The New Investor
60 UCLA Law Review 678 (2013)
58 Pages Posted: 3 Mar 2013 Last revised: 30 Mar 2014
A sea change is happening in finance. Machines appear to be on the rise and humans on the decline. Human endeavors have become unmanned endeavors. Human thought and human deliberation have been replaced by computerized analysis and mathematical models. Technological advances have made finance faster, larger, more global, more interconnected, and less human. Modern finance is becoming an industry in which the main players are no longer entirely human. Instead, the key players are now cyborgs: part machine, part human. Modern finance is transforming into what this Article calls cyborg finance.
This Article offers one of the first broad, descriptive, and normative examinations of this sea change and its wide-ranging effects on law, society, and finance. The Article begins by placing the rise of artificial intelligence and computerization in finance within a larger social context. Next, it explores the evolution and birth of a new investor paradigm in law precipitated by that rise. This Article then identifies and addresses regulatory dangers, challenges, and consequences tied to the increasing reliance on artificial intelligence and computers. Specifically, it warns of emerging financial threats in cyberspace, examines new systemic risks linked to speed and connectivity, studies law’s capacity to govern this evolving financial landscape, and explores the growing resource asymmetries in finance. Finally, drawing on themes from the legal discourse about the choice between rules and standards, this Article closes with a defense of humans in an uncertain financial world in which machines continue to rise, and it asserts that smarter humans working with smart machines possess the key to better returns and better futures.
Keywords: securities regulation, financial regulation, algorithmic trading, high-frequency trading, systemic risk, artificial intelligence, law and technology, cybercrime, financial crisis, shadow banking, flash crash
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