Briefs

Newswise -- The world's largest private-sector securities regulator, the National Association of Securities Dealers, has teamed with University of Massachusetts Amherst researchers to bring cutting-edge computer science to the world of securities fraud. By developing statistical models that assess data that most models can't manage, the scientists aim to help the NASD discover misconduct among brokers and concentrate regulatory attention on those who are most likely to misbehave.

Because broker malfeasance is often encouraged by the presence of those conspiring to commit fraud themselves, the researchers were given the task of developing statistical models that made use of this social aspect of rule-breaking. Such �relational� data is difficult for many models, which often assume independence among records.

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Using data from past years supplied by the NASD, Jensen, Neville and doctoral student Ozgur Simsek applied their algorithms to the networks of organizational relationships in the securities world. For example, brokers are linked to the firms they work for, customer complaints are linked to the brokers they reference, and branches are linked to their parent firms. By analyzing records of brokers in the context of other records in their �neighborhood� the algorithms were able to predict which brokers would commit violations with surprising accuracy, says Jensen.

See http://www.newswise.com/articles/view/515259/.