[ by Larry Goldfarb ]

The SEC is developing the capability to identify suspicious trading patterns and relationships among multiple traders and across multiple securities. According to Mary Schapiro, Chaiman of the SEC,  Even though the firms that the regulator oversees “spend more money just on their IT budgets than we spend running our entire agency,’’ the SEC will use “newly-developed analytics” to spot abuses.

Among the better technology the SEC will put in front of its investigators:

• The agency’s infant Automated Bluesheet Analysis Project, she said. Blue sheets, no longer on blue sheets of paper, provide the SEC with detailed information about trades performed by a firm and its clients. The information, now sent in electronically, includes the security's name, the date traded, price, transaction size and a list of the parties involved.

• A new Market Abuse Unit has spearheaded the analysis project for the Division of Enforcement. With the tool, “staff are able to search across this database to recognize suspicious trading patterns and identify relationships and connections among multiple traders and across multiple securities, generating significant enforcement leads and investigative entry points.

• The agency also has put in place an Aberrational Performance Inquiry team, she said. That team’s inquiries focus on data on the performance of investments to identify hedge fund managers that may be engaging in fraudulent practices, before a tip is received or an examination discovers questionable behavior.

• The agency is also using an “e-discovery” system to make wide searches of data produced for the agency by the securities industry to find “needles that might have been missed or overlooked.’’ And that system will be integrated with other tools, including technology that allows phonetic searches of voice recordings, to find leads. 

For further information, please read [Traders Magazine, 10/12/12].