Endnotes

1    This report is not intended to express any legal position and does not create any new regulatory requirements or suggest any change in any existing regulatory obligations, nor does it provide relief from any existing regulatory obligations. This report summarizes key findings from FINRA’s outreach and research on the use of quantum computing in the financial services industry, and does not endorse or validate the use or effectiveness of any of these applications. While this report highlights certain regulatory areas that broker-dealers may wish to consider, it does not cover all applicable regulatory requirements or considerations. FINRA encourages all member firms to conduct a comprehensive review of all applicable securities laws, rules and regulations to determine potential implications including any regulatory implications of using quantum computing.

2    PBS, Quantum Mechanics.

3    See, e.g., Pavle Avramovic et al., A Quantum Leap for Financial Services, UK Financial Conduct Authority (FCA) Insight (July 4, 2021); DTCC, Post-Quantum Security Considerations for the Financial Industry, DTCC – A Whitepaper for the Industry (Sept. 2022).

4    H.R. 7535, Quantum Computing Cybersecurity Preparedness Act, Dec. 21, 2022.

5    Richard Waters, Wall Street Banks Ramp Up Research Into Quantum Finance, The Financial Times, (Jan. 6, 2020); Chris Matthews, Quantum Computing Will be the Smartphone of the 2020s, Says Bank of America Strategist, MarketWatch (Dec. 12, 2019). 

6    Jean-Francois Bobier et al., What Happens When “If” Turns to “When” in Quantum Computing?, BCG (July 21, 2021) [hereinafter Bobier Quantum].

7    Id.

8    McKinsey, Quantum Technology Sees Record Investments, Progress on Talent Gap, April 24, 2023 [hereinafter McKinsey Quantum].  

9    Major financial services firms such as Goldman Sachs, JPMorgan Chase and HSBC are seen as early adopters of quantum computers. Greg Noone, Who are the Early Adopters of Quantum Computers? Big Banks, That’s Who, Tech Monitor (Jan. 12, 2023).

10    See Grant Salton et al., Goldman Sachs and AWS Examine Efficient Ways to Load Data into Quantum Computers, Amazon Web Services (AWS) Quantum Technologies Blog (Oct. 12, 2022).

11    McKinsey Quantum (noting $1.8 billion from the United States, $1.2 billion from the European Union and $100 million from Canada); see also Can Europe beat China and the US in Quantum Computing?, Goldman Sachs (Mar. 31, 2023).

12    The Nobel Prize, press release, The Nobel Prize in Physics 2022.

13    Google engineers had reportedly employed a quantum computer powered by a 54 qubit processor to perform a specific computational task in 200 seconds. Such a task would have taken even the most powerful supercomputer over 10,000 years. However, other companies in the quantum space, as well as government-run enterprises, have offered differing opinions on the level of progress being made. Jose Deodoro et al. Quantum Computing and the Financial System:  Spooky Action at a Distance (Mar. 12, 2021), IMF Working Paper [hereinafter IMF Quantum]; Alvin Powell, Harvard Quantum Initiative Co-Director Lukin on ‘Quantum Supremacy’ and Google’s Announcement of its Achievement, The Harvard Gazette (Oct. 29, 2019).

14    See Request for Comments section of this paper.

15    Cade Metz, Google Claims a Quantum Breakthrough That Could Change Computing, The New York Times (Oct. 23, 2019).

16    National Institute of Standards & Technology (NIST), Quantum Logic Gates [hereinafter NIST Quantum Logic Gates].

17    Id.

18    Joint Quantum Institute, A Quantum Logic Gate Between a Solid-State Quantum Bit and a Photon (Mar. 2013).

19    BBC BiteSize, Computing Fundamentals.

20    University of Waterloo, Institute for Quantum Computing, What is a Qubit?.

21    Larry Wissel, How Does a Logic Gate in a Microchip Work? A Gate Seems Like a Device That Must Swing Open and Closed, Yet Microchips are Etched Onto Silicon Wafers That Have No Moving Parts.  So How Can the Gate Open and Close?, Scientific American (Oct. 21, 1999).

22    NIST Quantum Logic Gates. See also, Amj Dawar, Quantum Computing, Lecture 1, University of Cambridge, Department of Computer Science and Technology. 

23    Michael Tabb et al., How Does a Quantum Computer Work? (July 7, 2021) [hereinafter Tabb, Quantum] .

24    Carnegie Endowment for international Peace, Implications of Quantum Computing for Encryption Policy (Apr. 2019).

25    Daniel Colomer, The Importance of Uncomputation: Is Quantum Mechanics Reversible?, The Quantum Insider (May 18, 2020).

26    Monica Hernandez, Breakthrough in Quantum Universal Gate Sets: A High-Fidelity iToffoli Gate, Science Daily (May 24, 2022).

27    NIST Quantum Logic Gates.

28    Jesse Emspak, Quantum Entanglement: A Simple Explanation Space.com (Mar. 16, 2022).

29    Martin Giles, Explainer: What is a Quantum Computer? How it Works, Why It’s So Powerful, and Where it’s Likely to be Most Useful First, MIT Technology Review (Jan. 29, 2019).

30    Quantum systems can be sensitive and unstable because qubits are exceptionally fragile and easily disrupted. Their coherence (i.e., keeping a state of superposition and entanglement) can break down (or decohere) due to environmental “noise.” Rob Matheson, Uncovering the Hidden “Noise” That Can Kill Qubits, MIT News (Sept. 16, 2019).

31    Jonathan Ruane, Andrew McAfee & William D. Oliver, Quantum Computing for Business Leaders, Harvard Business Review (Jan.–Feb. 2022).

32    Accenture, Get Ready for the Quantum Impact.

33    AWS, Six Advantages of Cloud Computing.

34    See, e.g., JPMorgan Chase, Global Technology Applied Research; Goldman Sachs, Engineering Quantum Algorithms; Fidelity Center for Applied Technology (FCAT), Observations; HSBC, HSBC and Quantum; and Barclays, Quantum Computing.

35    Sankar Das Sarma, Quantum Computing Has a Hype Problem, MIT Technology Review (Mar. 28, 2022).

36    See, e.g., IBM, Exploring Quantum Computing Use Cases for Financial Services [hereinafter IBM, Exploring Quantum]; Sandia National Laboratories, Quantum Optimization and Learning and Simulation (QOALAS).

37    Jens Backes et al., How Quantum Computing Could Change Financial Services, McKinsey (Dec. 18, 2020).

38    Bobier Quantum.

39    Commercialising Quantum Computers, Economist (Sept. 26, 2020); Jonathan Ruane et al., Quantum Computing for Business Leaders, Harvard Business Review (Feb. 2022); Jens Backes et al., How Quantum Computing Could Change Financial Services, McKinsey (Dec. 18, 2020).

40    IBM, Getting Your Financial Institution Ready for the Quantum Computing Revolution (April 2019).

41    Lee Braine et al., Quantum Algorithms for Mixed Binary Optimization Applied to Transaction Settlement (Oct. 15, 2019) [hereinafter Braine Quantum Algorithms].

42    Cliff Saran, Barclays Demonstrates Proof-of-Concept Quantum Clearing Algorithm, Computer Weekly (Oct. 17, 2019), (“When there are hundreds of trades, classical computer algorithms begin to experience limitations.”).

43    Braine Quantum Algorithms.

44    SEC, press release, SEC Finalizes Rule to Reduce Risks in Clearance and Settlement, Feb. 15, 2023.

45    BBVA, press release, BBVA Pursues the Financial Sector’s ‘Quantum Advantage’ (July 17, 2020).

46    IBM Exploring Quantum.

47    Samuel Mugel et al., Dynamic Portfolio Optimization with Real Datasets Using Quantum Processors and Quantum-Inspired Tensor Networks, Physical Review Research (Jan. 3 2022).

48    Id.

49    IBM Exploring Quantum.

50    Bobier Quantum.

51    Id.; Stefan Wörner and Daniel Egger, Speeding Up Risk Assessment Through Quantum Algorithms, IBM (Mar. 17, 2019) [hereinafter Wörner and Egger].

52    Richard Waters, Goldman Sachs Predicts Quantum Computing 5 Years Away From Use in Markets, Financial Times (Apr. 29, 2021).

53    Wörner and Egger.

54    Katia Moskovitch, Quantum Computers Could be the Ultimate Defence Against the Next Global Financial Crisis, Wired (Jan. 3, 2019) (“[I]nstead of looking back and analysing the risk taken yesterday, a quantum computer would make it possible to react quickly to changing economic environments and make – or propose – decisions nearly instantly.”); McKinsey & Company, Quantum Computing: An Emerging Ecosystem and Industry Use Cases (Dec. 2021) [hereinafter McKinsey Quantum Emerging Ecosystem].

55    McKinsey Quantum Emerging Ecosystem, (demonstrating that the largest global financial institutions collectively held $800 billion as a capital buffer, with an annual cost of capital worth $80 billion; one to two percent of this could free up $0.8 billion to $1.6 billion per year).

56    Tom Taulli, Quantum Computing: What Does It Mean For AI (Artificial Intelligence)?, Forbes (Aug. 14, 2020).

57    Maciej Lewenstein et al., Storage Capacity and Learning Capability of Quantum Neural Networks, Quantum Science and Technology (July 7, 2021).

58    See, e.g., Dominic Widdows, Quantum Natural Language Processing with IonQ Hardware, IonQ (June 13, 2022).

59    McKinsey Quantum Emerging Ecosystem.

60    FINRA, Artificial Intelligence (AI) in the Securities Industry, June 2020.

61    Id.

62    Stephen Shankland, Quantum Computers Could Crack Today’s Encrypted Messages. That’s a Problem, CNET (May 24, 2021). The specific encryption standard cited is RSA (Rivest-Shamir-Adleman).

63    AJ Rasumsson, The Power of Quantum Computing: Parallelism, Conversations in Science at Indiana University, (July 13, 2019).

64    See Elaine Barker, Recommendation for Key Management Part I: General, NIST (Jan. 2016) (providing a detailed accounting of different cryptographic approaches).

65    IMF Quantum.

66    Id. (citing Grover’s ability to work with unstructured data as akin to “finding a needle in a haystack”).

67    Tammy Xu, What are Quantum-Resistant Algorithms—and Why Do We Need Them? MIT Technology Review, (Sept. 14, 2021).

68    National Academies of Sciences, Engineering, and Medicine, Quantum Computing: Progress and Prospects (2019), [hereinafter NAS Quantum Computing]. 

69    Id.

70    NIST, Announcing Request for Nominations for Public-Key Post-Quantum Cryptographic Algorithms (Dec. 20, 2016).

71    NIST, press release, NIST Kicks Off Effort to Defend Encrypted Data from Quantum Computer Threat (Apr. 28, 2016).

72    Lily Chen and Matthew Scholl, The Cornerstone of Cybersecurity – Cryptographic Standards and a 50-Year Evolution, NIST (May 26, 2022) [hereinafter Chen and Scholl].

73    Post Quantum Cryptography Team, A Quantum World and How NIST is Preparing for Future Crypto, NIST, (Mar. 2014) (noting the importance of performance criteria, including encryption/decryption time, key sizes, key generation time, signature size and generation/verification time).

74    NIST press release, NIST Announces First Four Quantum-Resistant Cryptographic Algorithms (July 5, 2022) [hereinafter NIST Press Release].

75    Id.

76    On August 21, 2023, NIST published a plan for post-quantum cryptography. NIST, Quantum Readiness: Migration to Post-Quantum Cryptography (Aug. 21, 2023). 

77    NIST Press Release. NIST chose algorithms based on properties that lent themselves to different functions, whether general cryptography or digital signatures.

78    RSA-2048 has a key size 2048 bits long.

79    Chen and Scholl (noting that a doubling in key size for public keys does not equate to a doubling in key security; doubling in symmetric key size, however, may yield a doubling in key security). 

80    John Carl Villanueva, Should We Start Using 4096 bit RSA Keys?, JScape (Oct. 3, 2022).

81    Martin Giles, Explainer: What is Quantum Communication?, MIT Technology Review (Feb. 14, 2019). The main advantage of quantum communications is that should an eavesdropper attempt to intercept the key, the qubits’ superposition would be disturbed and collapse to a state of 0 and 1, effectively revealing the intrusion. Id.

82    For example, while quantum communication may theoretically provide guaranteed security, in practice, the limitations of hardware constrain such security guarantees and can even introduce new forms of attack. Moreover, quantum communications still do not get around the problem of authenticating the transmission source that, today, requires asymmetric cryptography (i.e., secure key exchange).

83    Google, HTTPS Encryption on the Web. Https is the protocol commonly used to connect to browsers and web-based apps. https relies upon public key infrastructure, namely SSL (Secure Socket Layer) or TLS (Transport Layer Security) encryption technologies, to secure the connections.

84    Crypto assets networks, such as Bitcoin and Ethereum, face a unique challenge in upgrading their cryptographic standards due to the coordination required in distributed networks, which operate on consensus. Upgrading cryptographic standards may require a soft fork (i.e., backwards compatible upgrade) whereby the network would continue to operate as users migrate to the new standard. See proposed approach for upgrading Bitcoin network: Dragos Ilie, Making Bitcoin Quantum Resistant, Imperial College London, Meng Individual Project (June 18, 2018).

85    The window of time needed to implement upgraded encryption standards is framed by Mosca’s Theorem, whereby the summation of the time required to re-tool plus the time required for existing encrypted data to be secure should be less than the expected time for a large-scale quantum computer to be deployed. See Michele Mosca, Cybersecurity in a Quantum World: Will We Be Ready?, University of Waterloo, Institute for Quantum Computing, Apr. 3, 2015. See also, HSBC Moves to Protect Operations From Quantum Cyber Threats, Finextra (July 5, 2023); Thomas Seal, HSBC Tests Quantum Tech in London to Guard Against Futures Hacks, Bloomberg (July 4, 2023).

86    NAS Quantum Computing. NIST has also recognized in a best case scenario that a full migration would take five to 15 years. See William Barker et al., Getting Ready for Post-Quantum Cryptography: Exploring Challenges Associated with Adopting and Using Post-Quantum Cryptographic Algorithms, NIST Cybersecurity White Paper (Apr. 28, 2021) [hereinafter Barker et al.].

87    For example, through the Internet Engineering Task Force (IETF), the International Organization for Standardization (ISO) and the International Telecommunication Union (ITU), all of which contribute to governing security on the world’s infrastructure, such as the internet.

88    European Telecommunications Standards Institute (ETSI), Cyber: Migration Strategies and Recommendations to Quantum Safe Schemes, Technical Report (2020).

89    Id.

90    William Barker and William Polk and Murugiah Souppaya, Getting Ready for Post-Quantum Cryptography: Exploring Challenges Associated with Adopting and Using Post-Quantum Cryptographic Algorithms, NIST (Apr. 28, 2021).

91    NAS Quantum Computing; NIST has also recognized in a best case scenario that a full migration would take five to 15 years; see Barker et al.

92    NIST, Migration to Post-Quantum Cryptography, (June 2020) [hereinafter NIST Migration to Post-Quantum Cryptography].

93    It is important to note that sound cyber practices that prevent malicious actors from accessing sensitive data in the first place provides an additional security layer.

94    NIST Migration to Post-Quantum Cryptography.

95    See e.g., Notice to Members 05-48, Members’ Responsibilities When Outsourcing to Third Party Providers,; FINRA Regulatory Notice 21-29, FINRA Reminds Firms of their Supervisory Obligations Related to Outsourcing to Third-Party Vendors.

96    World Economic Forum, Insight Report, Quantum Computing Governance Principles, Jan. 2022.

97    FINRA, Regulatory Notice 15-09 on Effective Supervision and Control Practices for Firms Engaging in Algorithmic Trading Strategies, Mar. 2015.

98    Parties should submit in their comments only personally identifiable information, such as phone numbers and addresses, that they wish to make available publicly. FINRA, however, reserves the right to redact or edit personally identifiable information from comment submissions. FINRA also reserves the right to redact, remove or decline to post comments that are inappropriate for publication, such as vulgar, abusive or potentially fraudulent comment letters.