Podcasts from the High Frequency Trading Workshop, held 24–25 November in Copenhagen, can be streamed and downloaded from this page.
The podcasts are orded as presented at the workshop, abstracts and bio-notes can be found at this this page, below the podcasts.
'Rhythms of the Market Crowd: A Lefebvrean Rhythmanalysis of Financial Markets'
Kristian Bondo Hansen
'Trading Machines and Communication in Finance: Do Markets Still Chat in the Era of Robots?'
'A Material Sociology of High-Frequency Trading'
'High Frequency Trading and Price Discovery in the UK Equity Market'
'The Varieties of Affective Relations in Socio-Technical Collectives: A Study of Automated Trading'
'Where do Electronic Markets Come From? Regulation and the Transformation of Financial Exchanges'
'The Sociology of Algorithmic Trading and Market Structure Regulation'
'Taming markets? A Philosophical Perspective on The Regulation of High-Frequency Trading'
'Crowding of Adaptive Strategies: Signals and Noise in High-Frequency Trading'
'Crowded Networks: Microwave Technology and the Nature of Exchanges in the HFT world'
Abstracts and Bio-notes:
Workshop 1: “HFT sociality, crowd psychology and dynamic collectives” – Copenhagen Business School, Denmark – 24-25 November 2014
Rhythms of the Market Crowd: A Lefebvrean Rhythm-analysis of Financial Markets
Kristian Bondo Hansen
This paper proposes to analyse financial markets through their rhythms and how these interact with the bodily rhythms of traders. Drawing upon the French sociologist and philosopher Henri Lefebvre’s little-known rhythmanalysis, we examine the relationship between bodily and market rhythms in two different financial market trading configurations, namely the open-outcry pit, where bodily co-presence is widely considered key, and high-frequency trading (HFT), where the importance of bodily aspects appear to have become obsolete, as trading is executed by algorithms. Analyzing historical sources from the early twentieth century, the paper demonstrates how market and body rhythms played a prominent role in popular accounts of open-outcry trading as well as in pit traders’ own self-perception of their trading practices. We further demonstrate how so-called contrarian speculators problematized the idea of immersing oneself completely in ‘the flow’ or rhythms of the market and how, instead, they sought to counteract the alleged contagious arrhythmia of the market crowd. Fast-forwarding to HFT, we argue (drawing upon interviews with and ethnographic observations of HF traders) that, while computerized, this type of market configuration does not render trading bodies obsolete, although the relation between body and market rhythms changes. HF traders’ bodily rhythms are adjusted to the market and are becoming dependent on it. Overall, the comparative analysis of market and body rhythms in pit trading and HFT enables us to identify a number of key differences and similarities between these two market configurations.
Kristian Bondo Hansen is a PhD-fellow at the department of Management, Politics and Philosophy at Copenhagen Business School, CBS, and part of the Sapere Aude research project Crowd Dynamics in Financial Markets. In his research Kristian examines popular representations of financial markets in late 19th to mid-20th century, with specific emphasis on the ‘psychologicization’ of markets and market participants.
Trading Machines and Communication in Finance: Do Markets Still Chat in the Era of Robots?
The trading pits of old were all about communication: the shouts, the glances, the gestures of traders played an essential role in conducting transactions. Now that trading automation has reduced many of them to tourist attractions, and that trading robots have gained substantial market share, what happened to communication in electronic finance? Is it on the vane too? And if communication is vanishing, does it mean that social relationships are on the brink of extinction in finance? Based on an ethnography of contemporary electronic markets, I argue that both communication and social relationships are as lively as ever, only in changed formats. I examine how communication and group relationships crystallize around building and operating trading robots, and the implications of this particular social dynamics with respect to trading decisions. I distinguish several types of groups active in electronic finance and discuss their differentiation with respect to trading activities.
Alex Preda is professor in the department of management at King’s College London. His research concerns communication, technology and interactions in financial markets, both in historical and contemporary perspectives. He is currently finishing a book on Noise: Living and Trading in Electronic Finance, contracted with the University of Chicago Press.
A Material Sociology of High-Frequency Trading
Over the last 20 years, the arrangements for trading many financial assets have become large technical systems, and need analysed as such. This paper will examine some salient aspects of this process of transformation:
to the relevant geodesics) and the socio-cultural processes that are crystalised in the configurations of finance’s large technical systems.
Donald MacKenzie is Professor of Sociology at the School of Social and Political Science, University of Edinburgh. His current research is on the sociology of markets, focusing on automated trading, the use of mathematical models, and the evaluation and trading of bonds. He has recently published on HFT in London Review of Books and has a forthcoming article on the Sociology of Algorithms. Book publications include An Engine, Not a Camera: How Financial Models Shape Markets (MIT Press, 2006); Do Economists Make Markets? On the Performativity of Economics, co-edited with Fabian Muniesa and Lucia Siu (Princeton, 2007); and Material Markets: How Economic Agents are Constructed (Oxford, 2009).
Taming markets? A philosophical perspective on the regulation of high- frequency trading
Marc Lenglet & Joeri Mol
In this paper, we make the case for a philosophical inquiry of regulating accountability and ordering financial transactions in an high-frequency trading environment. Making use of the conceptual apparatus afforded by Heidegger’s thinking on technology, we show how regulation works or fails within contemporary equities markets. We advance Heidegger’s insight that the capacity to instantiate order pertains directly to the technology at hand: building on his earlier work on the tool-analysis, we propose a view that sees technology as the vehicle through which order comes to be, or rather, how being is ordered. We introduce the notion of the ‘financial gear’ as an immanent approach to regulation and as a constitutive element of the financial practices it aims to regulate. Rather than the orthodox perspective that views regulation as an external ordering device, we argue that the defining characteristic of regulation is the technology that instantiates order. We use the notion of the ‘financial gear’ to examine how regulatory technology changed as the computer came to replace the human as the principal actor in equities markets. Our study yields a number of insights. First, analysing regulation as a technology across these two periods reveals a marked shift in the conditions for regulation. Whereas regulation in the pre-algorithmic era revolved around interpretive processes involving conversations between human market actors, the conditions for regulation in the algorithmic era is substantively different, because the principal conduit through which regulation is administered is not the mental registers of the human brain, but the electric circuits of computerized systems. Second, the advent of the algorithm marks a profound shift in contemporary finance, from a situation where the human trader is fully in control of his practice, to a situation where his practice has literally dissolved into the machine and which will continue even in spite of his inactivity. Here, we show how algorithmic machines act as a Gestell or en-framing device for the market actor (Heidegger, ). Finally, our findings warrant a more general discussion about financial regulation: As the shift from human to algorithmic transactions is currently transpiring, it necessitates a significant revision of the contemporary regulation of financial market, which manifests itself as a straggler, stuck in the mindset of a pre-algorithmic era, where human bodies were the main site for regulation.
Marc Lenglet is a Lecturer at the European Business School Paris, Management and Strategy Department. With interests in phenomenology and anthropology, his research focuses on the compliance function and the dissemination of norms within financial practices.
Joeri Mol is a Lecturer in the Department of Management and Marketing at the University of Melbourne, Australia. His research interests include power and appropriation in organizations, economic sociology, strategic management and diffusion patterns of innovations. His work has been published in Marketing Theory, Social Networks, British Journal of Management, Journal of Economic Issues and Journal of Management Studies.
The Varieties of Affective Relations in Socio-Technical Collectives: A Study of Automated Trading
Discourses on Algorithmic Trading and High-Frequency Trading very often define these practices as an automatization of trading and thus a replacement of humans through machines. Preliminary results from my fieldwork indicate that, far from side-lining humans and banishing affective elements, fully automatized trading, paradoxically, intensifies complex affective human-machine relations. “Collective hybrids” (Callon/Muniesa), under which automated trading may be classified, integrate humans and non-humans elements on a multi-frequential scale. My work sheds light the intensity of these relations ex negativo – by tracing what happens at the moment of their dissolution. After briefly surveying the entangling frequencies across human senses, material screen- and soundscapes, and algorithmic discrimination, I analyze what happens at the particular instances when these relations, for one reason or another, fail. I show that it is the highly intense affective relations among elements of such dynamic collectives that leave the disentangled elements in states of shock and affective arrest, drifting (algorithms) and traumatized (humans).
Robert Seyfert is a Postdoc-Fellow at the Cluster of Excellence “Cultural Foundations of Social Integration” at Konstanz University. He studied Philosophy, Sociology and Political Science in Dresden and New York and received his doctoral degree in Sociology in 2011 at Konstanz University. His dissertation was published in 2011 as Das Leben der Institutionen with Velbrück. Other publications include: “Beyond Personal Feelings and Collective Emotions: A Theory of Social Affect”, in: Theory, Culture & Society29/6 (2012), 27-46. Research areas are Social Theory, Cultural Sociology and Sociology of the Financial Markets. His current research includes ethnographical fieldwork in Algorithmic Trading.
Where do Electronic Markets Come From? Regulation and the Transformation of Financial Exchanges
The recent history of the stock exchange as an institution is portrayed frequently as that of precipitous decline and destabilization. The widely accepted reason for this decline is the automation of trading of financial assets and contracts. In this paper we aim to add a theoretical and empirical basis to this broad explanatory narrative, and suggest that traditional exchanges were not simply marginalized by competition from electronic trading platforms, but that a more sophisticated historical and sociotechnical process was at play. This paper focuses its analysis on the Securities and Exchange Commission's Regulation of Exchanges and Alternative Trading Systems (Regulation ATS) —which threatened, disrupted, and formally redefined the ontology of the exchange. Exchanges compete across various dimensions: most importantly, trading facilities and new listings. However, our findings show that Regulation ATS contributed to dissolution of the distinction between exchanges and broker-dealers, which used to be the customers of exchanges. The latter—via the technological affordances of electronic communication and transaction-processing database systems but also through the increased (and SEC-mandated) standardization of trade reporting, quotes, and orders—began to pragmatically provide functionality previously unique to exchange trading floors. Our findings indicate that interactions between the regulatory discourses and technological materiality led to a reconfiguration of the nature of competition among U.S. exchanges; to an increased fragmentation of market share; and, ultimately, to a dramatic change in the nature of financial exchanges.
Yuval Milo is a professor of Social Studies of Finance and Management Accounting in University of Leicester School of Management. Prior to this he held positions at the London School of Economics and the University of Essex. Yuval’s background is in sociology of science and technology, economic sociology and accounting. Yuval recently published in Harvard Business Review, Environment and Planning, Journal of Cultural Economy and Journal of Business Finance and Accounting. Using a combination of qualitative and quantitative methods, Yuval’s current research includes the emergence of electronic trading in financial exchanges, the evolution of accounting standards for testing the impairment of assets and the rise of the Social Return On Investment methodology.
The Sociology of Algorithmic Trading and Market Structure Regulation
Algorithmic and high-frequency trading have become controversial practices in recent years. Debates surrounding alleged unfair front running, the complex order types used by HFTs, payment for order flow, and opaque best execution practices in Europe has fed a general post-crisis sense of loss of confidence in capital markets and eroding trust between market participants. Consequently, algorithmic trading is one of the key developments addressed by the next wave of Europe’s Markets in Financial Instruments Directive (MiFID II) when it comes into force in 2017. Two of its most ambitious proposals are the aim to introduce algorithm-flagging requirements and a European consolidated tape for trade reporting. In this paper, I examine the regulatory consultation process between the European Commission, the European Securities and Markets Authority (ESMA), and the financial services industry in the on-going process of shaping the outcome of the 2010 EC review of MiFID I. Drawing on literature in STS and Economic Sociology on categorisation and standard-setting, I present reflections on how the regulatory project of defining algorithmic trading and HFT involves negotiating competing interests, cultural norms and conceptions of market order. With respect to the repeatedly postponed project of establishing a European consolidated tape, I then present how arguments for finding a competitive or mandatory solution are supported either by reference to pseudo- Hayekian notions of price discovery or by attempting to define market data as a public utility. This is an early work-in-progress paper based empirically on responses to the EC’s and ESMA’s consultation documents, observations at industry events and a number of interviews with non-public regulatory actors. As such, the paper seeks to solicit the constructive feedback of the sociologists of finance in attendance regarding the most interesting and promising directions this research project might be taken in over the following years.
Dr. Nathan Coombs is a Leverhulme Early Career Research Fellow in the Department of Sociology, University of Edinburgh. His three-year project, which began September 2014, is entitled ‘Governing Financial Algorithms’. Nathan was awarded his doctorate in Political Theory by Royal Holloway, University of London in 2013. A revised version of his thesis is being published by Edinburgh University Press’s Taking on the Political book series in 2015. He has published articles in Journal of Political Ideologies and Theory & Event, amongst others.
High Frequency Trading and Price Discovery in the UK Equity Market
This presentation covers material from two research papers on high frequency trading (HFT) currently under production at the Bank of England. Both papers use unique transaction-level data from the UK equity market. We will start with
some basic definitions and characteristics of HFT firms. We will then present and discuss summary statistics and frequency distribution plots of various HFT activity variables. Finally, we will present some new results on the impact of HFT activity on price discovery. In particular, we will show how the informativeness of trades varies in the cross-section of HFT firms and also whether and how HFT activity is correlated within stocks and what this means for price efficiency.
Evangelos Benos is a research economist in the Markets Infrastructure Directorate of the Bank of England. In this capacity he has done research on such topics as payment systems, clearing arrangements and market microstructure. He has also done policy work related to the revision of MiFID (Markets in Financial Instruments Directive). He has a PhD in economics from the University of Illinois at Urbana-Champaign. He has taught undergraduate and graduate courses at various universities in the US and Europe
Crowding of Adaptive Strategies: Signals and Sound in High-Frequency Trading
HFT represents a complex trading system that operates at, or beyond, the limits of human response times – towards the speed of light. Execution of trades now takes place in 740 nanoseconds. At the same time crowd dynamics in financial markets are replaced by algorithms reacting to signals and thereby reduced to mere expression. This raises an interesting question: How are we to perceive off crowd dynamics in finance if it cannot be reduced to the aggregation of informed individuals or put differently, when ‘the many pre-exist the one’ (Thacker 2004). This paper investigates this question by bringing together post-human (media) theory (Parikka 2008), software studies (e. g. Vehlken, 2013) and philosophy in order to think about subjectivity in HFT. Instead of understanding algorithms as non-human actors with intention or pure instruments that models human behavior this article explores how the procedures of swarming techniques could be understood in relation to the functioning and interaction between different classes of HFT algorithms and the signals they at once create and react upon. According to Jussi Parikka swarms characterizes computer science algorithms, multi-agent systems and insects (2008 p. 115) and coordinates its action via sound. This article draws upon ethnographic insights from the operation of different black box systems and the design of preprogrammed algorithms.
Dr. Ann-Christina Lange is Assistant Professor at the Department of Management, Politics and Philosophy, Copenhagen Business School, Denmark. She is part of the ‘Crowd Dynamics in Financial Markets’ research project, where her work focuses on high-frequency trading. She obtained her PhD from the Department of Sociology, Goldsmiths, University of London, in 2013.
Crowded Networks: Microwave Technology and the Nature of Exchanges in the HFT world
Speed has always been crucial for the financial markets. From the 19th century pigeons used by Paul Reuter to the hand signals which replaced the human voice in the Chicago pits, different technologies were employed to speed up the flow of information between the traders and/or between the exchanges – speed improve price formation and reduce asymmetry information. Than being said,
the HFT world, as a new and complex ecosystem, has pushed the limits of speed beyond the human capacity to 'see' what is happening when order flows come and go "at the speed of light". Only algorithms can now "digest" the billions of messages (orders, cancellations, etc.) managed by the matching engines. The “arm race" has been much debated recently, but this "arm race" may disappear soon as the most recent technology used to manage market information (the microwave networks) will probably be the fastest technology ever. From that perspective, HFT may be seen as the very beginning of the computerization of markets – or as the last moment of the prehistory. With microwave, traders need to adapt their algorithms, codes and strategies, and the way they use this fastest technology may be interesting to better understand how the "crowd of algorithms" shape the new HFT paradigm.
Alexandre Laumonier, anthropologist, is the head of research at the High School of Art of Cambrai (France). Author of "6|5", the only book in French about HFT. He's preparing a Ph. D. about "The nature of exchanges", from medieval Scholasticism to contemporary market microstructure.
- The sociality of finance, e.g. the boundary between gambling and legitimate trading; the micropolitics of Chicago’s trading pits; contested constructions of markets and of their legitimacy.
- The physicality of finance, e.g. the electromagnetic spectrum, Lake Michigan, etc.
- Social/physical path-dependencies in finance’s large technical systems.
The paper will be based on a historical-sociological study of the shaping of the markets in which HFT takes place. (HFT, or high-frequency trading, is the ultrafast, entirely automated trading of large numbers of shares or other financial assets.) The study involves interviews with 43 founders, employees or ex- employees of HFT firms; 44 trading-venue staff; etc. The paper will emphasise the materiality of HFT (e.g. the fibre-optic cables and microwave links on which it depends), the salience of geography (e.g. the closeness of those cables and links
Last updated by: Tobias Brask 13/04/2015