Work and Automation in Financial Trading
Since the May 2010 Flash Crash there has been much interest in algorithmic and high frequency trading. In particular, a Foresight Review was commissioned by the UK Government to investigate the future of computer trading in financial markets. I’ve been reading through their working papers and driver reviews, and - while there is clearly some fantastic research being done in this area - I wonder if much of it is making a classic mistake regarding automation. This may sound counter intuitive but Automated systems do not run themselves.
A fairly well known paper in the control systems literature, Bainbridge’s “Ironies of Automation” points out that automated systems require human beings for supervision, adjustment, maintenance, expansion and improvement. Automated systems are heavily reliant upon human work, and so while such systems will make some forms of labour redundant, new forms of labour often emerge around them (there may well be fewer people needed now, but that is not the point). Few systems are ever left running without some form of supervision or modification for more than a short time.
There may be fewer human traders than ever, but it is very likely that new roles and new responsibilities are being created. As Bainbridge points out, systems engineers often fail to understand that their systems will almost inevitably require human intervention, and therefore support for those interventions is lacking. I think we are in danger of this happening in automated trading. I think the Foresight Review is making four or maybe five key mistakes:
- It discusses the markets in structural terms focusing on trading processes. This kind of modelling is important but does not present the full picture. Firstly, if people are no longer required for bureaucratic operations but to supervise, adjust, maintain etc. then it is hard to represent them within a process. Secondly, new work may be emerging beyond where the boundaries of the market structure are currently being drawn. For example, datacentre and network management, software development, and strategic planning may no longer be beyond the scope of the problem.
- Too much emphasis is placed on the Flash Crash and the general possibility that huge losses can be made in minutes. Certainly the Flash Crash woke many people up to the problems in this area, but I think too much emphasis is now being placed on problems that occur at speeds faster than anyone can react. Essentially speed is being used as a way to dismiss human factors.
- It discusses the sociology of the markets, but this focuses purely on the social relations between traders that are being lost rather than reconfigured or are emerging. Technology is being treated as something that replaces social relations.
- The review is focusing on the dependability of financial markets, but not on dependability from the point of view of organisations operating in this market. I think both perspectives are important. As it stands, I think the market view leads to too much emphasis being placed on market level regulation.
- Finally, a somewhat academic problem is that systems theory is drawn upon in parts of the report, and yet much of systems theory - if you trace it back - is premised on the idea that financial systems (and biological systems) are stable. Surely the point of the review is that this is not the case (at least for financial systems).
I find it odd that the review draws extensively from sociologists - in particular the work of Diane Vaughan - and yet no recommendation seems to be made that there is a need for social studies to be undertaken in this area in the future. Vaughan’s work is used to justify the creation of a market simulator - something that I don’t think is a bad idea - but something that is very different to how Vaughan has influenced researchers at NASA (see for example the paper from David Woods and Jennifer Watts-Perotti that appeared in the Diagnostic Work issue of the CSCW Journal I co-edited a few years ago).
So - research I’m trying to do is figure out what new forms of work are emerging in this area and what new skills are required.
