Nerds on Wall Street
continued from page 55
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45
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They have surpassed even telegraphy
and ticker tape as a transformational market technology. The progress we’ve seen
in computing technology that brought
this about is really unprecedented. The
rapid technology trajectories forecast by
the laws of Moore and Metcalfe continue
unabated.2 44
Electronic markets started back when
the Internet was a gleam in someone’s eye
at the Defense Advanced Research Projects
Agency (DARPA). Now the future of electronic finance is profoundly intertwined
with the World Wide Web, removing
intermediaries in services ranging from
trading to research. A lot of people think
the three great technological ideas in history are fire, the wheel
and storing instructions
as data. Based on the
first 15 or so years of
widespread use of the
Internet, we might add
the URL to the list.
All this innovation
is what has brought us
to where we are today,
wired markets in a wired
world — a global financial system made of bits. And, as we were
reminded by the flash crash of May 2010
and the little ones that occur daily, there
are some serious questions about how
the investment business is going to cope
with markets and market information in
cyberspace. 45
Everything connects to everything else,
if you want it to, and sometimes when you
don’t. There’s more to this than just moving information around. Managing and
74 Financial History | Spring/Summer 2011 | www.MoAF.org
trading assets in a world of fragmented
electronic markets requires enormous
technological expertise. Computer programs increasingly take over tasks from
people, and people amplify their abilities
using machines.
Along the path from hand signals to
HFT, Watson and the World Wide Web,
we’ve seen some remarkable market applications of technology. This isn’t going to
stop. We’ve come a long way since the
traders moved from under the buttonwood tree into the Tontine Coffee House,
but we’ve really just moved indoors in our
use of information technologies. There
is so much written about information
overload that we have an information
overload information overload. But as we
have seen, technological patterns repeat,
and understanding how this happened in
the past helps us understand today’s ever
faster and more complex markets. 46
Notes
1. An excellent book comparing the development of the telegraph with the modern
Internet is The Victorian Internet by Tom
Standage (New York: Berkley Classics, 1999).
2. Moore’s Law is the well-known doubling of
computational power every 18 months. Metcalfe’s Law is the less well-known maxim
that the utility of a network grows as the
square of the number of users.
David Leinweber, author of Nerds on
Wall Street: Math, Machines and Wired
Markets, was recently named one of the
“Top Ten Innovators of the Decade” by
Advanced Trading magazine. As founder
of two financial technology firms, and as
manager of multi-billion dollar quantitative equity portfolios, he brings a practical
approach to innovation. He is now principal of Leinweber & Co., and in a public
service role, co-founder of the Center for
Innovative Financial Technology at Lawrence Berkeley Lab.
This article is improved and adapted from
Nerds on Wall Street and reprinted with
permission from Wiley.