 Good afternoon everybody, thanks for your your patience in grabbing your box lunches and bringing them in so that we can take advantage of Commissioner Stein's very short time in Ann Arbor. She's been traveling all over the world and took a little brief break to come here and give a speech which could be in Washington DC but here here we are in Ann Arbor. We're glad to have her here. Dick Berner I know joins me in welcoming Commissioner Stein to this conference. Dick and I spent a good bit of time tag-teaming on Commissioner Stein to get her here so we're thrilled that it was able to to work. Karestine was appointed by President Barack Obama to the U.S. Securities and Exchange Commission. It was sworn in on August 9th of 2013. Anybody who has paid any attention to the SEC since then knows that one of Commissioner Stein's singular focus for her time on the Commission has been promoting and encouraging and demanding accountability in the financial sector. Miss Stein joined the Commission after serving as legal counsel and senior policy advisor for securities and banking matters to Senator Jack Reed. From 2009 to 2013 she was staff director of the Securities, Insurance and Investment Subcommittee of the Senate Banking Committee and during that time Stein played a really central role in drafting and negotiating significant provisions of the Dodd-Frank Act. I'll just say Commissioner Stein's role on the derivatives title was really quite central and it also was resulted in one of the rare bipartisan moments during the legislative process and also one of the funniest but I will leave that story for another day. And for our purposes today Commissioner Stein was also really quite central I would say indispensable in the creation of the Office of Financial Research. There's no no staffer on Capitol Hill who did more to draft, build, support for, create and and enliven, enrich, empower the Office of Financial Research so all of us here today I think are very much in her debt. Prior to that Commissioner Stein spent quite a long time in roles on the Senate Banking Committee with jurisdiction over the banking agencies and the SEC. She worked for quite a while in as legal counsel and senior policy advisor to Senator Reed as majority and minority staff director on the Banking Subcommittee on Housing where she played an especially important role in calling attention to the foreclosure crisis early on in that process and in working on solutions across the aisle to try and address it. Before going to Capitol Hill Commissioner Stein was an associate at the law firm of Wilmer Cutler and Pickering. She was a Scadden Public Interest Fellow, an Advocacy Fellow at Georgetown University Law Center, an assistant professor down the street at the University of Dayton School of Law. Commissioner Stein received her BA from Yale College and her JD from Yale Law School. We got our start working together on housing discrimination in Connecticut a gazillion years ago and so I am just thrilled and honored and humbled to have a chance to introduce Commissioner Stein to you today. Please join me in welcoming her. I have a low type presentation here. Got it? Okay. Low of stature and low tech. It's an absolute pleasure to be here and I want to thank Mike for the kind introduction. We actually wrote a paper together in law school when he I was a third year and he was a second year on housing discrimination so sort of amazing where we are now. I also want to thank the University of Michigan and the Office of Financial Research which is near and dear to my heart for organizing this important conference. I'm pleased to be with you today. I actually think it's a really important time to be discussing some of the forces that are shaping financial markets and regulation. I wanted to start my remarks with a quote. What hath God wrought? That message was sent from Washington to Baltimore in 1844 and it signaled the arrival of the telegraph. Originally an exclamation but sometimes it's written as a question. It captures I think both the wonder and the uncertainty that new technologies can inspire. The telegraph proved to be a transformative technology. Information was no longer limited by the speed of a horse but could spread almost instantaneously. Farmers in one part of the country could learn about prices and distant markets and an expanding country would soon communicate from one coast to another. The transformation of knowledge that began with the telegraph has continued for more than a century. Over the last several decades in particular data and our capacity to store and process it has grown at an astounding rate. These technologies have touched nearly every endeavor including science, health care and of course finance. Even the Bard has felt the effect thanks to text analysis. Shakespeare will now have to share credit for several plays with Christopher Marlow. Railroads and telegraphs and automobiles and telephones fundamentally reshaped society. By connecting distant locations with greater speed they created new avenues for spreading goods and knowledge and the result was increased prosperity, convenience and efficiency. I think the current revolution in data similarly allows us to make novel connections. However instead of connecting physical locations we're connecting data points to uncover new insights and the result may be another leap forward in how knowledge develops and spreads but you know all of this. You are the data geeks. So today I actually wanted to drill down a little and talk about how these developments are affecting the financial markets and the Securities and Exchange Commission in particular. Specifically I wanted to discuss four broad themes. I thought I could lecture right? One, two, three, four. One, the new opportunity that data provides. Two, why the Commission must keep up with data's growing role in the markets. Three, some of the challenges to keeping up and four, some ideas for overcoming these challenges. It won't surprise you I'm going to focus on my perspective as a commissioner at the Securities and Exchange Commission but these themes likely have relevance to other financial regulators as well. Ultimately regulators are being disrupted by new technology and it is important to focus on what we should be doing about it. However before going further let me say that my remarks today and the views I express are my own and they do not necessarily reflect those of the Commission, the views of my fellow commissioners or the staff of the Commission. You'll see you'll hear that disclaimer whenever you have a Securities and Exchange Commissioner speaking to you. Let's start out with the new opportunity and information particularly fast and reliable information has always been central to the financial markets. For example shortly after the development of the telegraph, brokers began leasing their own telegraph lines so they could receive pricing information faster. The securities laws in large part can be understood as a set of rules about information. What information is useful for public dissemination? How should we ensure that it's accurate and it's reliable? Does fairness require everyone to have the information at the same time? How do you protect non-public information? What information is necessary for price discovery? The federal securities laws speak to all of these questions. I think in this sense big data is actually a continuation of an old theme. In another sense the developments in the past 10 to 15 years represent a totally new phenomenon in the same way that satellite imaging is completely different from surveying a landscape from the top of the hill. At that scale patterns become evident that would have been impossible to piece together by considering one plot at a time. This means that both market participants and regulators have new opportunities for developing knowledge. Moreover this is a qualitatively different kind of knowledge encompassing entire data sets in one pass rather than a slowly accumulating insight from individual experience. Market participants have already seized this opportunity. They are using a wide range of data sources to call signals about possible market movements. Among these data sources is actually information that the Securities and Exchange Commission makes available. The demand for which is actually enormous. In the last year our website received over 7 billion page views. That's more than some major media sites. We also delivered more than two petabytes of data to visitors. I recall not long ago when a gigabyte seemed like a lot of data. The commission itself is also beginning to realize some of the potential of new data tools. In a recent case we obtained a settlement against a large broker dealer for its failure to adequately train its representatives when they were selling certain complex debt instruments. What made the case unique was that instead of traditional investigative techniques it was actually built on custom analytics. SEC industry specialist working with a team of tech experts developed tools to sift millions of trading records. Using this technique they were able to identify over 8,000 retail customers for whom the investment in the complex debt instruments was inappropriate. A case like this may not have been possible in the past. I believe, however, that enforcement is not the most important potential use of data for the commission. By the time we start building a case the harm has already been done. I am much more interested in establishing rules of the road that can help prevent crashes than in waiting to deal with the aftermath. Better investor protection is avoiding fraud and misconduct in the first place. So the key question is how can we design policies and monitoring systems that support healthy market function and aid and compliance on the front end? Improved data tools have the potential to be uniquely powerful in this way. They can allow us to make better more tailored policy choices that focus on actual risks to investors and the market. This approach will never replace humans or human judgment, but it can improve the markets and help us make smart use of what are always going to be limited resources. Data and technology, they present tremendous opportunities and benefits. But as you know they've also opened the door to new and exceedingly complicated risks. Data is distributed across a range of electronic platforms, complicating the task of monitoring and examining market participants. Moreover, the variety of data has increased dramatically. This includes highly structured derivative transactions that are reported in competing taxonomies such as FYX and FPML, as well as unstructured information like social media posts and narrative reports. As a result, in addition to being an exciting opportunity, the spread of data and data tools also requires the commission to make changes to keep up. A number of recent developments highlight this need. As you know, today's electronic trading environment has significantly changed the capital markets. Algorithms called matching engines match electronic limit orders with electronic market orders. High-speed trading dominates representing over 55% of United States equity markets. And liquidity provision has largely shifted from traditional market makers to computerized systems that trade in fractions of a second across different trading venues and securities. When the flash crash happened on May 6, 2010, equity markets suddenly plunged and then rebounded. In contrast to the incredible speed of this disruption, it was months before the SEC and the CFTC were able to gather the necessary information, turn through the data and produce an analysis of the trading on that one day. I was actually working in the Senate at the time, and I remembered the uncertainty as we waited to understand whether the disruption signaled vulnerability and whether it could happen again. Since then, the financial markets have experienced other temporary disruptions and many flash crashes. These events implicate data both in their causes and in the ability of regulators to understand and respond. I think they also highlight the risk of driving a carriage in the age of Tesla. By the time you're pulling out of the stable, everyone else's autopilot has passed you by. Since the flash crash, the commission has made some steps towards developing enhanced monitoring capabilities. The SEC has, for instance, created what we call the Market Information Data Analytics System. It's fondly known as MIDUS. MIDUS combines information from the consolidated tape and separate proprietary feeds to create a more complete picture of equity market activity. We need to go further, though. The SEC will soon consider a plan to create the largest data repository of securities trading activity that has ever existed. This is widely known as the Consolidated Audit Trail, or the CAT. This unprecedented data effort will help us finally move at highway speeds. The SEC's statutory mission involves three core objectives, which protect investors to maintain fair and orderly markets and to facilitate capital formation. Our mission is not changing in the digital age, but our tools for carrying out that mission must. We simply can't be effective or efficient without a more strategic approach to our mission, to financial markets and data. So what are the challenges in keeping up? I'll go back to recognizing that the growth in data, it represents both an opportunity and a necessity. How can the SEC best position ourselves to respond? There are a number of challenges, and I'm not going to address all of these exhaustively, but I want to talk about several that are critical. I think the first condition to success is acquiring the right data. We need data that's relevant, timely, and high quality. So this is not simply about increasing the volume of data. There's already a lot of volume out there. This requires being smart about the data that we collect. When you want an apple, chopping up the tree usually isn't the most efficient way to get it. So we must instead, I think, carefully consider our possible sources, actual data gaps, and reporting methods. Where we, as a commission mandate reporting, how can we ensure that our requirements keep pace with a quickly evolving market? Can we design reporting requirements so that our resources are spent on analysis instead of cleaning up data sets? These are challenging, but important questions, I think that require a forward-looking approach. Another condition to success is ensuring that computers can quickly and reliably interpret the data. Structured data can be an important part of this. SEC reporting in the last few years has begun to embrace better practices for structured data. For instance, we recently adopted reporting requirements for mutual funds and ETFs that will require the use of XML. Our existing form PF, on which hedge fund managers report, also uses XML. Where structured data is not available or reliable, we should continue to explore techniques that allow better parsing of unstructured data. We should also, and anyone who's heard me talk before knows how much I love LEI, we should also embrace identifiers like the legal entity identifier. I remember vividly the uncertainty following Lehman's collapse. Regulators and counterparties were left to sort through the rubble, trying to piece together the consequences. It was a problem of modern complexity, but without an equivalent modern solution. LEI helped solve that problem by providing a uniform and reliable way to identify counterparties. This should free regulators and others, right, to focus on the financial risks instead of the data issues. The new mutual fund reporting forms also include an important new requirement for funds to obtain an LEI. Growing use of XML and LEI are important steps. However, we can still do more to ensure that we have data that is ready for efficient analysis. Another significant challenge is limited resources. Using data effectively depends both on having people with specialized skills and having sophisticated systems. In addition to our excellent staff of lawyers and accountants, we need more professionals with the right technical skills. Our systems and software also need to keep up with the speed and the volume of today's markets. Our main information reporting system, Edgar, was a huge leap forward 20 years ago, but it is ancient in tech years. With a limited budget and an ever evolving market, we may never drive the latest model, but we must, however, find a way to keep pace. We also need to remain vigilant about protecting proprietary information. Cyber security is a constantly evolving risk. The latest large scale attacks on the news directed at certain internet utilities may have been launched using webcams. As a result, we have to be creative and dynamic in developing responses. I think we also need to ask how new data tools can improve our ability to deliver decision useful information to investors. I have spoken before on the need to create a digital disclosure task force to help us reimagine how the commission acquires and provides data to investors and market participants. I believe that we have an opportunity to reduce the burden on companies and those who are submitting data to us, while at the same time providing better disclosure to investors. I don't say this in my speeches, but if Amazon can pick up and you can look at three different toasters at one time and compare them, can you imagine if you could do that with three companies that are selling similar types of products and actually decide what you want to invest in? Thinking about companies submitting data to us and we use it to populate interactions with investors on our website. We're very tech centric at the commission that goes back to having lots of lawyers and not as folk, not data centric. So again, we're being disrupted. And it's hard for people to shift gears. Another condition to success is that we never lose sight of the human element. No matter how powerful the processor at the end of the day, humans develop the assumptions and the metrics. They design the analyses, they program the algorithms, and they interpret the results. I think for me, the housing crisis forcefully brought this home. As models were built from assumptions that were chosen by humans, and were fallible, that no, you know, three housing markets in the entire country could go down at the same time, you know, you had inputs that were being put into algorithms that ultimately were fallible. Human biases are as much a part of digital databases and computer analysis as they are of any other source of knowledge. Accordingly, we must approach them with the same judgment and caution and safeguards. The final challenge I want to touch on is one of leadership. Success here depends on drawing together an array of expertise. And always you're making decisions with limited resources and within limited budgets. This cannot be done without vision. The vision needs to be accompanied by a detailed roadmap and effective management. Without these, we risk missing the opportunity that data can provide. So meeting the challenge. How can the SEC meet the challenges of developing and using data effectively? In recent years, we've made some progress. An important part of this has been the growth of our Division of Economic Research and Analysis, or DRRA, as well as several other groups that include analysts, quants and economists. We even have a physicist. These include talented folks in the risk and examinations office, in investment management, the risk analysis examination team. We have acronyms for all of these, the RAE, so I don't usually say all of them. In our exams office and the Center for Risk and Quantitative Analytics in our Enforcement Division. These groups have advanced our ability to handle data with rigor. They've also played an important role in everything from identifying risk to informing policy and conducting investigations. In addition, as I mentioned previously, we've made some progress on the systems front with the development of Midas and hopefully in the near future, the advancement of CAT. But more needs to be done and it needs to be smart. An important part of defining our vision should be the creation of an Office of Data Strategy. For some time, I've asked that the SEC develop an executive team responsible for creating and overseeing such an office. The office would be responsible for coordinating the creation of a data strategy, addressing how we collect, manage, use and provide data. I just think it's like project management. This is a critical step from turning our sort of ad hoc growth in this area as data users into a more deliberate plan. The office also could lend its expertise to and we coordinate with our policy exam and enforcement offices. Having a data strategy and a team dedicated to it is especially important in the light of our limited resources. So just as the telegraph ushered in a new information era, the spread of data and data tools is changing how information is used and shared. The promise of this is tremendous. And if the commission can successfully harness the new technology, I think investor protection, financial stability and the markets will all benefit. Thank you again for inviting me to talk with you on this beautiful day in Ann Arbor. You're engaged in a fascinating and I think very productive conversation and I look forward to hearing about some of your ideas in this area. Thank you.