Tuesday, March 17, 2015

A Call for Academics to Join Policy Debates Over Securities Regulations

SEC Opens the Door to Academic Input on Equity Market Structure Reforms

Author: David Schwartz J.D. CPA

In a recent address before the Center for the Study of Financial Regulation at the University of Notre Dame’s Mendoza College of Business, SEC Commissioner Michael S. Piwowar urged academics to engage more actively in policy debates over securities regulation.  Commissioner Piwowar is particularly interested in “data-driven” input from academics in connection with potential reforms to the structure of the U.S. securities markets.  The Commission recently finalized the composition of a Market Structure Advisory Committee that will focus on the structure and operations of the U.S. equities markets and will function as a forum and resource for reviewing specific, clearly articulated initiatives or rule proposals. Piwowar sees the Committee’s work as a prime opportunity for academics studying the securities markets to provide real input and make their voices heard.  
While regulators, legislators, industry organizations, and SROs have provided ample input on these issues, Commissioner  Piwowar noted that the SEC’s concept release on equity market structure attracted only 10 comment from academics.  What is lacking in this and other recent regulatory initiatives, he said, is data-driven research.  This is precisely where he feels academics can be most beneficial to the process. By actively studying policy implications, academics can provide meaningful data-supported analysis and advice to the Commission and others as they formulate regulatory reforms and changes to market structures.  
"The truth is that academic research can have real, measurable influence. As someone who has spent time navigating the academic journal publication process as well as the Washington, DC policymaking processes, I would like to make a few personal observations about how academics can truly inform policymaking through their scholarly work, particularly in the area of market structure. To start, I urge you to keep policy implications in mind as you construct and conduct your research. Too often, policy implications are simply an afterthought added to an already­ finished working paper just prior to submitting it to a conference or journal."
One way academics can further their scholarship and at the same time participate in the policy process, according to Piwowar, is to mine the data published by the SEC from its Market Information Data Analytics System (MIDAS).  MIDAS is a treasure trove of virtually real-time market data. Every day MIDAS collects about 1 billion records from the proprietary feeds of each of the 13 national equity exchanges time-stamped to the microsecond.  In turn, a great many datasets in this trove are made available publicly almost instantaneously.  Using MIDAS data, academic researchers can perform analyses of thousands of stocks and over periods of six months or even a year, involving up to 100 billion records at a time.  The Commission is eager, says Piwowar, for those outside the SEC to take full advantage of the myriad opportunities for scholarly study and rigorous analysis the MIDAS data provides. 
"The Commission uses MIDAS internally to, among other things, monitor market behavior, understand market events, and test hypotheses about the equity markets. But we also make a number of data series freely available to the public. Please download the data, conduct analyses, and come back to us with your empirical findings. Let the Commission know whether, and if so how, the data is useful for teaching purposes. We promise to take the feedback constructively."
Commissioner Piwowar urged academics to be in touch with policymakers directly.  He also said that the Commission will make more of an effort to reach out to universities, and academics should not be shy about responding fully when approached by policymakers for advice. Insofar is academic engagement can help the work of the Market Structure Advisory Committee, it seems Commissioner Piwowar has opened the SEC's door to the nation’s universities.  
"Further, to the extent you have occasion to be in Washington, DC and you would like to discuss your research, please reach out. Do not underestimate your ability to get a meeting with policymakers. I know I am not the only one — at the SEC or on Capitol Hill — that makes every effort to meet with anyone who expresses interest in discussing market structure issues. Schedules are challenging, but I find I am able to accommodate a surprisingly large number of requests. And I learn more listening to academics engaged in thoughtful market microstructure research than from the usual inside­the­Beltway suspects and their buzzword­laden talking points."