Restricting access to regulatory data

Statement No. 339: Restricting access to regulatory Data

Download PDF

The Chicago Mercantile Exchange (CME) has accused researchers at the Commodities Futures Trading Commission (CFTC) of making illegal use of sensitive market data provided by private sources for research purposes. The Commodity Exchange Act prohibits the disclosure of trading positions and trade secrets. The CME alleges that CFTC research may have allowed outsiders to infer proprietary high-frequency trading strategies. The concerns have led to a short-term disruption of the research program of the CFTC over the last several months as the CFTC investigates these allegations.

Limitations on the use of research data raise issues of broad relevance and import for the financial regulatory process, and not just for markets directly regulated by the CFTC. For example, empirical analyses and related research are valuable and crucial for understanding high-frequency trading. Even where genuine confidentiality issues arise, those concerns are mitigated by the passage of time. The SFRC believes that it is sufficient to constrain the use only of recent data. Older data have the potential to inform our understanding of the underlying markets without revealing current trading strategies, given the staleness of the data and their underlying context. For example, the case for allowing the Federal Reserve not to release data describing the various Maiden Lane portfolios became steadily weaker as the underlying events receded to the distant past.

It is essential that regulatory policies and actions reflect an informed assessment of the empirical realities of the markets. Scholarly research on regulatory issues serves the public interest because it is crucial to the ability of financial regulators to understand financial markets and market participants to critique the work of regulators. Additionally, the inability of staff to publish analyses based upon such data would prevent the regulator from recruiting the talented staff that is necessary to analyze market data through the types of innovative lens that are crucial for understanding complex and sophisticated financial and commodities markets. This perspective is strongly reinforced by the recent rulings of the District of Columbia Circuit Court of Appeals, which have emphasized to regulators the crucial importance of including a credible cost-benefit analysis to achieve favorable judicial review. Meaningful analyses and research reports can be undertaken only if the regulator is in a position to staff such projects and recruit the type of talent and skills that would be needed to undertake them.

Also Visit
AEIdeas Blog The American Magazine

What's new on AEI

image The Census Bureau and Obamacare: Dumb decision? Yes. Conspiracy? No.
image A 'three-state solution' for Middle East peace
image Give the CBO long-range tools
image The coming collapse of India's communists
AEI on Facebook
Events Calendar
  • 14
    MON
  • 15
    TUE
  • 16
    WED
  • 17
    THU
  • 18
    FRI
Wednesday, April 16, 2014 | 10:00 a.m. – 11:00 a.m.
Calling treason by its name: A conversation with Liam Fox

Join us at AEI as the Right Honorable Liam Fox sits down with Marc Thiessen to discuss and debate whether America’s intelligence agencies have infringed on the personal privacy of US citizens.

Thursday, April 17, 2014 | 4:00 p.m. – 5:00 p.m.
The curmudgeon's guide to getting ahead

How can young people succeed in workplaces dominated by curmudgeons who are judging their every move? At this AEI book event, bestselling author and social scientist Charles Murray will offer indispensable advice for navigating the workplace, getting ahead, and living a fulfilling life.

Event Registration is Closed
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.