Good afternoon. It’s a pleasure to welcome you to the 11th Annual Conference on Financial Market Regulation. As is customary, I’d like to note that my views are my own as Chair of the Securities and Exchange Commission, and I am not speaking on behalf of my fellow Commissioners or the staff. 

My thanks to the Center for Financial Services at Lehigh University, the Center for Financial Policy at the University of Maryland, and of course the staff of the SEC’s Division of Economic and Risk Analysis (DERA).

DERA’s terrific team of more than 170 economists, statisticians, data scientists, engineers, attorneys, accountants, and other staff are at the heart of everything we do at the SEC.

The Division has a seat at the table for all of the SEC’s decision-making, whether it’s monitoring markets, enforcement, or policymaking. For all of this work, we depend on data.

The Nature of Finance

Since antiquity, finance has been about the pricing and allocation of money and risk throughout the economy. There are those who have money who want to invest it. Others need money to fund good ideas, buy a house, or help get through life’s inevitable challenges. There are those who have risk but don’t want to bear it, and others willing to take on that risk.

Finance sits in the middle, like the neck of an hourglass whose grains of sand are money and risk.

Finance depends on data.

It’s with data that investors and issuers on either side of the hourglass participate in markets. It’s with data that the intermediaries who sit at the neck of the hourglass help price and allocate money and risk. Intermediaries don’t just sit passively passing the sand through the hourglass. They become important market participants themselves. They retain and transform money and risk. They also accumulate significant amounts of data on markets, pricing, and risk.

In finance, there also is a tendency toward concentrated data sets with sometimes dominant influence.

This is the nature of finance.

Data, a Public Good

Adam Smith, known as the father of modern economics, noted in The Wealth of Nations more than 200 years ago that the whole economy benefits when the price of information is lowered, or information is free.[1] Smith’s maxim is relevant every day in our modern capital markets.

Reliable, accessible data benefits everyone. No one private entity, though, has the incentive to create a database with reliable, comparable, and accessible data, even if they themselves may benefit. Thus, data is a public good.

Relying solely on market-based incentives would lead to under-production of the public good of information about securities.

President Franklin Roosevelt and Congress understood this. Setting rules that determine what data is provided to the public is one of the most consequential things we do at the SEC. The basic bargain Roosevelt and Congress laid out 90 years ago was that investors get to decide which risks to take so long as those companies raising money from the public make what Roosevelt called “complete and truthful disclosure.”

Roosevelt and Congress set up the SEC in 1934 to oversee the markets—and the intermediaries at the neck of the hourglass—to promote fair, orderly, and efficient markets.

While Smith’s maxim and the SEC’s role in promoting data as a public good is a constant, technology, business models, and risks change. Thus, we have an obligation to continue to refresh rules with regard to data, disclosure, and transparency.

I think of the SEC’s roles with regard to promoting data as a public good in at least four areas: issuer disclosure, disclosure by market participants, transparency of markets, and the SEC’s role providing to the public economic research as well as aggregate statistics.

Issuer Disclosure

First, Congress embedded in our securities laws a role for the SEC to oversee disclosures from public companies and registered investment companies. Further, they recognized from the SEC’s beginning the importance of guarding against insider trading where insiders abuse information that hasn’t been disclosed.[2] Few things undermine trust in the markets more than insiders abusing their positions for personal advantage, such as by trading using material nonpublic information.

The core benefits of a mandatory disclosure-based regime and guarding against insider trading haven’t changed in the last nine decades. As I said, though, technology and business models do change. What investors find important to their investment decisions also changes over time.

For instance, under Chair Arthur Levitt, the SEC in 2000 implemented Regulation Fair Disclosure to prevent companies from disclosing material non-public information to only certain individuals and not everyone.[3]

More recently, the SEC has updated disclosure requirements underlying the basic bargain. These last two years we’ve adopted rules providing investors with disclosures on emerging risks like climate[4] and cybersecurity;[5] capital raising technologies, like special purpose acquisition companies (SPACs),[6] and an age-old topic—executive compensation.[7]

The public has benefitted from the Electronic Data Gathering, Analysis, and Retrieval System (EDGAR) in the three decades since the Commission first required mandatory EDGAR filings in 1993. To keep pace with ever-evolving markets, technology, and business models, we’ve updated EDGAR over the years. We recently made proposals that would enhance EDGAR’s security and further improve filers’ access to the EDGAR system. We have also worked across our rulemaking agenda to increase the structuring of data filed with the Commission. Further, since 2021, the Commission has made available Application Programming Interfaces (APIs) that facilitate public access to financial statements and other disclosures made by publicly traded companies. Studies show that machine-readable disclosures benefit investors, markets, and issuers, for example by decreasing information processing costs, making stock prices more informative, as well as reducing market inefficiencies and risks.

We are now working with other agencies to implement the Financial Data Transparency Act, which seeks to promote interoperability of financial regulatory data. 

We also have an important job in reviewing thousands of company and fund disclosures each year.

The Division of Corporation Finance in FY 2023 reviewed offering documents and periodic reports from among the approximately 7,400 actively reporting issuers, including more than 4,000 companies listed on U.S. exchanges.

The Division of Investment Management in FY 2023 reviewed more than 1,900 filings related to more than 4,400 funds and insurance products as well as annual reports from more than 4,200 funds.

Essential to investors’ trust in the reliability of public companies’ financial information is an independent audit of issuers’ financial statements. Congress understood this when they gave the SEC authority over setting accounting standards for public companies. Congress further understood this when they passed the Sarbanes-Oxley Act of 2002 in response to some of the largest accounting frauds and bankruptcies in the history of our country.

Market Participant Disclosure

Second, beyond issuer disclosure, the public benefits from data about market participants. Such data enhances price discovery, reduces information asymmetries, and promotes trust in the markets.

Such disclosures include institutional investment managers holdings,[8] beneficial ownership reporting,[9] and portions of broker-dealer annual audited financial statements.[10]

Again, technology, business models, and risks change. To that end, the SEC has updated a number of these market participant disclosure requirement in the last few years. For instance, we recently adopted rule amendments governing beneficial ownership reporting under Sections 13(d) and 13(g) of the Securities Exchange Act of 1934.[11] The rules shortened the deadlines by which certain beneficial owners of a company must inform the public of their position.

Further, as mandated by Congress, we adopted last year a rule to broaden the scope of short sale related data available to regulators as well as the investing public.[12]

Market Transparency

Third, the SEC has a role in promoting the transparency of the buying and selling of securities.

Such transparency matters, whether it’s prior to the transaction (so-called pre-trade transparency) or after the transaction (so-called post-trade transparency). We see this in our daily lives, whether we’re shopping for a car, a security, or a copy of Adam Smith’s book. We benefit from knowing what others paid for a product or a security in a transaction that recently occurred.

Post-trade transparency promotes liquidity and helps investors. There is something about that sunshine. It gives everyone a sense of where the current market is. The public gets to see details of the last trade that two counterparties just negotiated in that market.

Last year, we adopted a rule mandated by Dodd-Frank to bring greater transparency and efficiency to the securities lending market.[13]

We also recently adopted final rules to require that large broker-dealers—those with more than 100,000 customers—disclose execution quality to the public.[14]

In terms of the National Market System, a great deal has changed since we adopted Regulation NMS in 2005. In particular, a large and growing amount of equity trading now occurs in what many call the dark markets, particularly off-exchange market centers such as wholesalers and dark pools.

In addition to proposing a rule to narrow the minimum tick size,[15] the proposal would update the more than 120-year-old definition[16]  of round lot[17] by determining the size of round lots by the share price. The proposal also would add quotes on odd-lots to core data. Further, it would bring greater transparency to the access fees charged and related rebates paid by exchanges.

Earlier this year, we also approved a Financial Industry Regulatory Authority (FINRA) rule change to enhance post-trade transparency in the Treasury markets.[18] The FINRA rule, for the first time, will provide the public with post-trade transparency in the Treasury markets on a trade-by-trade basis, rather than on an aggregated basis. The scope of what will be published to the public will include a trade’s time, price, direction, venue, and volume.

Economic Research and Aggregate Market Statistics

Fourth, we have a role in publishing economic research. DERA provides impartial economic analyses that consider the costs and benefits of our rules as well as their effects on efficiency, competition, and capital formation.

We get feedback from the public on these economic analyses, which benefits our rulemaking. Our economic analyses also benefit the markets broadly because, as Smith said, making data available creates a public good. Our economists, from time to time, also publish research that’s outside of rulemaking. Taken together, this economic research helps improve market transparency and promotes the public’s understanding of markets.

The SEC also has had a history of publishing aggregate data with regard to the securities markets.

Since 2014, we have published quarterly aggregated trading information data, sourced from the Market Information Data Analytics System (MIDAS), as well as monthly money market fund statistics. In 2015, we began publishing quarterly private fund statistics. Since 2022, we have been publishing data on the security-based swaps market twice a year.

In addition, the SEC has made data more accessible and usable. Since 2015, DERA has published data sets aggregated from structured disclosures by individual registrants. Currently, it publishes 12 such data sets.

Such publications by the SEC helps the public better understand how our economy and securities markets function. 

We recently began publishing a new report, the Registered Fund Statistics report,[19] which aggregates data about the more than $25 trillion registered fund industry. This will give the public a view into the registered fund industry, which includes more than 12,000 mutual funds, exchange-traded funds, and closed-end funds.

I’ve asked staff to make recommendations about other areas where we might periodically publish aggregate market statistics.

Conclusion

Adam Smith’s nearly 250-year-old notion—that the whole economy benefits when the price of information is lowered, or information is free—is as relevant today as it has ever been. The SEC, as mandated by Congress, has an important role to promote data as a public good.

I’m proud to work with all of my colleagues at the SEC, including those of you from DERA, to ensure for the public good of data.