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AI will now watch for fraudsters on the world's largest stock exchange

The Nasdaq stock market is an attractive target for fraudsters. As the world's largest stock exchange by volume, it must be constantly monitored for attempts to illicitly beat the system. These can include manipulations to inflate a stock's closing price; churning (rapidly buying and selling stocks) to give the false impression of a lot of activity; and spoofing (placing a large buy or sell order with no intention of actually executing) to create artificially high demand.

That monitoring is now being aided by artificial intelligence, Nasdaq, the stock market's parent company, announced today. A new deep-learning system is working in tandem with human analysts to keep watch over roughly 17.5 million trades per day.

The system augments an existing software surveillance system that uses statistics and rules to flag any signs of market abuse. In the US equity market, for example, the old system issued around 1,000 alerts per day for human analysts to investigate, says Martina Rejsjo, the head of market surveillance for Nasdaq's North America equities. Only a fraction of these cases would subsequently be confirmed as fraud and result in heavy fines.

The new system should have a number of advantages. First, Nasdaq claims it will be more accurate at identifying patterns of abuse, reducing the burden on human analysts. Second, it will be better at detecting more complex patterns of abuse, particularly spoofing, which Nasdaq believes will become increasingly common.

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