Briefs

MENLO PARK, Calif., Sept. 17 /PRNewswire/ -- The American Association for Artificial Intelligence has awarded the National Association of Securities Dealers (NASD) the prestigious Innovative Applications of Artificial Intelligence award for an intelligent system that monitors the NASDAQ, Over the Counter (OTC), and NASDAQ-Liffe (futures) stock markets for potential insider trading and fraud through misrepresentation.

In this era of Enron, Martha Stewart, and a host of Wall Street scandals, there is a growing need for better tools to monitor the market for suspicious activity that warrants closer inspection. The clues contained in the millions of trades, wire stories, and SEC filings each day make it impossible for humans alone to sift through all the data to perform surveillance. To mine these vast stores of data, NASD has harnessed computers to sweep through all the data, identify and link items of potential interest, then present them to human analysts for further review.

To mine the data, NASD has developed an intelligent surveillance application -- the Securities Observation, News Analysis and Regulation (SONAR) system -- that automatically monitors the NASDAQ, OTC, and futures markets for suspicious patterns. SONAR has been in use since December 2001. Each day it processes between 8,500 and 18,000 news wires stories, approximately 1,000 quarterly and annual SEC filings from corporations, and evaluates price-volume models for 25,000 securities. The system generates 50-to-60 alerts ("breaks") per day for review by several groups of regulatory analysts and investigators. After review, a number of these are referred to the SEC or Justice Department for prosecution.

While NASD must be circumspect in describing in detail the efficacy of SONAR, it has released some information: to date, 180 cases have been referred to the SEC or DOJ, including several very high profile cases.

AI in the software SONAR includes several AI techniques, such as data mining, natural language processing for text mining, intelligent software agents, rule-based inference, and knowledge-based data representation.

"I like the observation made by Patrick Winston (an AI pioneer, and Ford Professor of Artificial Intelligence and Computer Science at the Massachusetts Institute of Technology)," says Henry Goldberg, Head of NASD's Knowledge Discovery and Data Mining team responsible for SONAR. "AI in an AI system is like the raisins in raisin bread. They don't occupy much of the loaf, but it isn't raisin bread without them.

"There's lots of standard data management in SONAR," Goldberg continues, "but the AI, like the raisins, is what makes it really work."