Quantum Computing Has Potential to Reshape Securities Industry, New FINRA Report Says

Report Brings Attention to Opportunities and Risks Presented by the Technology

FINRA released a new report, Quantum Computing and the Implications for the Securities Industry. While practical quantum computing remains nascent, the research examines how the emerging technology that relies on quantum mechanics to perform complex calculations could significantly alter the securities industry in the future. The report also looks at potential cybersecurity threats and regulatory considerations regarding the technology.

“This research and our ongoing work to better understand the impact of quantum computing on the securities industry will help FINRA to continue to carry out its mission of investor protection and market integrity as the technology evolves.”

The research was conducted by FINRA’s Office of Financial Innovation, which is part of the recently formed Office of Regulatory, Economics and Market Analysis. The report provides an overview of quantum computing’s potential ability to solve problems too large or complex for traditional computers and thereby reshape the securities industry by presenting newfound capabilities and challenges.

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FINRA initiated the research project to bring attention to the opportunities and risks presented by the technology ahead of any accelerated development within the securities industry.

“We look forward to collaborating with the securities industry to understand the implications that quantum computing could have on the financial markets. From ways the technology could bolster the industry to the threats it potentially presents, it is important to collectively consider the implications of this technology,” said Haimera Workie, Vice President and Head of the Office of Financial Innovation, FINRA. “This research and our ongoing work to better understand the impact of quantum computing on the securities industry will help FINRA to continue to carry out its mission of investor protection and market integrity as the technology evolves.”

Potential Applications of Quantum Computing in the Securities Industry

The FINRA report notes at least three potential areas where quantum computing may have a significant impact on the securities industry: optimization systems, simulation systems and artificial intelligence (AI):

• Quantum computing has the potential to efficiently analyze and process numerous financial outcomes in real time, allowing financial institutions to enhance optimization systems for trade execution, trade settlement and portfolio management.

• The technology may also allow firms to better understand and account for uncertainty related to market activity by allowing them to run simulations that would potentially be impossible to run on traditional computers. A risk assessment that may take days currently could be done in hours to near real-time with quantum computing.

• Quantum computing is seen as potential accelerant of AI, which has become a prominent topic and tool in the industry. Quantum AI has potential to enhance the ability to process and analyze large data sets while also presenting novel risks.

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Regulatory Considerations for Quantum Computing

Firms considering whether to incorporate quantum computers or contemplating the potential threat posed by quantum computing may consider four key regulatory issues, according to the report: cybersecurity, third-party vendor outsourcing, data governance and supervisory controls. Cybersecurity in particular may raise challenges for firms due to the technology’s potential for challenging the encryption safeguards used today.

The report does not provide an exhaustive list of all factors and regulatory issues associated with the use of quantum computing nor does it create new legal or regulatory requirements or new interpretations of existing requirements.

FINRA is seeking comments from firms, market participants and others currently exploring quantum computing while maintaining investor protection and market integrity. Comments are requested by March 15, 2024. FINRA will also continue to engage with market participants and welcome input after the comment period.