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ChatGPT, an artificial intelligence program, has grabbed wide attention since its first introduction to the public. It has become the fastest-growing consumer application in history with more than 100 million monthly active users. People are amazed by its ability to respond intelligently to complex queries. ChatGPT is only one of the many AI tools that are being developed and used in various industries to improve efficiency and customer service. AI has also become a disruptive force in the securities industry.

Some reports suggest that ChatGPT is better at selecting stocks than some of the most popular investment funds in the U.K. According to a study at the University of Florida — "Can ChatGPT Forecast Stock Price Movements? Return Predictability and Large Language Models" — ChatGPT is also better at predicting how stocks will react to news headlines than traditional models.

Several well-known investment firms have publicized their efforts to incorporate AI into their business models. For example, JPMorgan Chase & Co. is developing a software service called IndexGPT that uses artificial intelligence to analyze and select securities for customers. Morgan Stanley Wealth Management has also recently partnered with OpenAI to access, process and synthesize contents for financial advisers.

When it comes to financial firms incorporating AI into their securities-related businesses, these developments are just the tip of the iceberg. However, with great potential, AI also brings significant risks.

To continue reading Greg Baker and Kaiying Wang's article in Law360, please click here.