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Meet The Unquantables: The SEC's Quant Team Briefs the FBI

The jig’s up. The SEC’s team of quants is briefing the FBI and other regulatory bodies about how you trade and evade at high speeds.

That table of traders slamming down drinks at the end of the trading day? Those guys who sneer at the SEC and high five each other as they boast of their prowess? "Bro, if these regulators are so smart, they’d be traders, amiright? Amiright?!"

Think again, broseph. The SEC has a team of Algorithmic Untouchables and they are sharing their high-speed trading expertise with the FBI.

[Meet the SEC's new market Surveillance System, code-named MIDAS.]

Reuters reports that the Securities and Exchange Commission’s team of algo trading experts - code named Quantitative Analytics Unit - is manned with quantitative gurus who have actual trading experience. Their mission? To "help gather data, identify risks and target examinations of investment advisers for hedge funds and other firms," according to Reuters.

If that weren’t enough they’ve been briefing the Federal Bureau of Investigations and other regulatory agencies about the ways of high-speed quantitative traders. Yep, the same FBI that is arresting and charging hedge fund managers with insider trading.

Book 'em, Reuters:

Launched in 2011, the Quantitative Analytics unit is housed within the SEC's Office of Compliance, Inspections and Examinations.

"Our Quantitative Analytics Unit consists of specialized examiners with PhDs and extensive backgrounds in mathematics, physics, and computer science," SEC spokesman Kevin Callahan said.

"They play a key role in examinations of the most sophisticated algorithmic trading firms and other investment advisers. The unit shares its expertise in this area with other regulatory agencies and participates in conferences to increase the dialogue with financial firms and other regulators."

I recall a not-so-distant conversation with a broker-dealer from the midwest who chuckled when asked about the SEC in the wake of the credit crisis. Not only didn't they have a fraction of the expertise to do the job, they didn’t have the budget to get the job done. And why should traders be worried, he asked. If they were so smart, he said, they would be top traders on the floor or running their own hedge fund.

Big words from a guy who begged for anonymity.

If the head of any high-speed trading firm doesn't think that their days are numbered they might not be trusted to add one plus one. A recent review of high-frequency trading headlines show that several foreign governments are proposing curbs on sub-second trading - some modest and some severe. What’s the big deal if Germany, Italy and Australia start a ban or set a high-speed trading limit? In a global marketplace it makes a big difference. If these bans take hold and regulators start breathing easier about the risk levels in their markets, soon the regulators in major markets will follow suit. Pretty soon, you’ll only be able to trade in some dodgy island nation or off a ship with wifi in international waters. Or, heaven forbid, you might have to hold that stock for an entire five seconds. Heavens!

Look out for the SEC's Unquantables.

[The SEC Squashes Nasdaq's Algo Proposal, Citing Competitive Issues with Brokers.] Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio

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Melanie Rodier
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Melanie Rodier,
User Rank: Author
3/6/2013 | 5:07:04 PM
re: Meet The Unquantables: The SEC's Quant Team Briefs the FBI
Does this mean the SEC has been somehow able to hire more quants, despite its ever-tight budget? It's an interesting development, but how exactly will the FBI use the information? And once the FBI gets the information, will it have the staff, knowledge to do something with it? At any rate, maybe the SEC should use its quants to really assess the HFT industry, risk loopholes and potential additional regulation, and decide on some actions pretty fast, before it shares out its expertise with the FBI. Just a thought...
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