Impact of Technology on the Financial Market

By Selene C. Vazquez

The New York Stock Exchange and other exchanges have long been depicted as a “pit” where traders yell out orders at each other. This scene is portrayed as busy, loud, and hectic. However, the 125-year tradition ended in 2015. Today, much of the trading goes on without shouting (only few remain open, such as the S&P 500 Futures Market which remains open in the Chicago trading floor).  Rather, transactions are now governed more by software and computers and less by people. This shift in technology is affecting tens of trillions of dollars globally and deserves attention.

Technology Facilitates Information and Interaction

Technology has opened the door to an unlimited amount of information, increased interaction, and a more direct access to economic agents. Today, investors have an unprecedented access to current stock prices, earning reports, and any important news on stocks and their companies. This has led to more efficient, better-informed investors, traders, and advisers.

Simply put, the evaluation of stock has become easier. Investors can know price, details, and access any necessary analyst’s report within seconds. Technology has also fostered a larger volume of interaction through multi-party live discussion of the financial market, the use of electronic mail, and the ability to exchange stocks rapidly across national, state, and local borders, among other things.

Speed and Changes Pose Concerns

For some, technological advantages and the unprecedented access to the free flow of information are great benefits for the industry. While for others, these trading changes and new speeds bring grave concern.

For example, high-tech trading threatens firms, exchanges, and current stock mechanisms that have long been protected from intense competition behind borders, geographic location, and regulatory rules. Additionally, the speed of technology and quick access to information via social media and news outlets has the power to affect the market within a matter of seconds. Take for instance, Elon Musk’s comments via Twitter, the media coverage it received, and the impact it had on Tesla’s stocks and the financial market. Another more recent example, is the developing coverage of Uber’s request to the SEC for rules changes that would let it provide company stock to its drivers.

Moreover, the trading speed from algorithms also brings some concern. Computer-generated trading programs are designed to automatically sell when prices start going down and then buy when they fall. This occurs at the rate of thousands per minute, and may be of worry because regulatory agencies are not prepared to contain the risks of the new mix of algorithmic and high-frequency trading should these programs break down. Historically, agencies have focused on reactive measures, such as preventing a previous financial crisis, rather than proactive measures.

Too much has changed too quickly to fully understand the interplay of the technological advances and the financial market. While technological uses are becoming more prominent and their future impact is still unanticipated, the changes technology brings must be noted as it impacts millions of people and trillions of dollars.