The technologies revolutionizing Wall Street have left Washington regulators playing a perpetual game of catch up.
Traders used to leave paper trails when they broke the law - emails revealing that they had inside information about a company’s earnings, instant messages laying out a conspiracy to manipulate prices or phone recordings discussing an illegal hot tip.
Now government watchdogs have to figure out how to look under the hood of machines running lightening-fast algorithms or machine-learning software. The danger is that cheaters will be able to hide abuses or will accidentally turn a software glitch into a market meltdown. And there are few legal precedents in which regulators have used computer code as evidence to prosecute misconduct.
To keep up, agencies such as the Securities and Exchange Commission and the Commodity Futures Trading Commission might have to rethink whom they hire.
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