The technological transformation of capital markets

Technology has dramatically altered capital markets over the past few decades. Technologically induced innovations such as electronic exchanges, high frequency trading (HFT) and exchange traded funds (ETFs) have made trading in capital markets faster, cheaper and more integrated, yet at the same time market liquidity has become more fragmented and opaque. Further, there are concerns that this new paradigm leads to greater volatility and myopia in the core function of finance (raising capital for entrepreneurial activity). Capital markets are clearly complex adaptive techno-social systems that are undergoing dramatic changes yet they are rarely researched from an innovation research or technological change perspective. In this editorial, we introduce the themes and issues highlighted by the papers in this Special Issue that addresses this gap in the literature. The contributions illuminate the technologies and related innovations that are changing the nature of capital markets. However, technology cannot be seen in isolation from other forces, most notably regulation, organisational innovation and new entrants. Moreover, technology is not only changing existing markets, it is expanding the scope of markets. Thus we conclude that financialization (the process by which financial markets become increasingly important in the economy and society) is a technology enabled phenomenon - something hitherto largely overlooked by the financialization literature.