Folding: Integrating Algorithms into the Floor of the New York Stock Exchange

Posted: 3 Sep 2013  

Daniel Beunza

London School of Economics & Political Science (LSE) - Department of Management

Yuval Millo

London School of Economics & Political Science (LSE) - Accounting Department

Date Written: June 14, 2013

Abstract

How does automation reshape markets? Existing sociological studies have argued that market automation need not entail a dilution of social relations, but the empirical evidence is inconclusive. Our multi-period ethnography of the New York Stock Exchange addresses this gap by exploring how the NYSE automated trading while preserving its floor intermediaries. Our study reports on observations in 2003 before automation was introduced, outlining the functions traditionally played by specialists and floor brokers. It then analyzes how the Exchange preserved these intermediary roles in 2006-08 as it introduced algorithmic order matching, and proposes the notion of folding to denote the process of automating a market while preserving its social structure. Finally, our analysis of the Flash Crash in 2010 suggests that folding allowed the NYSE to outperform its floorless rivals.

Keywords: Market microstructure, Economic Sociology, Social Studies of Finance, NYSE, HFT, Reg-NMS, Algorithm, Trading Floor

JEL Classification: G24

Suggested Citation

Beunza, Daniel and Millo, Yuval, Folding: Integrating Algorithms into the Floor of the New York Stock Exchange (June 14, 2013). Available at SSRN: https://ssrn.com/abstract=2265849 or http://dx.doi.org/10.2139/ssrn.2265849

Daniel Beunza (Contact Author)

London School of Economics & Political Science (LSE) - Department of Management ( email )

United Kingdom
02071061146 (Phone)

Yuval Millo

London School of Economics & Political Science (LSE) - Accounting Department ( email )

Houghton Street
London WC2A 2AE
United Kingdom

HOME PAGE: http://www.lse.ac.uk/collections/accounting/facultyAndStaff/profiles/Millo.htm

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