Securities Litigation

An article in this weekend's Wall Street Journal called for FINRA to make the database underlying its BrokerCheck ® system (of reports on stockbroker registration and disciplinary history) more widely available for data mining and analysis by public-sector participants.

The article roundly criticized FINRA's interface that limits public access to peep-show, one-broker-at-a-time reports: "In the age of Big Data, it is time to liberate the BrokerCheck files. Only when information is set free can it turn into insight." J. Zweig, "Is Your Stockbroker Great or Mediocre?" Wall St. J. at B1 (Apr. 23-24, 2016). The FINRA BrokerCheck ® site is here. The article draws heavily upon a recent report by the Securities Litigation & Consulting Group. The authors of that report queried the BrokerCheck ® database about 10 million times to aggregate the data so they could run comparative regression analyses to ask additional questions showing comparative results relative to industry-wide norms. C. McCann & M. Yan, How Widespread and Predictable is Stock Broker Misconduct? (SLCG 2016) here. Those authors decried BrokerCheck ® as "worthless in its current hobbled form." FINRA says it is considering making the underlying data (already public, but accessible only in highly-limited forms). Securities regulators themselves have a long-history of data mining regulatory information for market-surveillance and enforcement. In 2009, both the SEC and FINRA reorganized their internal structure to re-focus on the benefits of big data in the regulation and enforcement of the securities industry. The SEC elevated its efforts to the Division level, creating an in-house think-tank for economic and data analysis, the Division of Economic and Risk Analysis (described here). And FINRA created its Office of Fraud Detection and Market Intelligence (described here). See also FINRA Market Regulation and description of technology and surveillance (including BrokerCheck ®). Coincidentally, the MSRB announced the following day that it was making its municipal-bond trading data available to an academic consortium, precisely to encourage public analysis of municipal-market activity:

"The Municipal Securities Rulemaking Board (MSRB) today announced that it is making trading data on the $3.7 trillion U.S. municipal bond market freely available to academic institutions through Wharton Research Data Services (WRDS), a research platform that provides financial and economic data to more than 400 institutions around the world. The partnership with WRDS supports the MSRB's goal of advancing academic research in the municipal market."

MSRB News Release (Apr. 25, 2016). Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas and Louisiana. He has over 30 years' experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile. © 2016 by Thomas K. Potter, III (all rights reserved).