On October 10, 2023, the Ontario Securities Commission (OSC) published Artificial Intelligence in Capital Markets: Exploring Use Cases in Ontario (the Report), which explores the use of artificial intelligence (AI) in Ontario's capital markets. The Report was jointly developed by the OSC and Ernst & Young LLP, and highlights current AI use cases, benefits and challenges, and aims to raise awareness of both the opportunities and risks associated with the use of AI in capital markets.

AI in capital market - Exploring use cases in Ontario

From the trading floor to the back office, capital market participants currently leverage diverse AI systems to do things such as:

• Streamline complex tasks;
• Optimize processes; and
• Uncover insights and trends.

All of this is done while learning and refining capabilities. At the same time, the disruptive nature of AI has raised important questions about the role of regulation and governance in managing risks and the potential for malicious use.

Currently, capital market participants primarily adopt AI systems for three overarching purposes to:

• Improve efficiency;
• Generate revenue; and
• Manage risk.

AI solutions are being rolled out in a phased approach, prioritizing low-risk applications such as generating news summaries and policy insights. Higher risk applications, like those that fall under the categories of risk management and revenue generation, are being used in a limited way or for comparison purposes with human supervision.

AI solutions are being sought to improve efficiency, provide customer support, automate trade processes, prepare forecasts, pursue revenue generation through improved sales and marketing efforts, determine and assess asset allocation and price forecasting, provide trading insights, summarize documents, collect social media and web scraping data, compile research reports and streamline order execution.

Large language models are also being used to generate statistics and identify emerging topics from publicly available news data. Risk management and trading processes are also employing AI. The ability to detect market manipulation is enhanced through the use of surveillance systems and data is constantly being gathered, assessed and utilized at an increasingly rapid pace.

The OSC stated that it believes that AI is at an intermediate stage of adoption in Ontario’s capital markets. However, significant concerns and challenges are present for AI adoption including governance, corporate responsibility, tight market for skilled and experienced AI data scientists and general data constraints.

The OSC is assessing what role it can play as a regulator in the capital markets due to the anticipated impacts that AI will have. The Report provides research and analysis for recommended actions including how to best structure oversight and regulation. Collaboration between regulators, governments and the investment community is necessary to address the impact, concerns and benefits of the rapidly evolving use of AI.  

We will continue to monitor and provide additional information on the rapidly evolving use and regulation of generative AI. For more information please contact the author, Diana Horsman Nakka.