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10/11/2011

Nerds on Wall Street


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NerdsWallStreet

Not long ago, trading on a stock market meant you would be in a crowd of people energetically shouting, running around, and making a mess with great quantities of paper.

No more.

Visiting a financial market now is more like visiting the “cloud,” a big data center. Computers and network gear hum in racks. Fans blow. Rows of tiny lights flicker. Occasionally someone shows up, but do not count on much water cooler conversation.

Technology did not suddenly transform our markets. It has been a gradual process, and understanding how we got here, and the simpler machines we used along the way, provides insight into today’s complex markets. It turns out that going back to the basics, from the buttonwood tree and hand signals, is a good way to explain technology that can seem hopelessly complex and buried in jargon.

Looking into the workings of modern securities markets is like looking under the hood of a Toyota Prius hybrid car. There are so many complex and obscure parts it’s hard to discern what’s going on. If one looks under the hood of an auto from a simpler era, for example a ’64 Mustang, it is possible to see the parts and what they do, and have a better chance at understanding their complex modern replacements.


Museum of American Finance


History repeats and informs in market technologies. From the days when front-running involved actual running to the “Victorian Internet era” brought on by telegraphy, we can learn a great deal from looking back at a simpler era. We think that the overwhelming influence of computers remaking the landscape around Wall Street today is something new, but a pair of before-and-after photographs show an even more dramatic technological invasion. Before telegraphy, in the 1850s, the sky over Wall Street was open and clear.

–David Leinweber

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This article originally appeared in the Summer 2011 issue of Financial History, a publication of the Museum of American Finance.

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