The task force will now come to order. Without objection the chairs authors to declare recess of the committee at any time without objection. Members of the full committee not on this task force are authors to participate in todays hearing consistent with the committees practice. This hearing is in title robots on wall street the impact on iaa ai on the financial. First off thank you all for joining us today for what should be a very interesting hearing of this task force. Today we are looking at scoring how ai is being deployed in Capital Markets from trading to portfolio allocations to Investment Management decisions. We are also going to consider how the use of this technology is changing the nature of work in Financial Services rendering some jobs obsolete and changing the skill sets needed to excel in others. It would not be much of an exaggeration today to say that wall street quite literally is run by computers. Long gone are the days where traders would be screaming on the floor of the new york sup sup. Exchange and financial as financial as would use tickertape to glean insight into the companys value. I care about those days from a limo driver who used to be a floor trader on the merck. Today trades are automated in milliseconds or microseconds. A tsf relied on algorithmic to whatever index or inch markets tracking. Quantitative funds used out for them to scour all sorts of market data to find the stocks that have the most price momentum or the highest dividends or look for correlations in the market and external data to provide the most valid for investors they think its notable a lot of the shakeout we are seeing in those markets is a reflection of the winnertakeall nature of digital economies that any peer lead Digital Business is a natural monopoly and is more finance becomes digitized you will see for the rewards go to a smaller number of dominant players that like to emphasize that doesnt mean they are evil. Its simply a natural reflection of the nature of the digital marketplace. Other i said managements may use algorithms to perform research and analysis in realtime and big datasets. This includes scouring the social media sites satellite information web traffic on line transactions and just about anything else you can think of. This is i guess good in terms of having the rat market reflect on maingot to. Imagine what it would be worth if he had a 102nd early look at trumps twitter feed how much money you could make trading off of that for example. Three types of computer managed funds make up 35 of the approximately 31 trillion American Public equities markets. Human managers such as traditional hedge funds and other mutual funds managed 24 of the market to the rise of the socalled computerization of our stock market has a number of benefits. The cost of executing trade is gone down sometimes a 0 theres more liquidity in the market. Asset funds charge less than 1 of funds. If certainly creates additional questions as in the 22 and flash crash in the recent miniflash crashes have shown Algorithmic Trading can sometimes cause unpredictable consequences that create market volatility and exasperate asymmetry between different types of investors. Firms with faster access to enormous datasets are able to obtain a competitive advantage. Another broader question is how these developments are impacting the nature of jobs in the Financial Services industry. Recent Wells Fargo Research report as many technological efficiency would result in 200,000 job cuts over the next decade in the u. S. Banking industry. Will these cuts will affect call center and Customer Service positions the pain will be widespread. Many Office Workers such as bankers financial analysts could see their antrelle drop by one third. The report found 40 of existing jobs and financial jobs could be automated with current technology. If you spend your whole day staring at the big screen and receiving a large paycheck your job will be at risk. Understanding the skills that will be needed to excel in the Financial Services industry of tomorrow and how we can encourage the skills is one of the issues we must tackle headon and early. A world where many functions can be done by automated ai models what roles are for humans so i very much look forward to hearing from her witnesses on these issues. That id like to recognize the passports Ranking Member my friend from georgia for five minutes. Mr. Chairman annella to thank each of her witness here today. Thank you for taking time to be here to discuss this issue while the rest of america is fixated on other things going on here. This is something that may not resonate on the Major Networks but it is something that is very important and has an impact on our lives positively but also potentially negatively and its important we be looking into this. Today the task force will examine the intercession between technology and the capitol markets in recent years thereve been many Technological Development including the adoption of Artificial Intelligence and automation that have reshaped trading to the first trades on the New York Stock Exchange were made in the late 1700s using a manual paper intensive process. For many years buyers and sellers communicate about orders over the phone and today trading and investing are done on digital platforms and investors can trade anywhere in the world using policy. Electronic trading is benefited the market in many ways and its been positive for investors by leading to lower overhead and transaction costs which has contributed to record investment returns for thats a management firms offer 0 commissions which means investors can buy and sell stocks are free and can capture or the growth of their investment. This would not be impossible to elect tronic trading. Trading platforms right investors with access to lowcost Financial Research and advice 21st today using robo advisers. Electronic trading makes markets more efficient by allowing faster searches for prices processing large sets of data mart transparent information proliferation of technology can lower firms barriers to entry foster more competition and increased Market Access for investors. In addition to these core benefits there are many other cases of Companies Using ai to improve efficiencies in the Capital Market prefer example some companies are using ai to optimize the settlement of trade and enhance cybersecurity and fraud protection. Some selfregulatory organizations are using ai in market surveillance. While there are many benefits to electronic trading it can present new challenges. One challenge which is at the forefront of our discussion today is the disruption of the job market. While the rise of Automation Trading has displaced many traders bills like code writing Club ManagementTelecommunications Fiber optics and Data Analysis are growing. There is some concern that High Frequency trading can contribute to volatility but new evidence suggests High Frequency trading does not increase volatility and can improve liquidity. Theres also some concern that firms dont have the latest technology, firms that dont have the latest technology could be competed out of the market. Its important to keep in mind that not all types of electronic trading are the same night look forward to hearing more of from the woods is about the differences between automatic trading Algorithmic TradingHigh Frequency trading and computer trading. Look forward to hearing the issues in this space. One issue i think he is to be addressed is the protection of source code. Algorithms are a traders core intellectual property. They must be it protected. We passed a bill out of this committee and a house on a bipartisan basis will ask congress to Security ExchangeCommission Issues a subpoena before obtaining these algorithms rather than getting them through a routine exam per the hope we will be able to Work Together on a bill this congress and i thank you and i yield back. Doctor marcos posttest perfect us professor of practice at Cornell University and chief Investment Officer of true positive technologies. Mr. Beck offender, cfa, the senior director of future finance. Chartered financial analyst institute. Ms. Kiersten, wagner, chief executive officer of modern marketing initiative. Miss martin rishel, nasdaq stock market. Witnesses are reminded that your oral testimony will be limited to five minutes. That went out objection, a written stigma will be made part of the record. Chairman foster and wrecking members, thank you for inviting me to testify. My written remarks, four key areas, my oral remarks focus im two. The applications a lot of edition the workforce and mitigating of the rigney dissemination by us. We have every reason to be concerned about automations in the future and the Financial Service sector. First, the Financial Services sector right for automation and algorithm automation, second the large number of workers will likely be displaced in the Financial Services sector even if automation npi will create new types of jobs, if all of this is true in the cause for concern is clear. It lies with the fact that africanamericans and other workers in particular are already nestle on rep. In the Financial Service sector workforce. Governor americans hispanic and ages only make up 202 percent of Financial Service reports, africanamerican representation at both entry loophole and senior loophole jobs declined from 2007, 22015. This in 3. 5 percent of all Financial Planners in the u. S. , are black or latin. African americans make up just 4. 4 and hispanics just 2. 9 of the security sector. Agents make 2. 8 the central banking and insurance sectors. My. , symbol, racial groups have already are extremely on represented in the Financial Services will be most at risk in terms of automation and the escalation syntax develop it. This is especially true given the vast underrepresentation of africanamericans in the adjacent technology workforce. If we are to mitigate the likelihood they automation will disproportionately and negatively affect those already underrepresented in the Financial Services industry, we must plan ahead and long into the future rather than allowing the market to run its course towards predictable outcomes. Now to the subject of deterring algorithmic bias. Certainly one way to mitigate against oh deploying the systems and providing more oversight from industry and government and non governmental bodies who are able to assess other systems are used and the outcomes they produce. This includes Technical Solutions make algorithms more transparent and audible, and mitigate against potential biases before such systems gain widespread use rather than simply correct them once the damages been done. I want to emphasize that especially join it comes to mitigating the potential dust bullet outcomes, by its algorithms might have im individuals of communities in color, and for alliance im technical fixes by technologist if not a complete solution. And once again, by drawing im the wisdom of former civil rights leader, who had a sophisticated understanding of Computer Systems as they existed in his time. He said, today at the unskilled semiskilled worker is the victim. In the cyber nation that invades the stronghold of the middle class. As once proud white color workers began sinking into the american underclass. And as a new forum miss the old core, we find out the automation occurs. But its not the only course. The chief problem has brought automation the social injustice itself. Take as a final example, the findings from a recent National Bureau of Economic Research study titled Consumer Lending dissemination in the subject area. Their weak researchers are determined whether an algorithmic system, and reduce discrimination in mortgage lending as compared to traditional face to face lending processes. Their findings were mixed. Yes theyll grab the system disseminate corporate 40 percent less than the traditional process but that also meant that the process still discriminated against black applicants. Further even though the algorithm make did not discriminate in terms of loan approval, did discriminated against black in latin users in terms of price. One of the key conclusions of the studies states that both syntax and faithbased lenders, may discriminate in mortgage issuance, and Pricing Strategy. Were just scratching the surface and the the brawl of Pricing Strategy discrimination in the algorithmic date of daily use. In short, the lending may reduce lending, it will not eliminate discrimination and loan pricing. Even with the date of fair and accurate transparent algorithmic system, Racial Discrimination persists. Thank you. For allowing me the opportunity to contribute to these proceedings. Thank you. Doctor lopez, you are now recognized for five minutes to give an oral presentation of your testimony pretty. Thank you rated. It is an honor to contribute. As a result of recent advances, in recognition of supercomputi supercomputing, the algorithms, have performed stacked until recently only expert a few months could college. In areas particular interest are investments. For two reasons. First some of the most successful attending history, having to be algorithmic. The key advantage is that their decisions are objective and reproducible and can be improved over time. The second advantage is that the automation can reduce and have cost reductions. For forecasting and construction. Financially, it creates a number of challenges for over 6 Million People involved in the finance and insurance industry. Many of you will lose their jobs, not because they will be replaced by machines, but because they have nothing and not been trained to work alongside algorithms. The retraining of these workers are important and a difficult task. But not everything is about this. The skills become more importa important. For the privilege and the wage gap between genders and office intensities they should in a row. And math could be the great equalizer. Retraining our workforce, is the critically importance. However its not enough. We must make sure that the talent that american universities have not undeveloped, it remains our country. In the founders for next school at amazon or apple, are this very minute attending the math at one of our universities. Unlike in the past, the future interpreters are in our country, im a student visa. In that they will have the very hard time remaining in the United States unless we help them. As we help them they will return to their countries. And they will compete against us. Im a different note, would like to draw your attention to two practical examples of red tape studies of learning algorithms to regulatory oversight. It is the source of investigations. One of the most telling task, patient regular dictators are is to identify among oceans of data. This is literally a very long testing like surfing for a needle in haystack. The practical approach is to enroll the help of the science community. The competitions for the next big price. Accordingly, regulators in the data, Worldwide Community of data scientists. They would be rewarded with a portion of the science by regulators against wrongdoers. In the next im the Financial Markets with Something Like the flash crash, this approach could be an indication of potential players. The second embodiment of protection of investment products, the financial journals in our field, with false investment of studies. Financial firms offer online tools and even large hedge funds fall for this trap. Lead to investment losses. One solution is to require Financial Firms to record all of the practice involved in the development of the product. This information im regulators to compute the probability of the Investment Strategy is overstated. And it could be reported in the advance materials. Finally, i would like to conclude my remarks in the discussion of bias. Machine learning algorithms have biases. The good news is we have a better chance of detecting devices and algorithms. With greater accuracy than a few months. The reason is that we can continue subject algorithms to the edge of unwise controlled experiments. And have them perform as intended. Algorithms can assist decisionmakers by providing a base of conditions that a few months can override. Not exposing biases and a few months. Its like investing more prevalent in congress and regulators and play from the mental and helping to reap the benefits of this technology by mitigating rest. Thank you for this opportunity to contribute to this hearing and i look forward to