What happens when High Frequency Trading is thought of as a tax? And, if at all a tax, what type of a tax is it?
These are two questions that arise from recent discussions on the regulation of HFT in Europe and North America. They are, furthermore, critical for understanding the public politics of financial markets in contemporary societies. As fiscal sociologists argue, investigations into tax regimes are telling about the political structures of society: what, upon who, and how levies are enacted reflects both the capacity and logic through which states exert control over the economy as well as some of the cultural cleavages that structure distributional and welfare policies in society. How we tax is how we distribute, so the question of just how taxing HFT is bears directly on broader issues concerning the distributional character of financial markets. (Do bear with me: this is a very tentative provocation). Read the rest of this entry »
May 2, 2014
“There is systematic corruption in the market. A rigging, a rigging in the market. And it’s the provision to high frequency traders of information that ordinary investors do not have [which is at the core of this form of corruption]”.
This is, in a nutshell, the central claim of Michael Lewis’ new book, Flash Boys. Built around the almost heroic journey of Royal Bank of Canada’s Brad Katsuyama to understand how the interconnected American stock market works, Lewis’ story is now a centerpiece of the debate on HFT. In the smallish world of finance and technology, it is definitively the talk of the town.
As much as it has been praised (particularly by detractors of high frequency trading), Lewis’ book has also become the subject of intense, acerbic and at times quite emotional critiques. There is, indeed, something both provocative and awkward in Lewis’ account. Perhaps it is its frankness. Perhaps it is the heroic narrative of moral entrepreneurship upon which his story is predicated. Perhaps such awkwardness simply derives from factual inconsistencies in Lewis’ account. Is Lewis right, I wonder? Is the stock market rigged, as he argues in Flash Boys and countless interviews thereafter?
Custom indicates that, in addressing these questions, I should be as terse as possible, that I should offer something close to a standard, balanced, boilerplate analysis stating something of the sort: “Lewis got some bits of the story right, others less so.” But let me be provocative and offer an answer that, like Spread Networks’ cable, is a bit more direct: Michael Lewis is wrong, and there are important reasons why his being wrong matters to the social studies of finance. Read the rest of this entry »
April 30, 2014
Yesterday, in her testimony to the House Financial Services Committee, SEC Chair Mary Jo White fielded questions about the argument of Flash Boys. She drew a legal distinction between unlawful insider trading, having earlier access to order information, and being able to react more quickly to publicly available information. She then affirmed that the use of exchange data feeds, approved by the SEC, does not constitute insider trading if used properly.
Equities market buffs will find the three key minutes of video here.
The book is long and the commentary isn’t short. Here’s the rundown on the media storm over the English translation of Thomas Piketty’s 700 some page magnum opus, currently the number one best seller on Amazon in the US.
If you can read just one thing about Capital in the Twenty First Century I recommend Robert Solow’s very thorough review in The New Republic. (Krugman’s glowing review in the NYRB is perhaps more influential, but as a non-economist I appreciated Solow’s pedagogical attention to the technical aspects of the argument.)
If you’d prefer to skip the details altogether, in favor of experiencing a day in the life of an academic rock star, I’d point you to this wonderfully written article in New York Magazine.
And if you’re curious to know how the American left is engaging with the French economist, this extended interview by Chris Hayes on msnbc should give you a good feel for how the conversation in the US is playing out.
You may be wondering why I’m not recommending that you read the actual book. Unless you very wisely pre-ordered it, the first print run has already sold out!
April 25, 2014
Don’t leave home without it? Never true of Visa or Mastercard, and certainly not now in Russia. The international payments giants froze service on cards issued by several Russian banks following sanctions announced by the US. In response, Russia has announced it will build its very own National Payment Card System and place it under the authority of the central bank.
The provision and control of financial infrastructure is always a profoundly political issue, but never more than when technology is a conduit of the antagonism between state governments. According to political economists Natalia Kaurova and Anastasia Nesvetailova in a comment posted at FT’s Alphaville, “the full significance of the move must be understood in the context of the general desire of the Putin regime to isolate and protect the country from political risks”.
Anthropologist Bill Maurer who studies the commercial payments industry has shown that the control over money and payment is seeping into private infrastructures like Visa and Mastercard as well as unregulated networks like mobile phone accounts and Bitcoin. He has long argued that electronic payment systems are not just a way of transferring money, but maybe eroding the underlying authority of the state as they evolve into full-fledged alternatives to state currencies.
The events unfolding in Russia are an interesting counterpoint to Maurer’s research: What would happen if digital infrastructure was harnessed as a means of reinforcing state control over how people pay for things? And from a technology and engineering standpoint, is such a large-scale project still possible?
In future, instead of counting the money employers put into their pension funds as household income, the figures will reflect the contractual promises companies have made. [...]
While the change last year added just 1.5 percentage points to the US savings ratio, the Office for National Statistics says it will double Britain’s measure of household savings from about 5.5 per cent of disposable income to about 11 per cent. British households will ditch their reputation for profligacy overnight.
For accounting studies buffs, the full article is here.
April 5, 2014
If you haven’t been following Michael Lewis’ world wind publicity tour for his new book on HFT, I’d like to offer a couple of highlights.
If you’re not familiar with the topic start with this interview, aired March 30 on the investigative news show 60 Minutes. (The full 14 minute segment is cued second, but it’s worth suffering the two rounds of commercials.) Look out for the ‘magic shoe box’, a physical device to slow down high speed traders at IEX, the exchange started by the Canadian hero of the book Brad Katsuyama, to solve the problem.
If you’re intrigued, continue onto the heated technical debate between Katsuyama and the president of the BATS exchange, William O’Brien, that was so compelling you can see the brokers on the floor transfixed by the TV. This one’s stunning. A must watch from beginning to end. I recommend it as a teaching tool for students.
While we are looking to expand research and teaching strengths in all areas of Management, we are keen to receive applications for the following areas:
• Accounting- in particular Institutional Approaches and Management Accounting.
Applicants in this area will be considered particularly favourably.
• Finance- in particular Financial Econometrics, Empirical-behavioural Finance, Asset Pricing, Corporate Finance and Financial Economic History.
You will be accomplished in your area of expertise and will be responsible for supporting the work of the Department as we seek to further enhance our international standing. With clear career progression paths, accomplished academics can quickly excel within their field quickly; perhaps the clearest attestation of this is the extraordinarily low staff turnover rate that the School enjoys in the context of a febrile international employment market for academic staff in the Business and Management area.
Within whichever field your expertise lies, we are able to accommodate applications for the following levels:
Teaching Fellow- (Teaching only) – Grade 7 – £31,644- £36,661
Lecturer – (Teaching & Research and Teaching Dominant) Grade 8- £36,661- £45,053
Senior Lecturer (Teaching & Research and Teaching Dominant) Grade 9 -£47,787- £53,765
For exceptional candidates we would consider appointment to Reader or Chair
Yuval Millo, firstname.lastname@example.org (Accounting and Social Studies of Finance)
Emmanuel Haven, email@example.com (Finance)
For more details: http://tinyurl.com/pot46gk
The sixth Critical Finance Studies conference will be held at the University of Amsterdam from August 13–15, 2014. This year we are again looking for contributions to our ongoing collaborative research project that seeks to engage finance in critically creative ways.
Although critical attention is regularly devoted to finance, it generally takes the form of a call for transparency, or the systemic repair and restructuring of a paradigm in need of a shift. While finance is clearly a societal domain ridden with crisis, our sense of critique embraces the possibility of risky confrontations with the external powers that drive finance, as well as with internal, ethical combats that impact on the critic’s own situation within academic discourses on finance. We are, therefore, calling for contributions that take into account the relationship of the critic to finance and to discourses on finance, including received values, moral codes, authoritarian knowledge, political correctness, academic manners, common sense, good will, opinion and implicit presuppositions. We also invite papers that approach finance through avenues that have been underexplored such as theology, philosophy, art, music, film, new media and television, to give just a few examples.
Possible topics may include but are far from limited to:
• Finance, art and philosophy
• Theology of finance
• Finance, education and neo-liberalization
• Street finance
• Finance and ethics
• Financial imaginaries
• Finance and society
• Finance on film
• Gambling, risk and finance
• Finance and visualization
• Finance and subjectivity
• Boundaries of finance
• Sustainable finance
• Finance and value
• City branding and liquid cities
SSFN Mailing List
[Social Studies of Finance Network]
March 27, 2014
In a dark television studio atop one of the LSE’s towers, this morning I was interviewed by Mark Jackson, marketing and recruitment manager of the LSE Executive Summer School. Here’s a summary of the interview.
Mark Jackson: Please give a brief overview of your course.
Daniel Beunza: The name of the course is “Sociology of Finance,” but perhaps the subtitle is more to the point: “Networks, Culture and Performance.” The course builds on a paradox, which is that while models and equations are necessary to get a foothold in finance, getting ahead in a bank or a fund depends much more on your networks, your fit into the culture, and on being perceived as a leader. None of the courses on finance out there teach those skills. That’s what this course is about.
Mark Jackson: Could you give me some examples?
The course starts with the notion of bank culture. How to be an effective manager, when your employees are traders and investment bankers? Not an easy task. For instance, how do you deal with a star trader who is aggressive to the point of toxic? We explore the tensions between financial performance and what sociologists call “normative control”.
This session is followed by a day on modeling, and especially on how to benefit from the power of models while avoid the blind spots that they might create. We talk about the role of social cues, and about how to combine the use models with social cues from one’s network, and more generally on the danger of cognitive “resonance.”
The third day is devoted to algorithms in finance. We discuss high frequency trading. How it works, how to automate an organization without giving up the human element that made it competitive in the first place, etc. We might include a visit to one of the financial exchanges in London.
Our fourth session day focuses on the social dynamics of valuation. As much as the financial value of a company depends on the existing data about company performance, at any one point in time there are multiple value estimates out there – and financial analysts typically argue about valuation with one another. How to navigate these controversies? We also consider what the social and interpretive aspect of valuation means for companies who want to communicate with their investors, i.e., for investor relations. How to structure an effective message? We’ll do some interesting role plays.
The final day looks out to the future, and considers the rise of activist investment, of private wealth, and responsible investment. On this last point, we ask: does investing in environmental companies make sense? Under what conditions and in what investment styles? How can other organizations –data providers, technology vendors, etc.– benefit from it?
Mark Jackson: Describe why your course is relevant to today’s global executives.
This course is aimed a senior managers of banks and hedge funds, as well as risk managers, financial consultants and regulators. More generally, it is aimed at professionals who are seeking career advancement by understanding the managerial and social aspect of finance.