Stephen Mihm: How Computers Took Over Trading

Roundup: Historians' Take
tags: Bloomberg News, Stephen Mihm, University of Georgia, trading, stock markets

Stephen Mihm, an associate professor of history at the University of Georgia, is a contributor to the Ticker. Follow him on Twitter.

The malfunctions that froze trading on the Nasdaq Stock Market for three hours this afternoon -- just two days after options markets were roiled by mistaken trades sent by Goldman Sachs Group Inc. -- are the latest in a series of high-profile mishaps most likely triggered by errant computer programs.

There is a perverse irony to these high-tech mishaps: When Wall Street originally embraced computers in the late 1960s, it did so in a desperate attempt to eliminate trading errors that had, by decade’s end, grown so serious they would help destroy hundreds of companies.

The problem lay in what was known as the “back office” or “cage,” home to an army of clerks who processed trades. These workers tended to be underpaid, overworked, bored, and had few opportunities for advancement. Yet companies couldn't dispense with them because methods of transferring stock ownership remained astonishingly complicated, and were largely conducted with pen and paper. One broker described his company’s back office as resembling “a scene in a Dickens novel -- the only thing missing is the quill pen.”...

Read entire article at Bloomberg News

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