devoted towards implementing new, as well supporting on-going, activities mandated by the Dodd-Frank Act.
However, the remainder will support the Division’s operations and on-going tasks of risk and economic analysis, strategic research, financial innovation, and development of data analytics and quantitative methodologies—much of which has been diverted or deferred in order to meet the requirements of the Dodd-Frank Act.
RSFI will continue to monitor market developments, conduct outreach to market participants, and enhance risk-based methods for maximizing resources throughout the SEC. Staffing increases will allow the Division to better support the Office of Compliance Inspections and Examinations in its efforts to improve systems for surveillance, risk-based targeting of examinations, and data analysis capabilities.
The additional personnel will provide economic and statistical analysis that identifies potential violations and that supports the prosecution of violations, as well as to provide support for the existing interactive data program. Additionally, in FY 2012, the Division expects to continue providing analyses for a number of issues being considered for legislative action, as well as analyses of the impact of existing legislation on investors and regulated entities.
This story originally appeared at Securities Technology Monitor.