The Nasdaq stock market is the largest stock exchange by volume. Because of this, it became a popular target for fraudsters. That is why Nasdaq needs to be incessantly monitored to prevent frauds, which can come in many different ways like:
churning – stockbrokers are buying or selling client’s investments more often than necessary, to make more money in commissions
spoofing – placing a big buy/sell order (without intending to execute it) in order to create an artificial high/low demand for a particular stock
Nasdaq recently announced that monitoring is now being done with help of artificial intelligence. The deep-learning system is currently cooperating with human analysts to keep track of more than 17,5 million transactions every day. That system is an addition to the previously used software surveillance system, whose main goal is to detect any signs of possible frauds by the usage of statistics and set of rules. It works like this:
-> system detects a sign of a possible abuse -> the alert is being sent to human analysts -> human analysts decide whether it is a fraud or not
The new system will be more accurate at detecting frauds according to Nasdaq, which will result in less unnecessary work for analysts. Moreover, they claim that it will be better at identifying more complicated patterns such as spoofing, which is likely to become more popular among fraudsters.
How does the system identify abuses? It bases on historical examples. The system analyzed frauds from the past thoroughly and whenever things typical for them occur, it will reach out to an analyst which specializes in a particular area. For example, when fraud is detected in an automotive stock, the alert will be sent to an analyst who is familiar with the automotive industry and its market. Afterward, the analyst enters the results into the system. Thanks to that the deep-learning system can develop and learn from this data.
On the other hand, this system will only be able to detect frauds from the past. That is why it makes it probable that some hackers will be able to get around it. According to that, Doug Hamilton (Nasdaq’s managing director of artificial intelligence) has decided that the new system will be working along with the old one rather than fully replacing it, for now. What system needs, is to adapt faster to new tactics of fraudsters as „the patterns and types of abuse that are happening are constantly evolving as well” ~ Tony Sio (Nasdaq’s head of marketplace regulatory technology).
Sources:
https://www.technologyreview.com
https://dictionary.cambridge.org