The rise of machine learning, new trading technologies and passive investment vehicles are continuing to accelerate the automation of our nation’s financial markets. While this ongoing evolution needs to be responsibly managed by the private and public sectors, the reality is that automated markets are unlocking tremendous benefits for society. This is why policymakers need to embrace — not impede — this transformation.
This week, I am testifying at a House Financial Services Committee hearing led by a special artificial intelligence task force. The Committee’s bipartisan membership has valid questions about how automation will impact the integrity of our markets and the long-term viability of humans on Wall Street. These are exactly the types of questions that the financial sector should welcome.
When it comes to assessing how automation is poised to continue reshaping markets, it is beyond debate that enhanced technology is reducing the cost of trading stocks, bonds and other securities. Consensus estimates indicate that the average cost of trading has come down by approximately 50 percent over the past decade. Rather than pocketing savings, however, financial intermediates are routinely passing lower costs on to the end-investor.
Individuals and institutions are now enjoying lower direct trading fees, enhanced transparency, and additional savings due to tighter spreads. Retail investors, in particular, are also benefiting from the fact that online brokerage platforms can now afford to eliminate commissions. This means the average guy on Main Street is keeping more of his money when investing via a college savings plan, 401(k) plan, individual retirement account or pension fund.
Some policymakers have raised other important questions about AI beyond the world of trading, including ones focused on mitigating algorithmic biases in the consumer lending and credit rating spaces.
The good news is that innovation is opening new doors in the areas of compliance, security and so-called RegTech. An emerging group of specialized RegTech companies, such as Behavox and ComplySci, are helping asset managers, banks and trading firms monitor business behavior and anticipate harmful actions before they even occur. The Securities and Exchange Commission, Commodities Futures Trading Commission and other regulatory bodies are also continuing to shift more of their own resources to technology-based regulation. Agency leaders have even been open about the value of incorporating AI into their oversight programs.
Another important issue for the Committee’s AI task force is naturally the future of the workforce. It is no secret that with each passing day, there are fewer traders on the floors of our country’s great exchanges and a dwindling number of commission-based financial advisors. Many large banks are also trimming their ranks as they exit low-margin business lines and invest in technology-based solutions that consumers prefer.
Fortunately, there are countless job opportunities popping up in coding, cybersecurity, data storage and management, quantitative reasoning and other technology verticals that Wall Street plans to prioritize. An ecosystem of burgeoning industries and employment opportunities are poised to stem from blockchain, e-banking, robo-advising, new crypto currencies and the growth of institutional-style investment products in retail formats.
Beyond Wall Street, there is actually growing demand across virtually all sectors for qualified talent with technology backgrounds. To ensure that a diverse and prepared workforce is equipped to thrive in a more technology-fueled economy, we need academia, business and the federal government to work together on more initiatives.
A natural opportunity for collaboration exists in private-public education partnerships focused on the science, technology, engineering, and mathematics fields. These programs need to begin in middle schools across the country in order to ensure more Americans, especially women and minorities, have the STEM skills needed for a twenty-first century economy. Ultimately, colleges should be offering two-year degrees in technology fields to help get more diverse applicants into the workforce faster with reduced student debt.
Many companies across the financial sector have actually been at the forefront of investing in workforce transformation efforts. Recognizing the need to pay their share, institutions like J.P. Morgan Chase and Goldman Sachs have committed hundreds of millions of dollars to propel the workforce of tomorrow. A number of other financial firms are increasing their own investments in similar programs.
As legislators and regulators continue to examine the impact of automation, it is important to recognize that the financial sector wants to partner with government to ensure America maintains the world’s best markets. We can continue successfully transitioning to automated markets while still maximizing benefits for investors and supporting the creation of technology-focused jobs that keep our economy thriving.
Kirsten Wegner is CEO of the Modern Markets Initiative, an advocacy group representing the interests of financial technology companies.
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