Considering the extraordinarily large influx of data the SEC can expect, via initiatives such as SCI and Consolidated Audit Trail, the SEC’s operational lifecycle will have to transform enormous amounts of disparate data points into insight from which it guides market policy. As a federal organization, the demand to yield results from fewer resources is even more critical. The Commission’s establishment of the Office of Research and Analytics is a major step in adopting the modern data science and learning principles commonly found in its regulated entities. However, to keep par with or stay ahead of its constituency, a cultural transformation must also be undertaken by the SEC, aligning the focus of its technology systems and organizational structure to be optimally poised to extract insights from the accumulation of vast quantities of market data.
With a large proportion of society holding a stake in resilient markets, the SEC is not alone in its quest for operational stability of market infrastructure. SIFMA’s Quantum Dawn project, for example, engages a wide cross-section of market participants and stakeholders in sophisticated and coordinated testing scenarios to gauge both technology and financial market response to a distributed cyber-attack. AT-9000 is a working group focused on applying ISO/9001 type quality management standards to the realm of automated trading systems. As financial markets increasingly exhibit nonlinear characteristics, policy that shapes the interactions and relationships among market participants will better insulate the market from inevitable disruptions within the complex system than will regulation of the specific activities of any individual entity.
The nascent footprint of disruptive technological innovation can be observed in the expanding universe of sophisticated products available to consumers, with offerings that combine algorithmic trading with advanced analytics in the hopes of exporting some of Wall Street’s most elite capabilities to Main Street. As the products of tomorrow achieve broader adoption, they bring with them their own mutating suite of regulatory demands; and the SEC must itself be prepared to experience change with depth and frequency far surpassing what has been observed up to today. By adopting practices resembling those more traditionally exhibited by technology companies, the Commission will be poised to engage its constituency on equal footing in the pursuit of fair and orderly markets.
Salvatore Sferrazza is principal, SunGard’s Consulting Services.