Sunday, July 22

US financial watchdog to go Minority Report in helping machines catch market abuse

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A new SEC rule would create a single document for humans and machines, which, if adopted, can ultimately lead to predictions about potential future behaviour, said an SEC regulator speaking to a FIMA conference in Boston last week. 

More than 100 companies are already voluntarily filing with the SEC using this technology.

The “key innovation” of the SEC’s disclosure technology development is making machine accessibility invisible to the rendering of a document for human readability, said Scott Bauguess, deputy chief economist and deputy director in the Division of Economic and Risk Analysis at the SEC.

Currently, filers separately report a human-readable html version of a periodic report and a machine-readable version in an eXtensible Business Reporting Language (XBRL) format.

From a machine-readability perspective, the financial statement data, footnotes, and other key information contained in an Inline-XBRL filing can be easily and automatically extracted, processed, and combined with similar data from other 10-K filings.

This aggregation is possible because each of the extractable data elements or sections of textual information is tagged using definitions from a common taxonomy of reporting elements.

From a machine learning perspective, this standardized data can be combined with other relevant financial information and market participant actions to establish patterns that may warrant further inquiry.

“These are precisely the types of algorithms that staff in DERA are currently developing,” Bauguess said.

SEC has big data

SEC registrant disclosures generate a huge amount of decision-relevant data.

The EDGAR filing system contains financial information covering more than $82 trillion of assets under management by registered investment advisors. It hosts financial statements by publicly-traded companies with an aggregate market cap of approximately $30 trillion.

And since its inception, there have been more than 11 million filings by over 600,000 reporting entities using 478 unique form types.

“The SEC is fundamentally committed to ensuring that all investors and market participants can access the information necessary to make informed financial decisions,” h said.

“But another aspect of the agency’s commitment to investor protection involves the use of sophisticated data analytics to ensure that we have insight into the market, particularly as we seek potential market misconduct.”

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