FINRA CEO and Chairman Ketchum Speaks on Restoring Investor Trust in Markets

FINRA CEO and Chairman Rick Ketchum delivered opening remarks at the FINRA Annual Conference, focusing on how to regain investor trust and confidence in the markets. 

According to Chairman Ketchum, much of FINRA’s recent work has contributed to improving the protection of investors and market integrity.  One of the changes, Chairman Ketchum noted, was the transformation of FINRA’s risk-based exam program to be more data-driven.  FINRA fully implemented the Request Manager system in 2013, which streamlined the exchange of information between FINRA and its firms.  Additionally, the Risk Control Assessment and the data FINRA gathers through TRACE both have helped inform FINRA exams and knowledge of the business activities of its firms. 

To restore investor trust further, Chairman Ketchum stated, FINRA’s role should be focused on a set of organizing principles, including:

  • to be data informed;
  • to be technology empowered;
  • to be responsive to change; and
  • to be capable of more quickly and effectively identifying and disciplining bad actors. 

According to Chairman Ketchum, an important step in fulfilling these principles is the Comprehensive Automated Risk Data System (“CARDS”), which will allow the collection and management of data from firms in a standardized way, and will provide FINRA with ongoing “birds-eye-view surveillance.”  Chairman Ketchum noted there are many concerns with CARDS, including issues with personally identifiable information, with the security of such a large database, and with costs and operations.  Chairman Ketchum said that, in order to address such concerns, FINRA has been meeting with firms and plans to launch CARDS in stages.  Additionally, he stated, FINRA is changing the CARDS proposal so that firms can choose how to send FINRA data: through a clearing firm, a service bureau or to FINRA directly. 

Chairman Ketchum also mentioned briefly that the ongoing debate on both high-frequency trading and equity market structure has not helped to restore investor confidence, “particularly when we have popular authors saying the markets are ‘rigged.'”  Chairman Ketchum added the clarification that the markets are not rigged, and that FINRA and the exchanges have never been focused more on identifying manipulative or disruptive trading activity.  He explained that, later this month, FINRA will be issuing the first reports of Alternative Trading Systems (“ATS”) volume on a stock-by-stock basis in order to increase transparency for ATS trading.  Additionally, he stated, FINRA recently added Direct Edge data to the data surveyed from NYSE and NASDAQ so that FINRA now conducts surveillance of 90 percent of the listed U.S. equity market. 

Chairman Ketchum explained that, of all the initiatives he mentioned, the “biggest game changer” will be the implementation of the Consolidated Audit Trail (“CAT”), which will collect, identify and link orders, trades and quotes in equities and options from all market participants.  He added that CAT will provide the view needed to restore investor trust and transparency of the markets. 

See: Chairman Ketchum’s Speech