purpose is a definition required? in the context of the financial system, the definition of ai may help to delineate how the regulatory system addresses it and establishes the parameters for how it can be used by regulated institutions. other specific contexts could also be included, like third - party service providers that support banks or other financial services providers, or use by regulators in support of their mandates. a definition helps regulators and regulated institutions understand the activities that are subject to rules and requirements by defining the scope. while this definitional question is important to establish clarity about the scope of what constitutes ai, it can also distract us from a more important point — what is the appropriate policy framework to address the introduction and ongoing use of ai in the financial system? i have no strong feelings about the ideal or optimal definition of ai, and some version of the many definitions floating around are probably adequate for our purposes. at a minimum though, a definition must establish clear parameters about what types of activities and tools are covered. but before leaving the topic, i want to offer a cautionary note. a broad definition of ai arguably captures a wider range of activity and has a longer “ lifespan ” before it becomes outmoded, and potentially never becomes outdated. but a broad definition also carries the risk of a broad — and undifferentiated — policy response. this vast variability in ai ’ s uses defies a simple, granular definition, but also suggests that we cannot adopt a one - size - fits - all approach as we consider the future role of ai in the financial system. - 4innovation and competitiveness knowing that the technology and use of ai continues to evolve leads to the question of how it should be viewed by regulators, particularly in light of the need for innovation and the effect on competition. innovation ai tools have the potential to substantially enhance the financial industry. in my view, the regulatory system should promote these improvements in a way that is consistent with applicable law and appropriate banking practices. one of the most common current use cases is in reviewing and summarizing unstructured data. this can include enlisting ai to summarize a single report or to aggregate information from different sources on the same or related topics. the ai “ output ” in these cases may not directly produce any real - world action, but it provides information in a more usable way to assist a human. ai use cases like this may present opportunities to improve operational efficiency, without introducing substantial new risk into business processes. in

quite useful to know something of the history of these instruments and their regulation. derivative contracts ( forward contracts and options ) appear to have been utilized throughout american history. indeed, it will probably come as a surprise even to this audience that 15 to 25 percent of trades on the new york stock exchange in its early years were time bargains, that is, forward contracts, rather than transactions for cash settlement ( in those days, same - day settlement ) or regular - way settlement ( next - day settlement ). in the case of commodities, forward contracts for corn, wheat, and other grains came into common use by 1850 in chicago, where they were known as “ to arrive ” contracts. the first organized futures exchange in the united states, the chicago board of trade, evolved through the progressive standardization of the terms of “ to arrive ” contracts, including lot sizes, grades of grain, and delivery periods. trading apparently was centralized on the board of trade by 1859, and in 1865 it set out detailed rules for the trading of highly standardized contracts quite similar to the grain futures contracts traded today. the first recorded instance of federal government regulation of derivatives was the anti - gold futures act of 1864, which prohibited the trading of gold futures. the government had been unhappy that its fiat currency issues, the infamous greenbacks, were at that time trading at a substantial discount to gold. unwilling to accept this result as evidence of failure of the government ’ s monetary policies, congress concluded that it was evidence of a serious failure of private market regulation. in the event, congress ’ s action was followed by a further sharp drop in the value of the greenbacks. although it took the government many years to restore monetary policy to a sound footing, it took congress only two weeks to conclude that its prohibition of gold futures was having unintended consequences and to repeal the act. it has been the trading of agricultural futures, however, that from its inception has produced calls for government intervention. throughout the late nineteenth and early twentieth centuries, farmers were often opposed to futures trading, particularly during periods when prices of their products were low or declining. they presumed that dreaded speculators were depressing their prices. the states were the first to respond to calls for government regulation of futures. for the most part, state legislation on futures was limited to prohibitions on bucket shops, that is, operations that purport to act as brokers of exchange - traded futures but “ bucket ” rather than execute their clients ’ trades. an