Gambling across borders

A blog about the productive life of risk

Posts Tagged ‘Flash crash

Has Wall Street become a hyper-speed casino?

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On 6 May 2010 the Dow Jones incurred a fall of 1000 points in 15 minutes to rally back in another 15. This event, now referred as the ‘flash crash’, has brought High Frequency Trading (HFT), the use of computer technology to trade at increasingly fast speed in order to take advantage of tiny opportunities in the market, under harsh scrutiny and criticism.

The CFTC, the US regulator in charge of the commodities market, has recently settled a case court against Optiver, a high frequency trading company with a $14 millions deal. Optiver’s Chicago office was accused of having reaped a $1 million profit by engaging in a practice called “banging the close”, in which the firm attempted to move U.S. oil prices by executing a large volume of deals during the final moments of trading. The Optiver case is revealing of the new CFTC’s will to crackdown on market abuse and HFT.

Others in the industry call High Frequency Traders ‘parasites’ which have turned Wall Street into a ‘hyper-speed casino’ by taking all the humanity out of what used to be a very human business. The anxiety towards high-frequency trading has even recently lead to plans to create new exchange-type platforms which will exclude high-frequency traders.

Is High Frequency Trading the new evil face of Wall Street?

David Levine at the Huff Post has written the most compelling and insightful article I have read so far on the topic. His account demonstrates that the question of High Frequency Trading hides much bigger ones and cannot be answered in a straightforward manner.

The criticism that High Frequency Trading takes the social out of trading reminds of what Rebecca Cassidy, an anthropologist, says about the rise of technology in gambling.  She argues in her article Horse versus Machine: Battle in the Betting Shop, forthcoming in JRAI, that the arrival of machine gambling in the betting shop doesn’t lead, as it is frequently claimed, to asocial forms of gambling. She explains, on the contrary, how betting shop customers innovate through new gambling media.

In some instances, betting shop regulars ‘gang up’ against a specific machine. Every member of the group invests an amount of money, the machine is played in turn, and winnings are shared according to one’s investment.

By interviewing and depicting one of those individuals who are behind the computers, David Levine makes a similar point: High Frequency Trading is not just machines without faces.

The argument that technology kills the social nature of trading is not new. In her book Out of the Pits: Traders and Technology from Chicago to London, Caitlin Zaloom, another anthropologist, depicts how, at the turn of the millennium, financial markets left behind the chaotic gesture of trading floors for numbers on screen and how traders’ role did not disappear as a result but was redefined in interaction with these new technologies.

What is striking in David Levine’s article is how Gorton, the speed trader, doesn’t see himself so much as a trader anymore but rather as an engineer. In his own words, here is how he describes the company he runs: ‘We’re really an engineering company. We have a lot more in common with Google than we do with one of the big bank’. This is exactly how spread betting companies in the UK have been described to me: as IT companies first, trading coming second. IG Index epitomizes this rhetoric by employing 350 staff in IT, a third of its workforce worldwide.

Technology for sure plays a central role in trading which is constantly growing and that we can’t ignore. Calls for more regulation on HFT do not take into account the practical difficulties to regulate it, ignoring to address the politics at work behind technology. Questions which ask whether it is evil are unhelpful and fail to articulate the resourceful and rich manner individuals redefine what they do in interaction with technology.


Written by Claire Loussouarn

April 20, 2012 at 2:37 pm