The SEC can and should use AI to create a fairer market

Washington can’t stop talking about artificial intelligence. In finance, the conversation has taken a familiar, ominous turn: fears of AI-driven market bubbles, deceptive corporate hype and algorithms distorting prices at dizzying speed.

These threats are real. But the obsession with worst-case scenarios is blinding us to something else: a rare chance to use AI to make our markets fairer, more transparent and more just. That opportunity runs straight through the Securities and Exchange Commission, which has the power to regulate Wall Street through disclosure rules and enforcement actions.

Yet the SEC’s draft strategic plan for 2026-2030, released on June 2, gives AI surprisingly little attention, offering only a brief commitment to its “responsible” use to “improve oversight, reduce costs, and unlock new efficiencies,” without explaining what that actually means in practice.

But recent advances in AI and data technology have changed what is possible for the SEC to do. And we don’t need to wait for Congress to act — the SEC already has the authority to use AI to make American capitalism fairer, right now.

Although the SEC has many tools for protecting investors, disclosure and enforcement are arguably the most important. Disclosure means setting the rules for what companies must say to investors and how they must say it. Enforcement means punishing firms and traders who mislead the public or manipulate markets.

Until recently, both tools were constrained by scale. In my work representing investors in securities fraud cases, I’ve seen how misconduct often persists not because the SEC’s rules are too weak, but because violations go undetected for too long. There is simply too much information and are 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 it is invisible without the ability to conduct large-scale, cross-market analyses. Regulators are looking through keyholes when they need a panoramic lens.

That lens now exists. With the recent rollout of the Consolidated Audit Trail — a vast database that captures nearly every stock order and trade across U.S. markets — the SEC can now see the stock market as a unified whole, 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. AI can also be used to 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 can change the basic incentives that drive market abuse. When fraud and manipulation are more likely to be detected, fewer people will be willing to attempt them.

AI can also supercharge the SEC’s disclosure powers. While enforcement can only punish yesterday’s misconduct, disclosure can shape tomorrow’s behavior by forcing companies to provide information investors care about today.

AI can give disclosure real teeth by supporting new, targeted disclosure regimes in areas where opacity has shielded unfairness or hidden risks, including high-impact areas like workforce practices, tax transparency, political spending and environmental exposures. It can compare filings across time and across 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.

Critics will warn the SEC lacks the expertise to deploy AI responsibly, or that greater reliance on AI could introduce new errors or cybersecurity risks. Those concerns deserve to be taken seriously. But these are arguments for building up the SEC’s capacity, not for inaction.

That means investing in the talent needed to use these tools prudently, including hiring data scientists, engineers and quants who can turn raw market data into actionable insight, paying them competitively enough to stay and expanding the pipeline through fellowships and short-term rotations. With clear guardrails such as human oversight, transparent methodologies and systems that are auditable and defensible in court, the SEC can deploy AI responsibly and effectively.

Notably, none of this requires writing any new securities laws. The bottleneck is not legal authority, but institutional capacity. Indeed, the SEC has already taken baby steps in this direction — 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 the agency will seize the opportunity. If it does, AI could help create markets that are not only more efficient, but also more honest, transparent, and protective of American investors.

Benjamin F. Jackson is a securities lawyer at Cohen Milstein who represents investors in corporate fraud cases and serves as secretary of the Institute for Law and Economic Policy, a public policy research and educational foundation focused on investor access to the civil justice system.