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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

Will Self-Driving Cars Be Better for the Environment?

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self-driving cars for green environment
Shutterstock Licensed Photo - By Zapp2Photo | https://www.shutterstock.com/g/zapp2photo

Technologists, engineers, lawmakers, and the general public have been excitedly debating about the merits of self-driving cars for the past several years, as companies like Waymo and Uber race to get the first fully autonomous vehicles on the market. Largely, the concerns have been about safety and ethics; is a self-driving car really capable of eliminating the human errors responsible for the majority of vehicular accidents? And if so, who’s responsible for programming life-or-death decisions, and who’s held liable in the event of an accident?

But while these questions continue being debated, protecting people on an individual level, it’s worth posing a different question: how will self-driving cars impact the environment?

The Big Picture

The Department of Energy attempted to answer this question in clear terms, using scientific research and existing data sets to project the short-term and long-term environmental impact that self-driving vehicles could have. Its findings? The emergence of self-driving vehicles could essentially go either way; it could reduce energy consumption in transportation by as much as 90 percent, or increase it by more than 200 percent.

That’s a margin of error so wide it might as well be a total guess, but there are too many unknown variables to form a solid conclusion. There are many ways autonomous vehicles could influence our energy consumption and environmental impact, and they could go well or poorly, depending on how they’re adopted.

Driver Reduction?

One of the big selling points of autonomous vehicles is their capacity to reduce the total number of vehicles—and human drivers—on the road. If you’re able to carpool to work in a self-driving vehicle, or rely on autonomous public transportation, you’ll spend far less time, money, and energy on your own car. The convenience and efficiency of autonomous vehicles would therefore reduce the total miles driven, and significantly reduce carbon emissions.

There’s a flip side to this argument, however. If autonomous vehicles are far more convenient and less expensive than previous means of travel, it could be an incentive for people to travel more frequently, or drive to more destinations they’d otherwise avoid. In this case, the total miles driven could actually increase with the rise of self-driving cars.

As an added consideration, the increase or decrease in drivers on the road could result in more or fewer vehicle collisions, respectively—especially in the early days of autonomous vehicle adoption, when so many human drivers are still on the road. Car accident injury cases, therefore, would become far more complicated, and the roads could be temporarily less safe.

Deadheading

Deadheading is a term used in trucking and ridesharing to refer to miles driven with an empty load. Assume for a moment that there’s a fleet of self-driving vehicles available to pick people up and carry them to their destinations. It’s a convenient service, but by necessity, these vehicles will spend at least some of their time driving without passengers, whether it’s spent waiting to pick someone up or en route to their location. The increase in miles from deadheading could nullify the potential benefits of people driving fewer total miles, or add to the damage done by their increased mileage.

Make and Model of Car

Much will also depend on the types of cars equipped to be self-driving. For example, Waymo recently launched a wave of self-driving hybrid minivans, capable of getting far better mileage than a gas-only vehicle. If the majority of self-driving cars are electric or hybrids, the environmental impact will be much lower than if they’re converted from existing vehicles. Good emissions ratings are also important here.

On the other hand, the increased demand for autonomous vehicles could put more pressure on factory production, and make older cars obsolete. In that case, the gas mileage savings could be counteracted by the increased environmental impact of factory production.

The Bottom Line

Right now, there are too many unanswered questions to make a confident determination whether self-driving vehicles will help or harm the environment. Will we start driving more, or less? How will they handle dead time? What kind of models are going to be on the road?

Engineers and the general public are in complete control of how this develops in the near future. Hopefully, we’ll be able to see all the safety benefits of having autonomous vehicles on the road, but without any of the extra environmental impact to deal with.

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Economy

New Zealand to Switch to Fully Renewable Energy by 2035

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renewable energy policy
Shutterstock Licensed Photo - By Eviart / https://www.shutterstock.com/g/adrian825

New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.

New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.

Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.

Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”

The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.

Zero net emissions by 2050

Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.

Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.

She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.

Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”

A worldwide shift to renewable energy

Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.

Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.

Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.

Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.

Sources: https://www.bloomberg.com/news/articles/2017-11-06/green-dream-risks-energy-security-as-kiwis-aim-for-zero-carbon

https://www.reuters.com/article/us-france-hydrocarbons/france-plans-to-end-oil-and-gas-production-by-2040-idUSKCN1BH1AQ

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