English: in Chicago, Illinois, USA.

English: in Chicago, Illinois, USA. (Photo credit: Wikipedia)

I’m sorry, Dave. I’m afraid I can’t do that.

-The shipboard computer HAL in 2001: A Space Odyssey

For a while, I worked in the Chicago Loop.

I’d always turn to glance at the impressive Board of Trade building with its Art Deco statue of Ceres, the god of agriculture, dominating LaSalle Street as far as Lincoln Park, at which point the street bends slightly westward.

A short walk away, on the other side of the River, lies the Chicago Mercantile Exchange. In 2007 the two merged and became one company. It’s the largest futures and commodities exchange on the planet.

The prices of oil, wheat, corn, cocoa, copper, tin, oil, tantalum … you name it … are largely set on this exchange, along with the fates of millions of primary producers around the world.

I recently learned something fascinating: the blocks around these two exchanges are starting to bristle with microwave dishes. Trading companies want to know what’s happening in the CME servers those few thousandths of a second faster than their competitors relying on copper-cable based internet connections.

Why? Because today the majority of trading is done by computers, without the input of a human being.

The computer decides to buy or sell based on algorithms, and it does it many many times faster than the guys in the mustard yellow jackets can.

Admittedly, these traders don’t exactly go around touting their moral credentials (see earlier post) but a computer can’t even pretend. Non-monetary values are invisible to it. All that triple bottom line stuff? Not in the program. E-trading programs don’t care, don’t even know that a huge spike in the price of corn is going to take food off tables around the globe.

Bad enough that people have to contend with natural disasters, but this has come about because people have willfully taken their hands off the wheel.

It’s the same story on Wall Street – a similar proportion of company stocks are traded electronically. It’s no surprise that institutional investors fail to exercise their voting rights at AGMs: the real-life people in those companies don’t even know what stocks they are holding and what they are selling. That emphasis on quarterly results at all costs, and the harmful short-term thinking that it engenders, is increasingly being done to appease these ‘robot overlords’. Worse, I don’t hear anyone out there with the stomach to seriously challenge the wisdom of this system.

Fact starts to emulate science fiction.

*Update (3 October): New York Times reports that several other jurisdictions are seeking to rein in high-speed trading. No sign on Wall Street or Chicago’s South Loop however. The article also says that 65% of U.S. stock trades that are performed by computers. Here’s the link: Beyond Wall Street, Curbs on High-Speed Trades Proceed (New York Times, 26 September 2012)

Further reading:

  1. marksolock says:

    Reblogged this on Mark Solock Blog.

  2. […] Electronic trading’s ethical vacuum 30 August 2012 […]

  3. […] Electronic trading’s ethical vacuum 30 August 2012 […]

  4. […] Electronic trading’s ethical vacuum 30 August 2012 […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s