The temptation to collect more data only grows with the sophistication of our analytical techniques and tools. Collecting data, however, is not free-not for us, not for the industry from which we collect it, and not for investors. Registrants that provide the data often incur very large direct costs to produce the data in the timeframe and at the frequency we require. They also may experience other kinds of costs if the data fall into the wrong hands. . .
[T]he so-called CAT, which is not yet up and running, will collect data from brokers across the country and aggregate it in a data pool in which the SEC and other regulators can fish. The data pool will contain all transactions in our equity and options markets. As you can imagine, regulators and enforcement staff love such a rich reservoir, but it is not cheap-the exchanges and brokers have already incurred huge expenses to get the CAT almost ready to launch and will continue to incur costs throughout the CAT's life; if cyberthieves break in, there will be additional costs to the investors' whose data are compromised; and, not least, there is the cost of eroded liberty, as the government monitors Americans' financial transactions.
Three Broker-Dealers to Pay More Than $6 Million in Penalties for Providing Deficient Blue Sheet Data (SEC Release / December 10, 2018)https://www.sec.gov/news/press-release/2018-275, which alleges, in part, that:The Securities and Exchange Commission today announced that three broker-dealers have agreed to pay more than $6 million to settle charges for providing the SEC with incomplete and inaccurate securities trading information in required SEC productions known as "blue sheet data," which the SEC uses to carry out its enforcement and regulatory obligations, including the investigation of insider trading and other fraudulent activity.According to the SEC's orders, over a period of several years, Citadel Securities LLC, Natixis Securities Americas LLC, and MUFG Securities Americas Inc. each made numerous deficient blue sheet submissions containing inaccurate or missing data; incorrect order execution times that failed to adjust for time zone changes; and incorrect or missing exchange codes, transaction type identifiers, opposing broker number and contra-party identifiers. Citadel, the largest provider of blue sheet data of the firms charged today, submitted incorrect data for nearly 80 million trades while Natixis and MUFG submitted incorrect data for approximately 150,000 trades and 650,000 trades, respectively. These deficiencies largely stemmed from undetected coding errors. None of the firms had adequate processes designed to validate the accuracy of its submissions.Two Broker-Dealers to Pay $4.65 Million in Penalties for Providing Deficient Blue Sheet Data (SEC Release / September 16, 2019)https://www.sec.gov/news/press-release/2019-177, which alleges, in part, that:The Securities and Exchange Commission today announced that Stifel, Nicolaus & Co., Inc. has agreed to pay $2.7 million and BMO Capital Markets Corp. has agreed to pay $1.95 million to settle charges for providing incomplete and inaccurate securities trading information to the SEC. Broker-dealers are required to provide the information known as "blue sheet data," which the SEC uses to carry out its enforcement and regulatory obligations, including investigations of insider trading and other fraudulent activity.According to the SEC's orders, over a period of several years, Stifel and BMO each made numerous deficient blue sheet submissions containing missing or inaccurate data, largely due to undetected coding errors. The SEC found that Stifel failed to report data for approximately 9.8 million transactions and provided inaccurate information for approximately 1.4 million transactions. Separately, the SEC found that BMO submitted missing or incorrect data for approximately 5.4 million transactions. According to the SEC's orders, neither firm had adequate processes designed to validate the accuracy of its submissions and each willfully violated the broker-dealer books and records and reporting provisions of the federal securities laws.
[O]ne way we can enlist the help of others is to do a better job at making data available for people outside the agency to analyze. Whether it is improving the data about municipal issuers, increasing transparency about transactions in the fixed income markets, giving investors greater insight into financial institutions' balance sheets, or ensuring that brokers' customers can get information about how their orders have been executed, more data can be a powerful tool for market participants. Armed with the data, market participants are able to make better decisions. Even for some functions that are often found in regulatory hands, outside help can be beneficial. 2I have been a critic of post-financial crisis regulation that looks to regulators alone to identify and solve problems; no offense to any government economists in the audience, but lots of people working independently are better at identifying problems and generating solutions than a small group of regulators holed up in musty regulatory agencies in Washington, D.C. An important question for both lawyers and economists working in regulatory agencies is: How can we enlist the help of people outside of government in regulating the activities we are responsible for overseeing?= = = = =Footnote 2: Our whistleblower program is an example of how important such outside help can be. See, e.g., Report Suspected Securities Fraud or Wrongdoing, https://www.sec.gov/tcr (last visited Dec. 12, 2019). See also Marcos López de Prado, Testimony before the Task Force on Artificial Intelligence of the House Committee on Financial Services (Dec. 6, 2019), https://financialservices.house.gov/uploadedfiles/hhrg-116-ba00-wstate-lopezdepradom-20191206.pdf (suggesting that outside data scientists could be enlisted to unravel discrete events like the Flash Crash).
Comments on Proposed Rule: Amendments to the Commission's Whistleblower Program Rules / Release No. 34-83557; File No. S7-16-18]/ From: Bill Singer / September 12, 2018https://www.sec.gov/comments/s7-16-18/s71618-173238.htm"SEC Whistleblower Program Is A Black Hole Of Despair" (BrokeAndBroker.com Blog, April 9, 2015).