The Deep Learning of Hedge Funds: 3CL Seminar

Speaker: Professor William J. Magnuson (Professor of Law, Texas A&M University School of Law)

Abstract: A remarkable transformation is taking place in our financial markets. The rise of machine learning algorithms and other artificial intelligence models has rapidly overtaken older methods of financial decisionmaking, and the consequences of the revolution are beginning to be felt across the capital markets ecosystem, from stock exchanges to derivatives markets to currency trading. These new technologies offer great promise, including more accurate prices, faster transactions and more efficient trading. But they also create risks. From flash crashes to insider trading algorithms to adversarial attacks, artificial intelligence presents a range of unique vulnerabilities that could lead to significant and wide-ranging harm to our financial system. Legal frameworks devised to structure and constrain financial institutions, in turn, are ill-equipped to deal with these harms because they were designed based on outdated assumptions about the structure of markets, as well as the nature of its primary actors. This Article offers the first comprehensive account of the economic, political and legal consequences of the rise of artificially intelligent markets. It demonstrates how the major driver of this shift has been the hedge fund industry, an opaque and lightly regulated sector of the financial ecosystem that has long been an early-adopter of financial technology. It concludes by proposing a series of escalating regulatory reforms that might better fit financial regulation to our new artificially intelligent markets.

William Magnuson is a professor at Texas A&M Law School, where he teaches corporate law. Prior to joining Texas A&M, he taught law at Harvard, worked as an associate in the mergers and acquisitions group of Sullivan & Cromwell, and served as a journalist in the Rome bureau of the Washington Post. He is the author of For Profit: A History of Corporations (Basic Books, 2022) and Blockchain Democracy: Technology, Law and the Rule of the Crowd (Cambridge University Press, 2020). His work has appeared in the Wall Street Journal, the Washington Post, the Financial Times, the L.A. Times, and Bloomberg. He holds a B.A. from Princeton University, a J.D. from Harvard Law School, and an M.A. from the University of Padua.

3CL runs the 3CL Travers Smith Lunchtime Seminar Series, featuring leading academics from the Faculty, and high-profile practitioners.

For more information see the Centre for Corporate and Commercial Law website:

http://www.3cl.law.cam.ac.uk/