Algorithmic Institutional Financial Intermediaries: Formation and Development

Abstract

Algorithmic systems have transformed financial markets by automating services, driving new business models, and engaging new population segments. These algorithms prioritize service openness, inclusivity, and the removal of human intermediaries from trading and asset management. This study investigates the emergence of algorithmic financial intermediation through institutional, sociotechnical, and network lenses, incorporating the “arrow of time” concept.Objective: To trace the evolution of algorithmic intermediation as an institutional shift replacing traditional structures. The research examines how integration into online networks and computational optimization shape market dynamics, requiring updated conceptual frameworks for analysis.Results: The analysis demonstrates the intermediary mission and institutional form of financial algorithms, highlighting their specific influence on user behavior. A system of models characterizing the development of algorithmic intermediation and its market impact is established.Conclusions: Financial algorithms are defined as intermediation institutions operating within online networks. The study outlines the conditions for their development and their impact on financial inclusion while identifying new challenges and risks that market participants and regulatory authorities must address.

Keywords: Financial Algorithms, Financial Intermediation, Institutional Economics, Social Networks, Network Theory

DOI: 10.54941/ahfe1007606