Prof. Jayanth R. Varma’s Financial Markets Blog

A blog on financial markets and their regulation

Sociology of the evolution of electronic trading

Donald MacKenzie has a couple of papers recently analyzing the evolution of electronic trading from a sociology of finance point of view. The first paper describes the emergence of ETNs in the United States beginning with the Island system which became Instinet and was ultimately acquired by Nasdaq. The second paper describes the rise of electronic trading at the Chicago Mercantile Exchange.

I have in the past blogged about MacKenzie’s previous works (here, and here) and find his approach useful. Others have been less impressed – one critic dismissed some of MacKenzie’s previous works as “remarkable close-up studies … without context … all cogs and no car”. MacKenzie gets back at this criticism brilliantly at the end of the Island paper:

… historical change can involve shift in scale. In this paper, we have focussed on a small actor becoming big … However, we could equally have told a story of big actors becoming small … NYSE was a car, and has become a cog. Island was a cog that became a car … Scales are indeed not stable, and cogs – and their histories – matter.

I knew most of the facts about Island from Scott Patterson’s fascinating book on Dark Pools (subtitled “High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System”). Still, I learned a lot from MacKenzie’s paper – the theoretical framework (particularly the idea of bricolage in the process of financial innovation) is quite valuable. I learned less from the paper on the CME, though, in this case, many of the facts were new to me.

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