SEC CIO Grows Tech In Leaps & Bounds

It goes without saying that the 2008 global financial crisis was a wakeup call for investors, politicians, the public, and regulators. For the Securities and Exchange Commission, the global financial crisis also exposed the agency’s technological shortcomings at a time when advanced technology was needed to uncover risk and monitor daily activity in the markets.

In October 2010, when Thomas Bayer joined the SEC as its chief information officer, the crisis was in full swing, and the financial markets were recovering from the infamous flash crash in May of that year. Following the flash crash, the SEC and the Commodity Futures Trading Commission (CFTC) found it difficult to sort through transaction data to find out what caused the approximately 1,000-point drop.

It took the SEC almost five months to complete its investigation of the flash crash, as it struggled to piece together trading data from the fragmented markets. The SEC and CFTC report on the flash crash, issued on Sept. 30, 2010, said the cause was a combination of fragile and fragmented markets, high volatility, thinning liquidity, and computer algorithms. "We had to spend $2 million build a system to analyze the flash crash," Bayer reports.

To observers of the financial markets, however, a bigger concern was why it took the SEC and CFTC almost five months to issue a report on approximately 20 minutes of trade data. With markets becoming more electronic by the day, regulators should have the capability to monitor trading in real-time, not five months after an event.

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