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Regulators Can't Keep Up with Wall Street's Robot Invasion
Traders Magazine Online News, October 24, 2017
Who understands this stuff?
That’s the question regulators are asking when it comes to examining the ever-increasing amount of algorithmic trading technology. This hyper-technical realm is the land of ultra educated quants and technologists who understand coding and other hyper-sophisticated technologies running today's trading coputers. Againstthis backdrop, government watchdogs are having trouble figuring out how to look under the hood of machines running lightening-fast algorithms or machine-learning software.
To keep up, agencies such as the Securities and Exchange Commission and the Commodity Futures Trading Commission might have to rethink whom they hire. They could take a page from hedge funds and investment banks that have been turning to people who know how to write computer code, not just traders with MBAs.
“What you really need are computer geniuses who failed as algorithmic traders and are willing to switch sides,” said Brad Bennett, who was head of enforcement at the Financial Industry Regulatory Authority until earlier this year. “You have to be able to deconstruct the code.”
Finra, which is funded by the financial industry, acts as a front-line regulator for brokers. It goes through reams of trading data to try to spot suspicious buying and selling, and typically passes what it finds on to the SEC.
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