Daniel Beunza

Drilling through the Allegheny mountains: liquidity, materiality and high-frequency trading

In 1999, Carruthers and Stinchcombe provided the classic discussion of ‘the social structure of liquidity’: the institutional arrangements that support markets in which ‘exchange occurs easily and frequently’. Our argument in this paper is that the material aspects of these arrangements – and particularly the materiality of prices – need far closer attention than they normally receive. We develop this argument by highlighting two features of new assemblages that have been created in financial markets since 1999. First, these assemblages give sharp economic significance to spatial location and to physical phenomena such as the speed of light (the physics of these assemblages is Einsteinian, not Newtonian, so to speak). Second, they have provoked fierce controversy focusing on ultra-fast ‘high-frequency trading’, controversy in which issues of materiality are interwoven intimately with questions of legitimacy, particularly of fairness.

Where do electronic markets come from? Regulation and the transformation of financial exchanges

Abstract The practices of high-frequency trading (HFT) are dependent on automated financial markets, especially those produced by securities exchanges electronically interconnected with competing exchanges. How did this infrastructural and organizational state of affairs come to be? Employing the conceptual distinction between fixed-role and switch-role markets, we analyse the discourse surrounding the design and eventual approval of the Securities and Exchange Commission’s Regulation of Exchanges and Alternative Trading Systems (Reg ATS). We find that the disruption of the exchange industry at the hands of automated markets was produced through an interweaving of both technological and political change. This processual redefinition of the ‘exchange’, in addition, may provide a suggestive precedent for understanding contemporary regulatory crises generated by other digital marketplace platforms.

REVIEW ESSAY: Re-imagining markets

The last ten years have unquestionably been a trepidant time for the proponents of performativity. The original idea, developed in 1998 by Michel Callon, entered American economic sociology through the big door with the landmark study of Black-Scholes and option pricing by Donald Mackenzie and Yuval Millo. By suggesting that social actors behave calculatively, by proposing a re-alignment with economists by contesting, in short, the sociological view that networks and institutions capture the essence of what markets are about the proponents of the performativity thesis sparked a fierce controversy within the social sciences. Performativity is now regarded by some as one of the three main branches of economic sociology (Fourcade-Gourinchas 2007), but is also subject to pointed questions from orthodox sociologists. Does performativity, the skeptics ask, apply outside the Alice-in-Wonderland world of Wall Street? Does sociology need one additional word for a concept that, in the end, sounds suspiciously similar to self-fulfilling prophecies? Why would sociologists concern themselves with the mechanics of artifacts . . . at the expense of studying society? The performativists are now responding. In a newly-published volume, Donald MacKenzie, Fabian Muniesa and Lucia Siu advance the controversy with an edited volume titled Do Economists Make Markets? On the Performativity of Economics. From fisheries to strawberries to equity derivatives, the contributions to the book convey the complexity, grandiosity and lurking dangers involved in making the world more similar to economic theory. In a prodigious bookend, Michel Callon joints the debate with a direct call for action: scholars, Callon claims, need to urgently rethink the relationship between the social sciences and the economy. The sociological failure to understand that models shape markets has left society vulnerable to the ambitions of a few brave intellectual entrepreneurs. And yet, Callon adds, something can be done. Understanding the relationship between theory and the economy offers social scientists their own chance to shape markets. Economists, after all, do not have a monopoly over the ability to perform theory. Nothing prevents heterodox social scientists from countering with their own ideas, instruments and artifacts. In a world of technology, Callon claims, social scientists, ‘no longer have to choose between interpreting the world and transforming it’ (1998, p. 352). Just how, the reader might ask, does one go from interpreting the world to transforming it? This essay addresses the question with a critical review of Do Economists Make Markets? Anticipating the gist of the arguments below, my overall assessment of the

La organización de la respuesta: innovación y recuperación en las salas de operaciones financieras del Bajo Manhattan

Resumen es: ?Cual es la base organizativa de la capacidad de recuperacion de una crisis? En este ensayo examinamos una sala de operaciones financieras danada en el a...

From Dissonance to Resonance: Cognitive Interdependence in Quantitative Finance

The article treats quantitative finance sociologically. It is argued that although mathematical modeling dramatically changed the nature of modern finance, it did not eliminate sociality from financial markets. However, the traditional sociological approach to markets, with its focus on personal social ties and networks, should be transformed as well. Anonymous financial models have not replaced social cues; instead, those models are used socially. This means that investment bank traders use formal mathematical models to predict the decisions of competing traders. Moreover, traders use these models as a reflexive tool. This reflexive modeling creates distributed cognition or dissonance, which helps traders to avoid errors and financial losses. However, this mechanism has an implicit, but very dangerous, drawback: by creating cognitive interdependence, it may lead to massive errors and huge losses in an entire market. While the dissonance effect prevents individual errors, the resonance effect gives way to a collective (market) disaster. Two relevant case studies are considered. Both cases refer to anticipated mergers, but while one of the mergers was correctly predicted, the other one was not. Thus, the first case illustrates the bright side of financial models, while the second shows their dark side. The article contributes to the discussion of the new forms of sociality primarily associated with financial models. The study is based on three years of field research in a major investment bank focusing on traders’ everyday practices.

Dopo l'11 settembre: innovazione e ripresa nelle trading room di Wall Street

What is the organizational basis of responsiveness under conditions of crisis? In this essay we examine a trading room that was damaged in the September 11th attack on the World Trade Center (WTC). What did the crisis reveal about the social practices and the technological tools of trading? Drawing on ethnographic field research prior to September 11th, we show how the heterarchical (as opposed to hierarchical) organization of the trading room contributed to innovation on an ongoing basis. Drawing on our subsequent observations in the relocated trading room and focus group discussions with executives in other WTC financial firms, we show that similarly heterarchical features contributed to innovation in response to crisis. Under conditions of radical uncertainty, one cannot know in advance what resources one will need, or even know in advance what might be a resource. Laterally distributed intelligence and a tolerance of multiple registers of valuation and interaction provide generative structures of resourcefulness where the replicative redundancy of contingency planning confronts its limits.