AI to catch market manipulators

Japan’s SBI Securities and Rakuten Securities will each test artificial intelligence software designed by NEC to detect market manipulation, as technological advances make trading schemes more complex.

The online brokerages aim to have working monitoring and detection systems ready within the current fiscal year.

Learning from past cases of illegal trading, the software flags suspicious activity as it screens such data as orders, stock price movements and trading values. It looks for market manipulators using techniques such as spoofing, which involves placing large orders that are canceled before they are executed.

Brokerages have relied on human monitors to spot market manipulation. SBI Securities, a subsidiary of SBI Holdings, says it inspects 100,000 trading orders out of the 2 million placed daily.

An AI system, if implemented, would handle both monitoring and inspection, freeing up human investigators to work on complex cases. The brokerages also hope AI will help them better deal with evolving forms of manipulation that have emerged with the rise of high-frequency trading.

SBI Securities and Rakuten Securities, a unit of e-commerce group Rakuten, will be the first brokerages to employ AI for such uses. Japan Exchange Group, operator of the Tokyo Stock Exchange, is also teaming up with such companies as information technology groups NEC and Hitachi to introduce an AI system able to detect manipulation.

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