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A year at the SEC

10:24 AM  Oct 26th, 2017
by Erin Frey ’18

Finance professor Fukuo Albert Wang spent last year as a visiting scholar for the U.S. Securities and Exchange Commission in Washington D.C., working in the Division of Economic and Risk Analysis. That division functions as a think tank to help the commission tackle complex matters with fresh insight. The agency recruited Wang for his expertise in behavioral finance, market microstructure and systematic risk. Senior Erin Frey ’18 sat down with Wang to learn about his year with the SEC.

What did you learn about the SEC that you didn’t know before?

My finance training helped me to understand the general market, but the SEC focuses on government policy making by creating a setting sound regulatory environment for business to thrive in the U.S. economy.

Tell me about a typical day on the job while at the SEC.

There were always multiple projects going on with different agendas, timelines and deadlines to meet. We worked in a groups that consisted of several economists who worked alongside attorneys and other enforcement in order to discipline some bad behavior from a firm or individual.

You said before you went that you would be “involved with rulemaking, with a focus on preventing future financial crises and the influence of new technologies.” How did you do this?

Due to the innovation of technology, the landscape of trading of security markets is very different. There are 10-20 high frequency trading firms that dominate the markets now. They have a lot of influence. They facilitate efficient market trading, but can cause disruption in and out of market. There are also traditional traders that don’t have resources, facilities or technology to compete so it’s all about regulation.

What is something about the SEC that someone working in finance or economics might not know?

Because we work with attorneys, we do a lot with litigation and rule. Economists are trained on economic reasoning so we are able to provide support for attorneys to write rule for regulations and sound economic analysis to support legislation good regulation that the SEC considers to introduce to the market.

What can real world applications like this teach you that finance or economics books can’t?

Perhaps that books are traditionally focused on the discipline itself. But working in the SEC is about applying that discipline into decision making process. It involves various expertise, not just economics.

How do you plan on translating what you learned to lessons for your students?

Because I teach classes on investing, I can show them how asset values are determined, the risk and return of trade offs, and to make good portfolio decisions. I can explain the SEC from regulatory point of view, so they know how their policy influences how the investor can invest in financial market.”

What was the most important thing you learned in regards to the future of high frequency trading?

In a normal day or time they provide a lot of liquidity to the market, which is a good thing, but during crisis and stressful times, there is a risk that the high frequency firms may cause unnecessary disruption in the market. So what would be a good balance, through an SEC point of view, would be to provide a system or environment that high frequency traders can continue to provide positive contribution, while minimizing the risk or negative impact during the crisis time.

Do you have any concerns about the future of trading or the way the SEC does business?

I’m very optimistic about the SEC in general and the role they play in the U.S. market. They play an extremely important role in the well-functioning financial market in the world because they set up good system. Other countries come to the SEC to see how we govern and regulate our markets. They are also optimistic and I have confidence in the ability of people there to do the work to fulfill their mission that I mentioned earlier.

What advice do you have for students who are trying to get involved in this type of trading?

I would certainly advise them to familiarize themselves with the current regulatory landscape so they are able to operate by understanding current and ongoing developments in the market, how to be consistent with what the SEC wants and also learn what not do.

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