Review by David Lee Astley
Not long after lunchtime on 6 May 2010, something strange was quickly becoming apparent on the stock market tickers of Wall Street. At 2:40pm, the market was suddenly down six percent and individual stocks were going berserk. Apple, for example, had gone from $250 to over $100,000 a share. By 3pm, though, much was back to what it was when the traders had been eating their lunches. The “flash crash” of 2010 lasted less than half an hour and is an example of what Donald MacKenzie terms the “unruly materiality” of trading’s large technical systems in his book Trading at the Speed of Light.
A substantial component of these systems and the focus of the book, high-frequency trading (HFT), was quickly pointed to as the source of crash. This is not surprising considering that HFT is estimated to account for at least half of all trading on the world’s markets. The investigation by market officials, however, was unable to come to a conclusion. The speed and ease with which HFT was deemed the culprit of the crash is emblematic of its simplified characterisation as an exceptional and destructive element of the market, a portrayal which the most popular account of HFT, Michael Lewis’ Flash Boys, also often falls into.
There is no doubt that the speed of HFT is unnerving. The market signals which the algorithms respond to went from usually lasting a few seconds before 2010 to as little of 10 millionths of a second in 2015. In 2019, one of MacKenzie’s 337 interviewees relayed that they had heard of another HFT firm that was able to execute a response in 42 nanoseconds, 42 billionths of a second. For somewhat helpful context, the book points out that light travels about a foot in a nanosecond. Nevertheless, Trading at the Speed of Light is a thorough attempt to disentangle the complexities of HFT to offer an historical, sociological and technological account of the incredibly fast market practices captured in the neat acronym.
A key complexity of the abbreviation, and something which MacKenzie admits took him a long time to realise the significance of, is the divide between “making” and “taking” in HFT. The former denotes strategies that seek profit by making rapid and automated offers to market order books, while the latter centres on opportunities to gain from executing against offers on the books. While appearing instinctively somewhat trivial, this split in HFT results in distinct technical, epistemological and even moral orders. On the third, for instance, MacKenzie finds “makers” justify their ultra-fast algorithmic trading on account of providing liquidity to the market, contrasting their approaches with exploitative taking. Conversely, some “takers” present their strategies as a means of enabling price discovery in the market.
These two sets of approaches have also had important ramifications for the astounding acceleration of HFT. Because of the importance of queue position in order books to making strategies, the speed of receiving, processing and transmitting data has been especially crucial to competitiveness for these HFT firms. For taking, the importance of speed has more often followed the sophistication algorithm design, with speed taking precedence when competitors catch up on design. In his exploration of the technicalities of speeding up HFT, MacKenzie is attentive to both the materiality of the small and the large, i.e. what happens inside trading data centres and what happens between them. For the small, he charts how the necessity of speed has pushed HFT technicians closer and closer to the minutiae of computing, shifting focus from positions in datacentres to specialist chips that are able to execute actions without engaging a computer’s CPU. On the large, MacKenzie follows the evolution of circuitous data routes around Manhattan and stock exchange, to the incredibly direct fibre optic cables that bridge trading in Chicago and New York and beyond, and finally to employment of microwave and millimetre wave transmission of market data to satisfy the speed needs of HFT.
Trading at the Speed of Light shows that these developments are far from a simple story of inevitable technological evolution. Alex Pilosov’s haphazard and shoestring construction of a microwave link between data centres in Illinois and New Jersey, which at one point employed antennas on a van parked in a bowling alley carpark, are evidence of this and chime with David Edgerton’s thesis in The Shock of the Old. But these developments also testify to what MacKenzie calls the “tyranny of location” in the Einsteinian world of HFT: as time shrinks the importance of space intensifies. This centrality of location to HFT also offers the opportunity for rent extraction throughout these complex trading systems. This helps explain why, despite its huge volume of trading and the incredible technical efforts involved, HFT is not particularly profitable.
Importantly the impacts of HFT on different market types around the world are far from uniform. For instance, there is little to no HFT in the European sovereign bond markets despite there being much electronic trading, while on both sides of the Atlantic there is domination of HFT in both shares and futures. These differentiations are the result of a multitude of sociological, technological, economic and regulatory factors, including whether HFT firms are able to identify, utilise and profit from relevant market signals. MacKenzie’s historical narrative fascinatingly sets out the courses that were taken and also the alternatives that arose, such as decisions to opt for depersonalised trading platforms in response to backlash from the trading pits. What is central to the history of HFT is the question of gaining access to markets. This importantly rests on the financial benefit for the exchanges themselves, but also offers examples of elite resistance to algorithms that challenge existing formations of power.
Trading at the Speed of Light’s incisive investigation through the lens of material political economy demonstrates that HFT is not some aberration, but a historically and technologically contingent outcome of the most common market impetuses – competition and speed. MacKenzie’s attention to the materiality of markets also offers a riposte to the all too persistent tropes of the uncontrollability and intangibility of financial markets, showing instead that things, places and people determine their form and function. In doing so, we are encouraged to consider how else the huge intellectual, technical and financial efforts that have gone into accelerating HFT could have been alternatively spent.
However, while the book admirably conveys the complexities of HFT and its technical systems to a more general audience, the flow of the text, which is peppered with chapter cross referencing, can become cumbersome, with the overall picture offered by MacKenzie more easily grasped with some retrospection. With distance, I am also left wondering about those who have profited most from HFT, their composition and how they may have put their wealth to use. Considering the prominence of hedge fund capital in recent political upheavals in the UK and US, for example, following the money emanating from HFT may have allowed for a broader understanding of how the practice is reforming our socio-economic worlds.
David Lee Astley is studying science and technology studies, and writes occasionally about culture and politics. His writing can be found here.’