Hostname: page-component-848d4c4894-hfldf Total loading time: 0 Render date: 2024-05-18T22:59:38.164Z Has data issue: false hasContentIssue false

Market devices and structural dependency: The origins and development of ‘dark pools’

Published online by Cambridge University Press:  09 November 2023

Donald MacKenzie*
Affiliation:
University of Edinburgh, UK
*
Corresponding author: Donald MacKenzie, School of Social and Political Science, University of Edinburgh, Chrystal Macmillan Building, Edinburgh, EH8 9LD, Scotland. Email: DonaldMacKenziePA@ed.ac.uk.
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

‘Dark pools’ are private, electronic share-trading systems in which participants cannot see each other's buy and sell orders. This article shows that the development of these material ‘market devices’ was strongly shaped by the structural dependency of their intended clientele (fund-management firms) on the big investment banks, particularly the indirectly monetary mechanism of dependency known in the US as ‘soft dollars’. The article's underlying argument is that (a) the sociological analysis of financial markets requires bringing together the focus on materiality of, for example, actor-network theory with an emphasis on structural advantage such as that found in field theory; and (b) that both actor-network and field theory approaches could be strengthened by a stronger focus on mundane but important monetary mechanisms such as ‘soft dollars’.

Type
Article
Creative Commons
Creative Common License - CCCreative Common License - BYCreative Common License - NCCreative Common License - ND
This is an Open Access article, distributed under the terms of the Creative Commons Attribution-NonCommercial-No Derivatives licence (http://creativecommons.org/licenses/by-nc-nd/4.0/), which permits noncommercial re-use, distribution, and reproduction in any medium, provided the original work is unaltered and is properly cited. The written permission of Cambridge University Press must be obtained for commercial re-use or in order to create a derivative work.
Copyright
© 2019 The Author(s)

References

Angel, J.J., Harris, L.E. and Spatt, C.S. (2013) Equity trading in the 21st Century: An update. Available at: <http://www.knight.com/newsroom/pdfs/researchCommentary06272013.pdf>. Accessed 21 January 2014..+Accessed+21+January+2014.>Google Scholar
Arjaliès, D.L., Grant, P., Hardie, I., MacKenzie, D. and Svetlova, E. (2017) Chains of Finance: How Investment Management is Shaped. Oxford: Oxford University Press.CrossRefGoogle Scholar
Barclays (2014) Supreme Court of the State of New York Index No. 451391/2014: Barclays’ memorandum of law in support of its motion to dismiss the complaint. Available at: <http://www.barclays.com>. Accessed 26 August 2014..+Accessed+26+August+2014.>Google Scholar
Bénatouïl, T. (1999) Atale of two sociologies: The critical and the pragmatic stance in contemporary French sociology. European Journal of Social Theory, 2(3): 379–96.Google Scholar
Benquet, M. (2018) Fixer le prix des entreprises: Pour une ethnocomptabilité de l'activité des fonds d'investissement. Sociétés Contemporaines, 110(2): 89117.CrossRefGoogle Scholar
Berkowitz, S.A., Logue, D.E. and Noser, E.A. (1988) The total cost of transactions on the NYSE. Journal of Finance, 43(1): 97112.CrossRefGoogle Scholar
Blume, M.E. (1993) Soft dollars and the brokerage industry. Financial Analysts Journal, 49(2): 3644.CrossRefGoogle Scholar
Borch, C. (2016) High-frequency trading, algorithmic finance and the flash crash: Reflections on eventalization. Economy and Society, 45(3-4): 350–78.CrossRefGoogle Scholar
Borch, C. and Lange, A.C. (2017) High-frequency trader subjectivity: Emotional attachment and discipline in an era of algorithms. Socio-Economic Review, 15(2): 283306.Google Scholar
Bourdieu, P. (1997) Le champ économique. Actes de la Recherche en Sciences Sociales, 119(Septembre): 4866.CrossRefGoogle Scholar
Bourdieu, P. (2004) Science of Science and Reflexivity. Cambridge: Polity.Google Scholar
Bourgeron, T. (forthcoming) Constructing legitimacy: An ethnography of the struggle for financial capital in two Paris-based private equity funds. PhD dissertation, University of Edinburgh.Google Scholar
Callon, M. (ed.) (1998) The Laws of the Markets. Oxford: Blackwell.Google Scholar
Callon, M. (1999) Actor-network theory: The market test. In: Law, J. and Hassard, J. (eds.) Actor Network Theory and After. Oxford: Blackwell, 181–95.Google Scholar
Callon, M. (2007) What does it mean to say that economics is performative? In: MacKenzie, D., Muniesa, F. and Siu, L. (eds.) Do Economists Make Markets? On the Performativity of Economics. Princeton, NJ: Princeton University Press, 311–57.Google Scholar
Callon, M. (2017) L'emprise des marchés: Comprendre leur fonctionnement pour pouvoir les changer. Paris: La Découverte.CrossRefGoogle Scholar
Callon, M. and Muniesa, F. (2005) Economic markets as calculative collective devices. Organization Studies, 26(8): 1229–50.CrossRefGoogle Scholar
Chapman, P. (2012) Barclays polices dark pool. Traders Magazine Online News, 25 April. Available at: <http://www.tradersmagazine.com>. Accessed 25 April 2016..+Accessed+25+April+2016.>Google Scholar
Christie, W.G. and Schultz, P.H. (1994) Why do NASDAQ market makers avoid odd-eighth quotes? Journal of Finance, 49(5): 1813–40.Google Scholar
Coombs, N. (2016) What is an algorithm? Financial regulation in the era of high-frequency trading. Economy and Society, 45(2): 278302.CrossRefGoogle Scholar
Economides, N. and Schwartz, R.A. (1994) Making the trade: Equity trading practices and market structure. Available at: <http://www.stern.nyu.edu/networks/making.html>. Accessed 29 April 2015..+Accessed+29+April+2015.>Google Scholar
Fligstein, N. (1996) Markets as politics: A political-cultural approach to market institutions. American Sociological Review, 61(4): 656–73.CrossRefGoogle Scholar
Fligstein, N. (2001) The Architecture of Markets. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
Fligstein, N. and Dauter, L. (2007) The sociology of markets. Annual Review of Sociology, 33:105–28.CrossRefGoogle Scholar
Fligstein, N. and McAdam, D. (2012) A Theory of Fields. Oxford: Oxford University Press.CrossRefGoogle Scholar
Godechot, O. (2000) Le bazar de la rationalité: Vers une sociologie des formes concrètes de raisonnement. Politix, 4/52:17-56.Google Scholar
Godechot, O. (2007) Working rich: Salaires, bonus et appropriation du profit dans l'industrie financière. Paris: La Découverte.CrossRefGoogle Scholar
Godechot, O. (2013) Financiarisation et fractures socio-spatiales. L'Année sociologique, 63(1): 1750.CrossRefGoogle Scholar
Instinet (1989) The Crossing Network User Manual. Interviewee's private papers.Google Scholar
Keim, D.B. and Madhavan, A. (1998) The cost of institutional equity trades. Financial Analysts Journal, 54(4): 5069.CrossRefGoogle Scholar
Kluttz, D.N. and Fligstein, N. (2016) Varieties of sociological field theory. In: Abrutyn, S. (ed.) Handbook of Contemporary Sociological Theory. Basel: Springer, 185204.CrossRefGoogle Scholar
Lange, A.C. (2016) Organizational ignorance: An ethnographic study of high-frequency trading. Economy and Society, 45(2): 230–50.CrossRefGoogle Scholar
Latour, B. (2005) Reassembling the Social: An Introduction to Actor-Network-Theory. Oxford: Oxford University Press.Google Scholar
MacKenzie, D. (2015) Dark markets. London Review of Books, 37/11(4 June): 2932.Google Scholar
MacKenzie, D. (2018) Material signals: A historical sociology of high-frequency trading. American Journal of Sociology, 123(6): 1635–83.CrossRefGoogle Scholar
MacKenzie, M. and Thomas, H. (2009) SEC Looks to get to the bottom of ‘dark pools’. Financial Times, 28 October: 35.Google Scholar
Mirowski, P. and Nik-Khah, E. (2007) Markets made flesh: Performativity, and a problem in science studies, augmented with consideration of the FCC auctions. In: MacKenzie, D., Muniesa, F. and Siu, L. (eds.) Do Economists Make Markets? On the Performativity of Economics. Princeton, NJ: Princeton University Press, 190224.Google Scholar
Mol, A. (2002) The Body Multiple: Ontology in Medical Practice. Durham, NC: Duke University Press.CrossRefGoogle Scholar
Muniesa, F. (2003) Des marchés comme algorithmes: Sociologie de la cotation électronique à la Bourse de Paris. PhD dissertation, École Nationale Supérieure des Mines.Google Scholar
Muniesa, F. (2007) Market technologies and the pragmatics of prices. Economy and Society, 36(3): 377–95.CrossRefGoogle Scholar
Muniesa, F. (2011) Is a stock exchange a computer solution? Explicitness, algorithms and the Arizona Stock Exchange. International Journal of Actor-Network Theory and Technological Innovation, 3(1): 115.CrossRefGoogle Scholar
Muniesa, F. (2014) The Provoked Economy: Economic Reality and the Performative Turn. London: Routledge.CrossRefGoogle Scholar
Muniesa, F., Millo, Y. and Callon, M. (2007) An introduction to market devices. In: Callon, M., Millo, Y. and Muniesa, F. (eds.) Market Devices. Oxford: Blackwell, 112.Google Scholar
Pardo-Guerra, J.P. (2010) Creating flows of interpersonal bits: The automation of the London Stock Exchange, c. 1955-90. Economy and Society, 39(1): 84109.CrossRefGoogle Scholar
Philippon, T. (2015) Has the US finance industry become less efficient? On the theory and measurement of financial intermediation. American Economic Review, 105(4): 1408–38.CrossRefGoogle Scholar
Schinkel, W. (2007) Sociological discourse of the relational: The cases of Bourdieu and Latour. Sociological Review, 55(4): 707–29.CrossRefGoogle Scholar
Schneiderman, E.T. (2014) The people of the state of New York against Barclays Capital, Inc, and Barclays PLC: Summons. Available at: <http://www.americanlawyer.com>. Accessed 27 August 2014..+Accessed+27+August+2014.>Google Scholar
Schwartz, R.A. and Steil, B. (2002) Controlling institutional trading costs. Journal of Portfolio Management, 28(3): 3949.CrossRefGoogle Scholar
Seyfert, R. (2016) Bugs, predations or manipulations? Incompatible epistemic regimes of high-frequency trading. Economy and Society, 45(2): 251–77.CrossRefGoogle Scholar
Smith, R. (1984) Fee war: Pension funds feud with money managers over brokers’ rebates. Wall Street Journal, 4 October: 1.Google Scholar
Useem, M. (1996) Investor Capitalism: How Money Managers are Changing the Face of Corporate America. New York, NY: BasicBooks.Google Scholar
Whitcomb, D.K. (1989) Letter to ATD shareholders. 11 November. Interviewee's private papers.Google Scholar