This month, the agency is in the final phases of testing software that will stream real-time trade data into its headquarters near Union Station, helping regulators better grasp the market’s plumbing. The technology should go live in early 2013, at a cost of $2.5 million for the year.
“What we’re giving them is public data that they need in order to figure out what happened at any given moment of the trading day or reconstruct events,” said Manoj Narang, 43, whose company — Tradeworx, based in Red Bank, N.J. — created the SEC’s new software. “To me, there’s no substitute for the regulator having the capability to discover the answers on its own without any bias from outside parties.”
But the true value of the technology will ultimately turn on whether the SEC, long known more for its lawyers than for its technologists, can lure the expertise needed to make sense of the data and use them properly. The agency’s credibility has suffered from a series of high-profile bugs and glitches in recent years that has shaken public confidence in the marketplace, such as the botched offering of Facebook’s stock and the runaway trades linked to faulty computers at Knight Capital this year.
But the incident that came to define the SEC’s shortcomings was the “flash crash” on May 6, 2010, when the stock market plunged nearly 1,000 points in minutes then whipsawed back up.
It took the SEC about four months to unwind the billions of orders that took place that day and issue a report of what happened. Although the SEC started collecting the data in June 2010, it could not aggregate them into a single database for analysis until three months later. Even the seemingly simple task of matching a quote with a trade price proved tough.
The wide gulf in technical prowess between the regulators and the regulated became painfully clear that year, prompting the SEC to explore hiring an outside firm that could gather up-to-the-minute market feeds from the public exchanges. It selected Tradeworx in June, but it declined to disclose how many other firms competed for the contract.
“Instead of building everything from scratch and hiring teams of developers, we wanted to buy something that’s ready to go,” said Gregg Berman, a senior adviser to the SEC’s trading and markets division and a Princeton-trained nuclear physicist. The new system will be dubbed Midas, for Market Information Data Analytics System.
Tradeworx was no stranger to the SEC when it won the contract.
When Narang and his brother co-founded the company in 1999, during the height of the dot-com bubble, they were looking to create online personal finance tools for mom-and-pop investors. One of their first, a product aimed at helping investors calculate their margin risk, was bought by the SEC in 2000 and displayed on its Web site, Narang said.