The conversation around artificial intelligence in finance has largely focused on risks: AI-driven bubbles, deceptive corporate hype, and algorithms distorting prices at breakneck speed. But a securities lawyer argues that Washington's fixation on worst-case scenarios is obscuring a rare opportunity to use AI to make markets fairer, more transparent, and more just.
That opportunity runs through the Securities and Exchange Commission, which already has the authority to regulate Wall Street through disclosure rules and enforcement actions. Yet the SEC's draft strategic plan for 2026-2030, released June 2, gives AI surprisingly little attention, offering only a vague commitment to its “responsible” use for oversight and efficiency without concrete details.
Recent advances in AI and data technology have changed what the SEC can do, and no new laws are needed. The agency already has the tools. As public anxiety over AI outweighs enthusiasm, the SEC could demonstrate a responsible, pro-market application.
Disclosure and Enforcement: The Two Pillars
Disclosure sets the rules for what companies must tell investors. Enforcement punishes those who mislead or manipulate. Until recently, both were constrained by scale. Securities fraud often persists not because rules are weak, but because violations go undetected for too long. There is simply too much information and too many transactions for the SEC to monitor effectively.
Academic research backs this up. Studies by scholars like Joshua Mitts and Tālis Putniņš show that market manipulation and insider trading are far more common than regulators previously thought—but invisible without large-scale, cross-market analysis. Regulators have been looking through keyholes when they need a panoramic lens.
The Consolidated Audit Trail: A Game-Changer
That lens now exists. The Consolidated Audit Trail (CAT) is a vast database capturing nearly every stock order and trade across U.S. markets. It gives the SEC a unified view of the stock market, with comprehensive, time-stamped data revealing how trading unfolds across venues and over time.
Paired with AI and modern analytics, this data can transform enforcement. AI can sift through the data to flag statistically implausible or impossibly lucky trading, and coordinated activity across accounts. It can also investigate corporate disclosures, flagging omissions, inconsistencies, or subtle shifts in tone that may signal deception.
Together, these tools can make enforcement faster, more evidence-driven, and more effective. By increasing the likelihood that misconduct will be detected, they change the basic incentives that drive market abuse. When fraud and manipulation are more likely to be caught, fewer people will attempt them.
Supercharging Disclosure
AI can also supercharge the SEC's disclosure powers. While enforcement punishes yesterday's misconduct, disclosure shapes tomorrow's behavior by forcing companies to provide information investors care about today. AI can support new, targeted disclosure regimes in areas where opacity has shielded unfairness or hidden risks—including workforce practices, tax transparency, political spending, and environmental exposures. It can compare filings across time and companies, flag inconsistencies, and identify outliers that warrant scrutiny.
When companies know their claims will be systematically tested and compared, they are far more likely to report honestly, revealing risks that affect not just investors but workers, communities, and the broader economy.
Capacity, Not Authority, Is the Bottleneck
Critics warn the SEC lacks the expertise to deploy AI responsibly, or that greater reliance could introduce new errors or cybersecurity risks. Those concerns deserve to be taken seriously, but they are arguments for building up the SEC's capacity, not for inaction. That means investing in talent—data scientists, engineers, and quants who can turn raw market data into actionable insight—paying them competitively, and expanding the pipeline through fellowships and short-term rotations. With clear guardrails like human oversight, transparent methodologies, and systems that are auditable and defensible in court, the SEC can deploy AI responsibly and effectively.
The SEC has already taken baby steps, creating an AI Task Force and a tiny, nine-person Office of Advanced Analytics and Artificial Intelligence. But those efforts don't match the size or complexity of today's markets. What the SEC needs now is the will and the funding from Congress to think bigger. A properly resourced, technologically capable SEC can make American capitalism fairer today.
For decades, the SEC's effectiveness has been limited by a simple fact: there was more information than any regulator could realistically process. That constraint is beginning to disappear. The question is whether Washington will seize the moment. As 95% of Americans say the nation is in an affordability crisis, making markets fairer could have broad public support.
