Transcript
One fundamental question that we like to explore in class is around legal and ethical. From the perspective of a company, if something is legal, does it always make it ethical to do that? Keep this question in mind as we discuss one other aspect of FinTech development: algorithmic trading.
We need to come straight out and say we are not finance experts, and certainly not technologists either. So we don’t claim that we know a lot about the area of algorithmic trading. But we have friends working in this area, and they excel in their professions. David Bishop once had a conversation with a financial technologist as he was talking about high-frequency trading algorithmic trading. It is a hot type of FinTech tool that has been used around the world, especially in a place like Hong Kong.
As he was learning more about what he was doing and specifically how the technology worked, he asked, which he considered a very simple question, “Do you think what you do adds value to society?” And his friend’s response was immediate and he said, “No.” To him, it was just a job, and it was a way to make money. There’s nothing necessarily wrong with that. But if we use this as an example to look into the finance and technology space, just because algorithmic or high-frequency trading is legal, does that mean that we should value it? And if so does it mean that we should even allow it in society?
This is an interesting question in many ways. On one hand, during the last decade, most vanilla trading, things that are traded in standard ways such as normal stocks and bonds, etc., has been pushed into high-frequency or algorithmic trading. Depending on the trading strategy, computers generally can execute in a more efficient way. But is that better? In some respects that may be better for a client. You get faster execution with few mistakes. But in the overall grand scheme of things, for someone like David Bishop’s friend to see added social value in the work he does, that jump is really difficult.
If we take a really big step back and think of it from a macro perspective, there could be some societal value in someone creating such programmes. For example, most large companies as well as countries in the world have underfunded pensions. They have obligations to pay out to their employees or citizens when they retire, but many of them may not have the capacity to manage such funds. As a result, a lot of these places give their money to other investors to manage and hopefully make enough money to fulfil their obligations. So a potential benefit could be through more efficient trading, hopefully, these people could end up getting slightly better returns which help retirees get their full pension. Although that’s a really big picture and many other factors are involved, which is multi-step away from what David Bishop’s friend is doing.
But on the flip side of that, this is not uncommon for a lot of people when thinking about what they do. If someone works at a fast food restaurant, maybe serving unhealthy food, is that adding societal value?
Well, our answer is, because people need to eat. There may be different types of restaurants and there may be differing degrees in terms of the health of the food. But at the end of the day, you have to eat. So at least we are arguing within a specific confined space that something is a core need, therefore we as a society would value that enough to allow incorporation of that particular type of business enterprise.
Now we are getting to the heart of the question: does finance matter? And if there’s a part of this industry like algorithmic trading that doesn’t have some inherent value to society, should we as a society allow it? And should we even ascribe value to it?
Let’s think about the question we began with: if something is legal, does it mean it’s ethical? And the clear answer is no – they are not the same thing and it’s a very dangerous mindset to equalise them. But sadly, that is a mindset we do see quite prevalently in the finance space. Such a phenomenon compels us to question whether or not we as a society are valuing finance accurately, and whether or not education and regulations are setting up an accurate view of the role and responsibility of finance accurately.
