Who's in best position to achieve real-time surveillance of markets?
When Securities and Exchange Commission Chairman Mary L. Schapiro recently announced a plan to spend $4 billion up front and $2 billion a year to create a system that would consolidate data on all market transactions into one auditable trail, the questions were plentiful.
- What would the SEC really ask for?
- What would it do with the data?
- Could it do anything with the data?
- Will it hire smart enough people to build the system properly?
- Will it hire smart enough people to analyze the data?
- Could it effectively create software that would allow it to surveill markets in real-time?
Most of these questions came from market professionals. Folks at securities firms who would be asked to pick up the bill. And make no mistake: Many of these professionals used the word "tax" in describing what they considered the assessment for creating a consolidated audit trail would be.
Uptick, however, last week asked one outfit, Bloomberg LP, why it didn't just step forward and offer its huge base of real-time tick data and information on commodities, foreign exchange, derivatives and fixed-income markets to be used as a foundation for the new system. And provide Ms. Schapiro and her best minds with some version of its Launchpad, that would give them the ability to track the most critical aspects of any market, in real time, persistently, on screens at their desks.
"We've reached out, as our customers have, as pretty much everybody in the market has. We hope to help in any way we can to minimize the cost to the public,'' said Tom Secunda, co-founder of Bloomberg and now its chief technology officer.
Now, as the annual Financial Services Technology Expo of the Securities Industry and Financial Market Association opens, let's take a look at what the Bloomberg operation has become. Its scale. Which, notably, is worldwide in scope, naturally. Not limited to the perspective of one nation. (Bloomberg has offices, for instance, in 202 locations.)
This kind of sweep is a necessity in an age when Schapiro and Company have to watch not just U.S. markets in the hunt for unseen systemic risks that could be lurking elsewhere. Here's some sense of the critical mass of data that Bloomberg collects and provides around the clock to customers who are working the world's markets:
* Equities: A pool of more than 420,000 stocks from around the world, all of which can be screened according to predefined criteria. Plus, more than 20 years of income statements, balance sheets and cash flow statements that can be analyzed by more than 1800 ratios.
* Fixed income:
- • 4.6 million securities including sovereign, corporate, US municipal, residential mbs, commercial mbs, asset-backed securities and emerging market debt.
- • 4,100 yield curves to track relative value opportunities.
- • Data on more than 37,000 syndicated and institutional loans and access to pricing on the most widely held loans.
Fair value and risk profiles on transactions ranging from simple vanilla swaps and options to the market's most exotic structured notes. Structuring and pricing tools fed by intraday input data and powered by sophisticated analytic models such as the Stochastic-Local Volatility Model for pricing complicated foreign exchange options.
- • Current and historical data from all major futures exchanges
- • Over-the-counter pricing from over 50 brokerage houses
- • Statistical data from governments and trade groups
- • A database of 100,000+ commodity assets
- • Comprehensive data on greenhouse gas reduction
* Foreign exchange:
- • Coverage of 180 different currencies
- • Data and prices from 740 distinct organizations
- • 74,170 actively priced "composite objects"
All of which, of course, the world's most sophisticated traders use, every second of every day. Roughly 287,500 of them.
More of them should be showing up at the SEC, if there is going to be serious regulation of real-time markets in the only time that matters, real time. Or close to it.
There's a way to do that. Bring in Michael Bloomberg. He's going to be available in three more years. Tap him now, as the next SEC chairman.
Put him in charge of creating the most complete, transparent and effective real-time system for collecting and analyzing financial data from any and all markets at any and all times.
There is no one more qualified, more experienced and more effective at it. He's proven that, over the course of the last three decades.
Sure, he wanted to be president. And probably still does.
But the place where he can have the biggest and most important impact on the world is in shaping and creating the information systems that will be best able to identify financial risks as they build up and become national or worldwide systemic risks.
And what greater legacy to leave, than a system that the whole world uses and can maintain and upgrade, as the speed, instrument types, order types and all other aspects of financial markets accelerate?
Maybe SEC chairman is not a big enough role for Bloomberg. And the need is much bigger anyway.
If the European Commission is smart, if Asian regulators are smart, and this nation's House, Senate and Administration is smart, the time to coordinate the creation of a global systemic risk management organization is now.
By the time the details are worked out, you shoud be able t name the first chief executive officer and chief information officer for this organization, to kick it off.
In a role that will have more lasting impact on world economies than that of the head of any single nation. Including ours.