MFA issues recommendations on the use of AI tools in derivatives markets to CFTC

Washington, DC – MFA made recommendations for how the Commodity Futures Trading Commission (CFTC) should approach the use of artificial intelligence (AI) tools in derivatives markets in a comment letter. The letter is in response to the CFTC staff’s request for comment on the use of AI in CFTC-regulated markets.

The use of AI tools by alternative asset managers benefits derivatives markets, managers, and investors by reducing costs, improving market efficiency, and enhancing price discovery. The MFA AI recommendations are designed to protect markets and investors while not stifling innovation, competition, or the ability of alternative asset managers to generate returns for their investors, including pensions, foundations, and endowments. They also align with the CFTC’s traditional principles-based approach to financial regulation.

MFA recommends that when addressing any potential issues with the use of AI in derivatives markets the CFTC should:

• Use existing regulations to address potential concerns posed by the use of AI tools
• Remain technology-neutral and prioritize regulating market activities, not tools
• Acknowledge that AI advancements have benefited markets, investors, and managers and are still developing and could unlock important benefits

“AI tools used by alternative asset managers enhance competition, reduce costs, and improve market efficiency. MFA’s AI recommendations will ensure the CFTC can address concerns it might have about the use of the technology without harming innovation, markets, or investors,” said Bryan Corbett, MFA President & CEO.

MFA’s comment letter also notes that the CFTC’s existing regulatory framework is well-designed to address the current and potential uses of AI tools.

“The CFTC’s technology neutral-framework appropriately addresses specific activities rather than technologies, and this approach has served the public interest well. While use-cases for AI are still evolving, the technology has demonstrated the potential to unlock important efficiencies and yield benefits. As a result, while the Commission must ensure its regulatory framework is adequate to govern the marketplace as it exists today, we urge the CFTC to avoid any potential actions that could unintentionally stymie the development of new technological tools that could augment human capabilities and ultimately amplify benefits to investors.”

Read the full comment letter here.

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The global alternative asset management industry, including hedge funds, credit funds, and crossover funds, has assets under management of $5.5 trillion (Q3 2023). The industry serves thousands of public and private pension funds, charitable endowments, foundations, sovereign governments, and other global institutional investors by providing portfolio diversification and risk-adjusted returns to help meet their funding obligations and return targets.

Managed Funds Association (MFA), based in Washington, DC, New York, Brussels, and London, represents the global alternative asset management industry. MFA’s mission is to advance the ability of alternative asset managers to raise capital, invest, and generate returns for their beneficiaries. MFA advocates on behalf of its membership and convenes stakeholders to address global regulatory, operational, and business issues. MFA has more than 180 member fund managers, including traditional hedge funds, credit funds, and crossover funds, that collectively manage over $3.2 trillion across a diverse group of investment strategies. Member firms help pension plans, university endowments, charitable foundations, and other institutional investors to diversify their investments, manage risk, and generate attractive returns over time.