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Journal of Cultural Economy

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Introducing a cultural approach to technology infinancial markets

Carolyn Hardin & Adam Richard Rottinghaus

To cite this article: Carolyn Hardin & Adam Richard Rottinghaus (2015) Introducing a culturalapproach to technology in financial markets, Journal of Cultural Economy, 8:5, 547-563, DOI:10.1080/17530350.2014.993683

To link to this article: http://dx.doi.org/10.1080/17530350.2014.993683

Published online: 13 Feb 2015.

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INTRODUCING A CULTURAL APPROACHTO TECHNOLOGY IN FINANCIAL MARKETS

Carolyn Hardin and Adam Richard Rottinghaus

Received 1 May 2014; Accepted 19 Nov 2014

This paper offers a cultural approach to technology as an alternative to what we see as a

prevailing treatment of technology in social studies of finance. This latter treatment, which we

refer to as the ‘tools of coordination’ approach, sees technologies as mediators of market behavior

that promote standardization and coordination. While this may be one important function of

some technologies, taking a cultural approach to studying financial technologies highlights other

important aspects of financial activity – in particular profit making. Instead of focusing primarily

on how technologies coordinate market behavior, we focus on how technologies enable profit-

making practices, in particular arbitrage. In two different case studies, one examining arbitrage

between stock exchanges during the late nineteenth century and the other focusing on

contemporary high-frequency trading, we employ the cultural approach to technology. We find

that while new technologies do eventually promote greater coordination in financial markets, they

are initially deployed for the opposite purpose, to produce what we call network differentials that

allow some to profit at the expense of others.

KEYWORDS: culture; technology; finance; markets; social studies of finance; cultural studies

In the wake of the 2008–2009 financial crisis, examinations of financial markets havebecome increasingly popular in many academic disciplines including, geography, culturalstudies, American Studies, and anthropology. There has also been a proliferation ofpopular business books and periodical columns that have examined financial economicsfor lay audiences. The most recent headline grabbing book is Michael Lewis’s Flash Boys,which brings a popular readership to some of the very issues we tackle in this paper – thecreation of unequal market relationships that are made possible through informationand communication technologies. However, pioneering scholars in economic sociology,and specifically the subfield of ‘social studies of finance (SFF),’ have a more sustainedhistory of engaging with financial models and theories, market behaviors, and the roleof technologies in market phenomena (Beunza et al. 2006, p. 721). In this paper, weoffer an alternative approach to what we see as a prevailing treatment of technologyin SFF.

Instead of focusing primarily on how technologies coordinate market behavior, wefocus on how technologies enable profit-making practices – in particular, arbitrage.Attention to profit-making practices reveals that these technologies are oriented in thefirst instance to the production of market differentials rather than market coordination. Weare not arguing that coordination is not important, only that it is better thought of as anoutcome of profit-enabling technologies diffusing throughout a financial market. In many

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cases the coordination that accompanies technological diffusion is clearly not the drivinggoal because the diffusion is a problem for traders in positions of relative advantage. At acertain point, coordination neutralizes profit-making differentials. In response, newdifferentials in temporal and spatial organization must be (re)created through informationand communication technologies in order to generate profits through arbitrage.

Sociologists studying finance are responsible for a proliferation of work thatexamines the social and material construction of financial markets. Much of this workhas focused explicitly on the role of information and communication technologies(Muniesa et al. 2007, Knorr Cetina & Bruegger 2002, Knorr Cetina & Preda 2007, Pardo-Guerra 2010, Preda 2006). In general, this work characterizes communication technologies,such as computers today or stock tickers a century ago, as intervening mediators ofmarket behavior operating to achieve various forms of standardization and coordination.We identify this characterization of technologies as a ‘tools of coordination’ approach. Thisapproach has resulted in an overemphasis on coordination as the means and end oftechnology in financial markets without fully considering the multiple ways in whichtechnologies constitute the epistemological and material conditions of financial practices.We argue that taking a cultural approach to studying financial technologies highlightsimportant aspects of financial activity beyond coordination, in particular, profit making.

The ‘tools of coordination’ approach derives in part, we believe, from a concessionthat coordination is the ultimate goal of technological assemblages in financial marketsand thus from an acceptance of dominant discourses within financial economics. PhilipMirowski has recently declared that ‘sociologists of finance all too often repeat andrecapitulate economists own stories … never challenging their stories. They don’t reportexactly what they do; they report what they say they do’ (Mirowski 2013b). FollowingMirowski’s injunction to ‘look at what they actually do, and compare it to what they saythey do’ (Mirowski 2013a), our critique of the ‘tools of coordination’ approach begins byputting critical distance between the stories of economists and the analysis of financialmarkets by raising questions of power and inequality.

Many professional and academic discourses about financial markets highlightcoordination, in particular the efficient allocation of capital and risk, and production of‘fair’ prices across markets (Fama 1970). We argue that a cultural approach to technologycan be a corrective to the characterization of technologies as simply coordinating tools.The ‘tools of coordination’ approach assumes an implicit neutrality of financial technolo-gies as tools that create equal potential for action among all market participants. A culturalapproach reveals that technologies are constitutive of financial practices, at the same timethat they produce uneven relations of power, which manifest as economic advantagesenabling certain forms of financial profit making. It is crucial to point out that relations ofpower within financial markets are not necessarily only relations of economic advantage.1

However, the ‘tools of coordination’ approach cannot account for how differenttechnologies play constitutive roles in the production of power as economic advantage,let alone the other relations of power that technologies enable and constrain in financialmarkets.

Our reexamination of emerging technologies in financial markets from a culturalperspective reveals that they are not simply tools employed in the service of coordination,but are the harbingers of power and profit. Computers, fiber optic cables, automatedtrading software, even the telegraph and telephone in earlier times, offer some tradersand companies competitive advantages in the marketplace and not others. A cultural

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approach to technologies in financial markets exposes multiple forms of mediation andmultiple functionalities within the market. Technologies enable and constrain differenttemporal and spatial configurations within a market that create inequalities in informationand access. Arbitrage profits are generated through the production of differential andunequal temporal–spatial relationships by communication technologies within thefinancial markets.

This paper proceeds in the following manner. First, we offer a critique of the ‘tools ofcoordination’ approach to technology prevalent in the SSF literature. Second, we brieflyoutline a cultural approach to technology as a productive alternative for cultural and socialanalyses of financial markets. Finally, we demonstrate the usefulness of a cultural approachto technology with two brief case studies that show how communication technologiescreated differential relationships in time and space for competitive advantage and profit –not for increased market coordination. The two case studies focus on early arbitragetrading between exchanges known as shunting, and contemporary high-frequency trading(HFT) arbitrage.

Tools of Coordination

The ‘tools of coordination’ approach we have identified characterizes technologiesas intervening mediators of market behavior operating to achieve various forms ofstandardization and coordination. In this approach, technologies are conceived of asconstituent elements of financial ‘agencements’ that nonetheless contribute unproblema-tically to the taken-for-granted goal of rational calculation and price standardization, i.e.,market coordination (Callon 2008). In his influential essay, Michel Callon (1998) establisheshis term ‘calculative agency.’ He writes, ‘the market is a process in which calculativeagencies oppose one another, without resorting to physical violence, to reach anacceptable compromise’ (p. 3). Calculative agency is not designated as singularly humanand cannot be separated from the ‘form of the network’ (p. 9). However, Callon derivesthis term from a very specific definition of the market given by Guesnerie (1996): a marketis ‘a coordination device in which: (a) the agents pursue their own interests…; (b) theagents generally have divergent interests, which lead them to engage in (c) transactionswhich resolve the conflict by defining a price’ (p. 3). Callon’s concepts of calculativeagency and performativity continue to influence work in SSF by providing a commonframework for understanding markets as coordination devices. For example, in an article inSocial Studies of Science, Alex Preda (2006) draws on the notion of calculative agency andwrites, ‘Technology standardizes financial data, allowing economic actors to rationalizetheir future courses of action’ (p. 753). Preda’s study of the emergence of the stock ticker,based on such an understanding of technology, attends to the ways that the tickerstandardized and rationalized financial activity (Preda 2006).

The notion of markets as coordination devices also adheres in the performativitythesis. This thesis suggests that markets perform economic models and theories intoactuality, truth, or ‘at least … a high degree of verisimilitude’ (MacKenzie et al. 2007).Although MacKenzie (2006) and Callon (2008), two proponents of the performativitythesis, include the possibility that performativity can be negative or fail, the overall effectof this thesis is to take for granted that the goal of financial activity is to bring financialmarkets into line with the rational, efficient models of financial theory. As we have alreadyindicated, we believe, with Mirowski, that this cedes too much to dominant discourses of

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financial economics. It assumes that financial models are idealized visions of what marketsshould be. While traders often use financial models and theories, we would argue againstthe idea that the most important function of financial activity is reifying efficient and fairmarkets. Financial trading has long been a domain of exceptional profit making. As weargue in the next section, profit is not derived from perfect coordination, but the absenceof it. In other words, ‘inefficiency’ is just another word for ‘arbitrage opportunity.’ There is,at the very least, an important tension between the ‘performativity’ of financial marketsand other functions such as profit making.

The particular way that some work in SSF addresses materiality as an adjunct tosocial, ‘performative’ processes results in a surprisingly consistent treatment of technology.As a direct consequence of the idea that the goal of markets is to perform rationalfinancial models, technologies deployed in financial markets are understood as ‘tools ofcoordination.’ Preda (2006) makes precisely this claim, ‘Performativity designates the statusof technology (including economic theories) as a set of intervention tools in markettransactions’ (p. 755).

This ‘tools of coordination’ approach to technology in financial markets necessarilyconstrains the directions and conclusions of those analyses. For example, Knorr Cetina andPreda (2007) present an image of financial markets as fully coordinated. In their account,new scoping technologies have resulted in ‘full mediatization’ (p. 117) of financial markets,particularly electronic currency markets. They write, ‘price and volume uncertainties, as wellas delays in execution and coordination problems between technologies, have beenvirtually eliminated with computerized scopic systems’ (p. 124). Knorr Cetina and Predaattempt to describe a complex process in which the market is constituted by humaninteraction with communication technologies that creates both the conditions of action andthe action simultaneously. While they endeavor to open up a broader understandingof technologies than just ‘tools of coordination,’ they end up falling back into thatcharacterization. When they write, ‘Technologies are not simply facilitating tools, but meansof articulating, exhibiting and ordering the properties of thesemarkets,’ they offer processesof articulating, exhibiting, and ordering as examples of technological functions beyondfacilitating tools (Knorr Cetina and Preda 2007, p. 117). However, given their claim thatfinancial markets are now in a state of ‘full mediatization,’ they have reduced articulating,exhibiting, and ordering to simply mechanisms of coordination, rather than processesthrough which power – particularly in the form of economic advantage – is asserted.

The idea that technologies produce coordination in financial markets is even evidentin work that looks specifically at profit-making techniques, such as Beunza and Stark’s(2004) influential study of an arbitrage trading room. Beunza and Stark (2004) focus on thephysical and technological arrangements that allow traders on different desks to worktogether, i.e., coordinate, for the purposes of finding arbitrage opportunities. They call thisform of sociality ‘distributed calculation’ and argue that it connects individual traders aswell as the ‘socio-technical networks of tangible tools that include computer programs,screens, dials, robots, telephones, mirrors, cable connections, etc.’ (p. 389). Their study ofarbitrage, perhaps the most important form of financial profit making, offers no analysis ofthe uneven relations between different firms that produce profit and focuses instead onthe interfirm coordination necessary for finding arbitrage opportunities.

The assumption that coordination is the basic goal and function of financial marketsand the technologies that compose them forecloses important avenues of analysis. It isprecisely because coordination is both the assumption and conclusion regarding the role

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of communication technologies in financial markets that we call this an ‘approach’ to thestudy of technology. A cultural approach to analyzing financial technologies holds no suchassumptions and can reveal new insights about how markets function and how power isunevenly constituted within them through technologies.

A Cultural Approach to Technology

A cultural approach to technology, at the most foundational level, sees culture andtechnology not as distinct categories or forces shaping the world, but as mutuallyconstitutive forces shaping the shared reality people inhabit. The intellectual roots of thisapproach primarily emerge out of the cultural studies tradition as it was developed inBirmingham, UK at the Centre for Contemporary Cultural Studies (Hall 1990, Grossberg2010), but it also shares great affinity with the work of Harold Adams Innis (2004, 2008)and James Carey (1983, 1989, 2005, Carey & Quirk 1970). Above all, this approach seesrelationships between culture and technology as multiple and historically contingent tospecific political, economic, and social conjunctures, rather than singular and universal. Itthen theorizes that power can account for the contingency of those relationships.

If the relationships between technology and culture are multiple and contingent wemust first recognize that technologies, like cultural practices, are polysemic – technologymeans different things to different people. Jennifer Slack and Greg Wise note in Cultureand Technology: a Primer:

For many people, technology connotes progress: they encounter the world withenthusiasm, participating in a belief that new technologies make our lives better. Forothers, technology connotes economic hardship: they encounter the word with dread,believing that technology refers to the expensive things in life they would like butcannot afford, or the loss of a job. (Slack & Wise 2005, p. 99)

This is a crucial component for moving away from the universal and singular ‘tools ofcoordination’ characterization of technology. As we will demonstrate later, emergingtechnologies such as communications infrastructures and increasingly sophisticatedtrading software and algorithms literally mean profits for some and losses for others. Assuch, any attempt to identify a universal meaning of technologies in financial markets islikely to offer a dominant definition as the universal definition. In doing so, the ability toexamine structures of power is considerably obscured given that dominant under-standings are typically dominant because of the privileged positions they occupy withinexisting structures of power.

Another problem related to taking a singular view of technology is the tendency toreduce the complexity of technology to merely a tool and ignore its epistemologicalcapacities. Conceptualizing technology as a tool is part of what Slack and Wise call the‘received view of technology’ (2005). The received view of technology places technologyat the center of social and cultural action and sees it as the causal force of change. Theywrite, ‘Technology is … the central character and actor in our social drama, an end as wellas a means’ (Slack & Wise 2005, p. 3). The received view of technology often appears innarratives about technological change in which the widespread adoption of stone,industrial or information tools become the defining characteristic of culture for each age.The stories often wrongly characterize technologies as neutral tools that are good or baddepending on how people use them. Such stories also hold up a separation between

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culture and technology that categorizes them as distinct entities. In doing so, descriptionsof technological change often lack the specificity of where and how technologies emergein different contexts. Further, such stories assume a uniformity of technological meaningand use, as well as uniform processes of technological change.

Instead, Slack and Wise conceptualize the relationships between technology andculture as historically contingent and mutually constitutive arrangements betweenmaterials, meanings, and cultural practices. ‘Cultural Studies of technology argue thattechnologies occupy sites of struggle over meanings and power and that they bothreinforce and undermine structures of inequality’ (Slack & Wise 2005, p. 2). A culturalapproach to technology therefore integrates questions of power by arguing thattechnologies are never simply neutral tools subject to the value systems of those whouse them. To combat the categorical distinctions between ‘culture’ and ‘technology’ theyoffer the concept of ‘technological culture’ (Slack & Wise 2005, p. 5) or as others in theirwake have dubbed, ‘technoculture’ (Balsamo 2011). Drawing from Raymond Williams(1983), they argue culture in this case refers to ‘a whole way of life,’ or ‘the processwhereby tradition is reconfigured in historical conditions of everyday life and everydaychange’ (Slack & Wise 2005, p. 4). A cultural approach to technology offers a perspectivethat imagines technology as integral to cultural practices and meanings rather than a forceunilaterally acting upon them.

Somewhat resembling the idea of the socio-technical assemblage in Actor-NetworkTheory utilized (and more recently critiqued) in certain studies of financial markets (Callon1998, Preda 2006, Pardo-Guerra 2010, Erturk et al. 2013), a cultural approach is moreconcerned with the contingency of power relationships; the production, reproduction, andtransformation of those relationships; and the rejection of any tendency to essentialize thedistinct categorization of ‘technology’ or ‘culture.’ It insists that neither technology, norculture, can be isolated as causally deterministic forces of change. ‘To insist that theinterplay is contingent is to recognize that culture (or technology) is not a set of stable,unchanging, and fixed categories or components, but rather a set of dynamic, changingand interrelated connections or relationships’ (Slack & Wise 2005, p. 116). A culturalapproach to technology is not as concerned with assigning agency to technology orculture (or society) as it is with analyzing how the shifting arrangements between peopleand technologies are also relationships of meaning, materials, and cultural practices thatreproduce, maintain, and transform relationships of power.

In this way, using a cultural approach to analyze technologies in financial marketsshares more with Foucauldian and Marxist analyses, than with SSF. In fact, the culturalapproach has theoretical roots in Foucault and Marx (Williams 1973, Hall 1985). While allthree critical approaches maintain that power relationships are never neutral, cultural,Foucauldian, and Marxist approaches all rely on different conceptions of power.Foucauldian scholars often focus on finance as a mode of governmentality. For example,Paul Langley (2008) draws on Foucault’s definition of neoliberalism to argue thatindividuals are now required to care for the self through ‘everyday’ financial relationshipsof investing and borrowing. Everyday financial activities such as retirement investingconstitute an ‘individualization of responsibility and risk’ that shifts responsibility forwelfare from governments to individuals with unsurprising negative impacts (reducedretirement funds) for those individuals (p. 82). As a form of social and economic control,governmentality requires that subjects internalize dominant structures of power. Incontrast, Marxist scholars draw attention to how contemporary finance capitalism has

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developed increasingly sophisticated ways of securing, controlling, and exploiting labor.Power in finance continues to be viewed as the power of capitalist exploitation. Forexample, Costas Lapavitsas (2009) suggests that finance is the realm of a new andincreasingly important form of exploitation he calls ‘financial expropriation’ (p. 114).Financial expropriation is ‘extracting financial profit directly out of the personal income ofworkers and others’ through borrowing (especially for housing), investing, and insurance(p. 115). Financial firms cull profits from interactions with individuals who must enterfinancial markets for these purposes. Rather than exclusively a mechanism of internalizinginstitutional authority, or a mechanism of exploitation, a cultural approach sees multiplerelationships of power contingently articulating social, economic, and political conditions.

A cultural approach to financial technologies thus provides a different perspective tohow relationships of power produce and distribute profits. Thus, it draws on a body ofresearch that sees technological culture as a result of contingent articulations of power.Raymond William’s groundbreaking Television: Technology and Cultural Form (1973) is anearly example of this approach that continues to inform debates about technology andculture to this day (Packer & Oswald 2010, Packer & Wiley 2013). Doing Cultural Studies: TheStory of the Sony Walkman (Du Gay et al. 1997) refined the analytic of a ‘circuit of culture’that had been a component of work by Stuart Hall (1985, 1993) and is a good introductionto thinking through the contingency of culture, technology, the economic circuit, andglobal capitalism. Other relevant works to the study of technology and financial marketstake a cultural approach to computers (Robins & Webster 1999, Armitage & Roberts 2002,Friedman 2005, Kelty 2008) and networks (Galloway 2004). Sarah Sharma’s recent book, Inthe Meantime (2014) develops a framework for analyzing cultural politics, mediatechnologies, and temporality that we will draw upon in our case studies. Collectivelythis body of work shares a consistent attention to the constitutive relationship betweentechnology and culture. They never lose sight of the shifting terrain of politics, economics,and culture in which technologies emerge and are embedded. We now turn to our casestudies to demonstrate the value of such an approach.

Case Studies

In this section, we present two case studies that examine financial technologies fromthe perspective of the cultural approach to technology outlined above. The key to thesecase studies is the concept of network differentials. Network differentials are relativedifferences in spatial and temporal relationships between market participants thatproduce competitive advantage for some at the expense of others. We will highlightdifferentials in transaction speeds and access to information and trading networks todemonstrate how arbitrage produces profit. We offer this analytic by drawing upon thework of Sarah Sharma. In the Meantime (Sharma 2014) offers a critique of ‘speed theory’and other discourses that claim the world is getting faster because of digital commun-ication technologies. Rather than seeing a uniform and universal acceleration of the globalorder, she argues that not everyone shares the same temporality, that time is a form ofsocial control, and that our time is always entangled with the time of others (Sharma 2014,p. 25). We follow her framework to analyze the speed at which financial markets operate inorder to, ‘destabilize and contest a uniform pace of life, revealing instead how theexplanatory power of speed works to produce differential time and exacerbate structuralinequalities experienced at the level of time’ (Sharma 2014, p. 15).

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For us, network differentials are an important way in which the cultural practices offinancial trading articulate with particular technologies. Arbitrage, which is a central anduniquely financial form of profit making, relies on differentials to produce profit. Networkdifferentials are not new phenomena. They have been the key to successful arbitrage aslong as it has existed. Arbitrage is the act of buying the same or similar assets in onemarket and selling them in another to profit from uneven prices between those markets. Itis also a self-negating practice. Buying and selling goods with different prices has theeffect, through the dynamics of supply and demand, of bringing those prices into parity.2

If as the ‘tools of coordination’ approach argues, standardization and coordination have infact been the raison de’tre of technologies in financial markets, why has arbitrage, whichrelies on differentials, been such a persistent profit mechanism through centuries oftechnological change? From a ‘tools of coordination’ approach, especially in the work ofKnorr Cetina and Preda (2007), who argue that financial currency markets are now in astate of ‘full mediatization,’ arbitrage opportunities should have disappeared, or at aminimum be sporadic anomalies. Against this view, we argue technologies serve multiplefunctions in financial markets and create multiple temporalities. We focus on differentialsin order to sharply contrast the assumption that coordination and standardization are thedominant effects of technologies.

Arbitrage profits are only available to the arbitrageurs with differential access tomarkets and market information, and differential speed at which to carry out markettransactions. Successful arbitrageurs configure networks within financial market assem-blages that produce advantageous differentials. These differentials secure better accessand faster transaction times for traders. The relative advantage allows traders to executetransactions before prices converge. This advantage would be inconsequential if it werenot in relation to slower arbitrageurs. If everyone moved at the same speed, arbitragewould be impossible, but speed is a relative measure of temporal and spatial movement,not synonymous with fast (Sharma 2011, 2014). Arbitrage has winners and losers, andnetwork differentials in speed determine who’s who. We want to be clear that arbitrage isnot about an absolute advantage of being the fastest, but about relative advantagesbased on differences in speed.

In the sixteenth century, as today, arbitrageurs who configured networks ofcorrespondents across geographic space were able to communicate faster than thosewho did not have direct access to communication networks. At that time, arbitrage couldtheoretically be carried out by a single merchant, buying and selling bills of exchange andspecie and transporting them between different locations, such as London, Amsterdam,and Paris (Poitras 2009). The temporal and spatial organization of the market was suchthat this form of arbitrage was difficult for individual merchants because the length oftime it took to transport goods, bills, and messages negated the market advantage.Therefore, successful arbitrage in this period was only done by bankers with correspon-dents in multiple locations:

Due to the slowness of communications, market conditions could change before bills ofexchange reached their destination and the re-exchange could be completed. As late asthe 16th century, only the Italian merchant-bankers, the Fuggers of Augsburg, and a fewother houses with correspondents in all banking centres were able to engage actively inarbitrage. (Poitras 2009, p. 11)

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These bankers could carry out transactions at the speed it took messengers tocommunicate prices between banking houses, since their multiple locations allowedonsite clearance of bill contracts or specie debts. These bankers both created andoccupied privileged positions within the network that gave them a competitive advantagein arbitrage.

Our case studies focus not on particular technologies or the increasing standard-ization of markets, but instead on specific network differentials. These examplesdemonstrate the way that the culture of financial trading intersects with technologies toproduce uneven relations of power and profit in space and time.

Shunting

As we have already indicated, not all technologies perform the same functions infinancial markets. According to Preda (2006) the stock ticker was the original standard-izing, representational technology for financial price data. He argues that tickers offeredpublic price data to investors in the context of unreliable price quotation via personalletter or newspaper in the mid-nineteenth century US Public data on tickers providedinvestors more timely and certain information regarding stocks and bonds they wished topurchase or sell. However, the ticker was also considered too slow and risky of atechnology for the purposes of arbitraging shares between stock exchanges in Boston andNew York (Michie 1987). This practice, known as shunting, relied on privileged access tothe even ‘newer’ technology of the telephone.

The telephone allowed well-connected brokers to identify differences in prices withwhat was considered at the time to be near-instantaneous speed. Henry Crosby Emery(1896) describes shunting in this way:

Private wires between the cities, telephones in the exchanges, and operators quick totranslate and transmit the signals of the brokers on the floor, constituted an effectivemachinery for operations of a very interesting kind. By means of these devices the sameman was practically trading in Boston and in New York at the same time. A change inprice in either place was known by the broker on the floor of the other within less thanthirty seconds. This was trade reduced to its finest point. (p. 139)

Brokers often formed teams between two exchanges, with one buying shares on theirhome exchange and the other selling short on his, and then using slower transporttechnologies to move physical shares of stock for settlement at a later time. The jointaccount arbitrage teams, connected via telephone, produced advantageous networkdifferentials over other would be individual arbitrageurs who relied on ticker data toidentify arbitrage opportunities and then cabled or even phoned orders into brokers oneach exchange. The telephone and the ticker were thus articulated within the assemblageof financial markets in very different ways. The ticker standardized price data for publicconsumption, but the telephone played the key role in advantageous network differentialsfor successful arbitrageurs. Access to the telephone wires was also differentially availableonly to brokers who actually owned a seat on a given exchange. Independent brokers whodid not own seats on the exchange did not have access to exchange phone lines and thuscould not hope to perform arbitrage at the same advantageous speed as exchangemembers.

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Shunting was not limited to domestic markets. Transatlantic shunting occurredregularly but because transatlantic telephone lines were not laid until the mid-twentiethcentury, it relied on the telegraph (Weinstein 1931). Transatlantic shunting highlights thefact that it is network differentials that produce arbitrage profit, not absolute speed ofcommunication technologies deployed in the service of financial trading. Arbitragebetween New York and London relied on the slower technology of telegraphy, but itstill required advantageous network differentials to be successful. In this case, thosedifferentials were produced by the physical location of privileged arbitrageurs withinexchange buildings. An extended quote from Weinstein (1931) illustrates the necessaryconfiguration of the successful arbitrageurs’ networks. Again, an individual arbitrageurphoning or cabling orders to his broker would be at a hopeless disadvantage to the brokerlocated at the ‘arbitrage rail.’

The New York Stock Exchange had a special arbitrage department on one side of theexchange, which was railed off from the rest of the floor. The arbitrageurs were notpermitted to trade on the floor of the exchange, but this was no handicap to theiroperations. From their position at the rail, they were connected with the offices of thecable companies on the lower floor of the building by pneumatic tubes, through whichthey sent their cable orders on the other side of the Atlantic. It took them approximatelythree minutes to complete a transaction of both purchase and sale between the NewYork Stock Exchange and the London market. (Weinstein 1931, p. 14)

According to Emery (1896), domestic and transatlantic shunting with the use of thetelephone and telegraph had a standardizing effect on share prices. Arbitrage betweenexchanges, rather than the mode of price representation, brought prices into paritythrough the dynamics of supply and demand. This suggests that it was financial profitmaking through arbitrage – not just the technologies – that was the primary force of pricestandardization in the late nineteenth and early twentieth centuries. Despite itsadvantageous effects, shunting in domestic markets was effectively banned by the NewYork Stock Exchange (NYSE) in 1898 (Michie 1987). The reason appears to have been thatbrokers who assisted one another with arbitrage on two exchanges did not charge eachother commissions but instead ‘shared the costs incurred, dividing any profits or lossesresulting’ (Michie 1987, p. 201). The Governing Committee of the NYSE tried severalstrategies to eradicate the uneven network differential that allowed some arbitrageurs toprofit over others. They eventually settled on a ‘prohibition on sending continuousquotations’ from the floor of the exchange via telephone, which effectively curtaileddomestic arbitrage by brokers who then had to rely on the slower, riskier, technology ofthe ticker (Michie 1987).

The examples of domestic and transatlantic shunting demonstrate the importanceof communication technologies as constituent elements of advantageous networkdifferentials for producing arbitrage profits. Our next case study highlights theconsequences of uneven temporal and spatial relations made possible through commun-ication technologies. Far from coordinating, technologically produced network differentialscan cause markets to break down, as they did in the 2010 Flash Crash. We alsodemonstrate that while the eventual diffusion of faster communication technologies mayincrease market coordination, it simultaneously poses a significant problem for thecreation of profitable network differentials.

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High-Frequency Trading

Our second case study again examines the production of financial profits throughnetwork differentials, but further emphasizes that the uneven temporality and spatiality offinancial markets are material and technical. As opposed to the notion of markets existingas fully mediatized lifeworlds unfolding in smooth continuous time, even fully electronicfinancial markets are battlegrounds where multiple speeds collide in the war for profit. Tothat end, we take up the hot topic of HFT. Between 2008 and 2011, nearly two-thirds of USstock volume was executed by high-frequency traders (Phillips 2013). Although thatnumber has since fallen, something we will soon address, it is obvious that HFT is a crucialaspect of contemporary financial trading.

Many forms of HFT rely on arbitrage strategies, including latency arbitrage. Tradingin financial markets generally causes prices to change. A large sell order for a stockincreases supply and thus decreases price. Latency arbitrage anticipates these changesbefore the trade actually reaches a central electronic clearing house and a new price iscalculated and distributed electronically (Gongloff 2013). Arbitrageurs can sell short at thecurrent price knowing that once the new price is calculated, they can buy the stocks at thenew lower price. Latency arbitrage guarantees a profit to those arbitrageurs who are ableto, in effect, see the future, to know what the price will be fractions of a second before theprice actually changes.

Like shunting, forms of HFT arbitrage require advantageous network differentials. Inparticular, advantages of speed are achieved through material, spatial network configura-tions in the form of the shortest possible physical connections between exchanges. AsMacKenzie et al. (2012) point out, ‘high-frequency trading firms rent space for theircomputer servers in the same building as an exchange’s,’ a practice known as co-location(p. 286). One particular high-frequency trader even commissioned a new fiber optic cablebetween Chicago and New York for the purposes of arbitrage, drilling through theAllegheny Mountains to achieve the most direct route. The cable shaves ‘1.3 millisecondsoff the previously fastest one-way time’ (MacKenzie et al. 2012, p. 287).

Contemporary financial markets dominated by HFT are materially constructed atcross-purposes with coordination. HFT relies on uneven temporalities in the war for profit.Financial journalist Felix Salmon (2013) explains that latency arbitrage is in fact a battlebetween the fastest arbitrageur who can successfully execute the trade, and the nextslowest arbitrageur(s), who fails to do so. Salmon writes, ‘If you were to actually enter themarket with a simple latency-arbitrage algorithm ... you would almost certainly lose yourshirt in no time: a thousand other algobots would immediately recognize your pattern,and pick you off systematically’ (Salmon 2013).

Our point is not to suggest that no increases in market coordination are achieved byHFT; increased liquidity and low bid-ask spreads are often cited as consequences of someforms of HFT (i.e., electronic market-making). However, we do want to emphasize that HFThas evolved with material changes in financial market infrastructures that have beenguided by the search for advantageous network differentials and have resulted in unevenspatial and temporal relations. These uneven relations were starkly evident in the 2010Flash Crash. On 6 May 2010, the Dow Jones Industrial Average fell a record 600 points inonly five minutes (Phillips 2013). This so-called ‘Flash Crash’ was blamed on HFT. Ouranalysis, following that of market research firm Nanex, is more subtle. It was not absolute

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speed, but the collision of precisely those uneven differential speeds necessary togenerate profit through HFT that caused the crash.

Nanex’s report on the Flash Crash explains that on that day, high-frequency traderssold 2000 ‘e-Mini’ contracts – a kind of electronically traded fund (ETF) – as quickly aspossible (Nanex 2010). The ETF system is set up such that high-volume trades triggerrecalculation of prices for the e-Minis, their component stocks, indexes, and derivedoptions. The high-frequency traders selling e-Minis achieved much faster speeds than theelectronic systems designed to update prices. In fact, the speed and frequency of thesesell orders overloaded the system, actually slowing it down further and exacerbating theuneven relation of speed between the traders and the pricing systems. What Nanexdescribed as a ‘tidal wave of data’ caused delays in both the NYSE’s Continuous QuotationSystem and calculation of the value of the Dow Jones Index (Nanex 2010). The delaysresulted in price drops, which high-speed momentum investors and panicked individualinvestors exacerbated by also selling as quickly as they could.

Material network differentials resulting in uneven relations of speed between high-frequency traders and other electronic financial systems are the basis of latency arbitrageprofit. However, in the Flash Crash, they were also a contributing factor, if not cause, of apathological breakdown in market coordination. Reports suggest that unsuspectingindividuals and firms lost thousands to millions of dollars by placing orders on 6 Maybefore the falling prices were evident (Buchanan 2012).

Despite the uneven relations that allow latency arbitrage profit, there seems to havebeen, in the last several years, an evening out of the network differentials originallyafforded to the pioneers of HFT. According to the World Federation of Exchanges, HFT hasbecome the new normal, bringing ‘measurable beneficial impacts on a variety of coremarket quality metrics, including tighter spreads, increased liquidity, more efficient priceformation, reduced transaction costs for market users and lower market volatility in mostcircumstances’ (Szala 2013). Even more interestingly, high-speed computer algorithms andco-location seem to have erased much of the early profit potential of latency arbitrage andother forms of HFT. Since 2011, the volume and profit margin of HFT have both beenhalved. Many HFT firms of have shut down, and the remaining firms make a fraction ofwhat traditional investment firms make (Phillips 2013).

According to Matthew Phillips at Bloomberg Businessweek, one of the causes of thedeclining profitability of HFT, along with lower volatility and the recent preference forbonds over stocks, is that high-speed algorithms and co-location have become toocommon in the market. He notes that firms are willing to spend millions to shavemilliseconds off the transaction time and that as this has become a common practice,profits have continued to shrink (Phillips 2013). In short, the technologies and materialinfrastructure that contributed to the advantageous network differentials experienced byhigh-frequency traders have diffused throughout the market. This diffusion has resulted inincreased market coordination in the form of liquidity and low spreads. But forprofessional high-frequency traders, this diffusion and coordination has resulted indwindling profits and therefore presents a serious problem.

The diffusion of technologies throughout financial markets and resultantcoordination necessarily spurn the search for new ways to (re)create advantageousnetwork differentials. In the case of HFT, the search is leading away from Wall Street andinto the realm of science fiction. High-frequency traders already rely on both fiber opticconnections and networks of microwave dishes to transmit signals as quickly as possible

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between exchanges. Financial engineering firm Anova, in partnership with militarycontractor AOptix, has already completed a laser network connection between exchangesin London and Frankfurt and is set to construct another connecting the NYSE with theNASDAQ. The new laser network will shave nanoseconds off the current connectionbetween the two exchanges for a cost of several billion dollars (Anthony 2014).

But, lasers are not nearly as fast as neutrinos moving through the center of the earthat the speed of light. Financial journalist Bruce Dorminey claims that physicists aredeveloping technology that would be able to transmit encoded neutrinos betweenparticle accelerators and they see an application in transmitting financial information overlong distances. According to the J.P. Morgan Chase options trader interviewed for thearticle, many firms would be willing to pay for the average 30 millisecond advantage thetechnology would afford for the purposes of international arbitrage (Dorminey 2012).

Conclusion

We have argued that a cultural approach to technology is a productive researchmethodology for studying technology in financial markets. A cultural approach totechnology recognizes the historically contingent and constitutive relationship betweencultural practices and technologies; attends to the interplay between materiality andmeaning; and accounts for how structures of power and inequality are produced,maintained, and transformed. In our case studies we demonstrated that the relationshipbetween technology and the financial practice of arbitrage is contingent on theproduction of differential temporal and spatial relationships in the market. We have alsoshown through attending to historical relationships between arbitrage and communica-tion technologies that technologies have as much to do with creating uneven relations ofpower within the market as they do with coordinating it.

A cultural approach to the study of technologies in finance is part of the largerproject of putting critical distance between the stories of economists and traders and theaccounts we as scholars give of financial markets and activities. Arbitrage is an economicand cultural practice in financial markets that relies on differential relationships in timeand space in order to generate profit. To reiterate, our position is not that ‘culture’ shouldbe added to the list of concerns for SSF to consider. Culture is not something separatefrom society – such as art, music, or behaviors specific to a group of people (Williams 1983,Hall 1990, Grossberg 2010). Culture is the context through which different social, political,and economic formations emerge through contingent articulations of power. A culturalapproach demands that studies of finance bring power to the fore and not allowideological discourses of neutral technologies and markets to permeate the much-neededcritical analysis of contemporary financial practices.

This broader project must be furthered by interrogating the ways that many culturalpractices in financial markets produce uneven relations of power and profit. Some of thesepractices are blatant and even criminal, such as the LIBOR fixing scandal that broke in2012. The London Interbank Offered Rate (LIBOR) directly determines the value of manyderivatives and therefore the profitability of derivative trades. For years, 18 big bankssystematically skewed the offered interest rate toward the needs of their own financialtraders under the auspices of market coordination (Economist 2012). In effect, large bankswith differential access to the process that determined the LIBOR figures used the accessto illegally create uneven relations of power for the purposes of profit.

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As Phillip Mirowski (2013a) pointed out, SSF scholar Donald MacKenzie (2008)published a detailed explanation of how LIBOR was ostensibly established and yet failed touncover the criminal practice. Mirroring the assumption of neutrality found in the ‘tools ofcoordination’ approach, SSF often treats ‘financial innovation’ as neutral (Mirowski 2013a).We have tried to show that neither technologies nor markets are neutral entities. The linebetween ‘accepted’ practices of creating advantageous network differentials and criminalmisconduct has always been blurry in financial markets. As previously demonstrated,nineteenth century joint account shunting was eventually banned by the NYSE; and HFThas been criticized as ‘Insider Trading 2.0’ (Henning 2014). In criminal cases, mechanismsof power are all too obvious after the fact. What is needed, is a broader project to examinethe banal and accepted ways that financial technologies and practices produce networkdifferentials in the service of power and profit in addition to those instances in whichfinancial activities veer into criminal misconduct under the false pretense of marketcoordination.

Finally, in this paper, we have consciously avoided engaging with the concept ofrisk, despite its significance within economic accounts of arbitrage. Like the idea ofcoordination, the idea of risk pervades economic models and discourses. Risk is the basisof the theory of financial profit – profit does not accrue to the fastest or the mostpowerful, but to he who risks the most. The relationship of risk and return in financialeconomics is an important story that may obscure more than it reveals. For example, themortgage-backed securities that have been blamed for their role in the global financialcrisis are hailed in economic discourses as mechanisms of risk distribution. Perhaps arethinking of these securities outside the discourse of risk can reveal the uneven relationsof temporality, spatiality, and power involved in their creation and devaluation. Attentionto the maintenance and transformation of the power relationships within financial marketsis a key avenue through which social and cultural scholars can contribute to better criticalunderstandings of finance.

ACKNOWLEDGMENTS

A portion of the research in this paper was drawn from Carolyn Hardin’s dissertation

Arbitrage: A critique of the political economy of finance. The authors would also like to

thank the Alliance for Social, Political, Ethical, and Cultural Thought at Virginia Tech for

allowing us to present an early version of this paper at their annual conference in

April 2014.

NOTES

1. Its beyond the scope of this paper to create an exhaustive list of power relations involved

in financial markets, but we can easily point to the ways that political power has become

deeply entangled with financial wealth in the contemporary conjuncture, the forms of

exclusionary power manifest in the membership structure of financial exchanges, the

gendered and heteronormative cultural practices of financial firms, and more subtle

forms of power, for example those demonstrated by the ‘culture of smartness’ referenced

by Karen Ho (2009).

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2. The self-negating feature of arbitrage does not always exist. Barriers to supply and

demand, such as fixed prices, may result in ‘money machine’ arbitrage in which arbitrage

profits can be perpetually achieved. In this paper, we will not examine this important

exception. For more, see Hardin, Arbitrage (2015).

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Adam Richard Rottinghaus (author to whom correspondence should be addressed),Department of Communication Studies, University of North Carolina at Chapel Hill,510 Oak Ave. Unit B, Carrboro, NC 27510, USA. Email: adamrott@email.unc.edu

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