SEC Approves New Plan to Root Out Conflicts of Interest on Wall Street

Market News Daily - SEC Approves New Plan to Root Out Conflicts of Interest on Wall Street.
Market News Daily – SEC Approves New Plan to Root Out Conflicts of Interest on Wall Street.

The SEC has approved a new plan to root out conflicts of interest on Wall Street related to financial firms and the adoption of technology.

Retail investors have argued for years now that technology on Wall Street, such as high frequency trading, or HFT, plays a big role in manipulating the markets as it becomes a gateway for spoofing orders.

Spoofing is a market abuse behavior where a trader moves the price of a security up or down by placing a large buy or sell order with no intention of executing it which creates the impression of market interest in that security.

The US Securities and Exchange Commission approved a plan on Wednesday to root out what Chair Gary Gensler has said are conflicts of interest that can arise when financial firms adopt the technologies, per Bloomberg.

The agency also adopted final rules requiring companies to disclose serious cybersecurity incidents within four business days after they’re deemed significant.

While the SEC is not primarily focused on the controversial practice of high frequency trading and its technology, it is looking at AI as another possible threat to the average investor.

Companies would need to assess whether their use of predictive data analytics or AI poses conflicts of interest, and then eliminate those conflicts, according to an SEC release. 

“These rules would help protect investors from conflicts of interest and require that regardless of the technology used, firms meet their obligations” to put clients first, Gensler said during the meeting.

“This is more than just disclosure. It’s about whether there’s built into these predictive data analytics something that’s optimizing in our interest or something that’s optimizing” to benefit financial firms, he said.

About the SEC’s New AI Conflicts of Interest Plan

Market News Daily - SEC Approves New Plan to Root Out Conflicts of Interest on Wall Street.
Market News Daily – SEC Approves New Plan to Root Out Conflicts of Interest on Wall Street.

The plan will be open for public comments, which the agency will review before bringing a final version to a vote, likely some time in 2024, says Bloomberg.

The rule would require a majority of the five-member commission’s approval to be finalized.

Banks and brokerages have been using AI for fraud detection and market surveillance for years.

More recently, the focus has shifted to trading recommendations, asset management and lending.

The SEC states that it wants to make sure that companies don’t put their interests before those of clients when recommending trades or products.

The AI proposal is the latest plan from Washington regulators concerned about the technologies’ power to influence everything from credit decisions to financial stability.

Companies would need to assess whether their use of predictive data analytics or AI poses conflicts of interest, and then eliminate those conflicts, according to the SEC release.

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Also Read: The SEC Has Now Finalized New Transparency Regulations

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Market News Today - SEC Approves New Plan to Root Out Conflicts of Interest on Wall Street.
Market News Today – SEC Approves New Plan to Root Out Conflicts of Interest on Wall Street.

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3 Comments

  1. Frank Nez

    Leave your thoughts below.

    • mrcomp11

      We needed this years ago, but it’s a step in the right direction!

    • PhilBill

      New plans, rules regulations. None of it makes any difference if the regulators are either too scared, complicit or corrupt to enforce any of it. A 5 year old could spot the illegal manipulation on many stocks after a few mins watching lvl 2 data. But regulators paid millions in US tax payer dollars cannot?

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