Finance capital and the stock exchange

Vanguard March 2011 p. 7
Nick G.

There was a time when stock exchanges served as the fiscal barometers of mergers and acquisitions between big companies.

Now stock exchanges themselves are subject to mergers and acquisitions.
The Singapore Stock Exchange (SGX) has been trying to takeover the Australian Stock Exchange (ASX) for nearly three months.

Meanwhile, the German Stock Exchange has put in a $10b bid for the New York Stock Exchange which had merged in 2007 with the fully electronic stock exchange Euronext. The London Stock Exchange made a bid for Canada’s TMX (Toronto Stock Exchange) whilst BRIC members China and Brazil are contemplating a merger between the Shanghai Stock Exchange and Brazil’s Bovespa.

Globalisation: the domination of speculative finance capital

Contemporary circuits of capital reflect a continuous struggle between their respective sectional interests: manufacturers, merchants and traders, bankers and financiers all want a growing slice of what the labour power of workers alone can produce, namely, surplus value.

Finance capital, which originated as a merger between industry and the banks, served to channel part of the surplus value into speculative purposes. Marx described various types of financial speculation in Volume 3 of Capital. Lenin elaborated on what the maturity of this merger of interests meant for capitalism - its development into a higher and more aggressive stage - in his Imperialism.

Industrial, commercial and credit capital remain vital to the functioning of the so-called “real” economy i.e. the one where commodities are produced and circulated for sale, at which point a profit is realised.

Until the 1970s, speculative finance had a somewhat limited role to play in the share markets and the bond markets.

From the 1970s onwards, speculative finance capital, unleashed by systematic deregulation and the creative formation of weird and wonderful financial instruments, has come into its own.

The technology of speculation

The digital revolution provides the technological basis for this. One only has to reflect on the technologies available when the forerunner of the New York Stock Exchange was created in 1792, or when the London Stock Exchange first opened for business in 1801. They were literally worlds apart, operating independently of each other.

The first electromagnetic telegraph operated in Germany in 1833 over a distance of only one kilometre.

It wasn’t until 1866 that a commercially successful transatlantic telegraph was available.

Even with the telephone, speculation (gambling on making a profit by buying low and selling high) was limited by human factors.

But today, computer-generated algorithms take nano-seconds to hunt down arbitrage opportunities, employing vast amounts of speculative finance in rapid fire transactions between continents.

All stock exchanges have been, or are in the process of being, made in the image of speculative capital. This is how changes to the Turkish Stock Exchange were described last week:

“Turkey's main bourse, the Istanbul Stock Exchange, is set to become the latest to open up to the rapid electronic trading practices that are sweeping the world’s markets with plans to ease access to foreign investors.“Brokers planning to take advantage of the moves said the change, effective from Monday, would open Turkish equity markets to algorithmic trading and attract quantitative investors.“

The ISE will begin reducing tick size, the increments by which prices can move up or down, for stocks and exchange-traded funds, in a step likely to appeal to high-frequency traders.

“Other changes, which took effect in October, allow traders, for a nominal fee, to cancel or reduce orders midsession – crucial to deploying algorithms making “passive” trades.”

Capitalism is inherently unstable

Capitalism, as Marx showed, was inherently unstable even in its formative stages. This instability became particularly aggressive and reactionary in the era of imperialism.

Imperialism continues to exist. Adoption of the term “globalisation” was something of a recognition that finance capitalism, requiring a deregulated speculative environment backed by reactionary neo-liberal policies, had parted ways with the “real” economy and that the initiative would henceforth reside with pure speculators.

Speculative capital need not sleep so long as a computer is on and running. Those little algorithms just keep searching the ether for buy/sell opportunities transacted at a speed beyond the comprehension of the human brain.

It sounds like a fantastic technological achievement, but its purpose is the parasitical enrichment of a few and its outcome the creation of massive bubbles of speculation that capitalism can only put off bursting so long as it can keep bailing out the biggest.

Otherwise there is system collapse on a scale to dwarf the GFC.

Meanwhile the contending centres of financial power group and regroup.
The once powerful stock exchanges are putty in their hands.