Whether and How Do The Risks Emerging From Increased Adoption of ICT in Financial Trading Pose Cost Implications

For Trading Companies?

Abstract: The adoption of ICT in financial trading has increased manifolds in last decade or so. A commonly cited reason for this is substantial reduction is transaction cost through disintermediation, straight through processing (STP), etc. However, the risks emerging from this increased adoption have had negative cost implications on the trading companies , prima facie this appears to be the case. In this paper, I attempt to explore these risks and related cost implications in greater detail and check whether and how the cost reduction brought by ICT is balanced with this possible negative cost implication attributed to ICT risks in financial trading. The conceptual framework for this study is anchored in transaction cost theory which provides a base to evaluate these risks. Research is proposed to occur in the form of open ended, focused interviews with eminent professionals from banking sector (banks, stock exchanges and regulatory boards ). The paper concludes with review of

expectations and risks regarding the proposed research.

Contents
INTRODUCTION ................................ ................................ ................................ ................................ . 3 LITERATURE REVIEW ................................ ................................ ................................ .......................... 4 THEORITICAL FRAMEWORK ................................ ................................ ................................ ............... 8 RESEARCH METHODOLOGY ................................ ................................ ................................ ............. 11 RESEARCH STRATEGY ................................ ................................ ................................ ................... 11 SAMPLE AND DATA COLLECTION................................ ................................ ................................ .. 11 DATA ANALYSIS................................ ................................ ................................ ............................ 13 METHODOLOGICAL TRIANGULATION ................................ ................................ ........................... 13 DISCUSSION ................................ ................................ ................................ ................................ ..... 13 EXPECTATIONS................................ ................................ ................................ ............................. 13 RISKS ................................ ................................ ................................ ................................ ........... 15 CONCLUSION ................................ ................................ ................................ ................................ ... 15 BIBLIOGRAPHY ................................ ................................ ................................ ................................ . 16

INTRODUCTION
Information and communications technology (ICT) has revolutionized the functioning of financial markets and the way financial assets are traded. The electronization of stock markets dates back to the year 1971 when the NASDAQ, worlds first electronic stock market went live. Although NASDAQ initially operated as an electronic bulletin board and did not offer straight through processing (STP), it marked the beginning of an era which saw the ever-increasing role of ICT in the stock markets worldwide. With the advent of algorithmic and high frequency trading in the past decade, a significant number of stock exchanges have abolished their trading floors which were used by brokers to manually match the orders using an open-outcry system (Jain, 2004). Those outcry mechanisms have since been replaced by fully automated and transparent electronic systems (Jain, 2004). According to data from the NYSE, high frequency trading volume has soared by about 164% between 2005 and 2009 (Duhigg, 2009). It accounted for 73% of all US equity trading volume, about 50 percent of the trading volume in Europe (Nishimura G, 2010) and 5 to 10 percent trading volume in Asia. In currency markets, about half of the amount traded is estimated to involve algorithmic trading (Nishimura G, 2010). These numbers depict the increasing dependence on technology for carrying out trades electronically by the traders and investors. The increased adoption of electronic trading is attributed to a number of factors including reduction in transaction costs through straight through processing (STP), disintermediation of brokering through direct market access and algorithms, greater liquidity, better competition, tighter spreads and increased transparency. This is further affirmed as exchange officials in both developed and emerging markets have commonly cited cost reduction as a major reason for switching from floor to electronic trading (Jain, 2004). Electronic trading systems help in substantially lowering investors trading costs (fees spreads, commissions, brokerage) and facilitate increasing amount of publicly available information about a stock s demand and supply (Jain, 2004). The Securities and Exchange Commission (SEC) defines the biggest electronic trading systems, electronic communications networks (ECNs),as electronic trading systems that automatically match buy and sell orders at specified prices (http://www.sec.gov/answers/ecn.htm). ECNs automated

communication and matching systems have led to lower trading costs (Hendershott, 2003) .
3

Through matching buyers and sellers directly, ECNs bypass human intermediaries such as dealers, reducing their profits (Hendershott, 2003). Taylor et al. (2000) in Al-Khouri and Al-Ghazawi (2008) tested the effect of electronic trading on transaction cost and the trade speed faced by the arbitrager trading of the FTSE100 spot and futures contracts on the London Stock Exchange (pg, 227). Their findings showed a significant reduction in the transaction costs faced by arbitragers since the introduction of electronic trading system (Al-Khouri and Al-Ghazawi, 2008). However, a number of authors (Thissen, 2001; Venkataraman, 2001; Omet and Khasawneh, 2003) studied factors such as level of competition and volatility, and have found out that transaction costs increase after the implementation of Electronic Trading Systems (ETS) as compared to floor trading system. Therefore, there is little disagreement that the impacts of ICT adoption in trading have been positive as it has yielded many benefits especially the cost benefits. However, as the ICT adoption is growing manifolds, so are the risks associated with it. The next section will focus on the existing literature on the risks brought about by increased adoption of ICT in financial trading.

LITERATURE REVIEW
The past decade has seen a dramatic rise in the adoption of ICT in financial trading. Electronic markets have transformed into large scale, critical infrastructures whose failure can result in massive economic and social effects (Alt and Klien, 2011). The financial cr isis of 2008 and May 6, 2010 flash crash are just a few examples which remind us of the fact that we have become a part of what Beck(1992) terms as global risk society (pg, 18). Beck (1992) used the term risk society to describe a situation where technology advancement or modernity yields new risks which absorbs the societies attention and problem solving capabilities (Alt and Klien, 2011) . The exposure to these risks has heightened as they have become exacerbated and more contagious as they spread around the globe swiftly (Alt and Klien, 2011). Therefore, it has become all the more important to study the risks brought about by adoption of ICT in financial markets.

This literature review mainly highlights the technological and regulatory risks brought about by increased adoption of ICT in trading and investments made by trading companies to mitigate these risks. Most of the technological risks in current context are attributed to high frequency trading or algorithmic trading, which is perceived to have revolutionarized the functioning of financial markets. The proponents of high frequency trading such as Hendershott et al. (2011) argue that it has helped in facilitating increased liquidity to the stock market trading, and it leads to improved efficiency by narrowing bid-ask spreads thereby reducing the costs of trading for other market participants. However, high frequency traders have posed a technological and systemic risk (Malmgren and Stys, 2010) to the financial system as was evident during the flash crash on May 6 last year. The flash crash caused a violent fluctuation in prices over some ten minutes in the U.S. equity market. The Securities and Exchange Commission (SEC) report pointed out that one algorithm s automated execution of a very large sell order confused and dislocated other algorithms. In such a scenario, several high frequency traders disengaged from the markets, turning off computers which seemed to their operators conveying misinformation (Malmgren and Stys, 2010), leading to temporary implosion of liquidity and unusual turbulence in several stocks. Some algorithm-based arbitrage trades contributed to spreading this market seizure to a wide range of individual stock prices, leading to the full blown flash crash. Some authors (Malmgren and Stys, 2010) emphasized that the learning from this episode was that the high frequency trading platforms not only enhance market liquidity but also trigger massive meltdown. According to Salmon and Stokes (2010), these algorithms are inscrutable and uncontrollable feedback loop (pg 1). They may be easy to control individually but their interaction can cause unexpected behaviours which can lead to overwhelming the system they were build to navigate (Salmon and Stokes, 2010), as was evident during the flash crash. In another incident, Credit Suisse was fined $150,000 by New York Stock Exchange after its trading algorithm bombarded the exchange s trading system with hundreds of thousands of erroneous messages (Grant, 2010: Financial Times). Credit Suisse had failed to

adequately supervise development, deployment and operation of proprietary algorithm,

5

including failure to implement procedures to monitor certain modifications made to algorithm (Grant, 2010: Financial Times). Other examples include that of Progress Energy, a North Carolina utility, watched helplessly as i ts shares fell 90 percent and in another incident shares of Apple fell nearly 4 percent in just 30 seconds, before making a recovery few minutes later (Salmon and Stokes, 2010). These sudden share dives are a routine now, and it s often impossible to trace their causes. But most industry experts pin the blame on the legions of powerful, superfast trading algorithms which are a set of simple instructions that interact to create a market that is incomprehensible to the human mind and impossible to predict (Salmon and Stokes, 2010) and thus, adding to the uncertainty and complexity of financial markets. Some have concluded that for better or worse, the computers are now in control (Salmon and Stokes, 2010). The above discussion clearly highlights the risks posed by electronic trading which contributes to the uncertainty and complexity of the financial markets. These complexities make it harder for the legislators and regulators to predict, investigate and interpret the causes of any mishappening or indulgence in opportunistic behaviour by algorithmic traders as was evident in the aftermath of flash crash episode. Therefore, flash crash like incidents drew strong reactions from regulators, taking a hard stand on computer trading. For instance, Mary Schapiro, chair of the Securities and Exchange Commission publicly mentioned that humans need to take back some control from the machines (Salmon and Stokes, 2010). Automated trading systems will follow thei r coded logic regardless of outcome, she told a congressional subcommittee, while human involvement likely would have prevented these orders from executing at absurd prices (Salmon and Stokes, 2010). Another senator sounded a louder alarm declaring, Whenever there is a lot of money surging into a risky area, where change in the market is dramatic, where there is no transparency and therefore no effective regulation, we have a prescription for disaster (Salmon and Stokes, 2010). This clearly highlights the level of complexity brought about by automated trading. Moreover, the measures brought by SEC to prevent flash crash like incidents add to the uncertainty in the market as these events are unpredictable and the regulator s will respond accordingly. Although SEC imposed circuit breakers, rules that automatically halt trading if a stock s price fluctuates by more than 10 percent in five minutes and other such measures,
6

critics argue that these are not the ways of controlling the algorithms but only the means of slowing them down (Salmon and Stokes, 2010). Since the last decade or so, the number of financial products and asset classes has grown exponentially. The massive growth of electronic trading has seen the sudden increase in number of transactions carried out per second as today, a single stock can receive 10,000 bids per second (Salmon and Stokes, 2010). With executions trimming to 1 microsecond, the trading firms are competing fiercely to stay ahead in the game. However, this is leading to boundlessly expanding technology costs (Klobucher, 2011). Industry expert Neil McGovern has said, Firms must decide whether or not continue the race, and further raises the question that How many players can keep up when the cutting edge of low-latency trading starts measuring in nanoseconds? (Klobucher, 2011) Moreover, the regulators have come up with stringent rules which aim to avert another financial crisis, flash crashes or mini market crashes. As these crashes are being traced to algorithmic or high frequency trading, the costs of risk mitigation (through increased spending on technology) and compliance will continue to rise for the trading companies (Klobucher, 2011) . As Klobucher(2011) sums it up, the time and money saved wi th these cutting-edge data frameworks may not completely offset the costs of burgeoning technology and new regulation . The above discussion highlights that on one hand adoption of ICT is reducing transaction costs but at the same time, it has posed risks that may have cost implications for trading companies. There are gaps in the reviewed literature which has led to the question of whether and how do these risks pose cost implications for the trading companies? Does it offset the costs saved by increased adoption of ICT in trading? From the open ended interviews, data can also gathered about more such risks due to the limited existing literature on the topic of study.

THEORITICAL FRAMEWORK
We have examined risks brought about by increased adoption of ICT in financial tr ading. However, these risks must be examined under theoretical lens to understand their role in cost implications on financial trading companies. The theory used in this research is Transaction Cost Theory as it has been extensively used in this field following the Ciborra s (1981) proposal of using this theory as a potential framework for undertaking research in design and impact of ICT (Cordella, 2006). Transaction costs are mainly of three types i.e. search costs (cost of locating information on opportunities of exchange), negotiation costs (costs associated with negotiating the terms of contract) and enforcement costs (cost of enforcing the contract) (Cordella, 2006). As highlighted earlier, adoption of ICT in trading has led to decrease in search and information costs by instantly connecting buyers and sellers due to disintermediation. The framework proposed to evaluate the risk factors is grounded in the Transaction Cost Theory. The determinants of transaction costs are used to explain how risk factors emerging from increased adoption of ICT in trading can possibly impact trading costs as a consequence of these determinants (Table 1). The determinants of transaction costs have been proposed by Williamson (1975) and further highlighted in the paper by Cordella (2006). According to Cordella(2006, pg 197), Tc = f(U;C;Br;Ia;As;Ob;Cc) Where Tc is transaction costs, U is uncertainty, C is complexity, As is asset specificity, Ob is opportunistic behaviour and Cc is coordination costs. As highlighted in Table 1, I have identified uncertainty, complexity, opportunism and time specificity (proposed by Malone 1987) as most relevant to the risk factors of ICT s adoption in financial trading. It is vital to explore the externalities that are generated by interdependence of these determinants on the trading costs and the effects of ICT on these externalities (Cordella, 2006).

Table 1- Analysis of risk factors by Transaction Cost determinants

Risk Factors Increased Transactions and Asset Classes Transaction Cost Determinants Increases Complexity Consequences Can have positive or negative impact on overall trading cost. It can also have negative impact on cost if increased transactions are not managed efficiently. Can increase overall trading cost due to investments in risk management systems, more focus on development and testing of trading platforms and cost of regulatory compliance. Can result in increase in trading cost due to time specificity as delay of every millisecond can lead to lost opportunity of $100 million per annum. Can invite costs to the companies not complying with the rules. Costs can also attribute to change in rules such as increasing latency to facilitate healthy competition and maintain market stability.

Faulty Algorithm

Increases Uncertainty, Opportunism, Time Specificity

Trading Platform/System Failure (Internal and Stock Exchange) Regulatory Concerns

Increases Uncertainty, Complexity, Opportunism, Time Specificity Reduces Uncertainty and Opportunism, Increases Complexity and Time Specificity

In the above table, I have highlighted four key risk factors attributed to adoption of ICT in financial trading as discussed in the literature review section of this research proposal. Although, there are other factors which might impact trading costs, only the most significant ones are highlighted in the table. The first factor is the increased transactions and asset classes. This factor can lead to increase in complexity because of large number of transactions and asset classes. However, large number of transactions can reduce costs due to economies of scale bu t increase costs if the complexity due to large number of transactions and asset classes are not managed efficiently. The second factor is the faulty algorithm or algorithm malfunction. This factor has multiple effects i.e. it increases uncertainty in the financial markets by causing market swings (flash crash like scenario) which will lead to opportunistic behaviour by some algorithmic traders who take advantage of bid and offer differentials across exchanges, skewing the price to their advantage. This may also affect time specificity as due to market crash, there might be halt in trading or delays in transactions processing leading to losses. This could increase
9

overall cost of trading due to increased spending on technology, risk mitigation mechanisms and increased regulatory and compliance costs brought about by stricter rules and also heavy fines imposed by the regulator for these algorithmic malfunctions. The third factor is trading platform or system failure which could be of a trading firm or that of a stock exchange. This factor can lead to increased uncertainty as was evident when the trading platform of London Stock Exchange crashed during morning session on Feb 25 this year and Lloyds of London was declaring its quarterly earnings. Traders wanted to trade the Lloyds stock but lost the opportunity. This led to complexity which helped certain traders to engage in opportunistic behaviour due to price difference in the alternative exchanges and arbitrage opportunities. The cost of trading could increase due to investments in back -up systems but moreover due to time specificity, delay of every millisecond can lead to lost opportunity of $100 million per annum (Martin, 2007). The fourth factor is regulatory concerns or regulatory responses to ICT risks. This factor on one hand reduces uncertainty and opportunism by enforcing rules and regulations to prevent future crashes and facilitate healthy competition. However, on the other hand it increases complexity as regulators may impose rules to which trading firms might find difficult to adapt to as they would have to tailor their trading strategies accordingly. It may also affect time specificity as regulators aim to slow down the algorithms to facilitate proper functioning of markets, which might result in reduced profits for companies competing on lower latency. The cost of trading could on one hand decrease due to better control and monitoring mechanisms but on the other hand, may invite costs of compliance due to stringent rules. The above factors highlight their impact on the selected determinants of the transaction cost theory and their resultant effect on the trading costs. However, it is important to understand that the above framework is tentative only as risks factors may change depending upon the data collected from the open ended, formal interviews which could then possibly change the corresponding factors and the resultant implications of these factors on trading costs.

10

RESEARCH METHODOLOGY
RESEARCH STRATEGY
This research adopts a case-study method as a research strategy due to the lack of previous empirical research in the chosen field of study. According to Yin (2003), a case study as a research strategy has a distinct advantage when a how or why question is being asked about a contemporary set of events, over which the investigator has little or no control (pg, 9). This definition quite aptly suits the context of this research as the author investigates whether and how the risks emerging from increased level of ICT s adop tion in trading has contributed to overall costs for trading companies. Yin (2003) also states that, a case study is an empirical enquiry that investigates a phenomenon within its real life context (p, 13). In this research proposal, I intend to cover the phenomenon of ICT risks emerging from its increased adoption in financial trading. Theory developed through case -study research strategy is likely to have important strengths such as novelty, testability and empirical validity which arise from intimate linkage with empirical evidence (Eisenhardt, 1989: 548). Therefore, this highlights that case-study is a comprehensive research strategy. A qualitative data collection technique is used for the purpose of this research. A major reason behind adopting th is approach is the availability of data in the form of interviews. The author aims to conduct ten interviews with eminent professionals from investment banks, stock exchanges and regulatory boards. Some of these professionals are well known to the author as they are alumni of masters program which the author is presently undertaking and therefore, will facilitate the task of data collection. Data will also be collected in the form of administrative documents (Yin, 2003) such as internal reports which would help in corroborating the evidence generated through focused interviews. This will help in facilitating triangulation.

SAMPLE AND DATA COLLECTION

The information for this qualitative case study has been collected through the focused interviews (Yin, 2003). The author aims to take ten interviews of eminent professionals from investment banks and stock exchanges. The sample will be carefully chosen and will involve a balanced representation of professionals from investment banks, stock exchanges and regulatory boards. It would also be important that some of these professionals belong to
11

technology departments of these institutions to reflect upon technicalities of trading platforms. This focused interview design is used to facilitate open ended conversation with the interviewee, although this design will also involve an interview protocol containing a set of questions to underpin the research. This protocol will be used to ensure that all the specific questions related to the study are answered a part from the interviewees own thoughts and views pertaining to the research area. Some of the key questions asked in the protocol would be: (1.) how do you perceive the risks brought about by increased adoption of ICT in trading? (2.) do you think they impact overall cost of trading cost? If so, how? (3.) do these cost implications imbalance the cost reductions brought about by adoption of ICT? This interview approach also plays an instrumental role in determining propositions which might become a subject for further enquiry, by asking the interviewees to propose their own insights into certain occurrences (Yin, 2003). These interviews will be conducted faceto-face and through telephonic conversation, each lasting for about 45 minutes to 1 hour. These interviews will be transcribed and structured to complete the final research in the form of dissertation. Another source of data collection will be in the form of administrative documents (Yin, 2003) such as internal reports. This is a useful data collection method as it would help in corroborating the evidence generated through focused interviews. In case these two methods do not corroborate, further investigation will be required into the matter. Inferences could also be made from the these documents which may point to undiscovered elements involving the current topic of research and these could then be further investigated. Other secondary sources will also be used such as websites of banking institutions, regulatory boards and stock exchanges. Internet will also be used to access electronic journals, major financial periodicals such as Financial Times and online financial news avenues such as Reuters News, Bloomberg, etc., to cover the theoretical aspects of this research.

12

DATA ANALYSIS
There are several techniques through which the data can be linked to the proposition (Yin, 2003). Within-case analysis will be performed for this case study to find out the cost implications on trading companies due to increasing adoption of ICT. The within-case analysis will possibly yield new themes and concepts, and patterns and relationships could be identified between different variables (Eisenhardt, 1989). These patterns will help in building strong evidence for this case study research. The data analysis might lead to modification of proposed framework as it may yield new risk factors which may or may not contribute additional costs to trading companies. The use of administrative documents will help in bringing in new perspectives on res earch and establish the data from interviews.

METHODOLOGICAL TRIANGULATION
Methodological triangulation is possible by using multiple collection methods as they provide stronger substantiation of constructs and hypothesis (Eisenhardt, 1989: 538).

These collection methods could be documentation, archival records, interviews, directobservations, participant-observation and physical artefacts (Yin, 2003). The author will use two methods i.e. interviews and documentation to corroborate the facts which if do not match, would require further investigation. Apart from validity, triangulation will also offer new perspective on the topic and could lead to new avenues of research .

DISCUSSION
The research proposal so far has delved into the review of literature, th e methodology and the conceptual framework. The next section will shed light on what the author would perceives as success of this research and the potential risks which could hinder th is success.

EXPECTATIONS
The research concerning the field of study has been very limited. Although many researchers have time and again evaluated the risk factors of ICT adoption in financial trading, the author could not come across any research which directly studied the impact of these risk factors on the overall cost to trading companies. This is also probably a reason why the author was finding hard to relate it with a theory that could support such kind of
13

investigation. This will be highlighted in greater detail in the next cha pter of this proposal i.e. the risks. The lack of research could also be due to that fact that there has been an upsurge in the adoption of ICT in trading, especially in the last five years. The adoption of ICT in financial trading brought with it a number of risks to which not much attention was paid given its huge costs benefits and not to forget, the massive profit potential for investment banks. These risks first started to become the itch in the eye when it was found that technology had a fair share in the financial crises of 2008-2009 (Dodson, 2008). Since then a number of events such as flash crash of May 6, fines on Credit Suisse due to algorithm malfunction, and many more unreported mini-crashed raised many eyebrows including that of regulators to t ake a serious note of this emerging phenomenon. This no doubt casted cost implications on the trading companies, prominent ones being that of investments in technology and regulatory compliance costs to mitigate these risks. From the initial research which was predominantly carried out through online published articles and also through talking to speakers at 11th Social Study Conference, preliminary analysis shows that some trading firms are incurring massive IT costs to stay afloat in the race. This no doubt is overshadowed by the massive returns but slowly and steadily these costs are reaching a stage which is a cause of concern atleast for small trading firms in the market. Moreover, due to the fierce competition, proper te sting of these electronic is hardly possible which draws massive fines from regulators in case even a single thing goes wrong as it can trigger a market collapse. Even a reputed stock exchange such as London Stock Exchange has not been able to find a permanent solution to its regular platform failures, occurring consistently since last four years. This research should show a bigger picture and delve into the insights as the cost impacts are still unknown to a larger extent. Eminent financial experts have now started to question whether electronic trading has bright future considering its implications including that on the cost of trading. This research could possibly form as a path-breaking piece of evidence which would point towards whether it is correct to have this notion of questioning the future of electronic trading leading to much broader implications.

14

RISKS
As briefly discussed in the previous section, the major risk is attributed to the design of conceptual framework. Although the author has grounded the framework in transaction cost theory by using its determinants to show the possible implications of I CT risks on cost to financial trading firms, there could be a better approach to show this. The framework proposed in this proposal is only tentative and is bound to be modified to a great extent as the interviews will lead to new risk factors and cost implications. The author also believes that there could be a better theory (other than transaction cost theory) which could do better justice to the context of this research. Another risk is with regards to the data required in this research which could be proprietary for some institutions. This will cause problems in securing internal reports as documentary evidence. Also, the interviewees may not like to go on record to reveal confidential details or provide false data. These risks could seriously hamper the success o f this research.

CONCLUSION
This paper has proposed research to study the ICT risks associated with its increased adoption in financial trading and its cost implications on financial trading firms. It identifi es the magnitude of these risks, their impact on financial system and the possible increased cost implications for the trading firms due to these risks. The preliminary research has unearthed the theory spanning last decade or so including the most recent facts concerning this issue which has formed the basis of investigation for this case study. The proposed qualitative research is expected to shed light on the other such risks factors and the extent of their impact on the costs of trading firms. It would highlight the changing perceptions of technology costs, which even today are considered very low against the massive gains it brings to the trading firms or investment banks. If this research is successful, it would throw up enough themes and issues which could form the basis of further inquiry. It co uld also be used as an evidence to point out the feasibility of ICT in financial trading and whether it has a bright future or not. Thus, it could have much larger implications at a macro level i.e. for the trading companies, investment banks, stock exchanges, regulators and ofcourse academicians and research students.

15

BIBLIOGRAPHY
1. Alt, K., Klien, S. (2011) Twenty years of electronic markets research looking

backwards towards the future, SpringerLink, Volume 21, Number 1, 41-51 2. Al-Ghazawi, N., Al-Khouri, R. (2008) The effect of electronic trading on market volatility and liquidity in emerging markets: Evidence from Amman Stock Exchange Journal of Derivatives & Hedge Funds 14, 222-236 3. Beck, U. (1992) Risk Society: Towards a New Modernity: Sage, London 4. Cordella, Antonio (2006). Transaction costs and information systems : does IT add up? Journal of information technology, 21 (3). pp. 195 -202 5. Ciborra, C.U. (1981). Markets, Bureaucracies and Groups in the Information Society, Information and Policy 1: 145 160. 6. Dodson, S (2008). Was software responsible for the financial crisis? The Guardian[Internet] Available at:http://www.guardian.co.uk/technology/2008/oct/16/comp utingsoftware-financial-crisis Accessed on: 2 nd April 2011 7. Duhigg, Charles. (2009), Stock Traders Find Speed Pays, in Milliseconds, The New York Times[Internet] http://www.nytimes.com/2009/07/24/business/24trading.html Accessed on: 1 st April 2011 8. Eisenhardt, K. M. (1989) 'Building theories from case study research', Academy of Management Review, 14, (4), pp. 532 - 550. 9. Grant, J. (2010), Credit Suisse fined over algo failures, Financ ial Times[Internet] Available at: http://www.ft.com/cms/s/0/656d77d0-0081-11df-b50b00144feabdc0.html#axzz1JSDkfLKo Accessed on: 1 st April 2011 10. Hendershott, T. (2003) "Electronic Trading in Financial Markets," IT Professional, vol. 5, no. 4, pp. 10 -14 11. Hendershott, T, Jones, Charles M.,Menkveld, Albert J.(2008) Does Algorithmic Tradin g Improve Liquidity? Journal of Finance, Forthcoming; WFA 2008 Paper.

16

12. Jain, P. K. (2005), Financial Market Design and the Equity Premium: Electronic versus Floor Trading. The Journal of Finance, 60: 2955 2985 13. Klobucher, D. (2011), Costly Tech and Compliance, Meet Cost -Cutting Data Management, Synbase[Internet] Available at: http://blogs.sybase.com/tradingandrisk/2011/03/costly-tech-andcompliance-meet-cost-cutting-data-management/ Accessed on: 1 st April 2011 14. Martin, R. (2007). Wall Street's Quest To Process Data At The Speed Of Light, Information Week[Internet] Available at: http://www.informationweek.com/news/showArticle.jhtml?articleID=199200297 Accessed on: 2 nd April 2011 15. Malone, T.W., Yates, J. and Benjamin, R.I. (1987). Electronic Markets and Electronic Hierarchies: Effects of information technology on market structure and corporate strategies, Communications of the ACM 30: 484 497 16. Malmgren, H, Stys, M. (2010) "The Marginalizing of the Individual Investor", The International Economy 17. Nishimura, K.G. (2010), Electronic Trading and Financial Markets, Speech at the Paris EUROPLACE International Financial Forum , Tokyo, Ba nk of Japan http://www.boj.or.jp/en/announcements/press/koen_2010/data/ko1011d.pdf Accessed on: 1 st April 2011 18. Omet, G. and Khasawneh, J. (2003) The Cost of Transaction i n Jordanian Capital Market , Administrative Science, Vol. 30, No. 1, pp. 34 52. 19. Salmon, F., & Stokes, J. (2010). Algorithms take control of wall street, Wired magazine Available at: http://www.wired.com/magazine/2010/12/ff_ai_flashtrading/ Accessed on: 1 st April 2011 20. Securities Exchange Commission[Internet] http://www.sec.gov/answers/ecn.htm Accessed on: 1 st April 2011 21. Taylor, N., Van Dijk, D., Franses, P.H., Lucas, A. (2000) SETS, Arbitrage Activity and Stock Price Dynamics , Journal of Banking and Finance, Vol. 24, pp. 1289 1306.
17

22. Theissen, E. (2001) Price Discovery in Floor and Screen Trading Systems , Bonn Econ Discussion Papers, No. 35. 23. Venkataraman, K. (2001) Automated Versus Floor Trading: An Analysis of Execution Costs on the Paris and New York Exchanges , The Journal of Finance, Vol. 56, No. 4, pp. 1445 1485. 24. Williamson, O.E. (1975). Market and Hierarchies: Analysis and Antitrust Implications, New York: Free Press. 25. Yin, R.K., (2003), Case Study Research: Design and Methods , Third Edition. Sage Publications: CA

18