Cultures of high-frequency trading: mapping the landscape of algorithmic developments in contemporary financial markets

Abstract

As part of ongoing work to lay a foundation for social studies of high-frequency trading (HFT), this paper introduces the culture(s) of HFT as a sociological problem relating to knowledge and practice. HFT is often discussed as a purely technological development, where all that matters is the speed of allocating, processing and transmitting data. Indeed, the speed at which trades are executed and data transmitted is accelerating, and it is fair to say that algorithms are now the primary interacting agents operating in the financial markets. However, we contend that HFT is first and foremost a cultural phenomenon. More specifically, both individuals and collective agents – such as algorithms – might be considered cultural entities, charged with very different ways of processing information, making sense of it and turning it into knowledge and practice. This raises issues relating to situated knowledge, distributed cognition and action, the assignment of responsibility when regulating high-speed algorithms, their history, organizational structure and, perhaps more fundamentally, their representation.     

Bugs,predations or manipulations? Incompatible epistemic regimes of high-frequency trading

Abstract

Calls for greater transparency as well as corporate and individual accountability have emerged in response to the recent turbulence in financial markets. In the field of high-frequency trading (HFT), suggested solutions have involved a call for increased market information, for example, or better access to the inner workings of algorithmic trading systems. Through a combination of fieldwork conducted in HFT firms and discourse analysis, I show that the problem may not always stem from a lack of information. Instead, my comparative analysis of different market actors (regulators, market analysts and traders) shows that the diverse and complex ways in which they access and construct knowledge out of information in fact lead to what I call different epistemic regimes. An understanding of how epistemic regimes work will enable us to explain not only why the same market event can be viewed as very different things – as market manipulation, predation or error – but also why it is so difficult to arrive at a unified theory or view of HFT. The comparative perspective introduced by the idea of epistemic regimes might also serve as a starting point for the development of a cultural approach to the study of financial markets.     

Nothing Succeeds Like Access? NGO Strategies Towards Multilateral Institutions

Despite a large literature on international nongovernmental organizations (NGOs), we still know relatively little about their nature as strategic actors. This article addresses this gap, arguing that a key determinant of NGOs' strategies towards multilateral institutions in particular is their level of formalization. NGOs' choices over both organizational structure and strategy towards multilateral institutions reflect their level of commitment to being a social movement organization. Some NGOs bureaucratize their organizations and seek insider access to (and influence in) multilateral institutions, while others reject formalization as betraying the social movement network ethos and inviting co-option. Drawing on an original database, this article demonstrates that NGOs adopting formal bureaucratic structures are more likely to engage in insider strategies—i.e. lobby and seek accreditation at multilateral institutions—than those maintaining informal coalitional structures, regardless of these NGOs' budgets, age, or ideology. This finding gives us new insight into the divisions within global civil society and the limited prospects for cooperation between two sets of actors central to emerging forms of global governance.     

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.     

What is an algorithm? Financial regulation in the era of high-frequency trading

Abstract

In response to the flash crashes and market manipulations blamed on high-frequency trading (HFT), algorithms have been brought inside the regulatory perimeter. This paper focuses on the most ambitious regulation directed at the practice: the algorithm-tagging rule in the German High-Frequency Trading Act. Fifteen interviews with stakeholders in the Act’s implementation serve to reconstruct how regulators defined an algorithm and help pose the question of to what extent regulatory definitions and data need accurately to represent financial practices to be useful. Although tentative in its findings, the research suggests that the algorithm-tagging rule may be providing valuable signals in the noise to trade surveillance officers and having virtuous effects on the cultures of trading firms. The conclusion argues that sociologists of finance should adopt a more balanced approach when evaluating regulatory technologies and heed MacKenzie’s 2005 call to open up their black boxes.     

Building sustainable capacity in the public sector: What can be done?

Effective government performance is central to the creation of market-oriented economies, secure and productive populations, and democratic political systems in developing countries. Capacity building to improve public sector performance is thus an important focus of development initiatives. Several implicit assumptions underlie most such efforts: that organizations or training activities are the logical site for capacity-building interventions; that administrative structures and monetary rewards determine organizational and individual performance; that organizations work well when structures and control mechanisms are in place; and that individual performance improves as a result of skill and technology transfer through training activities. Each of these assumptions is called into question by the findings of research carried out in six developing countries and reported in this article. Our studies indicate designing interventions that most constructively address sources of poor performance must follow from an assessment of a relatively broad set of variables, including the action environment in which all such activities take place. We also found that effective public sector performance is more often driven by strong organizational cultures, good management practices, and effective communication networks than it is by rules and regulations or procedures and pay scales. Our case studies further indicate that individual performance is more affected by opportunities for meaningful work, shared professional norms, teamwork, and promotion based on performance rather than it is by training in specific skills. In this article, we describe a framework or conceptual map that emphasizes that training activities, organizational performance and administrative structures are embedded within complex environments that significantly constrain their success and that often account for training or organizational failure. When it was applied in the six case study countries, the framework proved useful in identifying capacity gaps and providing a tool for the strategic design of interventions that are sensitive to the roots of performance deficits. This allows us to conclude that the assumptions underlying many capacity-building initiatives may focus attention on interventions that do not generate the highest payoffs in terms of improved performance.     

Prisoners and escapees: improving the institutional responsibility square in Bangladesh

The article argues that explanations of problematic governance are institutional rather than organizational and have their roots in the deep structures of society. Bangladesh is used as an exemplar for such analysis, deploying the notion of the institutional responsibility square comprising four institutional domains of state, market, community and household. A prior or ‘total institution’ metaphor is used to describe the ways in which different classes are obliged to pursue their livelihoods, entrapped within the problematic social embeddedness of these four institutional domains. The article develops this argument via three themes: permeability between these domains (i.e., blurred moral boundaries between public and private behaviour); problem of legitimation of public institutions, given this permeability; and the incorporated rather than independent characteristics of civil society, thus limiting optimism about its potential to create reform. Nevertheless the article offers a strategic agenda of institutional improvement (i.e., escape from the prison) based on the principles of shifting people's rights from the problematic, uncertain informal sphere towards the formal realm. Copyright © 2000 John Wiley & Sons, Ltd.     

Structure and Strategies: Two Faces of Civic Activism in India

Abstract

This paper explains the success of civic actors in achieving their aims by reference to their organizational structure. Based on a comparison of a religious nationalist movement and a women's movement in South Asia, I argue that organizational structure is closely linked to the success of a social movement. The lack of coordination and collaboration among women's groups in terms of mission and strategy has led to a perception of the overall movement as weak and marginal. The superior coordination of strategy and mission within the religious nationalist movement have allowed it to effectively use its resources to cause great changes in Indian society.     

Hard Lessons from Hard Times: Reconsidering and Reorienting the “Managing Decline” Literature

Does the public administration research from the late 1970s and 1980s on managing decline contain useful lessons for today's Great Recession? Do these studies serve our current research needs? Why has decline continued to be a major focus of research in generic management, but not in public administration? The answers to these questions give some clues as to a possible new, revitalized research agenda for our field. Whereas public administration often viewed organizational decline as a self‐contained set of problems requiring remedial action, generic management and sociology research on decline tended to view the topic as part of organizational phases and life cycles, linking decline to growth, stability, and change. Viewing decline as part of the organizational life cycle encourages researchers to take a longer view of organizations and their management, and thus its orientation is more strategic than reactive. Three areas of decline studies are identified as relevant irrespective of sector: (1) implications of decline for human resources management, (2) effects of decline on organization structure and design, (3) the relation of strategy and decline.     

Bridging the Gap: The Relationship between INGO Activism and Human Rights Indicators

This article explores the tension between the production of “naming and shaming” reports as tools of activism by international nongovernmental organizations (INGOs) and the usage of these reports as cross-national indicators of human rights violations. Because INGOs are strategic actors, their reports are not a reflection of the “true” levels of abuse. Although existing scholarship has raised this issue in relation to bias in cross-national indicators, it has yet to explain the process by which NGOs produce reports. This article exploits subnational variation across domestic and international NGOs within India, showing how the divergence in their reports can be explained by these groups’ organizational structures, probability of success in their chosen issue areas, and target audiences. By explaining how human rights NGOs produce reports, this article concludes with suggestions to ensure that the biases prevalent in a single source of data do not drive the results of future scholarship.     

Rethinking calculation: the popularization of financial trading outside the global centres of finance

Abstract

The paper looks at the popularization of financial trading in Israel. It presents a qualitative analysis of the calculative models and techniques that are promoted by financial trading schools, service firms and books. Broadly, the popularization of trading in this field involves a focus on ‘technical analysis’ (TA) and relies upon a socio-psychological reading of financial charts. Incorporating explicitly non-economic ideas into traders’ calculative logic – including an emic notion of ‘performativity’ – popular TA constitutes an attempt to ‘reverse’ the making of markets: to calculatively trace price formations back to the minds, hearts and arrangement from which they had allegedly sprung as a means of foreseeing their future shape before it fully materializes. Tying the psyche and the market in a calculative loop, popular TA transcends existing social theories of financial calculation. The paper discusses this challenge and its implications for our understanding of the expansion of finance.     

Rethinking the ‘Cold War’ in the Asia‐Pacific*

Abstract

Whereas the Yalta System collapsed and the Cold War ended in the Euro‐Atlantic context, the basic structure of the Cold War remains in the Asia‐Pacific region, and still provides potential sources for future conflicts. This paper reconsiders the regional Cold War and its implications for current international politics in the Asia‐Pacific region. It argues that the relaxation of tensions seen since the late 1980s resembles the 1970s’ détente in the Euro‐Atlantic region, i.e. recognition of a Cold War political status quo, rather than the ‘end of the Cold War’. Along with political and ideological confrontations, significant elements within the Cold War structure in the Asia‐Pacific are regional conflicts among its major players. Their historical correlation within the San Francisco System has been neglected in past studies. The paper suggests that re‐examining the disputes within a multilateral framework may provide a key to a breakthrough in understanding the current status quo.     

Cloth without a weaver: power,emergence and institutions across global value chains

Abstract

In studies of the fragmentation and internationalization of production, most value chain approaches consider the inter-firm balance of power as the critical dynamic in development. With the firm as the primary unit of analysis, research long held out two promises: first, bridging the ‘micro-macro gap’ in development theory, meaning making valid inferences from micro-level actors (firms) to macro-sociological outcomes; and second, reconciling its firm-level organizational approach with institutionalism. This paper argues, first, that the literature is artificially constrained in bridging the micro-macro gap due to its delimited conceptualization of ‘power’, based on the ‘agentic-strategic’ behaviour of firms. It argues for broadening the notion of power to bridge the levels of analysis, based on the concept of ‘emergence’. Second, while institutional critics are correct in criticizing value chain scholarship for its neglect, this paper finds that the effects of institutions are not as consistent or determinative as suggested, and hence it seeks to expand the scope for incorporating institutionalism. These points are illustrated through an intra-industry comparative study of three textile agro-industries in China.     

Changing Planning by Changing Practice: How Water Managers Innovate Through Action

ABSTRACT

In this study, we show how water managers who were not in strategic decision-making positions strategized in order to innovate water management practice. They undertook actions in order to infuse water management with a pragmatic logic that in their view would be better able to handle complexity. They addressed the requirements of an organizational context dominated by rational comprehensive planning as the model for acceptable action and associated forms of organizing that honor formally regulated responsibilities. Existing organizational practices and the logics grounding these were the counterpoint of their strategy, as well as the source on which they drew. Conventional forms of planning and organization were changed from within, through insider action woven into existing organizational process and form. Although acting from a logic that competed with established practices, these managers avoided confrontation and battle on the level of logic. They rather strategized by harnessing existing practices.     

MANAGING IN NETWORK SETTINGS

The focus of this article is on managing networks. A network knowledge base is developed from the authors' studies of city government involvement in economic development, management within rural enterprises and the evaluation of a rural strategic planning project. Other public management network analyses are also incorporated. Management in network settings is not based on central authority and cannot be guided by a single organizational goal as is the case in the classical management approach. Management involves managing flexible structures toward collective efficiency. The ability to manage is related to the internal condition of the manager's primary organization. It involves technical, legal, political and cost dimensions. It requires different capacities, skills and knowledge from that of single organization management. The next steps in the research would include the development of the skills needed, an analysis of the role of organizational power and the operational variables of networks, the issue of network cohesion, and the question of loss of control or difficulty in assessing network accountability.     

Does Strategic Planning Improve Organizational Performance? A Meta‐Analysis

Strategic planning is a widely adopted management approach in contemporary organizations. Underlying its popularity is the assumption that it is a successful practice in public and private organizations that has positive consequences for organizational performance. Nonetheless, strategic planning has been criticized for being overly rational and for inhibiting strategic thinking. This article undertakes a meta‐analysis of 87 correlations from 31 empirical studies and asks, Does strategic planning improve organizational performance? A random‐effects meta‐analysis reveals that strategic planning has a positive, moderate, and significant impact on organizational performance. Meta‐regression analysis suggests that the positive impact of strategic planning on organizational performance is strongest when performance is measured as effectiveness and when strategic planning is measured as formal strategic planning. This impact holds across sectors (private and public) and countries (U.S. and non‐U.S. contexts). Implications for public administration theory, research, and practice are discussed in the conclusion.     

Tutors and Pupils: International Organizations, Central European Elites, and Western Models

In the past decade, political elites in Central and Eastern Europe have often sought to imitate Western organizational and institutional models, while organizations like the EU and NATO have often acted as “institutional tutors” in the region. Using evidence from Hungary and the Czech Republic, this paper demonstrates why imitating Western structures has been both administratively expedient and useful in building political coalitions. It also stresses that the short‐term benefits of doing so are followed by longer‐term costs. The paper answers four questions: How have certain models been held up to CEE elites? Why might some such models be targets for elites to imitate? How does such imitation occur? And what results from imitation? Contrary to expectations that institutional modeling would be merely technocratic and used only yearly in the transformation, the paper's threefold heuristic of templates, thresholds, and adjustments shows that the process is both politically contentious and sustained.     

Understanding Strategic Planning and the Formulation and Implementation of Strategic Plans as a Way of Knowing: The Contributions of Actor-Network Theory

ABSTRACT

This article has two purposes: first, to take seriously the notion of strategic planning as a way of knowing, and second, to argue that actor-network theory provides a particularly apposite method for understanding whether and how strategic planning works in particular circumstances. Pursuit of these purposes also helps illuminate possible contributions of strategic planning to inclusive, participative, and democratic public management. The paper is illustrated with examples from the 1995 and 2007 strategic planning and subsequent implementation efforts of MetroGIS, an organization created to foster widespread sharing of geospatial information primarily among public organizatons serving the Twin Cities metropolitan area of Minnesota, USA, and further, to enhance their individual and collective effectiveness. The Metropolitan Council, the regional government, is the primary sponsor of MetroGIS, which is comprised of over 300 organizational partners across the region. Conclusions are offered about the importance of viewing and studying strategic planning as a way of knowing and as a potential vehicle for inclusive public management in a democratic society.

[A table featuring a complete timeline of the major MetroGIS accomplishments between 1995 and 2008; the controversies, participants, processes, technologies, and artifacts involved; and the outcomes or major consequences resulting from the accomplishment is included as an online supplement on the publisher's website.]     

Exploring Identity Dynamics from a Combined Social Exchange and Social Identity Perspective

The aim of this article is to explore identity dynamics of unit and department leaders in a healthcare setting using both social identity and social exchange theories. In particular, we developed a mediational moderated model in which supervisor trust indirectly influences identification with a subordinate level (i.e., the clinical unit) through its effect on identification with a superordinate level (i.e., the organization as a whole). Furthermore, we predicted and found that this relation is moderated by organizational tenure, contract breach, and the clinical-manager's role (heads of clinical units vs. chairs of departments). We tested our hypotheses with doctors of a large public hospital in northern Italy. A total of 370 doctors completed questionnaires measuring organizational and unit identification, supervisor trust, and contract breach. Results supported our hypotheses: supervisor trust was related to unit identification through its effect on organizational identification. As expected, this relation was stronger for more tenured department chairs, and for those doctors who perceived less contract breach.     

The strategic management challenge: Modernizing local government. Part two

As local government undergoes internal modernization, it faces the challenge of strategic management. This challenge includes the need to coordinate the newly decentralized elements of government; the need for organizational development and cultural change, so that values and behavior within the organization keep pace with structural developments; and the need to manage uncertainty, as local governments face an increasingly competitive and rapidly changing environment. Empirical studies show that strategic management capabilities have not developed evenly across a broad international sample of reform cities. However, the successful program in Christchurch, New Zealand, offers suggestions for other cities.