Article
ID: CBB890038954

Systemic failures and organizational risk management in algorithmic trading: Normal accidents and high reliability in financial markets (April 2022)

unapi
Interviews Risk Capital market Science and technology studies (STS) Algorithms Accidents Technology and society 21st century United States Charles Perrow

This article examines algorithmic trading and some key failures and risks associated with it, including so-called algorithmic ‘flash crashes’. Drawing on documentary sources, 189 interviews with market participants, and fieldwork conducted at an algorithmic trading firm, we argue that automated markets are characterized by tight coupling and complex interactions, which render them prone to large-scale technological accidents, according to Perrow’s normal accident theory. We suggest that the implementation of ideas from research into high-reliability organizations offers a way for trading firms to curb some of the technological risk associated with algorithmic trading. Paradoxically, however, certain systemic conditions in markets can allow individual firms’ high-reliability practices to exacerbate market instability, rather than reduce it. We therefore conclude that in order to make automated markets more stable (and curb the impact of failures), it is important to both widely implement reliability-enhancing practices in trading firms and address the systemic risks that follow from the tight coupling and complex interactions of markets.

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Authors & Contributors
Amir, Sulfikar
Breslau, Daniel
Loh, Shi-Lin
Mohun, Arwen P.
Olson, Philip R.
Pinch, Trevor J.
Journals
Science, Technology, and Human Values
Social Studies of Science
The Bridge: Journal of the National Academy of Engineering
Public Understanding of Science
Science as Culture
Technology and Culture
Publishers
Cambridge University Press
Duke University Press
Johns Hopkins University Press
New York University Press
Oxford University Press
The MIT Press
Concepts
Science and technology studies (STS)
Technology and society
Interviews
Algorithms
Risk
Computers and computing
People
Althusser, Louis
Hegel, Georg Wilhelm Friedrich
Pinch, Trevor J.
Time Periods
21st century
20th century
20th century, late
Places
United States
Japan
Great Britain
Israel
Institutions
United States. Securities and Exchange Commission
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