The Filmmaker that Makes High Frequency Trading "Sexy"
Tue, 18 Dec 2012 05:00:00 GMT
Filmmaker Marije Meerman (left) is the creator of popular documentaries such as 'Quants: The Alchemists of Wall Street', 'China Prep' and 'I Wanna Be Boss'. Films that have the common theme of making complex, and usually dry topics in the world of business and finance, compelling and easy to understand. In her latest film 'Money and Speed: Inside the Black Box' she continues this format, talking of High Frequency Trading and the ‘Flash Crash’ of 6th May 2010 through the eyes of the regulators and market participants.
The film's introduction has more in common with Lord of the Rings than any other finance film. The data visuals, scary sound effects and blunt narration means the viewer feels that stepping into the new digital era of finance is a haunting and captivating experience.
The film features data analyst Eric Hunsader, one of the world's leading 'quants' Paul Wilmott, historian George Dyson, and SEC regulator Gregg Berman.
The film is available to watch in full on YouTube and there is a free app available for iPad, which accompanies the film and can be downloaded from iTunes.
I caught up with Marije and started by asking her what inspired her to create a film about HFT and the Flash Crash.
"Before the money and speed film I made a film on quants. I was interested not only in what way they contributed to the 2008 crisis but also what their function was in the system. The only quants available to speak to me were teachers like Paul Wilmott, retirees and students of Quantitative Finance. I asked them what they thought would cause the next crisis. All of them surprisingly said that systemic risk due to a rogue algorithm was their biggest worry. I found the automation of the financial market very interesting and I wanted to take this topic forward. When I was in the process of starting up the project the Flash Crash happened. It was a sign of God. I thought, this needs to be the topic of the film! I can use it to illustrate the automation of finance."
As somebody coming into the world of high frequency trading with just a journalism background, it has struck me as startling how little entry level literature there is on the topic. This is a problem for both the public and journalists. When the popular news media reports on HFT, the opinions that it expresses are rarely explained with reference to primary research into the topic. Journalists make HFT the subject of political debate, asserting opinion as fact without looking beyond. The flash crash is one of the clearest examples of this. Newspapers reported what the SEC and CFTC report said but there was very little investigative journalism that went beyond this. Since the SEC/CFTC report has largely been discredited, there has been no coverage of a potential pardon for Waddell and Reed (the firm originally thought to be responsible for the crash), nor have any questions been asked about where the investigation now goes. I've wondered if this lack of reporting is due to difficulties in getting hold of data or whether nobody is interested. I asked Marije, as somebody else reporting on HFT without a finance background, why she finds High Frequency Trading so interesting.
"To discover that this kind of trading, decoupled from economic values, took place was a shock for me. Then there is the systemic risk involved. Something of a gut feeling tells me that this movement is a risk."
At the end of the film the cast are asked whether or not they invest in the stock market. None of them do. This is shocking as they are all experts in the field yet they do not trust it. Marije and I shared the misconception that surely the people that know the system best are the ones that exploit it the most effectively.
"Nobody at the end of the film trusted the financial system enough to exploit it. The 2008 financial crisis and the onset of High Frequency Trading has made people get out of the market. There are movements in the stock market that have nothing to do with the economy and that is scary. What else is scary is that nobody wants to talk about it. I never realised that the data would be so hard to get and so expensive. Everybody was scared to give away the data. I was very grateful to Eric Hunsader."
If I decided tomorrow that I wanted to invest my money in stocks I could call up my bank and place orders for shares. If I want information I can get share prices that are updated every 5 seconds for just a £10 per month subscription. People at the top of finance would argue that I have as good a shot as anyone at making money
When I watched the film, the world of automated finance struck me as being more elitist than conventional forms of investing. Both in terms of the intellectual capacity required to participate, and the financial base needed to start off.
I wondered if this was an intentional message?
"The direct link to the exchanges means some people can be faster than others. Some people in the flash crash were able to trade some were not. $400milion is required to make a data centre. Goldman Sachs lights were on in the aftermath of hurricane Sandy. This is an illustration of the inequality in the market."
What challenges did Marije face when trying to make a topic in the financial world interesting?
"To look at people as characters is very important. Trying to humanise them, finding out why they feel passionate about the topic.
Topics in the financial world are horrible to make as a filmmaker. How can you visualise these algorithms? This is why I teamed up with data visualisers to show the data in a beautiful way."
Was anything sacrificed in making the data so accessible and so presentable?
"If it was made for insiders I could have gone into further detail, but there were so many things that were unknown, I couldn't get reaction from Waddell and Reed, no reaction from the Barclay's algorithm creator."
Why won't the SEC and CFTC update their report with details of what really happened on that day?
"I don't know, Eric Hunsader tweeted that he suspects corruption."
Eric Hunsader spoke on the topic in an exclusive interview with HFTReview last year.
"When I went out and visited them last year, my conclusion was that either they were very behind the times and not very bright or they were completely owned by Wall Street. I couldn’t understand why they wouldn’t even look at this. Some of the things we sent them while they were working on their Flash Crash report, they never even read."
To see the full interview follow this link:
Who or what was responsible for the crash in your view Marije?
"Not Waddell and Reed, so the whole SEC report is nonsense. I think somebody was trying to take advantage of latency because they had direct access to the market, this coupled with bad news meant that it all went wrong. The crash in itself was not intentional. But if it was accidentally caused by somebody trying to take advantage from latency then it has to have been somebody with direct market access. There was no pardon for Waddell and Reed from the SEC. The Barclays guy that wrote the algorithm confirmed that it can't have been Waddell and Reed that caused the crash, but the SEC only spoke to him after the report had been published. 2 years on and nothing more, it doesn't feel good."
"I'm working on a film about tax evasion. Portraying the shadow financial galaxy of unregulated money."
Sounds fascinating, thank you very much.
You can follow Marije on twitter @marijemeerman
You can follow Ricky on twitter @treadwellism