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How Artificial Intelligence Could Catch Stock Market Cheaters

Artificial intelligence programs have beaten chess masters and TV quiz show champions. Next up: stock market cheats.

Two exchange operators have announced plans to launch artificial intelligence tools for market surveillance in the coming months and officials at a Wall Street regulator tell Reuters they are not far behind. Executives are hoping computers with humanoid wit can help mere mortals catch misbehavior more quickly.

The software could, for instance, scrub chat-room messages to detect dubious bragging or back-slapping around the time of a big trade. It could also more quickly unravel complex issues, like “layering,” where orders are rapidly sent to exchanges and then canceled to artificially move a stock price.

A.I. may even sniff out new types of chicanery, said Tom Gira, executive vice president for market regulation at the Financial Industry Regulatory Authority (FINRA). “The biggest concern we have is that there is some manipulative scheme that we are not even aware of,” he told Reuters. “It seems like these tools have the potential to give us a better window into the market for those types of scenarios.”

FINRA plans to test artificial intelligence software being developed in-house for surveillance next year, while Nasdaq and the London Stock Exchange Group (LSE) expect to use it by year-end.

The exchange operators also plan to sell the technology to banks and fund managers, so that they can monitor their traders.

Artificial intelligence is the notion that computers can imitate nuanced human behavior, like understanding language, solving puzzles or even diagnosing diseases. It has been in development since the 1950s and is now used in some mainstream ways, like Siri, an application on Apple’s iPhone that can engage in conversation and perform tasks.

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