FINRA Staff Talk About Innovation Initiative

Kavita Jain, Director Emerging Regulatory Issues at FINRA
Kavita Jain, Director Emerging Regulatory Issues at FINRA

Artificial intelligence is helping the Financial Industry Regulatory Authority (FINRA) spot spoofing.

That promising statement was made by Kavita Jain, Director, Office of Emerging Regulatory Issues, who was on the FINRA Unscripted.

“Internally, we’re adapting the technology in various different areas. In the market surveillance program, for example, we are using artificial intelligence to assist in market manipulation or spoofing. We’re creating new patters based on AI to really augment our human analysts time.” Jain said.

The Commodities Futures Trading Commission (CFTC) started LabCFTC, a fintech initiative and in much the same way FINRA launched the Innovation Outreach Initiative in 2017.

Both Jain and the other guest on the podcast, Haime Workie who is the senior director at the Office of Emerging Regulatory Issues (ERI), have been leading that initiative.

They explained that the Innovation Outreach Initiative has five parts.

  • Fintech industry committee
  • Regional roundtables, thus far FINRA has held roundtables in Dallas, San Francisco and New York
  • Providing appropriate training for FINRA staff
  • Regulatory coordination, where FINRA speaks with global and domestic regulators about fintech issues
  • Producing white papers and other research

Chris Van Es, the host of the podcast, noted that sticking a tech to the end of a word immediately makes it trendy (much like .com also made ideas much more interesting in the late 1990s) and two new trendy terms with tech at the end are Regtech and Suptech. (supervisory technology)

“Suptech really refers to technology which is used by regulators themselves in the process of supervision. Potentially, it could be used to firms themselves (the trading firms) that use it as a supervisory type of function. ” Workie stated.

Van Es then asked, “How is FINRA leveraging technology with our own supervision and enforcement actions?”

Workie noted that the technology group and the market regulation group in FiNRA have taken the lead, and not Workie, but then said, “Some of the areas they have been working on have been around kind of cloud computing,” Workie said, “Cloud computing assisted us during this period of volatility.”

In their group, Workie said “within our own group in ERI, we’ve been looking at things like natural language processing to assist in our efforts for doing research.  Trying To ferret out what issues we’re seeing more in the financial press as well as what areas we should be thinking about without having to read every article that’s in existence.”

Natural language processing “is an area of research and application that explores how computers can be used to understand and manipulate natural language text or speech to do useful things. NLP researchers aim to gather knowledge on how human beings understand and use language so that appropriate tools and techniques can be developed to make computer systems understand and manipulate natural languages to perform the desired tasks.” According to a white paper on the subject by Gobinda G. Chowdhury from the Deptartment of Computer and Information Sciences University of Strathclyde, Glasgow.

Workie noted that FINRA’s use of this technology as an analytic tool is still in its infancy.

Workie referred to an article written in December 2015 by fellow FINRA staffer Steve Randich which described how the cloud transformed FINRA’s approach to regulation. Here’s part of that article.

“August 24, 2015, was a ho-hum day.

“Sure, the Dow Jones Industrial Average tumbled nearly 600 points in the most active day of stock trading in about four years. But for us in the technology group at the Financial Industry Regulatory Authority it was largely a day just like any other.

“We seamlessly processed more than 75 billion records in stocks, bonds and options, that day — more records than Visa or MasterCard process over six months. To be sure, that was an unusual amount of data for us to process in one day, but in years past, that kind of spike would have meant we’d be up all night for days to process all that information. August 24, however was just another Monday, and it’s all thanks to our infrastructure on the cloud.

“In 2014, we made a groundbreaking decision to transfer our data to Amazon Web Services, the largest cloud company. This was groundbreaking not just because we are a financial regulator, but because we didn’t just move over our small projects, or our websites, like many companies have done. We moved over the crown jewels, our most critical processes: all of our market surveillance platforms.”