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The tale of the wave of commercial "ingenuity" in the financial sector, which undeniably played a profound role in blowing up the housing bubble that led to the 2007–8 financial crisis, has become the emblematic story of a financial sector being a little too creative. Concurrent with the development and proliferation of financial products such as collateralized debt obligations, credit default swaps and subprime mortgages, parts of the financial markets have experienced significant, but somewhat less-researched changes in the market infrastructure, from trader-mediated to fully automated markets. Whereas the financial crisis generated a broadly shared distrust in and suspicion towards innovative investment bankers, it seems to be the lack of an intermediary in financial transactions that marks the radical structural shift in as well as provokes worries about so-called algorithmic markets.
In our recent Environment and Planning D: Society and Space paper "Markets, bodies, and rhythms," we study this transformation of financial markets. Specifically, we examine how the "machine room" of financial markets has changed dramatically during the past decade or so (Donald MacKenzie, Karin Knorr Cetina and Caitlin Zaloom have all written beautifully about these changes). Previously, this machine room was constituted by so-called open-outcry trading pits, where traders would be standing physically next to one another, pushing and yelling to make the best deals. This incredibly bodily marketplace was later replaced by large trading rooms in investment banks, where traders would engage with the market via their computers and execute orders by clicking their mouse. Present-day financial markets are, however, best described with reference to algorithmic and high-frequency trading (HFT), where orders are executed by fully automated, pre-programmed algorithms that operate without human intervention and at a speed far beyond human perception.
In the paper, we draw on Henri Lefebvre’s rhythmanalysis as a lens with which to analyse the dynamics of and differences between pit trading and HFT. Lefebvre is interesting, because he wanted to understand the relations between everyday life and capitalism, and he developed his bodily focused rhythmanalysis for that particular purpose. We argue in the paper that Lefebvre’s rhythmanalysis constitutes a valuable analytical tool for understanding financial markets and their everyday life. For example, by foregrounding the role of the body (as a rhythmanalytical metronome), rhythmanalysis is helpful in highlighting that, in spite of seemingly playing an ever-diminishing role in HFT-dominated, computerized financial markets, traders’ bodies actually continue to be tightly linked to markets. Today, however, it is not a matter of traders physically immersing their bodies with the rhythm of the trading pit. Rather, the present-day high-frequency trader is concerned with aligning the bodily rhythms (including rhythms of sleep, eating and even toilet visits) to the algorithms he or she has running in the markets.
Yet Lefebvre’s work also points to a number of other interesting features that we do not discuss in the paper (but analyze elsewhere). For example, Lefebvre’s rhythmanalysis is very much framed as a tool to better understand urban everyday life. And precisely this urban dimension is interesting to further explore in relation to financial markets. It has been argued by "global cities" scholars for many years now that financial markets tend to cluster around particular cities such as London, New York, Hong Kong, etc. That is true if we speak about where people work in the main financial institutions. However, the actual execution of orders in financial markets is no longer taking place in these urban financial hubs but has moved elsewhere. Why? Because the automation of financial markets—that automation of which HFT is the most spectacular illustration—has shifted the place of the activity from the trading pits of the exchanges to the latter’s so-called "matching engines," i.e. those servers that match incoming bids and asks. These matching engines are not located physically in the cities. Rather, they are located in the suburbs. For example, the orders that are sent to the New York Stock Exchange are not processed in New York, but in Mahwah, New Jersey, a smaller suburban locality with around 26,000 inhabitants—i.e. the very contrast to a "global city." Something similar applies to other major exchanges. Our point is not to overemphasize this particular facet of the changing geography of financial markets. What we do suggest, however, is that much more attention needs to be devoted to understanding how relations between cities and financial markets are in fact changing with the rise of automated trading. While Lefebvre was long dead when that type of trading gained prominence, it might be that his work holds some of the keys to understanding what is currently happening in financial markets.
Christian Borch, Kristian Bondo Hansen and Ann-Christina Lange, Copenhagen Business School
