Monday, December 14, 2009
The Millennium Starts with a Bang
Almost exactly ten years ago I was sitting at my desk at Risk Waters off of Piccadilly Circus and marveling at all of the Millennium bug hype. As editor of two newsletters it was my responsibility to winkle out just what technology and market data companies were afraid might go wrong on January 1st, 2000. And to write sensational (well, for technology anyway) stories about these potential technological time bombs. Reuters was one of my best sources, it had an actual "Millennium bunker" set up inside its data center on the Thames. There its technology gurus sat and analyzed their systems, on the alert for any glitches. Product marketing staff and even corporate communications had to do shifts around D-Day. I thought it was hilarious. There were Millennium parties where bankers and techies and geeks would sit and drink and wait for their shifts at various "bunkers" around the City of London. We all know what happened on January 1st, 2000. Nothing. Zip. Nada. Now it seems that the Millennium bug was more subtle that we had thought. It wormed its way into electronic trading systems and algorithms and bankers' minds, creating the desire to trade more, make more money, invent more complex derivatives. The Dot Com boom and bust whetted the bankers' appetites for more and better technology. High frequency trading was a glint in some geek's eye by then. The speed at which the technology for lightning fast trading evolved was staggering. We went from a place where a couple of all-electronic exchanges which were considered somehow lesser beings (Nasdaq, Eurex) to a place where every exchange in the world desired to emulate them. As soon as was technologically possible the banks had dumped all of their 'vanilla' trading onto algorithms. Then ECNs came into the picture and they needed to route orders more intelligently. Cue the new smart order routing algos. Then they thought, 'hey, if I can spin a gazillion trades of XYZ company when it is being hyped, I can make a trillionth of a penny on each round turn. That adds up!' And voila - high frequency trading was invented. Then all of the new derivatives (credit default swaps), all of the bad ideas (sub-prime mortgages), and all of the greedy bankers (you know who you are) did what the Millennium bug never did. They imploded. They almost took the global economy to meltdown stage. Those bunkers might have come in handy after all.