By Leo Melamed
October 21, 2013

Let me be clear. I don't expect the discussion about High Frequency Trading to end with today's CME-MSRI event. The debate will go on. Much of the current noise comes from political ideologues who think they are taking the side of the "little man." Unfortunately, they are unnecessarily frightening him to death. Still, there are legitimate academic issues which no doubt will be discussed today. Controversy is the fate of almost all breakthrough technologies.

Some, like myself, who started as a floor trader in the pork belly pit and was the historical equivalent of today's computer trading, find it hard to accept that technological advance does not improve overall welfare. Of what can be little doubt, is that HFT in the main provides liquidity to the marketplace. Liquidity to a market is very much like blood to a human being. For humans, it is the fluid that is circulated by the heart through our vascular system, carrying oxygen and nutrients to all body tissues. In layman's terms, it keeps a person alive. Liquidity's role in markets is no different. With it, there is a constant flow of bids and offers, narrowing the spread to the benefit of consumers; price discovery is continuous, to the benefit of both hedgers and speculators; and all participants have the assurance that prices are achieved in an open, competitive, and transparent fashion. In layman's terms, it keeps the market alive.

There can be also little doubt that the CME Group maintains some of the most liquid markets in the world. And, in the interests of full disclosure, HFT represents an important source of our liquidity. However, it is equally true that before computer technology, floor traders were similarly an important source of our liquidity. And I would venture a guess that the amount of liquidity provided by floor traders of the past, is fairly similar to the amount provided by today's HFT.

The pits are mostly gone and our markets now cover a much wider sphere of human endeavors and geography. But in a sense little has really changed. It is still a case of buy low and sell high. Computer technology simply allowed traders to be faster and more sophisticated. But that is true in nearly every walk of life. Advanced technology has permeated every nook and cranny of our existence. Most things we do are faster and more sophisticated. And this technological advancement is not necessarily fair or equal to all, or every segment of society. However, the human race has learned to adjust to this inequity; and even when it protests, it never really succeeds in stopping the march of technology.

That change is often resisted is not news. Human history is replete with a reflex rejection to that which challenges the way things are. Columbus, Copernicus, Galileo are early and most known examples of humans who suffered this consequence. Milton Friedman called it the "Tyranny of Status Quo." Not to compare, but you should have seen the reaction by CME board members in 1971 when I suggested trading in financial instruments side by side with cattle and hogs.

Still, resistance to technological advancement represents a special case. Officially, technophobia was born with the dawn of the industrial revolution. As we all know, in 1675, a group of British weavers destroyed machines that replaced their jobs. Parliament declared it a capital offense but it was too late. The evil genie was out of the bottle and technophobia was born. It was a revulsion of machines which threatened a way of life and livelihoods. It is still the case.

Fear of change is of course not limited to technology. The 19th century was also the beginning of modern science. The likes of Louis Pasteur, Charles Darwin, Gregor Mendel, Marie Curie, and on and on, fostered revolutionary concepts. For many, these ideas were difficult to digest.

Then of course, technical advances resulting from World War II and its aftermath, was a shot in the arm for technophobes. The splitting of the atom, the bombings of Hiroshima, the proliferation of nuclear weapons, the ability to manipulate human genes, stem-cell research, and so forth, made many wonder whether technology had gone wild. It served to energize public resistance and to ask the question of whether it was worth it?

The debate is deadly serious. Technophiles believe that technology will make the human race immensely better: Genetic sciences will make us healthier; medical science will eradicate disease and extend human life; robotics will replace difficult and unpleasant human endeavors; wars will be fought by machines rather than by humans, and so on. Technophobes of course have the opposite view: For them, not only do such advances threaten the comfort of status quo, they mark the reduction of human freedoms, its values, and its identity. In the final analysis, they argue, it may represent the end to our planet; our future will be dominated by mad scientists, rampaging robots, killer clones, and uncontrollable viruses; and in markets, by "A dark force against ordinary human traders and investors" called HFT. The latter, according to no less than Forbes.

Science fiction often served to heighten these fears with techno-dystopia winning over techno-utopia. Mary Shelley's Frankenstein is a clear example of technophobia in popular culture. In Charlie Chaplin's Modern Times people were reduced to nothing but cogs in the machinery. This trend in movies and fiction continued through the 1950s, with fears of nuclear weapons and radiation leading to the rise of evil monsters. In the 1960s movies like the Omega Man pictured a world scarred by biological warfare where only a handful of humans remain alive. In the 1970s and 1980s, technophobia achieved commercial highs with movies such as the Terminator and Blade Runner. More recently, movies such as I, Robot, the Matrix Trilogy, and WALL-E thrived on the technophobia theme.

The resulting effects are deep. Drs. Michelle M.Weil and Larry D. Rosen, international experts on technology stress, conducted a two-year study (1992-1994), collecting data from 3,392 first year university students in 38 universities from 23 countries. It showed that in countries including Indonesia, Poland, India, Kenya, Saudi Arabia, Japan, Mexico and Thailand, over 50% of students were technophobic. In contrast, in five countries, USA, Croatia, Singapore, Israel and Hungary, there were under 30% technophobes. Still, the studies have indicated that up to one half the world's population is "technophobic." There is even a very popular Italian electronic Black Metal band founded in 2003 called T3chn0ph0b1

Finally, I want to offer some hope for technophiles. According to Dr. Mark Brosnan, the head of University of Bath's research department, it all has to do with exposure to pre-natal testosterone. Brosnan believes pre-natal testosterone has the capacity to make one's understanding of technology easier. Tests have shown that computer science students actually possess higher levels of pre-natal testosterone.

There you have it: A full and unbiased report unequivocally proving that technophiles are on the side of truth and justice and have more pre-natal testosterone. I rest my case.

*     *     *

Return to top of page | Return to Index | Home Page


Page absolute bottom placeholder