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.

Securities exchanges: Subjects and agents of financialization

“…Michie, 1999), political economists have rather focused on the impact that financial liberalization had on exchanges' members (Moran, 1990;Cerny, 1989), the electronification of exchange markets (Zaloom, 2006;Gorham and Singh, 2009), the politics of establishing certain exchanges (Posner, 2009;Lütz, 1998;Lavelle, 2004) or their role as policy actors (Mügge, 2011). Their own role as actors in capital markets has been analyzed only partially (Botzem and Dahl, 2014;Wójcik, 2012), focusing for instance on them creating financial products (Millo, 2007), facilitating high frequency trading (HFT) (MacKenzie et al, 2012), and the fragmentation of equity markets (Castelle et al, 2016). But these accounts have not linked exchanges and their activities to broader processes of financialization.…”

“…Financial liberalization reforms such as May Day in the US (1975), the Big Bang in the UK (1986) or the EU Investment Services Directive (1993) allowed brokers to charge varying commission rates, enabled foreign participation in previously national stock markets and abolished rules requiring orders to be executed solely on exchanges, introducing a great deal of competition into the exchange industry. Exchanges were now suddenly in a marketplace for marketplaces (Castelle et al, 2016). In the face of such pressures, exchanges needed to modernize, become more efficient and customer focused, which is why many demutualized and went public, becoming traded on capital markets themselves.…”

Financialization with Chinese characteristics? Exchanges, control & capital markets in authoritarian capitalism

“…Instead of mere platforms on which market transactions take place, exchanges are powerful actors in their own right who actively organize and shape capital markets (see Ahrne, Aspers, & Brunsson, 2015;Castelle et al, 2016;Petry, 2020;Wójcik, 2012). Rather than investors who are active within a market, exchanges play a much more architectural role for capital markets as they create the infrastructural arrangements that enable the functioning of these markets (on market infrastructures, see Bernards and Campbell-Verduyn, 2019).…”

Practices and meanings of non-professional stock-trading in Taiwan: a case of relational work

“…What is the moral and political economy of the trading algorithm (MacKenzie, 2017)? What social relations are performed by the material structure of an exchange (Castelle, Millo, Beunza, & Lubin, 2016)?…”