NYSE's Star Matrix System Adds Tools for Examiners

By Maria Trombly | Securities Industry News | February 20, 2006

Upgraded productivity tools at the regulatory arm of the New York Stock Exchange promise to save its examiners time. Some of these tools may ultimately be offered to member firms as well.

In 2004, the exchange introduced the Statistical Trend Analysis and Risk (Star) Matrix. By the end of the year, the systems were accessible to all NYSE examiners, both at their desks and wirelessly in the field. Last year, the NYSE rolled out its Member Firm Regulation (MFR) Portal (Securities Industry News, Oct. 31).

The upgrades in these compliance tools come in the wake of a number of regulatory failures that put the Big Board in hot water with the Securities and Exchange Commission last year. They are also being unveiled just prior to the exchange's pending merger with Archipelago Holdings. Once the merger is completed, the NYSE will become a public company, ending more than two centuries as a closely held membership organization.

Now, the exchange is upgrading Star Matrix to give examiners even more tools to identify problem firms. The enhancements include a way to organize and create queries, the ability to run multiple queries, and heat and three-dimensional maps. The upgrade was scheduled to go live last weekend.

"We used to have a lot of queries that were designed by users and split up into different categories in different parts of the system," says Bo Petkovich, NYSE director of regulatory and corporate systems. "We organized them into one part of the system and allow users to quickly create new queries by dragging and dropping old queries and modifying parameters." This encourages queries to be shared between staff members.

"They can take a public query and modify it or tweak it so they can find that needle in the haystack," Petkovich says. The ability to run multiple queries means that examiners can create a folder of queries and run the entire folder on a single firm.

"For example, this is useful for peer-group analysis," he says. "We can take a firm such as Citigroup and compare it to its peers, usually an average of three other firms that are in the same category." With a folder, an examiner can run 15 or more different queries against a firm and its peers. These can delve into operational problems, sales anomalies and other issues of interest to regulators.

In the past, examiners had to create individual queries for each peer-group analysis. "Now we've allowed them to create the peer-group analysis and run the entire folder without having to type a single query," Petkovich says. "It will definitely and substantially cut down on the time it takes."

Once the process is automated, peer-group analysis can be offered to member firms as well, says Petkovich. If a company has been flagged for having a certain problem during an exam, it will logically want to track that problem in the future, explains Thomas McNally, managing director for regulatory and corporate systems at the exchange. One way to do so is by a comparison with peers.

Today, firms can ask for copies of the peer-group analysis for their industries. "We gladly give it to them," McNally says. Eventually, firms will be able to get instant self-serve reports.

"There's no definite plan right now," McNally says. "It's a business decision, not a technology decision. But we are looking to automate this so that the request would be automatic. We already have an electronic filing platform. That's how we interface with all the firms at the stock exchange. It could automatically kick off a canned folder, or the user can go in and tweak the folder. It would not be hard for us to do at all."

Another improvement to Star Matrix is the system's ability to generate heat maps--color-coded, weather-like maps. "With the heat map, we can map the complaints to the U.S. map and you'll see counties with high amounts of complaints get a hotter color," Petkovich says. "It's easy to see where most of the complaints are coming from."

The heat map permits examiners to drill down to a list of complaints and to the actual brokers responsible. It allows the exchange to identify problems that may span several branches, for example, or to identify historical trends.

The heat maps can also be animated, so that as complaints increase in frequency in a particular area, the trend can be monitored. "This is the type of information that the old system would have missed," Petkovich notes.

Three-dimensional graphs are another new Star Matrix feature. "It looks much like the New York City skyline," says Petkovich. "It allows users to see the combination of product and problem in three-dimensional form and drill down to the details of those complaints. We can do that across a firm, across the industry, or analyze all firms on one axis and all problems on another. And it's not limited to complaint data--we can look at financial data as well."