SEC Needs Resources to Police Algorithmic Trading, Khuzami Says

U.S. Securities and Exchange Commission investigators need additional tools to adequately police market advances such as high-frequency and algorithmic trading, the agency’s enforcement chief told lawmakers today.

“The enforcement program continues to face challenges in securing the necessary expertise, human capital and technology resources to fulfill our mission of investor protection,” SEC Enforcement Director Robert Khuzami said in testimony prepared for a Senate Banking subcommittee hearing in Washington.

The comments by Khuzami, a former Deutsche Bank AG general counsel who joined the SEC in 2009, reflect the agency’s calls for additional funding to take on expanded oversight imposed by the Dodd-Frank Act as well as shortcomings exposed by the May 2010 stock market crash. The SEC lacks resources to analyze massive amounts of data that could reveal misconduct, he said.

“We need enhanced tools to consolidate and mine this data, link it together, and combine it with data sources from within and beyond the Commission,” he said in the prepared remarks. “This level of analysis would enable staff to more effectively identify risks to investors, trends in the markets, and patterns of activity that may merit further investigation.”

Since joining the SEC, he has revamped the enforcement division, establishing specialized units including one that focuses on market abuses. Among the unit’s priorities areas are large-volume trading and data-feed latency issues as well as systemic insider trading and manipulation schemes, he said.

Investigators also need to “keep pace with the ever- evolving issues” of how asset managers value illiquid portfolios, use high-risk emerging products, and whether they are selectively favoring some investors, Khuzami said.

In the municipal securities markets, the investigators “need better understanding” of issues including pension liability disclosures, valuation issues and tax-arbitrage activities, he said.

-- Editors: Gregory Mott, Lawrence Roberts

To contact the reporter on this story: Joshua Gallu in Washington at

To contact the editor responsible for this story: Lawrence Roberts at

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