Inside The SEC’s Tech Department
Something has been quietly changing at the SEC, the agency whose reputation was savaged by the financial crisis when regulators were accused of being asleep at the switch, and also took a severe beating for failing to seize multiple opportunities to stop Bernie Madoff before he bilked investors out of $65 billion.
While many have derided the Commission for being out-of-touch, poorly staffed, and slow to react to market forces, the SEC has been quietly shaking things up in its technology department.
In October 2010, the SEC appointed Tom Bayer as its CIO, reporting to Jeff Heslop, who was named the agency’s first-ever chief operating officer earlier that year.
On the recommendation of the Boston Consulting Group, which reviewed the SEC around the time the new CIO joined the organization, Bayer created a steering committee to focus on the way the regulator implements technology across the organization. “A lot of its work is to leapfrog what we already do. We try to look at the broader picture, how the financial markets are affected by changes in technology, and also how technology can improve the way we do work,” Bayer told Wall Street & Technology.
Over the last year, the SEC has ramped up its ability to ingest and analyze the data that floods the market on a daily basis – and thanks to its new analytics technology, it has been able to more effectively pinpoint market abuses, Bayer notes.
“We have to intake a tremendous amount of data – the amount of data we’re intaking today is larger than a year ago but not as large as it will ultimately be. We have registrant data, form PF data, Form MA (market analysis), and a number of new rules coming online in the next 12 to 18 months,” he explains. “A case like Madoff or others requires a tremendous amount of data, both in structured or unstructured data, or could be variations of the same email as it wound its way through a particular organization. We also analyze .wav files or sound files (for wire taps or other kinds of verbal files) and video clips.”
Bayer has also been working with two Big Data experts – Jeanne Ross from MIT and Barb Wixom from the University of Virginia, who are providing the SEC with insights into emerging and evolving best practices in technology, he says. “Their technology case studies cover a range of companies and it gives us a broader view of innovative practices across industries. From a big data perspective, they inform us of how social media companies are analyzing their data. Jeanne helped me to understand the positive impact of "gamification" on learning and business process.”
Meanwhile, the SEC is about to deploy advanced market analytics that enable it to assess trading patterns within day-to-day market activity. The watchdog also has recently developed and started using “aberrational performance analytics” for hedge funds, Bayer notes. “It allows us to understand a particular hedge fund’s performance and also the performance of the peer group that a hedge fund performs in and that allows us to understand outliers. And those outliers are then indicated as a potential risk, and that risk is then investigated through the Office of Compliance Inspections and Examinations, OCIE, and also the Enforcement Division. They do further analytics on the performance, and that way we’re able to find people who are outliers. And we have done that several times in the last year,” the CIO explains.
Melanie Rodier has worked as a print and broadcast journalist for over 10 years, covering business and finance, general news, and film trade news. Prior to joining Wall Street & Technology in April 2007, Melanie lived in Paris, where she worked for the International Herald ... View Full Bio
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