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Albert Einstein.


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I believe technology must play a larger and more foundational role in the Commission's execution of its market oversight responsibilities, risk management and in the protection of customer funds. Clearly the evolution to an almost exclusively electronic futures market over the past two decades has benefited from a massive amount of imagination in terms of the creation of new algorithmic trading strategies through the application of cutting edge technology. While the Commission doesn't need to be on the cutting edge of technological application, we must be more imaginative in developing our own technology strategy and not accept the status quo.

It is a pleasure to be invited to speak at Stevens Institute, which not only imagined, but developed a first-class financial engineering research program and facility.

I have to believe this is what Einstein was referring to when he described as the true of intelligence; the application of knowledge and imagination. What few people realize about DoE is that it also funds research of everything from nuclear physics to the nuclear weapons program. Simulating, solving and understanding the most challenging physics questions have and will continue to push to bounds of computing. And it was my job to fund this cutting edge technology. After the ban on underground nuclear testing, the weapons program relied heavily on computer simulation that required bigger and faster computers than what existed.

So, we invested hundreds of millions of research dollars into advanced computing and simulation. It took real imagination to conceive of the yet-to-be developed massively parallel computing platforms that are used today. On May 25,Roadrunner became the first computer to break and sustain the petaFLOP barrier by processing more than 1. My Appropriations experience was invaluable and provided me with an understanding of the potential of advanced computing and I am determined to make technology the foundation of the.

Today I would like to share with you my recommendations regarding a technology strategy for the Commission.

Public statements & remarks

First, I will provide you with the current technology state of play and explain why it is important for the Commission to develop a comprehensive technology strategy that builds on appropriate concepts of knowledge management.

Investing in technology has, to my knowledge, never been a priority. To say that we have failed to keep pace with the markets is an understatement. Our lack of focus and imagination in this critical area is a direct result of not having an investment strategy that identifies specific technology objectives tied to our surveillance and oversight mission responsibilities. Much has been said about the awesome responsibility of overseeing the swaps market in terms of manpower and computing power.

CME's Globex system executes approximately 13 million trades per day, 3 which pales in comparison to the million order messages that pass across that same system on a daily basis. In contrast, only tens of thousands of swaps trade globally on a daily basis. The Commission has expressed an interest in collecting and analyzing futures order data, an idea that I support.

But it remains unclear as to what the system requirements of such an endeavor will be.

And this problem is further exaggerated by our failure to clearly articulate the ultimate purpose for which we will utilize the data. Before we invest in new technology, we need to specifically identify our goals and determine these systemic requirements.

On several occasions, I have expressed my concerns that the Commission applies a "Ready, fire, aim" approach in developing its Dodd-Frank rule-makings—we must not make the same mistakes when developing a technology strategy. There is no doubt the Commission needs to intently focus on deploying new technology that is properly scaled to the markets it is tasked with regulating. Nevertheless, we need to develop our capabilities to collect, aggregate, store, and perform the necessary analytics to oversee and monitor the swaps, futures and options markets because it is our statutory duty to do so.

The main questions are: what are our informational needs and how should we prioritize technology investment to meet these needs?

The first element is to develop a needs-based strategy. The second element is to organize the Commission in a manner that effectively utilizes new technology. The third and final element is determining the financial requirements, and that includes finding creative solutions to bringing it all together. With regard to a needs-based system, I believe that we have failed to employ concepts of knowledge management. We have a lot of data being manipulated and organized into more information. But, we are missing that last step of turning that information into comprehensive knowledge about the markets, trading strategies and behaviors, risks, weaknesses, etc.

We need to be asking each office and division within the Commission: What information do you need to accomplish your duties and mission critical goals?

What are your concerns? What keeps you up at night? Flash crash? Missing customer money? Risk Management? We need to understand their priorities and develop a clear strategy based on that information. With regard to the Commission's organizational structure, I believe we are making good progress. InI urged the Commissioners to reorganize the Commission and create an Office of Data and Technology with responsibility for the intake, organization and management of data from both the futures and swaps markets.

This office ed our technology group with market oversight staff. The ed forces are now able to focus on developing automated data collection, aggregation and surveillance. Thus far, I have been impressed with this new initiative. But, I still believe we have to do more to remove the silos among other divisions to ensure their level of technology adoption is maximized and our investment priorities are well-defined. We don't have the financial luxury develop redundant systems.

While our data challenges are big for the Commission, they pale in comparison to most companies — many in our industry. When I asked our staff about our storage challenges, they indicated that five terabytes of data is pushing the limits of our storage capacity. However, when I spoke with a hedge fund manager about their data demands, I was told this one fund collects over seven terabytes per day. The Commission is pushing the limits on both our hardware and software capabilities.

The lack of data storage and processing capacity is undermining our oversight and surveillance capabilities. Early this month, our new surveillance chief, Matthew Hunter, gave me a demonstration utilizing new visualization surveillance tools, and on several occasions the system crashed, unable to handle the computing demands.

Since arriving at the Commission, I have argued for a greater share of our budgets to be dedicated to technology. The Commission has consistently requested additional funding for technology.

However, when technology competes with new hires, technology always loses. Congress directed the Commission to provide a minimum floor for technology. We based this request on a two budget narrative—which constitutes our technology strategy.

“the true of intelligence is not knowledge but imagination. i have no special talent. i am only passionately curious.”

You cannot tell where funding for Blackberries end, and investment in new surveillance hardware begins. And that may not be the worst of our problems. Let me make on one final point about applying imagination, so that we have an intelligent financial regulatory systems. The new Office of Financial Regulation OFR is being established to be the aggregator of all financial data to perform a cross market analysis and research. They will use the data collected by the various prudential regulators and undertake research across markets to spot trends or concerns that aren't apparent to the front line regulators.

This only works if we show a little imagination and develop a system that leverages the work of the individual agencies, rather than duplicates it. Duplication and redundancy is the default position of every other federal agency—it wastes resources we don't have and causes us to miss opportunities to solve our big data problems together.

Oh, and remember I told you about Roadrunner? Well, on Monday, DoE announced that it awarded contracts to various technology vendors to develop systems that operate at one quintillion calculations per second, or a thousand times faster than Roadrunner.

I believe there is recognition of the importance of technology, but it is accompanied by an incomplete understanding of how it will be specifically applied at this point. The bottom line is our limited interaction should be expanded. This could provide the critical, cost-effective expertise that the agency so desperately needs to address difficult and challenging technology, micro finance and critical data analysis problems. Since arriving at the Commission, I have been seeking economic analysis and market structure studies on everything from the impact of changing the price of wheat storage, to the role high frequency trading has on our markets.

As I noted in my opening statement, my experience working with the Department of Energy and the national laboratories exposed me to the opportunities to establish collaborative research with universities and other research institutions in centers of excellence that are already tackling difficult technology challenges. Whether it was on fusion energy, high performance computing, or nanotechnology, collaborative research was an essential solution to leverage investment in scientific manpower, facilities and technical expertise.

I am convinced the government was able to achieve more than if it tried to solve these problems all on its own. To date, the Commission has applied such a model in a more limited fashion by contracting with economists in the Office of the Chief Economist.

This symbiotic relationship benefits researchers who are provided access to market data, and the Commission, which is able to leverage this research for its own market oversight objectives. It is time we created a new model for the CFTC to draw on the vast expertise of universities, like the Stevens Institute. I believe there are two ways in which the Commission can formalize this relationship to support the creation of new analytical and automated surveillance tools, risk modeling and cross market analytical capabilities, just to name a few.

The first option would be to develop contracting tools with universities that would enable the Commission to utilize an academic institution to research a specific question and allow the university to assemble the best and brightest to tackle the question at hand. It could draw on its own academic expertise to vet and review the research, saving the Commission from creating its own redundant academic review teams.

I believe the Stevens Institute performs a similar role for the Department of Defense.

The role of the Academic panel would be to recommend research topics, select and review competitive research awards, and help solve specific market structure questions to the Commission. I am interested in exploring these opportunities for the Commission and how this type of collaboration might work within the confines of our bureaucracy and governing statutes.

I believe this offers a scalable approach to solving specific research questions.