Regulatory Filings, Bots and Golf...
Mandar Jadhav's picture

Regulatory Filings, Bots and Golf...

By Mandar Jadhav On 31 August, 2016

After joining DiligenceVault, the first area I focused on along with the engineering team was institutionalizing the way we were looking at publicly available data. Starting with regulatory filings, largely driven by inbound interest, we decided to evaluate the Form ADV filings.

Tracing back years before my experiences at Neuberger Berman and Lehman Brothers, one of the first courses I took as an engineering student was Data Structures. Structure gives meaning to data and transforms it into information that can be consumed readily. Applying standard engineering techniques, one cannot help but wonder at the amount of effort it takes to build processes, algorithms and rules around a data set already in the public domain to make that data set consumable and readily useful.

Private investment firms that are registered with the SEC and meet certain minimum criteria, whether they are organized under the US domestic legal code or under foreign legal regimes, are required to file Form ADV at least annually. They must provide numerous data points in the areas of firm information, fund information and regulatory activity. This data is publicly available for review and analysis, but the sheer volume of data and the way it is structured makes it extremely painful to review, analyze and reuse.

Bear in mind that the filings are definitely not a leading indicator of material changes at these firms; nevertheless, the filings serve a purpose in continuous monitoring, peer analysis and identifying outliers.

Anyone who takes up this task will need to follow some form of waterfall structure, while leveraging technology:

EXTRACT: Although all of this data is publicly available, anyone who wants to use it needs to first copy it from the website on a question-by-question basis and then paste it somewhere else in order to use it. Not to mention the amount of rework involved when a firm updates it’s filing. The process is recurrent and painful. What if this work instead is done automatically by Mr. Bot on a regular basis? In the time that is saved, I sure can play another round of golf!

NORMALIZE: Once the data has been extracted, select responses are not readily usable. The data needs to be scrubbed for typos, naming conventions, and grouping of legal entities under each parent. Do you have any idea how many different legal entities can exist within a firm? To give an example, JP Morgan entities can be banks, custodians, prime brokers and marketing entities. There are 400+ distinct references to various entities for JP Morgan alone. Imagine trying to find out how many firms use a particular auditor or administrator so you can select a top service provider. Firms at the top of the league table in each of the categories have on average 100+ distinct names. What if Mr. Bot can simply normalize all of this data so that you do not have to scratch your head over hundreds of variations of the same entity? I surely can do with some peace of mind to help me putt that golf ball out for a birdie.

CONFIGURE: You’ve got data for 15,000+ firms, you say? And large numbers of discrete data points for each one? You must also consider what is actually relevant for your firm from a monitoring perspective, and who within your firm should be viewing the information? Say you want to keep tabs on 20 areas of perhaps 50 funds. Imagine scrolling through all the filings to find the specific funds and then filtering out the specific data points. Imagine how much better life would be, if all you need to do is provide Mr. Bot the firms, funds and the data points you want to track, and magically he presents them to you on a regular basis. The new equation reads: More time saved = More golf!.

VISUALIZE: Do you want to view this information in a format that helps with downstream analysis? Who doesn’t like charts or an attractive presentation? What if all that mundane data somehow magically converts into charts and infographics, transformed into exhibits that are visually pleasing? That frees up my time to visualize driving the golf ball straight down the middle of the fairway.

ALERT & NOTIFY: Did you know on average 75 firms update their Form ADV filing every day?! Yes. 75 firms. How are you supposed to keep track of it all? You don’t want to be referring to stale data or missing an important update that could give you an edge. How convenient would it be if somehow you could be simply be notified of such a change? Imagine that instead of going through all the filings yet again to see what changed, Mr. Bot sends you a notification/alert for the change you wanted to track? That would count as a hole in one for me.

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