slide1 n.
Download
Skip this Video
Loading SlideShow in 5 Seconds..
Machines and Markets: The Island Matching Engine and the Inversion of Finance Donald MacKenzie PowerPoint Presentation
Download Presentation
Machines and Markets: The Island Matching Engine and the Inversion of Finance Donald MacKenzie

Loading in 2 Seconds...

play fullscreen
1 / 26

Machines and Markets: The Island Matching Engine and the Inversion of Finance Donald MacKenzie - PowerPoint PPT Presentation


  • 95 Views
  • Uploaded on

Machines and Markets: The Island Matching Engine and the Inversion of Finance Donald MacKenzie Based on joint paper with J-P Pardo-Guerra. Noon, 20 Oct 2011, 1 Central Park West. Josh Levine. ‘ we need to highlight the creation and assemblages of Spacing(s), Timing(s) and Acting(s) ’

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Machines and Markets: The Island Matching Engine and the Inversion of Finance Donald MacKenzie' - mostyn


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
slide1

Machines and Markets:

The Island Matching Engine and the Inversion of Finance

Donald MacKenzie

Based on joint paper with J-P Pardo-Guerra

slide4

‘we need to highlight the creation and assemblages of Spacing(s), Timing(s) and Acting(s)’

(Jones, McLean and Quattrone, ‘Spacing and Timing’, Organization, 2004)

slide5

How US shares were mainly traded in the early 1990s:

New York Stock Exchange: Specialists and brokers

NASDAQ: Broker-Dealers & telephones

slide8

Island, 1996-2002

Sources:

Documents (e.g. source code of Island matching engine; messages to WATCHER users, March 1995-Dec 1997)

Email ‘interview’ with Josh Levine

Interview with Matt Andresen (CEO of Island from 1998)

Interviews with six former Island employees

Part of larger corpus of 93 interviews with high-frequency traders, other specialists in electronic trading, exchange staff, etc.

slide9

Innovation is bricolage (qv misinterpretations of ‘performativity’)

Machines (Island matching engine) help shape markets

ANT ‘inversion’: scales aren’t fixed; micro can become macro and vice versa; content and context can switch

Path-dependence (in QWERTY sense)?

slide10

SOES, NASDAQ’s Small Order Execution System. Compulsorily executable against broker-dealer quotes from June 1988.

‘SOES bandits’ eg Datek, Broadway Trading, 50 Broad St. ‘You did it again, I’ll fucking kill you!’ (Patterson 2012: 87)

slide11

Island ‘like most code in the world, more evolved than designed’ (email from Josh Levine, 21 May 2012)

FREDY: audible warning when NASDAQ order executed

MonsterKey: programmable macros to speed order entry into SOES.

Watcher: began ‘as just a program to watch for incoming executions and keep track of a trader’s position’ (email from Levine, 27 Jan 2012); evolved into full-blown trading system.

slide14

Island evolved from ‘Customer to Customer Jump’ trades on Watcher.

‘you see 4000 shares for ZXYZ for sale at 22 ½ on Island and you want to buy stock at 22 ½ … You would press <Shift 2> to enter an order to buy 1000 shares (2 lots of 500). …Want to buy 2000 shares? Just press <Shift 2> twice. Fun.’ (WATCHER News Frame, 16 February 1996)

slide15

Island ‘cold rice and rat meat’ (Andresen interview)

Coppola, Apocalypse Now: ‘Charlie didn’t get much USO. He was dug in too deep, or movin’ too fast. His idea of a great R&R was cold rice and a little rat meat’.

slide16

Matching

‘Bids’ to buy ‘Offers’ to sell

$7.78 400

$7.77 1091

$7.76 800

$7.75 488

192 $7.74

500 $7.73

1500 $7.72

1300 $7.71

slide17

‘we were the first group [generation] of people who grew up with PCs and didn’t think you needed a mainframe to get something done.’ (Interview with former Island programmer, 1 May 2013)

slide18

Multiple cheap PC CPUs, and Mold (‘built out of UDP to provide a reliability layer’)

UDP: ‘no handshake … you just kind of blast data’ (interview, 1 May 2013)

ITCH: feed disseminating all changes to order book

OUCH: protocol for computerised order entry

Island matching engine didn’t write to disk, no delays for two-phase commits.

‘enter2order’ procedure: if possible reuse record in cache of recently cancelled order (Josh Levine, ‘Island ECN 10th Birthday Source Code Release!’, available at www.josh.com)

slide19

Levine essentially sole programmer of first version of Island matching engine; later rewrites kept same architecture.

In other cases, writing a matching engine much more cumbersome organisational task.

slide20

Island matching engine latency: 2 milliseconds

(Qv Instinet engine: 2 seconds)

Low latency facilitates ‘electronic market making’: posting bids and offers, earning ‘spread’.

slide21

‘Bids’ to buy ‘Offers’ to sell

$7.78 400

$7.77 1091

$7.76 800

$7.75 488

192 $7.74

500 $7.73

1500 $7.72

1300 $7.71

slide22

2 millisecond matching engine latency makes spatial distance salient: eg 10 millisecond delay between Kansas City and 50 Broad St.

‘We were excluded because of the speed of light’ (Dave Cummings, founder Tradebot, quoted in Wall Street Journal, 15 Dec 2006)

From 2002 on, Tradebot and other automated trading firms co-locate at 50 Broad St.

slide23

With low fees, ‘rebates’ (small payments to those who post orders that later are executed against) and ultra-fast matching, Island becomes formidable competitor to established exchanges.

2000: Datek sells Island to Bain Capital.

2002: Bain sells Island to Instinet.

2005: NASDAQ buys Instinet’s US business.

Technologically, NASDAQ comes to resemble Island (ITCH, OUCH, matching engine in Levine style).

New York Stock Exchange buys and in part comes technologically to resemble Archipelago (Chicago-based new trading venue).

slide24

The ANT inversion:

Island starts ‘micro’, shaped by existing institutions, esp NASDAQ. Feb 1998: 4 Island employees.

By 2008 Island’s features (low fees, rebates, electronic order book, fast matching engine, colocation) become effectively compulsory, because all share-trading venues have to attract electronic market makers. This is now the ‘macro’ context within which institutions (eg New York and London Stock Exchanges) have to operate.

Key vehicle of inversion in Europe: Chi-X, new electronic trading venue set up in 2007, with matching engine written by 2 Island programmers.

slide25

Path-dependence?

Are the features of Island a ‘trans-historical’ attractor? To date, only limited signs of this in trading of bonds or of foreign exchange.

Part of explanation: reform efforts of Securities and Exchange Commission, and its almost exclusive focus on share-trading.

But Island, its history, the local conflict out of which it emerged, and its matching engine important in providing the most influential single exemplar of new way of trading.

slide26

Innovation is bricolage (qv misinterpretations of ‘performativity’)

Machines (Island matching engine) help shape markets

ANT ‘inversion’: scales aren’t fixed; micro can become macro and vice versa; content and context can switch

Path-dependence (in QWERTY sense)?

See also D MacKenzie and J-P Pardo-Guerra, ‘Insurgent Capitalism’, Economy and Society, forthcoming. Available at:

www.sps.ed.ac.uk/staff/sociology/mackenzie_donald