WASHINGTON - Sen. Jack Reed (D., R.I.) on Monday unveiled legislation to create a National Institute of Finance to help regulators collect and standardize financial and market data so the government can better mitigate economic risk.
Reed's proposal mirrors a similar activity taking place at the Securities and Exchange Commission, where staffers this spring are expected to propose a new system in which the agency will collect real-time market data from exchanges and other trading venues.
Reed is a key player in the financial overhaul debate now occurring in the Senate Banking Committee. The committee could begin formal consideration of such a bill by the end of the month, although it is unlikely they will progress very far without Republican support.
On Friday, Senate Banking Committee Chairman Chris Dodd (D., Conn.) announced he would go forward producing a financial overhaul bill without cooperation from the committee's ranking Republican, Sen. Richard Shelby of Alabama, after the two reached on impasse on negotiations.
It is unclear whether Reed's data collection proposal will make it into Dodd's broader financial bill.
Reed's move could signal lawmakers' efforts to find incremental ways to address the markets if a broad, systemic risk bill is unattainable.
Reed has already asked the National Academy of Sciences to study the data and tools needed to monitor systemic risk. The Academy has determined that the right now lacks the technical tools to monitor systemic financial risk in today's complex marketplace.
"Over the last several decades, a completely unregulated 'shadow-banking' system has metastasized to the point where many of these new products and market-participants, such as derivatives and hedge funds, remain completely out of reach of financial regulators," Reed said in a statement.
Reed's bill would establish a data center to map interconnections between banks and other financial institutions, including details of transactions and positions, and their valuations of assets and liabilities.
The center also would conduct research on financial markets and provide periodic reports to Congress.
According to Reed's office, applied research on financial markets and systemic risk isn't well represented at the Federal Reserve or in other financial agencies.
The SEC, for its part, plans to use its consolidated audit trail to help it bring enforcement cases more quickly and easily against financial wrongdoers.
"Because of the nature of the fragmentation of our market, we have got to find a way to pull the data into one consolidated stream in order for us to reconstruct it and use it to bring cases," SEC Chairman Mary Schapiro said.
Within the SEC, consolidating market data would mark a major feat. "A lot of the burden will fall to self regulatory organizations [such as the New York Stock Exchange] and trading platforms," Schapiro said.
Exchanges and alternative trading systems would need to cooperate with SEC officials to meld their data, which then would be used for a variety of purposes across the agency.
The SEC's enforcement division envisions the new consolidated audit trail as part of a state-of-the-art data collection, surveillance and analytics room.
