Securities Regulators Go Big on Big Data

February 21, 2014, 5:13 PM ET

Securities Regulators Go Big on Big Data

EMILY CHASAN

Senior Editor

U.S. securities regulators are making greater use of big data, using economists and data-driven decisions to improve examinations, monitor market risks, complete stress tests and select enforcement cases.

“To be an effective 21st century regulator, the SEC is indeed using 21st century tools,” Securities and Exchange Commission Chair Mary Jo White said at a Practising Law Institute Conference in Washington D.C. on Friday.

The agency, for example, is working to identify accounting fraud faster by focusing on patterns of conduct that are risks in areas like revenue recognition or management estimates.

“We’re really looking for how [fraud] is happening and where it is happening,” echoed David Woodcock, chair of the SEC’s Chair of the Financial Reporting and Audit Task Force. He said his task force is using analytics to review past frauds and mine that data to help future investigations.

The number crunching also played a role in more than 100 new rules the SEC was required to write by the Dodd-Frank Act of 2010 and Jumpstart Our Business Startups Act in 2012.

Economists are generally brought in earlier now into the SEC rulemaking process, rather than being asked to perform cost-benefit analysis after a rule has already been written, SEC Commissioner Michael Piwowar said at the conference.
The agency is asking economists to focus on identifying market failures early and then determining the proper regulatory response, Mr. Piwowar said.

The SEC’s economists, for example, were involved heavily in the agency’s proposal on a rule to disclose the ratio of median worker pay to chief executive pay. They are focusing on identifying alternatives for rules, as well as completing quantitative and qualitative cost-benefit analyses.
“If you take a little bit of time on the front-end and do rigorous economic analysis, it turns out you can get to a robust rule in a much quicker time frame,” Mr. Piwowar said, adding that it could also reduce the risk of a rule being overturned in court.

 

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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