Securities and Exchange Commissioner Kara Stein in remarks this week renewed calls to create what she called an Office of Data Strategy that would be tasked with coordinating the creation of a data strategy addressing how the SEC collects, manages, uses, and provides data.
“For some time, I have asked that the SEC develop an executive team responsible for creating and overseeing such an office,” said Stein in remarks at the Big Data in Finance Conference on Oct. 28. “This is a critical next step in turning our ad hoc growth as data users into a deliberate plan.”
“The office could lend its expertise to, and would coordinate with, our policy, exam, and enforcement offices,” Stein added. “Having a data strategy, and a team dedicated to it, is especially important in light of our limited resources.”
In fact, limited resources are a “significant challenge” for the SEC, she said. “Using data effectively depends both on having people with specialized skills and sophisticated systems; in addition to our excellent staff of lawyers and accountants, we need more professionals with the right technical skills.”
Another challenge for the SEC is acquiring the right data. “We need data that is relevant, timely, and high quality,” Stein said. This is not about simply increasing the volume of data, but rather requires being smart about the data that the SEC gathers, she said.
Computers must also be able to quickly and reliably interpret the data. “Structured data can be an important part of this,” Stein said. “SEC reporting in the last few years has begun to embrace better practices for structured data.” Reporting requirements for mutual funds and ETFs that will require the use of XML is one such example.
In recent years, Stein noted, the SEC has made some progress in meeting the challenges of developing and using data effectively. An important part of this has been the growth of the Division of Economic Research and Analysis (DERA) as well as several other groups that include analysts, quants, economists, and even a physicist, Stein says.
These include staff in the Risk and Examinations Office in Investment Management; the Risk Analysis Examination Team in the exams office; and the Center for Risk and Quantitative Analytics in Enforcement. “These groups have advanced our ability to handle data with rigor,” Stein said. “They have also played an important role in everything from identifying risk to informing policy and conducting investigations.”
The SEC has also made some progress toward developing enhanced monitoring capabilities with the development of the Market Information Data Analytics System (MIDAS), which creates a more complete picture of equity market activity.
Additionally, the SEC “soon will consider a plan to create the largest data repository of securities trading activities that has ever existed,” so-named the “consolidated audit trail” (CAT), Stein said. “This unprecedented data effort will help us, finally, move at highway speeds,” she said.
Enforcement is not the most important potential use of data for the SEC. “By the time we start building a case, the harm has been done,” Stein said. “I am much more interested in establishing rules of the road that can help prevent crashes than in waiting to deal with the aftermath. Better investor protection is avoiding fraud and misconduct in the first place.”
One key question is how the SEC can design policies and monitoring systems that support healthy market function and aid in compliance on the front end, Stein said. Improved data tools have the potential to be uniquely powerful in this way “by allowing the SEC to make better, more tailored policy choices that focus on actual risks to investors and the market,” she said.
“This approach will never replace the need for humans and human judgment,” Stein added, “but it can improve the markets and help us make smart use of our limited resources.”