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Money's eyes: the visual preparation of financial markets

2010; Taylor & Francis; Volume: 39; Issue: 4 Linguagem: Inglês

10.1080/03085147.2010.510679

1469-5766

Michael Pryke,

Cinema and Media Studies

Abstract Participants in today's financial markets confront a sea of data. While the availability of market data has benefits it also creates problems, notably those relating to questions of meaning, judgement and intervention: how to make sense of these flows – how to see the 'market', its futures, and thus act pre-emptively. Over more recent years financial organizations have been turning to new technologies of representation, in particular the design and application of visualization software in an effort to enable better visual imagination of and interaction with markets as they unfold in real time. 'What you see is what you risk' in many respects captures the thinking or at least the desire underlying the employment of the latest visualization software. The more powerful one's vision the better able one is to participate in increasingly complex financial markets, at least in theory. Based on recent interviews with those involved in developing and using the latest visualization software within some of the key markets of global finance, and developing the influential work of Daniel Beunza and David Stark, and Karin Knorr Cetina, in particular, this paper adopts a cultural-economy-of-finance perspective to examine the implications of these new techniques of representation. The paper argues that the latest visual turn within finance should be afforded a more central position in the study of contemporary financial market practices. Keywords: visualizationvisualization softwaremarket devicesriskfinancial market practicescultural economy Acknowledgements This paper benefited from a British Academy Small Grant (SG 44046). I would like to thank Paul du Gay, Donald MacKenzie, David Stark, Bill Maurer, Peter Miller and Susan Smith for comments and suggestions on earlier drafts. Thanks also for the very helpful suggestions made by referees. Earlier versions of this paper were presented at the seminars and conferences at CRESC; Department of Sociology, University of Basel; Swansea Business School; Department of Geography, Durham University; Institute of Advanced Study, Durham; ISA, Barcelona; CARR, LSE. The completion of this paper benefited from a fellowship at the Institute of Advanced Study, University of Durham. I am also extremely grateful to those people who gave their time answering my questions in interviews and subsequent phone calls and emails. Needless to say, the usual disclaimers apply. Notes 1 See Appendix 1 for details of interviewees and methods. 2 See Muniesa et al. (2007) for a helpful introduction to the notion of market devices and the surrounding literature. 3 So-called rainbow options are examples of such instruments (see Ouwehand & West, Citation2006, p. 79; see also 'Enter the quants…' section). 4 This is not to say that the visualization techniques introduced to help cope with risk are not potentially the source of more risk. As financial organizations seek to deal with risks and uncertainties they are undoubtedly caught in what Hutter and Power (Citation2005, p. 3) refer to as a 'double movement': as financial agents seek to organize for risks they undoubtedly produce further risks – no doubt the result of 'the unintended side-effects of risk management systems' (Holzer & Millo Citation2005, p. 242) – for themselves and significantly for others, as the present crisis shows only too well. 5 The paper offers only a limited set of examples and it is important to stress that the examples are illustrative of general trends among financial market participants based in London and New York. Even within these admittedly key locations 'fragmentation rules' as one software developer commented (interview): markets and organizations, teams within organizations and individuals within teams may well all want to see different parts of 'their' market; 6 Interest in the formation and workings of financial markets is growing rapidly. There has been considerable work by those working within the social studies of finance, such as that by Donald MacKenzie, Karin Knorr Cetina, Alex Preda, David Stark and Daniel Buenza, Fabian Muniesa and Yuval Millo, for example. Social anthropologists, led by Bill Maurer, Annelise Riles and Hiro Miyazaki and Caitlin Zaloom, have produced fascinating ethnographies of key aspects of how financial markets work; political economists such as Dick Bryan and Michael Rafferty have turned their attention to derivatives in particular, while sociologists in the UK, such as Geoff Ingham and Nigel Dodd, and economic sociologists in the US, such as Mitchel Abolafia, Neil Fligstein and Bill Carruthers, and Jocelyn Pixley (in Australia) have all engaged money and finance in a long list of publications. Marieke de Goede's research signals an interesting take on finance from within international politics. 7 See also Daniel Beunza's work with Fabian Muniesa (Beunza & Muniesa, Citation2005) and his work with a variety of artists (Beunza, Citation2006; Canet et al. Citation2006). 8 Visualization software and screens are understood in this paper as technical artefacts. As CitationKroes and Maijers helpfully clarify, such artefacts differ from physical or natural objects as they are 'intentionally produced by human beings to realize certain goals'. As they go on to refine their definition, these artefacts are 'produced in the sense that it is only in relation to human intentionality that physical objects become technical artefacts…they are objects to be used for doing things and are characterized by a certain "for-ness". It is this teleological element that sets technical artifacts apart from physical objects' (2006, p. 1, emphasis added). The introduction and application within financial organizations of the types of visualization software discussed here (often developed originally in fields as distant as geology and medical research) is where and how it acquires its 'for-ness'. The software gains for-ness through integration into the forms of sociation characteristics of each financial market and the various sociocultural-technical practices that continually make it up. 9 As Preda (2009, pp. 684–5) notes in his recent work on online traders, what is involved is more than mere looking; active bodily work is part of the work of calculating what the screen displays. There is an interesting and growing body of literature on the use of magnetic resonance imaging in medical research that raises many questions about 'gestural engagements' in the interface between the technology and screens and 'embodied action', as well as how knowledge is shaped through seeing, all of which are pertinent to understanding the influence of visualization techniques on financial market practices and the production of financial knowledge (see, for example, Alac, Citation2004, Citation2008; Alac & Hutchins, Citation2004; Joyce Citation2006). 10 The words are those of a strategist specializing in financial risk for Banking and Capital Markets, Microsoft Financial Services (Wilmott, 2006, p. 14). 11 Software, as Thrift and French (Citation2002, p. 310) have noted, too often sits in the background, as it were, unnoticed (see also Knorr Cetina Citation2003, p. 9; Thrift Citation2004a). 12 In an interesting paper Klamer goes back to Schumpeter to remind us that 'Economic theorizing begins with a vision'. The way Klamer develops this is to link the constitutive metaphors and narratives of economics to visions. Following Rorty, he argues that vision 'informs and is represented by the metaphors that constitute a conversation, the so-called constitutive metaphors' which 'underlie all thinking to such an extent that thinking without them is inconceivable' (2004, p. 259). Metaphors reflect visions held by economists; and, like metaphors, visions are constitutive of conversations (see Klamer, Citation2004) about how, for instance, the workings of financial markets and 'the world' are/should be talked about and the consequent acts that follow. Visualization techniques allow those conversing to be surer of their ground. Note how Knorr Cetina refers to markets in foreign exchange, the first screen-based financial market (2003, pp. 14–15), as a 'large, globally distributed conversation' (Knorr Cetina & Bruegger 2002a, p. 914). 13 Knorr Cetina and Bruegger (2002b) argue that the screen world is a flow world made this way by technologies; they ask: what is the 'material' of a system that is located entirely in the symbolic space of an electronically mediated reality? (As they note elsewhere, the screens do not, in their core elements, represent a reality 'out there', but are 'constitutive of it' [2000, p. 166]). Knorr Cetina and Bruegger emphasize the 'textual' character of this world: writing…on the screen. This they argue leads to the identification of the secondary economy of 'hardware developments and writing (news etc.) that is also a form of "world-making". Other traders provide the writing…prices, gossip …as they "perform the market on screen"; the representational part of screens brings the world electronically on to screens…they emphasise news (rather than "confirmed correspondence with world"), information is the materiality of the screen world' (Knorr Cetina & Bruegger, 2002c, pp. 401–402; emphasis added) 14 'In the phenomenon of screen, seeing is not merely being aware of a surface. The very watching of the screen as screen implies an already present ontological agreement about the nature of the world; a world that is relevant (and true) to us who share it, in and through the screening of the screen' (Introna & Ilharco, Citation2006, pp. 69–70). This is part of an 'an already implied and agreed way of being' (2006, p. 71). 15 Visualization techniques may be used by, say, two out of an eight-strong portfolio team. Six of the team will be focused on particular strategies with two using visualization software as a guide focusing on global level developments (interview with investment bank representative). 16 The use of generally available data is important as financial institutions will always, of course, be interested in liquidity. These data may be informed by use of in-house-generated data in an attempt to get an edge. 17 The equation can be solved by using a numerical solution provided by specialist companies such as NAG Ltd that are able to supply routines to aid derivative pricing and specific Black-Scholes 'solvers' which calculates the price and derivatives (the so-called Greeks). In what follows I am referring to swaptions rather than standard options. 18 I am grateful to Dr Jeremy Walton, NAG (Numerical Algorithms Group), for talking me through examples of how software might be adapted to aid the visualization of the 'solution', that is the dataset (interview 1 November 2006). 19 The smile can be thought of 'as a pattern of option prices in which the graph of the relationship between strike price and implied volatility is not a straight line, as it should be on the Black-Scholes model (or the analogous surface is not a plane, if we are dealing with more complicated options)' (Donald MacKenzie, pers. comm. 8 January Citation2007). 20 I am very grateful to one referee for pointing this out and for providing the technical guide. 21 In 1999 the amount of Treasury debt held in non-federal government accounts stood at around US$36 trillion (more or less the total for outstanding debt securities issued by all US corporations at that time [Dupont & Sack, 1999]). 22 See Fleming (2003) for an in-depth analysis of Treasury market liquidity; see alsoFleming (Citation1997), Edwards and Ma (Citation1992), and Fabozzi and Modigliani (Citation1996). 23 See Power (Citation2005) for a full discussion of operational risk.