Technology breakthroughs and an infusion of industry capital in quantum computing has increased the prospect that the brokerage industry will harness the technology to optimize portfolio management, pricing and crypto safekeeping, Finra says in a new report released today.
Major financial services firms such as Goldman Sachs, JPMorgan Chase and HSBC are already early adopters of quantum computing, which leverages quantum mechanics to solve problems too large or complex for traditional computers, Finra said in the report.
“Seizing on the potential associated with quantum computing, several financial institutions, including broker-dealers, have begun exploring how leveraging quantum for exponential improvements in computing performance could enhance business operations,” the regulatory organization said.
Right now, it can take traditional computers several days to run calculations on how to best optimize investment portfolios to maximize returns and minimize risk over a certain period of time, Finra noted.
But “some market participants believe that the use of quantum computers may at some point give firms a competitive advantage by allowing them to develop optimized portfolio options that are able to analyze more variables in a shorter timeframe and thereby better able to achieve the desired results,” Finra said.
Quantum computing could also be used to shorten from days to week the time it takes to process Monte Carlo-based simulations and pricing calculations for complex assets such as derivatives, the regulator said.
Some firms are also hoping to harness quantum to assist with anti-money laundering and know-your-customer compliance “by expanding the ability to analyze various elements of individual identity, transaction history, fund flows and relationships in real time,” Finra noted.
Even a 1% to 2% improvement could save the industry $1.5 billion annually, Finra said.
But even as quantum computing accelerates solutions for the industry including crypto agility, it also poses significant cybersecurity opportunities and risks, particularly in the area of encryption, which financial services firms use to safeguard assets and client digital information.
Today “a hacker would need trillions of years using a conventional computer to break the encryption securing internet-based communications,” the regulator said.
But the industry needs to be cautious because quantum computing “is uniquely positioned to offer a streamlined way to crack today’s standard encryption safeguards," Finra added.
Finra said it is seeking public comment from financial firms on the following:
• Ways firms plans to use quantum computing.
• Ways in which Finra should update or modify its rules to address quantum computing.
• How to prepare for a quantum future while maintaining investor protection and market integrity.
• How firms are “enhancing safeguards on their encrypted data, including those for quantum resistance.”
Comments can be sent by March 15 to [email protected].