In a blog post on Tuesday, the International Monetary Fund (IMF) highlighted the potential of artificial intelligence to enhance market efficiency while also posing risks of increased volatility and cyber threats.
What Happened: The IMF’s Global Financial Stability Report delves into the role of AI in financial institutions and its potential impact on markets. AI’s rapid data processing capabilities could revolutionize markets, but its adoption remains limited among investors. The report anticipates growth in AI-driven trading, especially in liquid asset classes like equities and bonds, which could lead to market instability. This was evident during the March 2020 market turmoil involving AI-driven ETFs.
Patent data reveals a surge in AI-related innovations for algorithmic trading, indicating a forthcoming wave of technological advancements. The IMF warns that AI might shift investments to less regulated nonbank financial intermediaries, complicating market oversight.
To tackle these challenges, the IMF suggests enhancing regulation and supervision of AI-related activities, implementing new volatility response mechanisms, and strengthening oversight of nonbank intermediaries.
Why It Matters: The potential impact of AI on financial markets has been a topic of concern for some time. In June, IMF Deputy Chief Gita Gopinath warned about AI’s disruptive potential on financial markets and other sectors, emphasizing the need for policy actions to mitigate risks while harnessing AI’s benefits. Her comments highlighted the importance of monitoring AI’s adoption and application across various sectors.
Additionally, the 2024 U.S. presidential election has been identified as a pivotal moment for AI in trading. The election’s unpredictability, coupled with AI’s growing role in forecasting for broker-dealers, suggests that AI could face significant challenges in the coming months. This period may serve as a watershed moment for trading intelligence, as election uncertainty could lead to increased market volatility.
Price Action: At the time of writing during Tuesday’s after-hours market, AI ETFs were showing mixed activity, as per Benzinga Pro. First Trust Nasdaq Artificial Intelligence and Robotics ETF ROBT was up y 2.47%, Global X Artificial Intelligence & Technology ETF AIQ was up by 1.28% and iShares Global Tech ETF IXN was up by 2.60%. However, iShares Expanded Tech Sector ETF IGM was down by 1.42%.
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