The Johannesburg Stock Exchange (JSE) is deploying artificial intelligence (AI) to combat fraudulent activities by listed companies and investors.
Insider trading, corporate crookery and bogus operations are some of the most common securities scams the JSE is trying to eliminate with AI.
JSE’s chief executive Leila Fourie said that the bourse was “investing heavily in artificial intelligence” for monitoring trading activities in order to prevent and detect insider trading.
The AI solution is intended to mimic and detect certain human behaviours and thus could be used to uncover irregular trades that are not caught by existing financial indicators.
However, Fourie was quick to note that the JSE would use AI only for “social listening” implying the stock exchange will be relying on the surveillance as well as complaints from traders. This could then lead to investigations as to whether the trades were legitimate or the result of corporate crookery.
JSE digital transformation
The JSE has been rolling out a number of digital transformation initiatives in an effort to increase efficiency and improve trading services. Currently, the JSE is moving its information sources and data into a cloud-based solution for easier access and collaboration. This would also allow the stock exchange to access all the aggregate data in real-time.
“The development will later allow for the aggregation of external sources of information as well, such as social media, news feeds, and legal proceedings which involve listed companies.”
Besides moving to the cloud, the JSE also plans to utilise machine-learning algorithms and the newly-created business intelligence tools to assess the financial “health status” of listed companies at any given time. This would involve evaluating four key areas: liquidity, solvency, profitability and operating efficiency.
The JSE is not the first exchange to use AI in securities trading.
India’s largest stock exchange, the National Stock Exchange of India Ltd (NSE), began using artificial intelligence and blockchain in 2018 to enhance the efficacy of the capital markets and improve surveillance to prevent manipulation of trades.
Globally, hedge funds are already using AI technologies like machine learning to predict and take advantage of price level movements.