Compliance

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Dr. John Bates
Dr. John Bates
Commentary
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It's A Rich Man's World

Regulators are chasing the market with real-time market monitoring technology because they lack the budgets of banks and hedge funds.

John Bates
As regulators prepare to update market-monitoring technology and improve market surveillance, one question keeps arising. Why are they so late to the game? Part of the answer is money.

Regulators have fallen behind in scrutinizing the markets that they are responsible for because regulators are not Wall Street banks. Banks and hedge funds can afford to (and do) put the best armies of top PhDs to work for them. Banks and hedge funds can afford to (and do) buy and use the latest and greatest technology. Regulators are at the mercy of annual budgets set by painful negotiations with Congress. Thus regulators have been at a disadvantage and are now running to catch up after the markets went sour.

Mitigating risk was not a top priority for regulators when times were good. After all, why mess with a booming financial services industry? When it went bad it went very, very bad and that was when they looked inward and realized that they were totally unprepared. The UK's Financial Services Authority likened the struggle to "chasing a Ferrari whilst riding a bicycle."

In the U.S., the Securities and Exchange Commission (SEC) is planning to improve surveillance and establish a consolidated audit trail system, while the Commodities Futures Trading Commission (CFTC) is re-establishing a technology advisory committee to provide a best practices blueprint for market oversight and surveillance. This will be particularly relevant if the CFTC gets responsibility for over the counter (OTC) derivatives after financial reform is passed.

These are great steps in the right direction, but the truth is that the regulators are still chasing the market. Until recently, most regulators were unaware that it was possible to do market surveillance in real-time.

Dr. John Bates is a Member of the Group Executive Board and Chief Technology Officer at Software AG, responsible for Intelligent Business Operations and Big Data strategies. Until July 2013, John was Executive Vice President and Corporate Chief Technology Officer at Progress ... View Full Bio
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