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Do U.S. Financial Regulators Listen to the Public? Testing the Regulatory Process with the RegRank Algorithm

20 Pages Posted: 12 Jan 2014 Last revised: 30 Jun 2014

Andrei A. Kirilenko

Imperial College London - Centre for Global Finance and Technology

Shawn Mankad

Cornell University

George Michailidis

University of Michigan at Ann Arbor

Date Written: June 29, 2014

Abstract

We examine the notice-and-comment process and its impact on influencing regulatory decisions by analyzing the text of public rule-making documents of the Commodity Futures Trading Commission (CFTC) and associated comments. For this task, we develop a data mining framework and an algorithm called RegRank, which learns the thematic structure of regulatory rules and public comments and then assigns tone weights to each theme to come up with an aggregate score for each document. Based on these scores we test the hypothesis that the CFTC adjusts the final rule issued in the direction of tone expressed in public comments. Our findings strongly support this hypothesis and further suggest that this mostly occurs in response to comments from the regulated financial industry. We posit that the RegRank algorithm and related text mining methods have the potential to empower the public to test whether it has been given the "due process" and hence keep government agencies in check.

JEL Classification: H10, K23, C19

Suggested Citation

Kirilenko, Andrei A. and Mankad, Shawn and Michailidis, George, Do U.S. Financial Regulators Listen to the Public? Testing the Regulatory Process with the RegRank Algorithm (June 29, 2014). Robert H. Smith School Research Paper. Available at SSRN: https://ssrn.com/abstract=2377826 or http://dx.doi.org/10.2139/ssrn.2377826

Andrei A. Kirilenko

Imperial College London - Centre for Global Finance and Technology ( email )

South Kensington Campus
London, SW7 2AZ
United Kingdom

Shawn Mankad (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States
6072559594 (Phone)

George Michailidis

University of Michigan at Ann Arbor ( email )

500 S. State Street
Ann Arbor, MI 48109
United States

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