AI and the future of data in financial markets

We examine the impact of Artificial Intelligence (AI) on information processing and usage to make investment decisions considering how information flows in financial markets and how the information intermediation market will change. We discuss the possible implications for market efficiency, market liquidity, and the potential need for regulatory guidance. We review how AI will reduce decision-making transparency, rendering it virtually impossible to understand why a specific financial decision was made. We then consider the impact of AI integration on retail investors and the significant technological disadvantage these investors will face. We discuss the risks from integrating AI into the financial system including increased trade synchronization, a possible decline in market liquidity, and the potential for market instability. We conclude with a discussion of the current regulatory state and propose several important considerations for current regulators.