June 6, 2014
Plug: some blog readers may be interested in The Provoked Economy: Economic Reality and the Performative Turn (Routledge, 2014), which contains some bits on finance. See more details (including some forthcoming chapter-by-chapter snippets) in the companion blog provokedeconomy.net. From the book description:
Do things such as performance indicators, valuation formulas, consumer tests, stock prices or financial contracts represent an external reality? Or do they rather constitute, in a performative fashion, what they refer to?
The Provoked Economy tackles this question from a pragmatist angle, considering economic reality as a ceaselessly provoked reality. It takes the reader through a series of diverse empirical sites – from public administrations to stock exchanges, from investment banks to marketing facilities and business schools – in order to explore what can be seen from such a demanding standpoint. It demonstrates that descriptions of economic objects do actually produce economic objects and that the simulacrum of an economic act is indeed a form of realization. It also shows that provoking economic reality means facing practical tests in which what ought to be economic or not is subject to elaboration and controversy.
This book opens paths for empirical investigation in the social sciences, but also for the philosophical renewal of the critique of economic reality. It will be useful for students and scholars in social theory, sociology, anthropology, philosophy and economics.
Fabian Muniesa is a researcher at the Centre de Sociologie de l’Innovation, École des Mines de Paris. He looks at calculation, valuation and organization from a pragmatist standpoint, with a focus on the problems of business pedagogy, managerial performance, financial innovation and economic reasoning.
If you’re into SSF and happen to be in Warwick University next Tuesday…
Seminar at the Information Systems Management group
Speaker: Professor Yuval Millo, University of Leicester
Where do Electronic Markets Come From? Regulation and The Transformation of Financial Exchanges
Date: Tuesday 20 May 2014
Venue: M2, MBA Teaching Centre
Michael Castelle1, Yuval Millo2, Daniel Beunza3
1. University of Chicago
2. University of Leicester School of Management (Corresponding author)
3. London School of Economics
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. Our research indicates that interactions between the regulatory discourses and technological materialities 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. 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 Reg ATS contributed to a 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.
This radical equivalence between “broker” and “exchange” cannot be attributed only to technological progress or the intentional outcome of regulatory action, but its history is the fulcrum of the transformation in the nature of financial exchange.
May 9, 2014
A post from Stefan Leins (via Martha Poon) – thank you!
This Tuesday, representatives of the Swiss government confirmed their willingness to sign OECD’s new global standard on automatic exchange of information in tax matters.
Even though the Swiss Bank Secrecy has already begun to falter in 2009, when UBS was forced to hand out financial information of approximately 300 clients to the US government, this week’s development is a big step for Switzerland. On the one hand, the Swiss Bank Secrecy has become a significant competitive advantage to Swiss Banks, offering clients to store their money in Switzerland without exposing financial information to tax authorities. This helped Switzerland to become the world largest offshore financial center, managing 2.1 trillion US dollar of offshore wealth. On the other hand, the Swiss Bank Secrecy has become an identifying feature of Switzerland – just as much as chocolate, cheese and expensive watches. Due to this, many Swiss people hardly tolerate a critical stance toward this unofficial cultural heritage.
Historian Peter Habluezel once put it nicely saying that from a Swiss perspective, the narrative goes: “whoever questions our banks, questions our country, questions us”.
The cohesive power and mythical vibe of the Banking Secrecy evokes the classical attributes of an invented tradition. While the Financial Times talks about a “century long tradition”, one should note that the Swiss Banking Secrecy is no more than eighty years old. Introduced in 1934 as a reaction to the great depression, is has quickly become a tool to attract large amounts of wealth to Switzerland. Economic historians agree that, even though its original goal may not have been to evade taxes, the Swiss Bank Secrecy soon became an attractive tool to do so. And the criminal energy it stimulated was breathtaking: Recent reports of a banker smuggling undeclared diamonds in toothpaste tubes to Switzerland almost excelled the caricature of the Swiss money transporters in the movie The Wolf of Wall Street.
Interestingly, the Swiss Bank Secrecy has not become a victim of the political activity of Switzerland’s leftist parties that fought against it for decades. In 2009, the shady activities of UBS lead to a weakening of the Bank Secrecy. Now, five years later, it is assumed that Switzerland’s pledge to accept the OECD standard is a strategic attempt to release pressure from its other big bank Credit Suisse that is currently subject to severe accusations in the US. This time, a capitalist regime really produced its own gravediggers.
In ambivalent memory,
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!