Their report calls for new standards to mitigate potential harms from machine learning in trading.
The Senate Homeland Security and Governmental Affairs Committee (HSGAC) recently released a report that highlighted concerns over hedge funds’ use of artificial intelligence (AI) in trading decisions. The report, led by Chair Gary Peters of Michigan, indicated that federal financial regulators are not providing enough oversight, which poses a threat to market stability.
The report stated, “Despite these recent steps, regulators have yet to fully clarify how existing regulations apply to hedge funds’ use of AI in trading and there are yet to be established baseline standards specifically on the use of AI for trading purposes.”
The committee noted that the prevalence of AI in the financial sector, particularly among hedge funds managing over $5 trillion in assets, amplifies traditional industry risks. AI and machine learning may cause uniform movements among investors, increasing the potential for market volatility. While federal regulators like the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are beginning to examine these risks, these efforts are still in the early stages.
The report also called for the creation of clear standards and guidelines for AI use in trading, including operational baselines, risk assessment frameworks, and mandatory audits.
As the Lord Leads, Pray with Us…
- For SEC chair Gary Gensler and CFTC Commissioner Summer Mersinger to be discerning in their oversight of AI use in hedge funds.
- For Senator Peters and members of the HSGAC committee as they seek to protect investors from AI-induced market volatility.
Sources: FedScoop, Pensions & Investments
