SEC Commissioner Kara Stein has no qualms dissecting the role data plays in today’s financial markets. If anything, she seems to be making it her mission to educate anyone who will listen about the conflicting roles data can play in today’s markets: Data can empower beautiful market efficiencies and enhance beastly market disruptions.
“Data revolution represents dramatic changes in securities markets operations,” Stein said Tuesday at SIFMA’s 42nd Annual Operations Conference in San Diego.
Before outlining the data-related initiatives she deems crucial, Stein offered a brief history of the markets, detailing the evolution of market data from the days of the Buttonwood tree to today’s high-frequency trading superhighways. Ultimately, Stein urged caution about the ramifications of analysis and regulation not keeping pace with microwave- and laser-fast markets, noting “The Flash Crash demonstrated that markets had outpaced their keepers.”
Speaking in the shadow of Petco Park, the home of baseball’s San Diego Padres, Stein seemed to touch all the bases in discussing the hottest data-related topics in the operations and technology space:
Legal Entity Identifiers
Stein is a proponent of widespread adoption of Legal Entity Identifiers. Stein said greater global adoption of LEIs will allow relationships and connections to become more transparent. LEIs also offer regulators insight about networks of control, liability and risk in the marketplace. “LEI will reduce costs in collecting, cleaning and reporting data,” Stein said.
Consolidated Audit Trail
Stein did not mix words in her expressing view on just how big a deal the consolidated audit trail is: “CAT is one of the largest data projects that has ever been undertaken, representing a paradigm shift in how we oversee securities markets.”
With a goal of collecting an estimated 58 million records per day, there is little doubt that CAT will require a tremendous amount of industry cooperation. However, Stein pointed out that a proposal that might seem like a regulatory reform wrought with headaches for the industry might eventually simplify the work of compliance professionals. “Only though CAT can we develop regulations that are driven by the facts,” Stein explained.
Stein touched on how the Flash Crash and the lengthy investigation that followed highlighted the need for CAT and lamented the slow march to implementation, which remains years away. “We need the CAT as soon as possible,” Stein said.
Shortened Settlement Cycle
Stein believes that the example set by Europe and other regions to move to T+2 settlement ahead of the U.S. proves the settlement cycle can be shortened without disrupting markets. As far as when that move to T+2 should take place in the U.S., Stein believes the sooner the better because of the benefits the shorter settlement cycle offers. “It will reduce risk at individual firms and across the marketplace,” Stein said.
A Chief Data Officer for the SEC
Stein stated her support for the creation of a Chief Data Officer position at the SEC. According to Stein, the CDO would have the power to harness all the data flowing into the SEC and use it to shape policy. Unfortunately, Stein was light on details of just what kind of person would occupy such a position because the devil is in the details. Would an omnipotent CDO at the SEC be a veteran from the buy side or the sell side? Or perhaps someone from academia so as to inhibit regulatory capture? And what about funding? As the CFTC has learned, just because a regulator has access to massive amounts of market data doesn’t mean that regulator has the budget for the staff and technology needed to farm that data.
Getting back to the baseball analogy, the idea of a CDO at the SEC sounds a lot like a base-runner stranded on third at the end of an inning: at one point a promising prospect, but ultimately never more than a promising prospect.