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The Economic and Risk Analysis Division of the Sec

In: Business and Management

Submitted By tschweit
Words 1098
Pages 5
Nichole Schweitzer
Professor Mathews
ACCT 473
April 13, 2016
The Division of Economic and Risk Analysis: What Do They Do? The Division of Economic and Risk Analysis (DERA) is an integral part of the Securities Exchange Commission as it interacts with every other office and division in the SEC. In this paper, I will be discussing the role of DERA within the SEC, how it was formed, the multiple offices within DERA, and a program enacted by DERA and what its responsibilities are. DERA was originally three separate offices in the SEC: the Office of Economic Analysis, the Office of Risk Assessment, and the Office of Interactive Data. The offices were combined in 2009 to create what is now the Division of Economic Risk Analysis. DERA was formed to make the most of their diverse expert staff in order to provide the most sophisticated and data-driven analyses to contribute to the agency’s policymaking, rulemaking, enforcement, and examinations. According to SEC Chair Mary Jo White, the division serves as a central role in the SEC’s ongoing commitment to rigorous economic analysis. Since its inception in 2009, DERA’s staff has doubled and expanded efforts to provide economic analysis and risk assessment to support the SEC’s mission. DERA is staffed by a wide range of professionals including economists, accountants, analysts, and attorneys. To that effect, DERA is comprised of nine specialized offices, each of which having an important role to play within the SEC. First, there is the Office of the Chief Counsel (OCC). This office provides guidance and counsel to the Chief Economist and other division staff regarding legal issues implicated by DERA. They coordinate the integration of their economic analyses into rulemakings and other action by collaborating with staff from other divisions and offices across the SEC. they also counsel staff within the division who work in areas such as structured disclosure, risk assessment, and data analytics. Secondly, there is the Office of Corporate Finance. This office provides analyses on issues related to the regulation and examination of issuers of securities. These issuers have a duty to register under the Securities Act of 1933, and because of the pursuant Exchange Act of 1934, they must make periodic disclosures. To that effect, this office provides extensive analyses on areas including initial public offerings, executive compensation, corporate governance, and disclosures related to asset-backed securities. The Office of Financial Intermediaries provides economic analysis on issues relating to regulation and examination of broker-dealers, financial institutions, any analysts affiliated with the aforementioned, clearing agencies, and National Recognized Statistical Rating Organizations (NRSROs). The Office of Markets analyzes issues regarding the structure and regulation of markets including equity, bond, option, securities lending, securities-based swaps, and other OTC derivative markets. They provide assistance in Commission rulemaking, review proposals for new financial products and services, and they respond to requests from market participants for interpretive guidance or rule exemptions. The Office of Litigation Economics provides support in all aspects of SEC enforcement and litigation. This involves identifying evidence of liability, analyzing materiality, estimating ill-gotten gains and damages, providing and responding to expert testimony in negotiations and litigations, and supporting the distribution of recovered funds to harmed investors. The Office of the Managing Executive directs DERA’s business, operational, administrative, and support programs and activities. Its span of responsibilities reflects the mission support functions at the enterprise level including: human resources, financial management, contracting, information technology, and infrastructure support. The Office of Research and Data Services (ORDS) develops and supports cutting-edge data analytics and data services to support requirements provided by DERA. They provide the metrics, models, and other tools developed as part of the risk assessment programs managed by the Office of Risk Assessment. The ORD’s main mission is the continuous growth and maintenance of the Quantitative Research Analytical Data Support (QRADS) program, which is designed to develop and refine high quality financial market data and robust analytical processes. The Office of Risk Assessment, as briefly mentioned above, provides financial and risk modeling expertise to other offices and divisions to support supervisory, surveillance, and investigative programs related to corporate issuers, broker-dealers, investment advisers, and exchanges and trading platforms. The Office of Structured Disclosure (OSD) leads the design and implementation of technological processes and tools to support the many structured data needs of the Commission, including the creation, implementation, and maintenance of forms and processes designed to capture structured data from SEC registrants through their filings with the Commission. They also maintain business ownership of the Tips, Complaints, and Referrals (TCR) system, which includes administrative support, project management over the modernization, and the generation of usage reports. Last but not least is the Office of Asset Management. They provide economic and other interdisciplinary analysis in support of the SEC on issues related to the regulation of investment advisers, investment companies, hedge funds, and other institutional investors. They also analyze proposals for new financial products, particularly those involving exchange traded funds. All of the offices combined make up DERA and their work also supports the work of the Division of Enforcement by providing economic and quantitative analysis related to enforcement actions. DERA conducts economic research, risk assessment, and data analytics to help staff across the SEC anticipate, identify, and manage risk, particularly focusing o early identification of fraud and illegal or questionable activities. To that effect, the SEC launched a program within DERA known as the Aberrational Performance Inquiry. This program aims to identify abnormal fund performance, in other words, fund performance that is inconsistent with fund strategies and/or benchmarks. As of December 1, 2011, the SEC announced enforcement actions against three separate advisory firms and six individuals for various misconduct including improper use of fund assets, fraudulent valuations, and misrepresenting fund returns. The SEC alleged that the firms and managers engaged in a wide variety of illegal practices in the management of hedge funds or private pooled investment vehicles, including fraudulent valuation of portfolio holdings, misuse of fund assets, and misrepresentations to investors about critical attributes such as performance, assets, liquidity, investment strategy, valuation procedures, and conflicts of interest. In pulling it all together, the Division of Economic and Risk Analysis exists to assist in the SEC’s efforts to identify, analyze, and respond to risks and trends, including those associated with new financial products and strategies. I gathered all of the information above from the SEC’s website, and I can conclude that DERA relies on a variety of academic disciplines with both quantitative and qualitative approaches and knowledge of market institutions and practices to help the SEC approach these complex matters.

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