The Great Robotification
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It was late 2005 and Wall Street was undergoing a period of rapid change. Not all of these changes were good for the big, institutional-equity brokers.
According to everyone I spoke with, equity trading was becoming more and more difficult. Competition was increasing at the same time that it was becoming more expensive from an operational perspective.
Wall Street had lost its fight against something called “decimalization.” Politicians in DC had coerced the stock exchanges to accept quotes for stock orders in cents rather than “‘steenths” (6.25 cent units). The argument behind the change was pretty simple. While trading in ‘steenths, exchange-based market makers would always make at least 6.25 cents on each share traded. Under the new decimal system the spread could be as little as 1 cent per share. There was an intense debate going on about what the long term consequences of decimalization would be for the industry.
One thing was clear to everyone; Wall Street’s IT expense was going up and up and up. For reasons I could not yet comprehend, decimalization also lead to the rise of trading algorithms. In other words, much of the work that had once been performed by human traders sitting on the desk was now being done by machines in a data center.
But paradoxically, business was booming at the same time. Volumes were steadily increasing. Volatility was moderating. In fact, people were calling it “The Great Moderation.” It was believed to be the result of hedge funds casting the wonderful quant magic to make markets more efficient and less risky.
Seats for traders were being eliminated and replaced with quants to do the modeling, DBAs to manage the exploding data requirements, and hackers to program the algos. That’s what the MD meant when he said I should have been there a few years back.
Robots, and their handlers, were stealing the trader’s jobs. He thought it was taking all the fun out of the business but he also knew which way the wind was blowing.
“This is going to be like… Star Wars!” he exclaimed, describing how efficient the sales traders were going to be in navigating from one call to the next under this new system I was building.
But it was reminding me more of The Matrix; robots overseeing humans. Ranking and guiding them towards ever-greater productivity. Of course, it was all in the name of having a huge bonus pool at the end of the year. And EVERYBODY wanted that, at any cost.
Still, there was something ominous about it. And I found myself grateful to be writing the programs rather than working under them. “White-collar sweatshop” is the way I would describe it to my friends outside of work.
Maybe I should have been there a few years back, but there is no way I would have been.
