The Upcoming Finacial Markets - AI and Algorithmic Trading: Risks and Opportunities

Explore the increasing role of artificial intelligence in financial markets, highlighting both its potential benefits and significant risks. Experts warn about AI's capacity to enhance market manipulation and create systemic vulnerabilities, leading to a technological arms race between manipulators and regulators. Regulatory bodies are grappling with how to adapt existing frameworks to address the unique challenges posed by AI-driven trading, particularly concerning transparency and market abuse detection. Simultaneously, discussions on platforms like Reddit reveal a wide range of perspectives on the real-world effectiveness and profitability of AI trading bots, with many users expressing skepticism and attributing successes to luck or the superior resources of large institutions.

Listen to the Deep Dive audio podcast discussion at the link below:

AI and Algorithmic Trading: Risks and Opportunities

  

Timeline of main events related to this article

• By December 2022: Syllabub_Nervous (on Reddit) made a bottom call for Tesla stock, predicting an upward pop followed by a drop to $100.
• End of January 2023: Following Syllabub_Nervous's prediction of a rally, Tesla stock hits $215.
• Fiscal Year 2023: The U.S. Department of the Treasury used an enhanced AI-driven fraud detection process, recovering $375 million.
• June 2023: The FBI reported on the $50 billion scam of Business Email Compromise.
• June 2023: Verizon released its 2023 Data Breach Investigations Report.
• July 2023: The Federal Reserve issued "Payments Fraud Insights" on mitigating synthetic identity fraud.
• September 5, 2023 (as mentioned in Reddit post): A Reddit user, MoneyFalcon, reports their Octobits AI trading bot on Telegram has generated a significant return since July 4th.
• November 2023: The Financial Stability Board (FSB) released a report on the financial stability implications of artificial intelligence.
• December 2023: NIST released its Digital Identity Guidelines (800-63-4 IDP).
• December 2023: Northeastern Global News published an article explaining AI chatbot "hallucinations."
• December 2023: The Draft NIST EU-US TTC WG-1 Digital Identity Mapping Exercise Report was released.
• February 2024: The Financial Services Information Sharing and Analysis Center (FS-ISAC) published a report on "Financial Services and AI: Leveraging the Advantages, Managing the Risks."
• February 2024: The U.S. Department of the Treasury announced its enhanced fraud detection process using AI, which recovered $375 million in Fiscal Year 2023.
• May 2024 (Anticipated): The OECD will host an international workshop on AI jointly with the FSB.
• End of 2024 (Anticipated): The FSB will deliver an updated assessment of financial stability risks of AI to the Group of 20 (G20).
• February 18, 2025: The SEC reduced the capacity of the Consolidated Audit Trail (CAT) to collect information on investors, affecting its funding model case with Citadel.
• March 11, 2025:A consortium of major European exchanges remains the only formal contender to provide Europe's consolidated tape for equities.
• Executives from Jump Trading, JP Morgan, Goldman Sachs, and the DTCC stated that 24/7 trading is "inevitable," but technological and data challenges persist.
• Several US and UK companies are considering participating in a UK program to build a private stock market with separate trading platforms.
• 2025 (Ongoing): Discussions and developments surrounding AI in financial markets continue, including its use in trading, fraud detection, and cybersecurity, along with considerations of regulation and international coordination.