Abstract – Research Studio: Algorithms

High Frequency Geography: Mapping the Materiality of the Global Financial System

This paper focuses on recent directions in my artistic practice exploring the relationship between finance and geography. In the past 15-20 years, the global financial system has come to rely more and more on computer mediated trading practices, known as algorithmic trading. Within this larger field, one area that has generated a particular amount of interest is high frequency trading, where profits hinge on the speed with which algorithms can react to fluctuations in market prices. In a global economic system where activities in Tokyo might affect algorithmic decisions in New Jersey, High Frequency Trading has come up against the fundamental limit of physical reality – the speed of light. This paper describes how trading activities have shifted away from human actors on trading floors towards algorithmic actors inside data centers, with a focus on the underlying infrastructure that these electronic trading exchanges rely on. I frame my research within a discussion of previous works by artists addressing the complex global financial system.

Mapping

Two serendipitous things happened today.

Toby sent me an article on a plan in the works where three different companies, one Russian, one Canadian and one American, are all investing heavily into laying down high speed fiber optic cables that would traverse the arctic circle and provide much faster connections between the US, Western Europe and Japan. Despite the huge investment and undertaking (each cable is estimated to cost between $600 million and $1.5 billion each, and will reduce latency between London and Tokyo by 30%), this is only possible due to global warming and polar ice caps receding significantly in the last few years.

I believe that this cable, this story, really brings together the connections between the financial system and the environment that I’ve been trying to deal with in more metaphorical ways (with the Unity landscape). Currently, I’m trying to figure out how to relate the speed gained by investing billions into these cables, an idea only made possible by human impact on our planet, and the effects that the financial system (and the infrastructural feats we are willing to do in its name) will continue to have on the environment. Here is the map of the planned cable.

I also met with Heather earlier in the day about my paper topic for her research studio class and my thesis project. Since I haven’t actually completed the projects I want to make, I can’t necessarily write the artist’s paper she had in mind for me. I still want to frame what I’ve been researching in that vein, but I may have to focus on other artists who have tried to do similar things.

So that got me looking at a book I’ve had for a while called Else/Where: Mapping New Cartographies of Networks and Territories. Flipping through, I came across a diagram that immediately resonated with me in light of the previous map.

The diagram, called “Centers and Peripheries,” was originally made by geographer Denis Retaillé in 1992, but included in a 1994 volume on the “globalization of capital” by the economist François Chesnais. In his chapter “Counter Cartographies” Brian Holmes discusses the map.

This map shows three things. First, a circuit linking the United States, Western Europe and Japan, the so-called “Triad” regions, which form a “global oligopoly” accounting for the majority of industrial and financial exchanges. Second, the major nodes of the world network, represented by densely outlined circles. And third, the hierarchical relations between the regions, as described with these categories: center; periphery integrated to the center; annexed periphery; exploited periphery; abandoned periphery. Chesnais performs a Marxist analysis, showing how globally fragmented production lines are coordinated through the computerized circuits of the financial sphere. His map describes the hierarchy of social relations in a post-national era, when no political formation can erect any substantial barrier to the dictates of capital. And it reveals the near-perfect correlation between the graph of virtual flows and the geography of human exploitation.

I need to think about the relationship of these diagrams a bit more, but it’s as if one is predicting the existence of the other.

Post Spring Break Thesis Update

There have been some positive developments in the past few weeks, but since I spent my Spring Break in Austin I did not get as much work done on my thesis as I hoped to.

Access to Intraday Trading Data
I am now in touch with Knight Capital to get one day’s worth of exchange data. When I met with Marius Watz for my 1-on-1 meeting a few weeks back, he mentioned that he’d done a project for them, called Stockspace. He told me to drop his name and see if they’d share data with me like they did for him. Finally, after a few weeks of emails, they are working to get me data for a day’s worth of exchange activity, as well as one day’s worth of Knight trading activity. This will really help me get a feeling for the intraday behavior of the trading exchanges, which is especially important since high frequency traders buy and sell during the day, but try to leave their position “flat” at closing. Basically, this means they don’t want to end the day holding shares of stock whose values might drop. I hope to use Mark Hansen’s Data class to really explore the intraday data and see what kinds of patterns and visualizations emerge.

I may use this data to animate a similar landscape in Unity like I’ve been experimenting with this semester. Here is a video of the latest version, though still not where I envision it in the long run.

Hunting down data for Colocation Map
I spent a lot of my Spring Break hunting down data on the locations of trading exchanges, as well as colocation facilities that service the proprietary trading firms that engage in high frequency trading. Following Dave Boyhan’s suggestion, I did a lot of whois.com searches on the IP address from this not completely inclusive list of these prop trading firms. It returns Latitude and Longitude coordinates, but I’m not quite sure if they’re really accurate. I’m also torn about whether to list the trading firms at their official addresses, or to track down where they colocate. I will try and do both, but again, there’s a lot of private data so I’m also limited to what I have access to.

Spread Networks, which is currently the fastest fiber cable between New York and Chicago, making a roundtrip in 13.10 ms, updated their website recently and made a lot more of their locations public. They also posted a map of “amplification sites” along the way. This makes me really want to roadtrip to all of these towns, but I’m afraid that dream may have passed since I spent my Spring Break eating tacos in Austin.

Still, it’s great that they’re publishing more of their data. I’d like to contrast the Spread Networks cable with a few that are a tiny bit slower, but are much cheaper because of it. I’m assuming that the real HFTs use Spread Networks since even 1ms advantage is worth the cost in most cases.

In addition to the Klondyke Gold Rush map, I’m looking at some maps Stamen made of London, in which they visualized the relationship where they made a heat map that corresponded to the time it took to commute downtown.

GPS Spoofing
I’ve spent a while weighing the pros and cons of this since I last presented it in Thesis class a few weeks ago. I’m still fascinated by the extreme importance of time keeping in HFT, and the fact that it needs to be accurate down to the microsecond. I have ideas like making a Time Microscope or a High Frequency Time Machine, which would be imaginative objects that address the conflict of humans trying to experience computer time, or the lengths that traders might go to find that edge.

When I talked about the GPS Spoofer in Crit Group, I received interesting feedback that made me question why I wanted to make it. Abigail Simon said, the financial system is vulnerable (and problematic) due to larger issues than GPS timekeeping. I’m torn between exploring this technical facet vs. pushing some more conceptual ideas I have, especially about the relationship between finance and landscape/geography.

I’m still going to try and make the spoofer, and will hopefully have a report on that soon. I’m just not sure how to frame it. Is it a “guerilla weapon?” A sculpture? Do I have to test it in order for it to be worth doing?

Research Group Paper
I’m going to take the paper I’m writing in Heather Dewey-Hagborg’s Research Studio as an opportunity to write what I’ve been thinking about High Frequency Trading down in some kind of more formal way. I will write an update with more specific details, but I see this paper as both explaining High Frequency Trading to a general audience, as well as writing about the issues of time and space, geography and value that my thesis is exploring.

Research Studio Update Week 7

This past week has been a whirlwind of speaking to experts and consultants about my research. In chronological order, these are the people I’ve spoken to with a few notes from our conversations.

Nancy Nowacek
Meeting with Nancy was wonderful. She immediately got my concept and was really good about offering references that she thought might be relevant. The first thing we discussed were waterlots, and a project we’d both seen at the CCA Curatorial MFA show in 2010 (I guess we’re both from the Bay Area). Sandra Nakamura makes installations with pennies that represent larger value connected with prices of land. For this piece she turned a grant from CCA for the amount it would have cost to buy the waterlot it sits on during the Gold Rush. She then turned this amount into pennies.
She also referenced the Propeller Group, a collective from Vietnam who were in the last Triennial at the New Museum. They did a project where they re-branded Communism, overlaying two opposing forces that makes the viewer confront the absurdity of the capitalist machine.
She told me to look at Carsten Holler’s work, since he approaches his artwork very grounded in his scientific background. She told me that the slides are about doubt, which is an interesting and non-interactive take on them.
Find a poetics about the technical
Try to make connections; 5-6 thought experiments
Do something that confronts the body – where the emotion lies
Look at Xavier LeRoy (choreographer) and Cassie Thornton, who has an excellent project where she turns people’s debts (bank statements, bills) into nuggets of paper mache gold, or bling.
Exercise to examine the core mechanics of a prop – light, heavy, bouncy. Emotion as an end goal.

Sean McIntyre
Sean McIntyre, a first year who does a lot of work with mesh networks, had a previous life as a high frequency trading programmer. It’s sort of the best case scenario, since he gets what we do here at ITP, and he’s not under an NDA like all current high frequency traders. He was nice enough to sit down with me last week and tell me a little bit about how the system worked (from his experience). He worked at Virtu, and did a lot of quality assurance, which was basically making sure that the algorithms worked properly before they “unleashed the beasts” (his words). He confirmed that they colocated their algorithms in three locations – Carteret, Weehawken and Seacaucus – most likely so that they could communicate with the trading exchanges nearby. At this point, NYSE didn’t have their Mahwah data center built yet (2008-2010).
GETCO was the company to beat
Bankruptcy in seconds (if things went bad)
Arbitrage across data centers
Citigroup stock was consistently in the top 5 for volume. Volume was the biggest indicator for HFT, much more important than closing price. They liked Citigroup cuz it was relatively cheap, and predictable.
In terms of liquidity rebates and transaction fees (other factors beside bid and ask spread that affect HFT algo decision-making), these are negotiated individually between the exchange and each trading company. This is one of the reasons that Virtu poached Chris Concannon, a former VP of Nasdaq, due to his connections and ability to negotiate better prices for their company.
Rebates are tiered according to a firm’s performance. More volume, lower fees
Chronos – their name for a time-based strategy
Algos usually incorporated multiple strategies
Not so sure about the HFT algos that lure others by buying and cancelling – Your can easily piss off an exchange by spamming them with buy/cancel orders
HFT has a data processing problem
Nasdaq exchange protocol = FIX protocol
Every exchange has a different standard of sending messages, need to figure out how to get them all to talk to each other
UDP
Messages from data center in 1 of 2 formats
Whole book or stock specific

Petter Kolm
I spoke with Petter Kolm from Courant Mathematical Finance Dept last Thursday, which has direct connections to Wall Street firms.
He told me that HFT algorithms are actually not that complex, just operate really fast
He suggested that I might model one simple system – and change parameters overtime
If volatility in the market goes up, algorithms become more aggressive
trading – sell-side activity, service to customers to minimize transaction costs – “agency algorithms, sell-side algos”
Aggressive HFT – one strategy is to pick off those large orders, and buy ahead in order to sell them the stock they want at a profit
Passive – place limit orders in the book
Limit – spread based on supply/demand
Aggressive HFT – instead of providing liquidity, you take it
Prop Trading Firms, Hedge Funds & HFT firms all employ different strategies at different frequencies
Market Making – they can be at the top of the limit order, buy low, sell high
colocated latency, 3-4 ms in exchange, longer if outside
Dark Pools – 30 dark pools exist
-they’re listed on the web
-just “another form of electronic trading”
-allow people who want to trade larger amounts of shares at once to execute them in one go, without the market seeing it and changing the price of the trades – “slippage”
-in dark pools, trades are marked at the midpoint between the buy and ask prices, don’t have to reach the ask.
-in reality, the avg size of a trade in dark pools isn’t as large as what they were designed to accomodate

Marius Watz
Very helpful, offered to put me in touch with Knight Capital Group, who he did dataviz for. They gave him a full day of intraday trading data for various stocks to visualize. He said I could use his name and perhaps they’d offer something similar.
He said the map sounded really interesting, referenced “They Rule”, Kevin Slavin, etc. Something he would “tweet”
He said to look at the Nanex crop circles and pick them apart with someone who might know what’s going on – they could be an opportunity to visualize

Tom Igoe
Went to office hours with Tom for his advice on the “understanding networks” angle to my research and project. He had some great ideas in terms of distilling my concept and how to proceed
Some notes from our meeting:
Not just actual locations, but distances/speeds in relation to how fast packets can travel. For instance, speed of fiber cable will connect the same two locations at different rates.
How has HFT changed the daily workflow for traders? (Trying to see if it has affects on human actors, or if things have changed over time because of it)
In addition to talking to quants, reach out to fund managers to see if this has changed the way they manage their team?
How might it affect a fund manager vs a specific stock trader?
If HFT injects liquidity it also injects volatility
Look at the GPS Spoofer article again with Higgs Boson debunk in mind – basically, they thought they find a particle that went faster than the speed of light but really it was an error in their GPS signal data
What do I need to ask a quant vs a trader?
Have the principles behind shorting changed (because of HFT?)
How have human trading patterns changed since HFT
Arbitrage – pure inter market arbitrage, other strategies
Tell me about some of the different methods that traders use, pattern of those methods over time, both manually and algorithmically

In addition to these first person sources, I have also been reading about human perception of time, and the time it takes to process actions and our consciousness of our actions. I read a chapter from The User Illusion, by Tor Norretranders, that described an experiment done by Benjamin Libet in which he attempted to determine the time and order of people’s consciousness of their own actions. Essentially, people react before their conscious brains do, so the whole idea of conscious action and agency generates from impulses in the body, where our brains explain them by saying they “wanted” to do something.

Another interesting thing the reading referenced is Wilhelm Wundt’s complexity clock – which is a clock that takes about 2.56 seconds to make a full rotation. People can still visually see the 3 ‘o clock, 7 ‘o clock (etc) spots around the clock, so that they can pinpoint smaller amounts of time more easily than just trying to sense what time it was when they made a decision.

I’m also reading up on whitepapers about GPS and different high frequency trading strategies, which I will summarize in another blog post.