Securities and Exchange Commission (SEC) chair Mary Jo White said on Tuesday the regulator’s Risk Analysis Examination (RAE) team has unearthed problematic market behavior by analysing hundreds of millions of broker-dealer transactions – a capability it will increase in the near future.
Speaking at a National Society of Compliance Professionals’ membership meeting in Washington, White said the push to harness greater quantitative analysis had already picked up broker transgressions relating to ‘churning’ – whereby brokers engage in unnecessary transactions to boost fees and ‘reverse churning’, where low-volume clients are placed in fixed-fee accounts.
“In one exam that was recently completed, the RAE team collected and analysed over 400 million transactions,” White said. “And the next exam is expected to analyse more than twice that many.”
The RAE team uses quantitative analytics to examine clearing firms and large broker dealers by downloading all transactions cleared by the firm over the prior year or two, which is subject to analysis to identify problematic behavior, White said.
White described the efforts of compliance professionals as invaluable to the industry and said the SEC’s new analysis tools would help alert compliance teams across the industry to harmful trends and activities of which they may be unaware.
Earlier this month, the commission unveiled a new website that gives investors and other participants the ability to access advanced market data to inform industry debates on market structure.
The site provides access to the regulator’s new Markets Information Data Analysis System, or MIDAS, alongside SEC research.
The information comes from the consolidated tapes and proprietary feeds of each exchange and includes posted orders and quotes, modifications and cancellations, and trade executions both on- and off-exchange.
“We are launching what we believe to be a game changer that focuses the market structure debate as never before on data and analysis rather than anecdote,” White said when the site launched on 9 October.