Even if you aren’t really into Science Fiction, if you want your mind to be totally blown, try Accelerando, by Charles Stross. It is a collection of nine interconnected short stories telling the tale of three generations of a disfunctional family before during and after a technological singularity.
Acelerando won the Locus award and was a finalist for the Hugo, Cambell and Clarke awards in 2005-2006 and is one of the seminal science fiction works.
This isn’t a book review. This is a post demonstrating Bruce Sterling’s maxim: The future is here, it just isn’t widely distributed yet.
In Accelerando there was a passage that I was reminded of reading the news this week.
The last great transglobal trade empire, run from the arcologies of Hong Kong, has collapsed along with capitalism, rendered obsolete by a bunch of superior deterministic resource allocation algorithms collectively known as Economics 2.0.
Think about the massive amounts of leverage and speculation that led to the present economic situation. Now read The Matrix, But With Money
It sounds like something out of The Matrix: a giant, world-spanning electronic network where high-powered machines, some of them using GPUs to gain a speed advantage, run secret, rapidly-evolving software algorithms that battle it out for profits in a high-stakes game of cat-and-mouse, attack-counterattack, that yields some $21 billion a year for the winners and can spell ruin for the losers. Except that it’s not The Matrix—it’s the stock and commodities markets, and the fact that these markets mainly consist now of computers trading against one another has been brought closer to the public’s attention by last month’s alleged theft of Goldman Sachs’ proprietary trading code.
The collection of computer-automated, high-speed trading technologies and techniques that are typically lumped under the heading of “high-frequency trading” (HFT) have been around for a while, but HFT has recently become heavily identified with the banking giant Goldman Sachs, which dominates some aspects of it on the New York Stock Exchange.
The final animal in the HFT menagerie that I’ll point out on this brief tour is the automated market maker (AMM), which is a subtype of what is often called “dark pools,” or “dark liquidity.” AMMs like Citadel always stand ready to buy and sell large quantities of assets, and they don’t publish price quotes to other market participants via exchanges.
To find out what assets a dark pool will either sell or buy and at what price, you first have to ping it. Once you ping the pool with a request to, say, buy a specific asset, the pool will reply with the price that it’s willing to sell you that asset for. You can either accept the price and complete the transaction, or turn it down and ping again later to see if the price has moved in your direction.
Dark pools, then, let traders completely sidestep normal stock and commodities exchanges in order to buy and sell assets without having to broadcast their desired price to the rest of the world. This anonymity has a number of uses, the most important of which is that it makes it easier to implement the “iceberg” strategy described above.
As with the other creatures in our HFT menagerie, the AMM makes money a little at a time, but in volume. These massive, computer-automated brokers turn a profit by making money on the bid/ask spread and by not being too exposed to price movements in any one asset class.
Here is a collection of links on high frequency/high speed trading (and yes, they are all chock-full of SF references):
- The Dust Hasn’t Settled on Wall Street, but History’s Already Repeating Itself (Washington Post)
- The Rise of the Machines (The Economist)
- NYSE’s Fast Trade Hub Rises Up in New Jersey (Wall Street Journal)
We’re probably going to hear a lot more about HFT in the near future. But here is the real takeaway. As with all computer and network technology it obeys a pretty steep curve of innovation and increasing capability. Once semi- or completely-autonomus market-making machines become possible it is only a matter of time (we’re talking just a handful of years) before they begin to become very powerful indeed.
So the question becomes, are human institutions even capable of coming up with policies and regulations in response? Human institutions are slow, clumsy things that work at a geologic pace compared to the innovation pace of information technology.
I’m not saying that we’re gazing into the maw of some apocalypse out of Matrix or Terminator. But I am saying that unless we reform both our economic system and our regulatory system pretty quick lots of aspects of our existence are going to no longer be under our control By “our” I don’t mean humans, I mean people as opposed to a small clique of super-rich people and their trading algorithms.
There are lots of good reasons for cleaning house anyway. This is just another really good reason to get down to business.
Otherwise, we are going to see lots of stories in the coming months and years that look like they were pulled verbatim from the pages of a science fiction potboiler. And, if you read SF like I do, you know that most of those futures are not very pleasant.
