Academics devise formula to gauge how well U.S. regulators listen

[Randall Webmail]

Wed, Jan 15 2014

By Sarah N. Lynch

WASHINGTON, Jan 15 (Reuters) - Three academics say they have come up with a way for Wall Street regulators to harness powerful computer algorithms to gauge how well public feedback is received and incorporated into the rules they write.

The algorithm, dubbed "RegRank," was unveiled late last week in a new paper authored by the Commodity Futures Trading Commission's former Chief Economist Andrei Kirilenko, University of Maryland professor Shawn Mankad, and University of Michigan professor George Michailidis.

The algorithms and statistical tests at the heart of the paper are fairly standard. But what the researchers say is unique is how they use these empirical tools to measure "regulatory sentiment" and "test the impact" of the public comment process on rulemaking.

Such a tool could come in handy for regulators such as the CFTC and Securities and Exchange Commission, both of whom have faced legal challenges to rules on the grounds that regulators failed to properly incorporate feedback, as required by law.

"The regulators need to be accountable to the public," Kirilenko said of the rulemaking process.

It could also be helpful for the industry and the public, as a way to ensure that regulators heed feedback about flaws in proposed reforms. The paper can be found at [SNIP]

http://www.reuters.com/article/2014/01/15/financial-regulation-research-idUSL2N0KO10F20140115