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IT and International Real-Time Media: Amplifier for a Crisis or Instrument of Rational Decision-Taking
Narelle Gomes, Christian Piechorowski

Table of contents:
1.1 Information technology’s impact in the development of the stock exchange
1.2 Algorithmic trading
1.3 High frequency trading
1.4 High frequency; trading beneficial or harmful for the economy?
1.5 Final Remarks
2.1 The Influential Role of Mass Media - The Pervasiveness of the information disseminated on the people
2.2 Financial Crisis- A media spectacle?
2.3 The mishaps of European Media during the current Euro crisis
2.3.1 The alternative view of the media; Citizens mistrust towards the media
2.3.2 The wavering power of mainstream amidst its pervasiveness
3. Conclusion

Problem Description:
The world financial crisis started in the US with the burst of the housing bubble in 2007. However, it was not just limited to the US border, but it rapidly spread all over the world. Consequently, many banks went bankrupt and some countries were even pushed into a financial downturn.
Target of Study:
This essay will not provide a general outlook on the financial crisis but instead examines the impact of the Real time media and IT on this economic crisis of historic scale.
How important is IT in today’s economics? Did mass media catalyze the financial crisis or did it contribute to the decision making process? Did people overreact because of the way the financial crisis was subjectively pictured by journalists in the early days of this economic disaster?
All of these questions and many more need to be further analysed to achieve a full understanding of the impact of the mass media and IT on the financial crisis.
Structure of Study:
This essay will mainly be sectioned into three parts: 1. The importance of IT 2. Mass media’s impact and its limitations on the decision making on the crisis and 3. A conclusion which will sum up all the issues of both of these dimensions and offer ideas for a solution.

Narelle Gomes, Christian Piechorowski

1. Information Technology
1.1 Information technology’s impact in the development of the stock exchange

“The courretiers de change” were the first people who could be called brokers because they traded debts. They lived in the 12th century in France and were the ones responsible for managing and regulating the debts of agricultural communities for the banks. In the beginning of the 13th century commodity traders had meetings in a building owned by a man called “Van der Beurse”. Their idea quickly spread to the neighbouring countries. Half a century later Venetian bankers started trading government securities. Pisa, Verona, Genoa and Florance followed that trend in the 14th century. But it was only possible for them because at that time they were independent states that were not governed by a duke, but by a council of citizens. So it is not surprising that Italian companies were also the first to issue stocks. English companies and companies in the Low Countries followed in the 16th century. The Dutch East India Company (est. 1602) was the first company that was owned by shareholders, and therefore the first joint-stock company. (Preda 2009)

This development continued over the years, resulting in stock markets being founded not only in developed countries but also in developing countries.

The 20th century had tremendous impact on the human development and changed society massively. The stock market was not excluded of this process. 1986 the London Stock exchange went through a significant change. The trade floor was replaced by The Stock Exchange Automated Quotation System. It basically made it possible for brokers to buy and sell stocks through a screen-based quotation.

This led to the reduction of the “latency”, a term describing the time between trades being initiated and being completed. Reducing the latency is a major objective of every stock exchange. (Flinders, 2007)

The brokers appreciated the efficiency and safety the system was able to provide them and therefore accepted it, making the trade floor the second option. (Flinders, 2007)

Fig.1 Historic Statistics pre 2005, London Stock exchange

As seen in Fig. 1 the introduction of the system was rapidly reflected on the number of trades per year. Since the system was implemented in October 1986 most of its financial benefit was generated in 1987.

For more than 200 years, the main functions of exchanging stocks did not change much. Trading stocks usually was done at a physical location (Stock market), and during a specific period of time, which was usually defined by the opening hours of the location. Today this idea is outdated and unimaginable.

Nowadays most trading happens at the speed of light in cyberspace, thanks to the power of the global ICT infrastructure. Opening hours don’t exist in this nonphysical world, which results in global continuous trading.

1.2 Algorithmic trading

One of the key ideas behind all the technological advancements related to the stock exchange is algorithmic trading. It changed the way financial assets are being traded making markets electronic limit order books. (Jain, 2005)

In very general terms algorithmic trading is computers doing the work for humans, because they have a strong competitive advantage regarding the efficiency and therefore reducing the before-mentioned latency.

Those algorithms describe different situations in which the system will sell or buy the shares (Flinders, 2007).

1.3 High frequency trading
High frequency trading builds upon this concept. In its simplest form it involves the collection of tiny gains on short-term market fluctuations. Therefore high frequency trading firms search for temporary inefficiencies in the market and try to trade as fast as possible before the distortion disappears. Those firms are dependent on ultra-low latency, reliance on multiple asset classes and exchanges and the trading algorithms, which usually have a quiet short life, because of the change in conditions, hence diluting the competitive advantage of it. (McGowan, 2010).

So nowadays powerful investors are competing by algorithms and processing power on the market, making Information Technology the main tool for making trades before others even realize it. To gain the competitive advantage experts are needed.

Usually those experts are practical, problem solving people with an engineering background.

These experts need to be very flexible, because in the world of High-Frequency trading the strategies need to be constantly altered. This has two important reasons: 1. Today’s capital market is highly volatile and continuously changing, resulting in the necessity of changing the strategy sometimes within minutes. Since high frequency trading is dependent on precise interaction of markets and mathematical correlations between securities, trades need to adjust the code regularly. 2. The constant danger of reverse engineering by rival firms is always present. There is a good amount of competitive intelligence, which can be used to reverse-engineer a firm’s strength into its weakens. (McGowan, 2010).

1.4 High frequency trading; beneficial or harmful for the economy? High Frequency Trading is surrounded by a huge controversy. This controversy will be analysed in the following part.

First on the list is the issue of High Frequency Trading. Since High Frequency Trading is a fairly new practice there is a general lack of knowledge of its potential uses. The HFT practice is very likely to grow, because it is so profitable. The lawmakers must realize its complexities and weigh the advantages versus the disadvantages to create regulations that keep the market from fluctuating.

One of its potential uses is the possibility to manipulate the market, and the High Frequency Trading firms are extremely secretive about their information and practices. There is no governmental or industrial oversight of what exactly they are doing. High Frequency Trading firms also raise scepticism of illegal activities. Many of those firms trade in so called dark pools. Dark pools operate outside the regulations of the financial system and are fully anonymous.

The lack of knowledge about this complex business design led many to believe that firms such as Goldman in Wall Street were engaged in illegal activities and that the High Frequency Traders obtained an unfair advantage.

The problem with their predatory algorithms is that they result in high stock volatility. Those algorithms generate institutional orders, which buy or sell shares at prices higher or lower than where the stock had been trading, hence getting profit from the artificial increase or decrease in price per share. This kind of algorithmic trading may even cause a stock to move 10 - 15 % without any grounded argumentation in the actual firm. (McGowan, 2010).

When thinking about averting future financial disasters like the Flash Crash on the 6th of May 2010, reckless trading of High Frequency traders need to be taken into serious consideration. It might happen that different High Frequency traders have automated trading strategies, which take the same factors into consideration, therefore all together jumping on the same bandwagon creating a new crisis.

In the course of about 30 minutes, U.S. stock market indices experienced a price drop of more than 5 percent. Between June 23rd and 29th, 2010 Market Strategies International conducted a survey with U.S. retail advisors, concluding that “overreliance on computer systems and High-Frequency Trading” were the primary contributors to the so called Flash Crash in 2010. (Kirilenko, 2011).

In the 1980’s automated trading became more and more popular. After the “Big Bang” of 1986, which is depicted in Fig.1, Black Monday followed. It is generally believed that the Black Monday in 1987 was the result of the immaturity of the technology at the time. ( Dean Furbush)
Could it be that nowadays our technology is still not evolved enough to analyse the massive data volumes?

It was a long way to reach the information age in which we live today. Variations of automated trading have now been around for more than twenty years and the technology behind it has advanced by a lot as well. Naturally, not everything is bad about this practice. Now we will focus on the positive side of it.

Evidently High Frequency Trading has dramatically lowered spreads in most available stocks and closed gaps across markets. According to Gus Sauter, chief investment officer of the Vanguard Group mutual fund company, “generally, wide spreads are seen as kind of inefficiency, with buyers and sellers having difficulty agreeing on a price that accurately reflects what is known about a stock.
Narrow spreads mean the market is working better.”(McGowan, 2010)
By boosting up the trading speed on the sell and the buy side, those actions could increase the efficiency of the market. From Sauters point of view High Frequency Trading also reduces the “market-impact” cost. He believes that High Frequency Trading makes it easier to break up big trades into smaller ones, but executing those trades very quickly.

Some critics might miss the bigger picture of High Frequency Trading: “It adds liquidity, speeds execution and narrows spreads.”(McGowan, 2010) As we have become a tech-heavy world, competition and market innovations in this area will always be driven by technological advancements and knowledge. Many firms only recruit the best and smartest to stay competitive.

The result is healthy competition and lower transaction cost for all market participants, institutional and retail.

This practice obviously is profitable for the High Frequency Trading firms, but according to Malkiel, “Individual investors are the ultimate beneficiaries when their pension funds and mutual funds can transact large volumes of trades anonymously with great speed and at lower cost.” When directly trading shares, smaller traders might have a disadvantage, but all of those who invested money in funds will indirectly benefit.

This might seem a little unfair, even though effectively speaking it is more beneficial for the majority of investors.

1.5 Final Remarks

The debate about High Frequency trading will go on for a long time; it seems to be a trend that cannot be stopped.
It is hard to find out whether High Frequency trading is beneficial or harmful for the economy, but it is clear that individual traders who sit at home will have more and more disadvantages, whereas the majority of investors will receive benefits in the long-run.

According to Kirilinko, smart people who know how to use uprising technologies will always have certain advantages, but in this case the necessary technologies are really expensive mainframes or super computers, that the average trader can simply not afford. Since the practice of High Frequency Trading is fairly new, and is often times employed in dark pools, the Government is having difficulties monitoring High Frequency Trading Firms and regulating their automated trading strategies. High Frequency traders trade aggressively into the direction of price changes. Their activity makes up a big part of the trading volume, but does not result in an accumulation of shares, because the very same shares that had been acquired, will be sold very quickly again. The result is that High Frequency Trading firms are not willing to gather large positions or absorb large losses. When they rebalance their position, High Frequency Traders compete for liquidity and amplify price volatility. (Kirilenko, 2011).

To sum it up, todays world is highly dependent on technology. It is the very same technology that causes so much trouble but at the same time brings many benefits. We embraced it into our lives, and we do not want to miss it anymore, because it gives us a lot of utility.

Same principle is valid for High Frequency trading. It is hard to dispute that it increases market efficiency and decreases certain costs, but at the same time there are firms who manipulate the market for the sake of their profit, hence amplifying price volatility. Heavy monitoring is needed, so that effective regulations can be written, which make the more harmful parts of algorithmic trading harder to execute.

This was an example of Information Technology affecting the economy in a very direct way, even making it crucial to the whole process. In context with the financial crisis IT is seen by many as a necessary evil. But as seen in the example of automated trading, over the years it brought us more advantages than disadvantages, and it could be the same with High Frequency Trading. Once the lack of knowledge has been overcome and effective regulations have been made High Frequency Trading could be seen as a good practice.

But IT also has impact on the crisis in more indirect ways. IT, or more precisely ICT, forms the platform of today’s real time media.

2.1 The Influential Role of Mass Media- The Pervasiveness of the information disseminated on the people

All decision making processes of democratic societies should be made on the grounds of citizen vote and opinion. In order to get the informed voices of people through rightful voting, citizens have to be well-equipped with information and true information of current situations. The accuracy and the duly dissemination of this information is so crucial because it affects not just individuals but societies as a whole since the world is so well webbed in our world today through diplomacy, a connected world market and of course the Internet which can easily be the most powerful part of mass media we have today. The statistical phenomena of observing public choices is known to many as civic consensus, Arietta and Wallace (2000).

The mediation of mass media is therefore very needed and should be monitored because any slips of inaccurate, too brief or even too biased can easily be spiralled into a wrong direction in terms of the course of a civil unrest or financial situation. We must never forget today that one financial lapse in one economy can very well affect a dozen others due to the occurrence of globalization and the creation of a world economy; One economy is dependent on others. The contemporary societies we have in our world today is grounded on ever increasing human interaction through networks of relationships that is constantly being bridged throughout the globe as well as the pace and depth of the evolution of individuals influenced by IT. The question of how great the mass media’s role in the current economic crisis requires us to take into account two interconnected parameters. On the contrary, mass media is noted to be closely linked to political figures, so as to reiterate their opinions onto society, to express governing decisions and the frames that define public coherence of public issues. On the other hand, mass media is also a money-making industry that gain from public controversies and spectacles.
2.2 Financial Crisis- A media spectacle?

Many times than not we find mainstream media objectifying a financial crisis so much so we blame certain dishonest people in society for it. This makes the crisis more systemized and objectified and taking a more spectacle aspect to it. A front cover image from the German magazine “Focus” portraying the famous statue of Milos’ Aphrodite pointing the finger to the Greek people “for betraying the Euro family” captured world attention and inadvertently garnered criticism by Greek mainstream media and Greek publics. Another example is how the initial banking crisis was covered by the influential Today programme on radio 4. It is uncovered by media experts that trends of source access were dominated by key city voices such as hedge fund managers, investment bankers and stockbrokers. On the other hand, the opinions of those who had rightly forecasted the banking crisis who normally adopted a more critical approach to the financial sector were noticeably missing from such the coverage. Consequently, proposals for large scale reforms to the financial industry such as the banning of certain types of speculative derivative trading or efforts to better monitor tax havens where most of the riskiest trading took place were missing from airtime. It is also meant that no discussion about the one policy that had been well received by Sweden when they had also struggled a similar monetary crisis in the early 90 happened. For Debord (1986/1967), the spectacle is a process of mediation affirming the existing state of social affairs, which does not allow possibilities for political intervention. How does it simmer down any escalation of the crisis is by pinpointing to a particular person or company simply to make the whole phenomenon much brief and low scale than it actually is in reality? In other words, the spectacle provides a simplistic and illusionary unity of an increasingly fragmented, late modern world whose sense making becomes increasingly complex and a difficult process. Perhaps it is a phenomenon that we shouldn’t even curtail since our world, our economy, our society today has so many specifics to it that one cannot easily understand when a mishap occurs especially when it happens on a large scale. Kellner (2003) expands Debord’s ideas and uses them to analyse contemporary developments of the spectacle and its socio-political implications. Kellner (2005, 23) argues that “the cultural industries have multiplied media spectacles in novel spaces and sites and that the spectacle itself has become one of the organising principles ofthe economy, polity, society and everyday life”. Kellner (2003, 21) notes that spectacularization occurs through the mass production of media content. Reports, shows, documentaries, articles, videos, all produced from both professionals and amateurs, are continuously channelled in the global mediascape, focusing on the crisis.

A hundred young European journalists have been attending workshops in Brussels designed to help them cover the economic and political crises currently engulfing the continent. An interview with BBC News opened them up about how they found media cover the current Euro Crisis in their respective countries. Dimitrios Pogkas , 23, EMEA Business Monitor from Greece finds that the media focuses mainly on negativity the crisis, “like people who cannot find money to buy necessities. They are saying we have to follow the government's route because there is no alternative, or if there is an alternative, they(the ruling party) say that it would lead to complete destruction.” This could happen when mass media of a country is being controlled by a ruling government and therefore seems to be biased in presenting the views which the government has which it in turn wants the general public to have. This might alleviate the situation in terms of calming down any civil unrest but could also result in anger amongst the people if they realize what is happening. In reality, the purpose of the mass media in fact is to remain impartial to the crisis that is happening and to keep the peoples informed on the choices that they have and the actual realtime information they need to make decisions. We have discussed earlier in this chapter about how the cause of crises and the unfolding of crises remains complex in our economy these days but the people should at the least be wary what level of debts the country is in means and who they own the money to.
What is described by Dimitrios above can be attributed to the mass media being influenced politically and economically. Economically, it thrives as an important industry (Hesmondhalgh 2007) providing virtual material for new markets linked to symbolic consumption. If we accept the media’s publication of the financial crisis as being a spectacle, then examining the role of a spectacle follows. In treating the crisis as a spectacle, the media purveyors and the consumers both in their perceptions feel like they have gained from it. Consumers are misguided into adopting certain forms of behaviours, mindsets, ideas, truths and social relations. At the same time, they are feeling as though they have been fed with honest information by reliable sources. Politically, the spectacle is often misused by political rulers to distort how consumers, also the public view the crisis and the world in the crisis. This is of course happens very often in our world today because governments themselves have ulterior agendas of their own that the people may not be completely wary about if they have put their trust in the government in power. Therefore, issues of ideologies and propagandas are relevant in such a discussion of the role of media’s reporting of crises as a media spectacle. What is interesting is that the political use of media also intersects the economic use of it. This is because often than not, general economic elites are closely connected to political elites in the way society is structured.
2.3 The mishaps of European Media during the current Euro crisis
The Euro crisis may have severely affected several European countries negatively but every single European Union country should be involved in the right dissemination of information regarding the crisis. The Euro was formed, followed as quoted by the European Union itself, “The EU was created in the aftermath of the Second World War. The first steps were to foster economic cooperation: the idea being that countries who trade with one another become economically interdependent and so more likely to avoid conflict.” It is true that not all European member states use the Euro as a unifying currency, the close trading ties and diplomatic ties in which they should continually strengthen continues to bind them as one Europe. Therefore, the Euro crisis of the moment should not be taken lightly and every European should take the right measures and efforts to inform themselves in a rightful manner to curb any further degradation of the situation. The European media represents a very strong standpoint to which the Europeans all over the continent are informed regarding the media. What is at stake is citizens will identify less with the common currency, the Euro and the idea of integration amongst nations. This could greatly affect the peace of the region economically, politically and socially in severe stages if it were to pursue.

2.3.1 The alternative view of the media; Citizens mistrust towards the media
A recent published empirical study for Transtate Working Papers conducted in Austria, Denmark, Germany, France, Poland and the United Kingdom showed how citizens make use of the media during the current financial crisis. What was found actually showed that citizens were less stirred by the coverage, something that was surprising. Instead, there showed critical and wary characteristics while reading news headlines and reiterated that media was no longer as powerful in shaping their views. Instead, many of the interviews stated that the looked towards family or friends who seemed to be “experts” because of the area of work they were doing and seemed to them as being more reliable and trustworthy than the mainstream media. Mainstream media may already been known to the average person to be profit-driven and unreliable because of their specific chosen sources they base their reports on. It is interesting to note from this survey that consumers of media and moving away from accepting all information that is readily disseminated to them just because of the reputation of the media in glamourizing and tabloidizing financial crises.
2.3.2 The wavering power of mainstream amidst its pervasiveness

Media as we have many times accepted to be widespread and hard to avoid in our daily lives because of the advancement of technology and the lowering prices in which we can attend types of technology, has also made consumers of media more wary of their money-making ventures. We start to question the authenticity of media presented views and sources and become more dependent on our personal network of people. We are used to mainstream media gunning on the publics’ love of tabloid so much so that financial crises have been “tabloidized”(McChesney 2009, 265). “Tabloidization of politics is a term that describes the spectacularized mediation of politics by mainstream media organizations. Tabloidization refers to the genre of tabloid press, mass consumed publications across the world that blend information with entertainment, producing personified and spectacle orientated publicity”. One perfect example in the current crisis is Greece which has been closely followed and linked to bouts of negativity. One particular observation is the daily tabloid called the “Bild Zeitung” which has been referenced as being “the prototype of tabloid journalism in Germany”(Klein 1998,81) is important to look at in this frequently occurring trend of “tabloidization of politics”. It covered the issues pertaining to the Euro crisis however in the path of certain preconceived dispositions where Greece is the centre of the crisis both in the headlines and subheadlines. These articles published focused unfairly on the events pertaining to development of supporters in Greece.

3. Conclusion
In today’s world not having access to Information technology is something that most people who grew up with it cannot imagine. It made us more efficient human beings, who need less time to transfer information from point A to B. IT made our markets faster and more responsive and made the news update at a faster pace. Technology ultimately brought us where we are today. It might have its flaws, but at the same time it eliminated many other flaws we had before. When we decided to become independent on it, we also have to life with the new upcoming problems that go along it that decision. High Frequency Trading is a good example, which shows that Technology can be used in a way that can be bad. There needs to be regulations for those people manipulating the market for their profits sake and therefore increasing price volatility. Those very same people also amplified the financial crisis, by making others in the market more insecure.
The media is also being affected strongly by Information Technology. The majority of people usually perceive something that a friend posted on Facebook or other social networks as more important than maybe something that actually is more important. Another problem is that certain tabloid papers deliver subjective news. This strongly influences the opinion of people about certain events, as could be seen in the example of Greece being subjectively pictured by the “Bild Zeitung” in Germany.

Preda, Alex (2009). Framing Finance: The Boundaries of Markets and Modern Capitalism. University of Chicago Press
Micheal J. McGowan (2010), The Rise of Computerized High Frequency Trading: Use and Controversy
Samadi, Kirlinko, Tuzun,Kyle (2011), The Flash Crash: The Impact of High Frequency Trading on an Electronic Market
Dean Furbush, Program Trading, The Consicse Encyclopedia of Economics
Fig.1 Historic Statistics pre 2005, published by London Stock exchange Hepp, Lingenberg, Elsler, Möller, Mollen, Offerhaus (2013), “I just hope the whole thing won’t collapse”: “Understanding” and “overcoming” the EU financial crisis from the citizens’ perspective
(TranState Working Papers, 168)
Bremen: Sfb 597 „Staatlichkeit im Wandel“, 2013
Arietta, D. L., & Wallace, L. (2000). Consensus building fieldbook. Minneapolis, MN: University of Minnesota Extension and Hubert H. Humphrey Institute of Public Affairs.
Mylonas (2013) Media and the Economic Crisis of the EU: The ‘Culturalization’ of a Systemic Crisis and Bild-Zeitung’s Framing of Greece, Department of Media and Communication Lund University, Lund, Sweden,2012
Kavanagh (2013), BBC NEWS Voices: How Europe's media report euro crisis

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