- with readers working within the Banking & Credit industries
Over the last decade, index providers have used artificial intelligence and machine learning to discern market trends, or “sentiment,” to build proprietary indices underlying various securities, such as structured notes. As an example, depending on the direction of the trend with respect to a particular issuer, the index methodology will provide that an “on” or “off” signal will be generated, which may then be used in selecting that issuer as an index constituent for the next monthly rebalancing. These types of indices are common now in the structured notes market. Regulators have not commented on the use of AI in index methodologies of indices underlying structured notes.
In FINRA's report on social media-influenced investing (the “Social Media Report”), FINRA analyzed the use by financial institutions of sentiment analysis tools in the context of identifying emerging trends and potential trading opportunities.1 FINRA mentioned the use of sentiment analysis in an index (the S&P 500 Twitter Sentiment Index) and an exchange-traded fund (the VanEck Social Sentiment ETF). The Social Media Report raises some concerns about the use of AI-driven sentiment analysis, including accuracy and data quality.
Originally published in REVERSEinquiries: Volume 7, Issue
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Footnotes
1. The Social Media Report is available at: 2025-social-media-influenced-investing.pdf.
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