The world’s largest stock market is using AI to flag suspicious trading in real time.

What’s new: Nasdaq is testing a deep learning system to monitor trading of its U.S. equities. Named Chiron, the system watches for behaviors that indicate potential market manipulation.

How it works: Nasdaq will spend a year training Chiron on trade data annotated for signs of manipulation.

  • The system is designed to alert human overseers when it sees patterns that suggest scams such as spoofing, in which a trader attempts to devalue a stock by selling a huge volume to trigger others to dump their shares as well.
  • Nasdaq’s fraud-detection team reviews around 750,000 trades annually. The system is intended to reduce false positives so the team can focus on serious cases.
  • The company aims to integrate Chiron with its broader SMARTS trade surveillance program, which watches the markets using human analysts and traditional computing.

Behind the news: This isn’t Nasdaq’s first foray into AI. In 2001, the company launched a program called Sonar to monitor sources like news stories and SEC filings for suspicious activity.

Why it matters: Nasdaq operates 29 exchanges in the U.S., Canada, UK, and EU, and it licenses its surveillance technology to other exchanges, regulatory agencies, and financial firms around the world. It has the highest volume of trades of any exchange in the world. Widespread fraud within Nasdaq’s network not only would be catastrophic for its business, it could send shock waves through the global economy.

We’re thinking: Fraudsters have access to deep learning, too. Expect a high-stakes game of cat and mouse in the years to come.


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