Abstract
This article examines algorithmic trading and some key failures and risks associated with it, including so-called algorithmic ‘flash crashes’. Drawing on documentary sources, 189 interviews with market participants, and fieldwork conducted at an algorithmic trading firm, we argue that automated markets are characterized by tight coupling and complex interactions, which render them prone to large-scale technological accidents, according to Perrow’s normal accident theory. We suggest that the implementation of ideas from research into high-reliability organizations offers a way for trading firms to curb some of the technological risk associated with algorithmic trading. Paradoxically, however, certain systemic conditions in markets can allow individual firms’ high-reliability practices to exacerbate market instability, rather than reduce it. We therefore conclude that in order to make automated markets more stable (and curb the impact of failures), it is important to both widely implement reliability-enhancing practices in trading firms and address the systemic risks that follow from the tight coupling and complex interactions of markets.
Original language | English |
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Journal | Social Studies of Science |
Volume | 52 |
Issue number | 2 |
Pages (from-to) | 277-302 |
Number of pages | 26 |
ISSN | 0306-3127 |
DOIs | |
Publication status | Published - Apr 2022 |
Bibliographical note
Published online: 6 Oct 2021.Keywords
- Algorithmic trading
- Financial regulation
- Flash crash
- High-reliability organizations
- Normal accidents theory
- Risk