AI Trading Risks Herding, Amplified Volatility; Regulators Must Adapt Fast: Nageswaran

• Chief Economic Adviser Nageswaran warns AI trading poses risks of herding behavior and amplified market volatility.
• Financial stability in the coming decade depends on regulators' ability to supervise risks in digital and AI-enabled finance.
• AI lowers prediction costs, speeds information processing, and influences portfolio allocation and risk assessment.
• IMF report highlights rising herding tendency as investors rely on similar AI models, amplifying financial cycles.
• Regulators need to evolve supervisory frameworks to detect model-based herd behavior and concentration risks in AI supply chains.