Becker Friedman Institute
for Research in Economics
The University of Chicago

Research. Insights. Impact. Advancing the Legacy of Chicago Economics.

Performing anonymity: Investors, brokers, and the malleability of material identity information in financial markets

February 2016
Aaron Z. Pitluck

Although markets are intensely social, stock markets are peculiar in that they are normatively anonymous spaces. Anonymity is a difficult-to-achieve social accomplishment in which material identity information is successfully stripped from participants. The academic literature is conflicted regarding the degree to which equity markets are anonymous and how this influences traders’ behavior.
Based on focused, tape-recorded ethnographic interviews, the article investigates the work practices of professional investors and brokers to describe the conditions under which brokers veil or reveal investors’ identities to their competitors, and thereby shed light on how anonymity is socially produced (or eroded) in global stock markets.
The social structure of brokered financial markets places brokers in the awkward situation of sitting in an information-poor structural location for so-called “fundamental information” while being paid to share information with professional investors who sit in an information-rich structural location. A resolution to this material and social dilemma is that brokers can erode the market’s anonymity by gifting identity information (“order flow”) —the previous, prospective, or pending trades of their clients’ competitors—thereby providing traders a competitive advantage. They share identity information in three types of performances: transparent relationships, masked relationships, and the transformation of illicit material identity information into licit and shareable “fundamental” information. Each performance partly erodes transaction-level and market-level anonymity while simultaneously partially supporting anonymity.
Even well-regulated markets are semi-anonymous spaces due to the systematic exposure of investors’ identities to competitors by their shared brokers on a daily basis. This finding provides an additional explanation for how professional investors can imitate one another (“herd”) as well as why subpopulations of investors often trade so similarly to one another.
Practical implications
Laws and regulations requiring brokers’ confidentiality of their clients’ trades are easily and systematically eluded. Policy makers and regulators may opt to respond by increasing surveillance and mechanization of brokers’ work so as to promote a normatively anonymous market. Alternatively, they may opt to question the value of promoting and policing anonymity in financial markets by revising insider trading regulations.