How did the market get on screen? The move away from network markets
The market has of course not always been on screen. The history of foreign exchange markets since the 1970s instantiates and exemplifies for other areas the transition from a network market to a flow market utilizing a central, compound
space.
Let us start with the breakdown of the Bretton Woods Agreement, which had hitherto effectively fixed exchange rates. In the 1970s, first the USA (1971), then major European countries, including Britain by 1979, and finally Japan in the early 1980s, abolished exchange controls, effectively eliminating the Bretton Woods Agreement of fixed exchange rates in place since 1944 and allowing foreign exchange trading for purposes of speculation. Before the breakdown, foreign exchange markets also existed: foreign exchange deals are cross-border exchanges of currencies. Such exchanges were born with the dawn of international trade and persisted through all ages. But in the 30 years of the Bretton Woods Agreement, foreign exchange deals reflected by and large the real requirements of companies and others that needed foreign exchange to settle bills and pay for goods. When exchange controls were removed, currency trading itself became possible as a market where exchange reflected price movement anticipation. In 1986, the dealing rooms of the world had taken off, with an average of US$150 billion and as much as $250 billion being traded around the globe, double the volume of five years before (Hamilton and Biggart 1993). In April 1998, according to the Bank of International Settlement’s Triennial Survey, the average daily turnover in traditional global foreign exchange instruments had risen from $36.4 billion in 1974 to $1.5 trillion (BIS 1998). Two-thirds of this volume derives from “over-the-counter transactions”, i.e. from inter-dealer transactions in a global banking network of institutions. Banks had responded quickly to the business opportunities which arose with the freedom of capital that the breakdown of the Bretton Woods system initiated. They also responded to an increasing demand stimulated by volatile exchange and interest rates reflecting various crises (e.g. the energy crisis of 1974) and to the tremendous growth in pension fund and other institutional holdings that needed to be invested. Though the volume of trading has since receded to approximately $1.2 trillion with the economic downturn and the elimination of some currencies according to the latest BIS survey (2001), the foreign exchange market is still by far the largest market in daily turnover worldwide.When exchange controls were removed in 1971, the current foreign exchange market was born. Traders, however, had no computers and trading was a question of finding and negotiating this market, which lay hidden within geographical space. A trading room, in the early beginnings, was a room with desks and phone lines and a calculating machine. It may also have had a central phone booth installed in the middle of the room, originally serving as a quiet place to take international phone calls which, early on, still had to be ordered through the phone company; only national calls could be dialled directly. A most important device was the “ticker”, a device which churned out “50 metres a day” of news headlines and price pointers, as a former participant put it (see Preda 2003 for its specific history). Activities on the floor centred around “finding the market”, that is finding out what the price of a currency was and who wanted to deal. In the following quote, a former chief of trading recalls how he continually chased after the market.
P:... So you had to constantly find out what the rates were in countries.
KK: And you did this by calling up banks?
From pipes to scopes 131
P: By, yes. And there were also calls on the telex by other banks who either
wanted to trade or wanted to know, simply wanted to know where dollar- Swiss was.
KK:...
P: Yes, you were a broker for traders, every morning you had to fetch all the
prices in Europe, Danish crowns, Swedish crowns, Norwegian crowns, and such, national currencies every morning, the opening rates.
You gave them to traders, they calculated them in Swiss francs, and wrote them down on big sheets.B: And you offered two-way prices already?
P:. In Swiss banks exchange rates were determined by negotiation, like in a
bazaar (etc.).
The notion apresentation, a term adapted from Schutz and Luckmann (1973: 11), refers to the transport of details from different geographical locations and time zones to a particular domain of activities. A partial attempt at apresenting markets occurred before the introduction of screens: the prices written down by hand on the “big sheets” to which P refers in the above quote were displayed on wall boards and can be seen as early attempts at market apresentation. When screens appeared, they were at first no more than substitutes for the “big sheets”: displays on which the handwritten price sheets put together by female clerks were projected on the basis of pictures taken of the sheets on the floor. This form of apresentation rested upon a chain of activities that was in important respects indistinguishable from the one that fetched prices in pre-screen times: it involved narrowing down where the market was by calling up or telexing banks, writing down the responses by hand (and perhaps recalculating prices in national currencies), and making this information available for internal purposes through a form of central presentation. Screens began to apresent a dispersed and dissociated matrix of interests more directly only in 1973, when the British news provider Reuters first launched the computerized foreign exchange system “Monitor”, which became the basis for this electronic market (Read 1992). Monitor still apresented the market only partially, however, since it, too, only provided indicative prices. Nonetheless it did, from the beginning, include news. Actual dealing remained extraneous to screen activities and was conducted over the phone and telex until 1981, when a new system, also developed by Reuters that included dealing services, went live to 145 institutional customers in nine countries.
The system was extended within a year to Hong Kong, Singapore, and the Middle East, resulting in a market with a world-wide presence (Read 1992: 283ff., 310-11). From that point onward, deals could be concluded on screen within two to four seconds, and dealers could communicate via the screen. Yet even before this system went live, the first system, Monitor, from its launch onward, radically changed one aspect of dealing: it answered the question of where the market was, i.e. what the prices of currencies were and who might be ready to deal.Before the market-on-screen, prices differed from place to place and had to be ascertained afresh for every deal through long and painful processes of phoning
up banks and waiting for lines from operators for overseas calls. After the introduction of Monitor, prices suddenly became available globally to everyone connected by the system, in a market that functioned between countries and between continents. Before the market-on-screen, there were dispersed networks of trading parties entertaining business relationships. After the introduction of the computerized screen quotes in 1981, “the market” no longer resided in a network of many places, but only in one, the screen, which could be represented identically in all places. The economic counterpart to this coming together of all market fragments in one location was the declining importance of arbitrage. Price differences between locations made visible on screen, even if they involve only indicative prices, will quickly be eliminated, as the information about them is available to all traders connected and traders try to take advantage of these differences. The sociological counterpart to Monitor and its expansion into dealing services and the many capabilities and information windows the successor systems provide is the emergence of GRS as a mechanism of coordination. Not only were markets recast with the coming together and expansion of all their functions and contexts on financial screens, but forms of social coordination were also reconfigured.