A Material Sociology of High-Frequency Trading

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Thirty years ago, nearly all financial trading took place directly among human beings, over the telephone or face-to-face. In the late 1980s and 1990s, electronic trading gained momentum, but initially nearly all of it was still by human beings, using computer screens and keyboards. Since 2000, however, trading has increasingly become entirely automated. Particularly prominent has been ultra-fast, algorithmic high-frequency trading or HFT. In several important markets, HFT now makes up between around a quarter and just over a half of all trading (see, e.g., Baron et al. 2012, Bouveret et al. 2014, Brogaard et al. 2014). Our research, which links economic sociology and science and technology studies (STS), will investigate: 1) how HFT is conducted; 2) how and why it has become firmly established in some markets while failing to gain entry to others. HFT is a theoretically pivotal topic from the viewpoint of the intersection of economic sociology and STS. Economic sociologists have productively analysed markets as contested, historically situated 'fields', focusing on topics such as the cultures of markets, their social ordering and governance, and the conflicts surrounding these. STS scholars who study markets have in contrast typically focused on the materiality of markets: the role in them of technological devices; of material procedures; of embodied human beings (rather than disembodied cognition, whether rational or not); of mathematical models not as abstractions but as material computational routines. Proponents of each approach have often seen the other approach as incomplete, even inadequate, and the theoretical objective of this research is to develop an integrated analysis that we call a 'material sociology'. HFT is a suitable empirical topic for the development of a material sociology for two reasons: First, HFT's material aspects are crucial. For example, even the speed of light is a constraint. The salient time unit in HFT is a microsecond - a millionth of a second - and in a microsecond even light in a fibre-optic cable travels only around 200 metres. So, e.g., the exact locations of computer systems and precise routes of communications links matter hugely.Second, the rise of HFT has triggered conflicts about the structures of markets, the rules of trading, and so on: conflicts of the kind that interest economic sociologists. Nearly all HFT firms are small, recent entrants. They confront established players such as big banks (whose technical systems are typically slow by HFT standards). The outcomes so far of the resultant conflicts vary considerably. At one extreme (e.g., US share trading), the traditional institutional structure has eroded almost completely, to be replaced by an institutional/technical structure that - with some interesting exceptions - facilitates HFT. At the other extreme (e.g. the markets for UK and Eurozone government bonds), HFT firms have simply failed to gain any access. Our empirical research will be informed by our 'material sociology' theoretical objective. E.g. when we examine how HFT algorithms predict price changes, we will investigate the extent to which the technical procedures by which they do so actually depend on historically-situated, contested features of markets. When we examine the interaction between HFT and the structure of markets, we will investigate not simply social roles and rules, but also material infrastructure. We will employ semi-structured interviewing (of high-frequency traders, those who supply them with technical services, and others such as exchange staff, regulators and members of incumbent firms), supplemented by documentary sources and observational research (e.g. at HFT industry meetings). Extensive preparatory research has given us the necessary contacts, allowed us to discover how deeply we can probe interviewees without intruding on 'trade secrets', and informed our initial data-analysis framework.