The New Financial Industry
Tom C. W. Lin
Temple University - James E. Beasley School of Law
March 30, 2014
65 Alabama Law Review 567 (2014)
Temple University Legal Studies Research Paper No. 2014-11
Modern finance is undergoing a fundamental transformation. Artificial intelligence, mathematical models, and supercomputers have replaced human intelligence, human deliberation, and human execution. A financial industry once dominated by humans has evolved into one where humans and machines share power. Modern finance is becoming cyborg finance — an industry that is faster, larger, more complex, more global, more interconnected, and less human.
This Article offers an early systemic examination of this ongoing financial transformation, and presents an original set of regulatory principles for governing the emerging, new financial industry. This Article provides a normative and descriptive cartography of this changing financial landscape. It identifies particular perils, systemic risks, and regulatory shortcomings emanating from this financial transformation. It then proposes new guiding principles for the future of financial regulation in response to this sea-change. Drawing from a rich literature of past financial crises and transformations, this Article explores the next big movement in finance and financial regulation. And it offers fresh insights for better addressing the perils and promises emerging from the new financial industry.
Number of Pages in PDF File: 57
Keywords: securities regulation, financial regulation, algorithmic trading, high frequency trading, systemic risk, artificial intelligence, law and technology, cybercrime, financial crisis, shadow banking, flash crash, latency
Date posted: March 31, 2014 ; Last revised: April 11, 2015