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Economy

Stock Trading Has Accelerated Beyond Our Control

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The speed and technology used to trade stocks has changed enormously and now regulators are looking at ways to dial trading speed back down and bring more humans back into the market.

This article was originally published on Timeline.  

The Brief

The Nasdaq Composite, an index of mostly tech stocks, reached 5,000 in the first week of March, the highest since the dot-com bubble in 2000.

But since most trades are automated, we’re basically watching our technology trade our technology stocks. This situation is the endpoint of investors’ eternal, tech-fueled race to gain knowledge before others. Being the first to know has always given traders an edge, whether their access to market data was limited by the speed of ponies or the speed of light. Now regulators are looking at ways to dial trading speed back down, to bring more humans back into the market.

1790s – High-speed traders try to outrun public knowledge

When the new US government decided to buy back the debt of individual states in 1790, speculators quickly dispatched traders on clipper ships to purchase the bonds before word got out and the prices rose.

After the US Postal Service was established in 1792, traders put private express stagecoaches on the same routes, trying to beat the mail. The Postal Service, in turn, tried to beat the traders.

Newspapers also wanted to beat the traders. When the modern paper industry emerged in the early 1800s, many publishers hoped to inform the public so they wouldn’t fall prey to speculators who knew more.

1840s – Optical telegraph sends data between cities

To beat the public mails on high-speed horses, Philadelphia broker William Bridges set up a private semaphore communication system between New York and Philadelphia. It consisted of a series of signal stations on hilltops, each visible to its neighbors by telescope. Each station had a pole and a set of coded boards that the signal operators would use to display their message to the next station down the line.

The system conveyed stock information from New York to in Philadelphia in less than 30 minutes, for the sole benefit of Bridges and his backers.

1844 – Telegraphs and tickers beat all couriers

Long-distance telegraph beat any pony or pigeon by sending messages over wires as fast as an operator could key them in. Its inventor, Samuel Morse, didn’t want speculators abusing the medium and advocated it as a semipublic utility. But the wires were built out privately by Western Union, which wound up making nearly 90% of its revenue from speculators and racetrack gamblers.

In 1869, Thomas Edison invented the ticker, a telegraph receiver that translates Morse Code into type characters printed on paper tape. Stock markets offered subscriptions to live trade prices via the ticker. This format lives on as the crawl at the bottom of today’s financial TV broadcasts.

1878 – Phones send fast word for a century

 Stock tickers remained useful as an ongoing live feed of stock price updates. But after the telephone arrived, it reigned as the fastest way for traders to communicate their hot tips.

The first phone at the New York Stock Exchange was installed in 1878, two years after the device was invented. Investors began barking orders into phones, and the image persisted into the 1987 movie Wall Street, in which predatory investor character Gordon Gekko uses an early Motorola cellphone.

1980s – Computers trade on their own and quickly take over

In 1971, the newly created Nasdaq exchange executed trades submitted electronically rather than by phone. Other stock exchanges followed. In the 1980s traders developed software that submitted market ordersautomatically, for example if a stock reached specific price. Investing became hackable, and program trading soon began to move whole markets, contributing to the Black Monday crash on October 19, 1987.

The program-driven market inspired an arms race seeking faster and more sophisticated algorithms and hardware. If you could write software that anticipated how other’ trading systems would behave, you could get there first and make a profit.

2000s – Shorter fiber-optic runs save microseconds

High-frequency trading (HFT) became a new recipe for harvesting money from Wall Street. They key was deploying smarter programmers and more powerful computers to trade faster than the competition. In 2000, stocks began trading at penny differences rather than fractions of a dollar. This turbo-charged HFT by letting systems shave profits more frequently, in smaller increments.

But light only travels so fast through fiber-optic cable, and it takes a few milliseconds for Wall Street price info to get to Chicago. So a financial “location services” industry grew to install trading machines physically closer to stock exchange servers in New York and New Jersey, and connect them via shorter top-of-the-line cables.

2015 – Strategies for limiting high-frequency trading

After the 2008 financial crisis and the US markets’ “flash crash” in May 2010, people looked for ways to slow trading down. One approach is a small financial transaction tax (FTT) that’s expensive for computers that make zillions of trades per second, but cheap enough not to discourage human decisions. The EU is weighing this for 2016. Similar bills came before the US Congress in 2011 but never came to a vote.

High-frequency trading brings more money to larger businesses, but smaller companies depend on research-based investment. To level the playing field, a Security and Exchange Commission pilot program will make small stocks trade at intervals of 5 cents rather than 1 cent, startingin May. This slows trading by reducing the possible range of prices.

To download the Timeline app visit timeline.com.

Photo: Ken Teegardin via Flickr

Further reading:

London Stock Exchange joins UN sustainability initiative 

Stock exchanges announce commitment to sustainable investment

Ceres initiative looks to boost stock exchange sustainability reporting

FTSE: sustainability at the world’s leading investment index provider

Ban Ki-moon’s sustainable investment speech at the NYSE: full text

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Economy

Report: Green, Ethical and Socially Responsible Finance

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“The level of influence that ethical considerations have over consumer selection of financial services products and services is minimal, however, this is beginning to change. Younger consumers are more willing to pay extra for products provided by socially responsible companies.” Jessica Morley, Mintel’s Financial Services Analyst.

Consumer awareness of the impact consumerism has on society and the planet is increasing. In addition, the link between doing good and feeling good has never been clearer. Just 19% of people claim to not participate in any socially responsible activities.

As a result, the level of attention that people pay to the green and ethical claims made by products and providers is also increasing, meaning that such considerations play a greater role in the purchasing decision making process.

However, this is less true in the context of financial services, where people are much more concerned about the performance of a product rather than green and ethical factors. This is not to say, however, that they are not interested in the behaviour of financial service providers or in gaining more information about how firms behave responsibly.

This report focuses on why these consumer attitudes towards financial services providers exist and how they are changing. This includes examination of the wider economy and the current structure of the financial services sector.

Mintel’s exclusive consumer research looks at consumer participation in socially responsible activities, trust in the behaviour of financial services companies and attitudes towards green, ethical and socially responsible financial services products and providers. The report also considers consumer attitudes towards the social responsibilities of financial services firms and the green, ethical and socially responsible nature of new entrants.

There are some elements missing from this report, such as conducting socially responsible finance with OTC trading. We will cover these other topics in more detail in the future. You can research about Ameritrade if you want to know more ..

By this report today: call: 0203 416 4502 | email: iainooson[at]mintel.com

Report contents:

OVERVIEW
What you need to know
Report definition
EXECUTIVE SUMMARY
The market
Ethical financial services providers: A question of culture
Investment power
Consumers need convincing
The transformative potential of innovation
Consumers can demand change
The consumer
For financial products, performance is more important than principle
Competition from technology companies
Financial services firms perceived to be some of the least socially responsible
Repaying the social debt
Consumer trust is built on evidence
What we think
ISSUES AND INSIGHTS
Creating a more inclusive economy
The facts
The implications
Payments innovation helps fundraising go digital
The facts
The implications
The social debt of the financial crisis
The facts
The implications
THE MARKET – WHAT YOU NEED TO KNOW
Ethical financial services providers: A question of culture
Investment power
Consumers need convincing
The transformative potential of innovation
Consumers can demand change
PUTTING FINANCIAL SERVICES IN AN ETHICAL CONTEXT
An ethical economy
An ethical financial sector
Ethical financial services providers
GREEN, ETHICAL AND SOCIALLY RESPONSIBLE ISSUES IN FINANCIAL SERVICES
The role of investing
Divestment
The change potential of pensions
The role of trust
Greater transparency informs decisions
Learning from past mistakes
The role of innovation
Payments innovation: Improving financial inclusion
Competition from new entrants
The power of new money
The role of the consumer
Consumers empowered to make a change
Aligning products with self
THE CONSUMER – WHAT YOU NEED TO KNOW
For financial products, performance is more important than ethics
Financial services firms perceived to be some of the least socially responsible
Competition from technology companies
Repaying the social debt
Consumer trust is built on evidence
Overall trust levels are high
THE ETHICAL CONSUMER – SOCIALLY RESPONSIBLE ACTIVITIES
Payments innovation can boost charitable donations
Consumer engagement in socially responsible activities is high
Healthier finances make it easier to go green
SOCIALLY RESPONSIBLE COMPANIES
37% unable to identify socially responsible companies
Building societies seen to be more responsible than banks….
….whilst short-term loan companies are at the bottom of the pile
CONSUMER TRUST IN THE BEHAVIOUR OF FINANCIAL SERVICES COMPANIES
Overall trust levels are high
Tax avoidance remains a major concern
The divestment movement
Nationwide significantly more trusted
Trust levels remain high
CONSUMER ATTITUDES TOWARDS GREEN AND ETHICAL FINANCIAL PRODUCTS
For financial products, performance is more important than principle
Socially conscious consumers are more concerned
CONSUMER ATTITUDES TOWARDS TRANSPARENCY
Strategy reports provide little insight for consumers
Lack of clarity regarding corporate culture causes concern
Consumers want more information
THE ROLE OF FINANCIAL SERVICES FIRMS IN SOCIETY
The social debt of the financial crisis
THE SOCIAL RESPONSIBILITIES OF FINANCIAL SERVICES FIRMS
For consumers, financial services firms play larger economic role
Promoting financial responsibility
CHALLENGER COMPANIES AND SOCIAL RESPONSIBILITY
Consumer trust is built on evidence
The alternative opportunity
The target customer

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Economy

A Good Look At How Homes Will Become More Energy Efficient Soon

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energy efficient homes

Everyone always talks about ways they can save energy at home, but the tactics are old school. They’re only tweaking the way they do things at the moment. Sealing holes in your home isn’t exactly the next scientific breakthrough we’ve been waiting for.

There is some good news because technology is progressing quickly. Some tactics might not be brand new, but they’re becoming more popular. Here are a few things you should expect to see in homes all around the country within a few years.

1. The Rise Of Smart Windows

When you look at a window right now it’s just a pane of glass. In the future they’ll be controlled by microprocessors and sensors. They’ll change depending on the specific weather conditions directly outside.

If the sun disappears the shade will automatically adjust to let in more light. The exact opposite will happen when it’s sunny. These energy efficient windows will save everyone a huge amount of money.

2. A Better Way To Cool Roofs

If you wanted to cool a roof down today you would coat it with a material full of specialized pigments. This would allow roofs to deflect the sun and they’d absorb less heat in the process too.

Soon we’ll see the same thing being done, but it will be four times more effective. Roofs will never get too hot again. Anyone with a large roof is going to see a sharp decrease in their energy bills.

3. Low-E Windows Taking Over

It’s a mystery why these aren’t already extremely popular, but things are starting to change. Read low-E window replacement reviews and you’ll see everyone loves them because they’re extremely effective.

They’ll keep heat outside in summer or inside in winter. People don’t even have to buy new windows to enjoy the technology. All they’ll need is a low-E film to place over their current ones.

4. Magnets Will Cool Fridges

Refrigerators haven’t changed much in a very long time. They’re still using a vapor compression process that wastes energy while harming the environment. It won’t be long until they’ll be cooled using magnets instead.

The magnetocaloric effect is going to revolutionize cold food storage. The fluid these fridges are going to use will be water-based, which means the environment can rest easy and energy bills will drop.

5. Improving Our Current LEDs

Everyone who spent a lot of money on energy must have been very happy when LEDs became mainstream. Incandescent light bulbs belong in museums today because the new tech cut costs by up to 85 percent.

That doesn’t mean someone isn’t always trying to improve on an already great invention. The amount of lumens LEDs produce per watt isn’t great, but we’ve already found a way to increase it by 25 percent.

Maybe Homes Will Look Different Too

Do you think we’ll come up with new styles of homes that will take off? Surely it’s not out of the question. Everything inside homes seems to be changing for the better with each passing year. It’s going to continue doing so thanks to amazing inventors.

ShutterStock – Stock photo ID: 613912244

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