Friday, August 7, 2015

Blockchain, Bitcoin, Overstock, Tee Zero, Consortium blockchain, woe and lap counts.

The ABC’s election analyst, Antony Green, was one of several who opted for numbers over words to express the gravity of Australia’s collapse.


Some more movement / announcements in the Blockchain space this week. I’ve included a few background threads to highlight the cross ownership (vested interests).

Overstock Unveils Blockchain Trading Platform at Nasdaq Event
Byrne also sought to distance tØ from other competitors who are looking to sell blockchain-based products to the New York financial market, suggesting some may fall short of delivering on what he considers the true innovative nature of the technology.
"This is all about true settlement, there's no need for net settlement," he said. "If people come along and say they're introducing these crypto-based platforms, ask if it stays net. Other people working on such systems, some of the ones I know about will keep settlement net, I'm suspicious of why you would even do that." and FNY Capital Conclude $5 Million Cryptobond Deal
The $5 million cryptobond Overstock has sold to First New York bears interest at 7 percent per annum over a five-year term. The cryptodebt is unsecured and has no covenants, however, it has both put and call provisions pursuant to which Overstock expects it and First New York may unwind the bond in the fourth quarter of 2015 or sooner. In addition, simultaneous with the issue of this bond, Overstock is making a $5 million loan to First New York at 3 percent per annum with similar put and call terms and with cross default provisions against the bond, thus transferring the economic risk associated with any failure of this technology back upon Overstock

Overstock Invests in Broker-Dealer Ahead of Decentralised Stock Market Launch
The latest Wired report further indicates that Overstock has purchased a 25% stake in Pro Securities LLC, a New Jersey-based brokerage firm on whose electronic system it says Medici has been built.

The Promise (and Limits) of Overstock’s Crypto Stock Exchange
At the heart of Overstock CEO Patrick Byrne’s plan for a decentralized cryptocurrency-based stock exchange is the promise of doing away with a centralized system for settlement and clearing that he has campaigned against for a decade.
For now, though, U.S. securities regulations will force Overstock’s so-named Medici exchange to adopt key aspects of that centralized system — most importantly, a clearing house.

Medici / Pro Securities
“We named the project ‘Medici’ for the Medici Bank of Florence. This bank grew very rich because it invented dual entry accounting, which engendered trust which led to wealth which in turn led to the Renaissance. Kind of a big deal,” said Director of Communications Judd Bagley.
T0...The Trade is The Settlement.

Symbiont is building the first issuance and trading platform for smart securities on blockchain technology

Wall Streeters back Symbiont crypto-securities startup
Symbiont, which bills itself as an issuance and trading platform for "smart securities" on blockchain technology attracted seed investment from former NYSE Euronext CEO Duncan Niederauer, Island ECN founder Matt Andresen, Getco founders Dan Tierney and Stephen Schuler, and Allied World Assurance Company CEO Scott Carmilani.
Symbiont was formed through a merger of two other cryptocurrency-based startups, MathMoney f(x) Inc. and Counterparty. MathMoney f(x), founded by Symbiont CEO Mark Smith last year, intended to leverage electronic peer-to-peer networks and cryptocurrencies for financial markets. Smith was also a co-founder of Lava Trading and served as co-head of Lava's FX division.

On Public and Private Blockchains.
Consortium blockchains: a consortium blockchain is a blockchain where the consensus process is controlled by a pre-selected set of nodes; for example, one might imagine a consortium of 15 financial institutions, each of which operates a node and of which 10 must sign every block in order for the block to be valid. The right to read the blockchain may be public, or restricted to the participants, and there are also hybrid routes such as the root hashes of the blocks being public together with an API that allows members of the public to make a limited number of queries and get back cryptographic proofs of some parts of the blockchain state. These blockchains may be considered “partially decentralized”.


Bitcoin latency
All transactions are broadcast between users and usually begin to be confirmed by the network in the following 10 minutes

Satoshi Nakamoto's original paper is still recommended reading for anyone studying how Bitcoin works.

This paper is referred to in Satoshi Nakamoto's original paper;jsessionid=0CBDB03137597E738F7A82ED00044D06?doi=


Initially I was excited by the Overstock announcement. But this initial excitement is diluted with the cross holding and risk free hedge for the first user. It is also interesting that the blockchain market, Prosecurities, still uses DTCC.

T0 (Tee zero) looks interesting, but again, I can’t actually see anything going through it’s books at the moment. The split out of counterparty into Symbiont is also interesting…along with their investors…market structure and HFT.

So, to the question. Do I think this blockchain thing is real or hype?
One, I continue to think the technologists are ahead of the practitioners. What is required are tangible use cases. I note Financial Services responds more to evolution than revolution.
Two, there are good reasons that market structure has evolved to where it is today. Things like netting (gross, directional, bilateral, directional etc. all have their place). Then there is latency. Think Herstatt risk. Think time stamps at the microsecond level.  10 minute validations of blocks / hashs is not good enough (IMHO).
Three, we have the cost of the infrastructure. The reward / compensation for these new miners. That business model also needs to be considered.

The most positive read for me was the middle ground between public and private blockchains (the ethereum link). There is the concept of a Consortium blockchain. Now, that is an idea of real merit! (just industry consortia are a nightmare).

Regulation….(and statement fines)

Making a statement...
Former City trader Tom Hayes given 14-year sentence for Libor rigging

ITG woes signal continued scrutiny of dark pools
Investment Technology Group (ITG) ousted its chief executive of nine years this week, less than a week after announcing that it was setting aside $20.3 million for a potential settlement with the Securities and Exchange Commission over past issues related to the operation of its POSIT dark pool. 
Based on the amount set aside, the settlement would be the largest U.S. penalty ever by a firm over issues related to a dark pool. The issues reportedly stem from a test of a proprietary trading program run within POSIT from 2010 until mid-2011. The proprietary trading program, run by an ITG subsidiary called AlterNet Securities, allegedly accessed private client trading information unavailable to others, and used that information to trade against clients' order flow.

And the cricket...
The worst of them: Australia’s 18.3 over innings was the shortest in Test history; never have the fourth, fifth and sixth wickets fallen so early; at no time in Ashes history have the sundries been a side’s top scorer. Pity the nation

And the rugby…
Ummm, rugby will be the winner on the day. (i.e. the Wallabies will lose to the ABs)

Disruptive Technology in Space....
If you like Hitchhikers Guide…you’ll like this…
Nasa's 'impossible' fuel-free thrusters DO work: German scientists confirm viability of super-fast space travel that could slash a journey to the moon down to 4 hours
According to classical physics, the EMDrive should be impossible because it seems to violate the law of conservation of momentum.
The law states that the momentum of a system is constant if there are no external forces acting on the system – which is why propellant is required in traditional rockets.
Finally, a plea for help.
As mentioned I’m doing a swim, across the Solent (crossing from mainland to the Isle of Wight) in aid of Motor Neurone Disease. As part of the swim Risk Assessment I need to pass a fitness test. Basically I just swim 200 laps of a 25m pool and I need someone to note time splits every ten laps. It should take just under 2 hrs and can be done any weekday (whatever time / before / during / after work). I’ll even buy you a guilt free beer afterwards!

Have a great week-end all…preferably not watching the cricket.
I’m off to the pool.


Thursday, July 30, 2015

Blockchain to blogging....context is the key!

This 65-year beer vs gold price chart is the only one you need
(see page 35 of their report for full explanation).


FCA and Wheatley moves on.
I was initially surprised that Osborne was so public in not renewing Wheatley's appointment.
Then I had a quick recollection of April Fools Day last year, (Yep, it was April 1st), and Osborne's direct comments of the Insurance investigation fiasco.
I guess every lobbyist has their day....

Following on from the Wheatley story, I notice he did comment on Blockchain.
(BTW, pretty much everything else on the FCA website is about blockchain in the context of digital currencies / cryptocurrencies i.e. Bitcoin)
Apart from outlining the FCA Innovation Hub he makes a very insightful comment on start-ups: "The start-up motto is to ask for forgiveness, not permission".

What's it all about?

"With the right legal structure, you can transfer the ownership of just about any asset you want using blockchain technology. The blockchain is simply a digital way to transfer ownership of assets in a more efficient and a more effective way by the removal of third party trust and cost.
Blockchain technology has come to fame mostly in supporting cryptocurrencies but the technology is being trialled by small and large financial services companies, who want to better understand the technology and work out suitable use cases.
There is a lot of interest in blockchain technology to support capital markets and particularly the transfer of securities.  E.g. Nasdaq Private Markets are publically trying to use blockchain technology.
Bitcoin blockchain functionality is not designed to scale at present and building on top of the current Bitcoin blockchain is very difficult. But others have come to market which are designed expressly for business – eg. Credits Protocol, Ripple.

Nasdaq and Chain to Partner on Blockchain Technology Initiative
Nasdaq today (24/Jun/15) announced a new partnership with Chain, the leading blockchain infrastructure provider to financial institutions and enterprises, to leverage the blockchain platform to facilitate the secure issuance and transfer of shares of privately-held companies. Chain, currently privately-held, plans to be the inaugural company to use the blockchain technology on Nasdaq Private Market.

Chain go as far as showing some potential applications on their site.

Then there is the Bitcoin News service (and this is no endorsement of Bitcoin news - caveat emptor!) which reports:
“I believe that [blockchain] technology has the potential to truly change the way the financial world operates, to reduce costs, reduce efficiency, reduce risks and ultimately provide better customer service, which ultimately is what financially services needs to be all about,” Masters said in the opening keynote at the American Banker’s Digital Currencies + the Blockchain conference.

This leads onto further examples of use cases.

ECSDA passes brief comment.
ESMA should consider "blockchain" and other distributed ledger technologies in conjunction with, but also separately from, virtual currencies.
There is a general perception among market players and securities infrastructures that these innovative technologies can present interesting opportunities for achieving speedy and cost-efficient securities transactions, although there are still many obstacles and limitations to overcome before they can be considered for widespread use.

Anyway, enough on blockchain for now. What I feel is lacking is suitability (there is still a lot of latency in blockchain) and application (financial services likes disruptive [cheaper] technology...but it is less keen on revolution).
Once we have the Financial Services context right, then we'll have a real 'game changer'. 

More to follow....

But for now, some practicalities and comments on Blogging

When you start blogging, you actually have a variety of platforms to choose from.
I went for Google’s offering (a choice made by habit rather than education).
18 of the main blog sites are listed here (and interestingly, googles blogger didn't even make the list):

In terms of distribution there is 'push' and 'pull'.
I 'push' the blog out via my personal address book and via a LinkedIn group CCP Clearing Houses:
(I usually do this when people say "Oh, add me to your blog". – or if they’re good folk that I like to try and keep in touch with)
People can 'pull' the blog information by following the blogspot or opting for an RSS feed.

In 'pushing', one of the limitations of a personal email address is a restriction on the number of personal emails you can send out. For example, with a gmail account, you're limited to 2,000 emails a day (and there are further sublimits to how many addressees you can have on an individual message.

In practical terms 2,000 email addresses are too many to maintain, well, for me at least, so I'm migrating my distribution across to mailchimp. Be warned! Mail boxes are wise enough to recognise mailchimp emails and let’s face it, any self respecting mail filter would deposit an email full of clearing and settlement news straight to the SPAM folder. So, I won't be surprised if you find yourself seeing this email when you're periodically, optimistically, searching your Spam folder for that 'important' message!

Of course the cricket is on.
After Cardiff, I worried.
After Lords, I relaxed.
After the first day at Edgbastion, I despaired…and that despair perseveres. Finn, once unselectable now rudely exposed our middle order.

But cricket does make me think of 'my' voice of Summer.
The Great Richie Benaud who has sadly passed away.
A great tribute here:

And for another great man who's company I always enjoyed and am grateful for;
Giulio Di Cerbo

I was looking at one politically incorrect site this week and I thought their disclaimer was a nice interpretation of diversity / political correctness.
"If these characterizations offend anyone, please be informed that they are supposed to offend everyone."

"Shoot for the moon. Even if you miss, you'll land among the stars." 
-- Les Brown
“The only thing that interferes with my learning is my education.”
-- Albert Einstein

Any thoughts or feedback always welcome.

Have a great week-end all.
I’ll be heading off into the ocean for more open water training.


Friday, June 26, 2015

Benchmarks, Global Warming and Swimming to the Isle of Wight

The FCA has published their Monthly Regulation Round Up.
It's a good way to remain abreast of what's up.
You can subscribe here:

A couple of issues of note:

Fair and Effective Markets Review (FEMR).
FEMR made a number of findings and published 21 recommendations designed to ensure that wholesale Fixed Income, Currency and Commodity (FICC) markets are fair and effective.

The final findings are now available (from the BoE).


Well, first there was one: Libor
...and what a kerfuffle that made with the "Wheatley Review"

...and then there were some standards...
IOSCO Standards for Financial Benchmarks.

...and then there were 7 more to add to the fold...

The benchmarks being brought into scope are:
Sterling Overnight Index Average (SONIA)
Repurchase Overnight Index Average (RONIA)
ISDAFIX (soon to be renamed the ICE Swap Rate)
WM/Reuters (WMR) London 4pm Closing Spot Rate
London Gold Fixing (soon to be replaced by the LBMA Gold Price)
LBMA Silver Price
ICE Brent Index

I think all of the above are fairly familiar....but for me, I was not aware of the State Street tie in with WMR. 
The WM Company (WM being World Markets, interestingly, a State Street business.):

Now for those of us familiar with the closing price process (Mark to Market, margining etc.) the importance of all the above makes sense. However, with the renewed interest in this sector it does highlight further potential conflicts of interest. Hence...

FCA's CP15/18: Fair, reasonable and non-discriminatory access to regulated benchmarks

Then of course, with all ths happening at the UK level...whats going on at the EU level?
More here:

This is 'dangerous' stuff. What is in scope and what is out of scope? To make matters worse there doesn't appear to be consensus between the Parliament / Council and Commission.

In conclusion it leaves me wondering 2 things:
1. Regulators want "Champagne Benchmarks" whilst the industry has a "Beer Budget". Great benchmarks, committees, supporting data and process etc all comes at a cost....which leads to;
2. Have we lost sight of the golden goose? Somewhere in here there is a fine line between "materiality and proportionality". Sure, asset managers / users need great benchmarks...but if the operational risks and responsibilities and not to mention the regulatory risks deter contributors...have we really improved the quality and robustness of a benchmark? Sometimes a Mini is perfectly adequate to travel from A to B. We don't always need a Rolls Royce (as nice as that may be).

Anyway, enough about Benchmarks for today. Obviously always interested for any thoughts and feedback on the topic. My interest is now that we've arrived here, where is this segment going and how will it get there?

A little bit of surfing...
I enjoyed this...I started with Global Warming but found myself drawn in...

Minimum wage / Base salary.
I like what this CEO has done in terms of addressing the "minimum wage" debate.
The article doesn't actually say what the lowest salary is, but it does say about 30 people can see a pay rise upto the new 70K as a minimum salary level.
No science to support it, but lets say 30 people on average get a lift of 25K (some more, some less). At a cost of 750K, and lets allow some loading, so say 1 myn, that looks like a worthwhile gesture and investment. I can think of a lot of other projects that wouldn't get as good a return for a 1myn investment.
The problem is, we still don't account for things like intellectual capital, employee churn etc. The 'soft' metrics are still not measured in hard dollar or operational risk terms.

...and finally...
After International Derivatives Week ( I was tempted to do a little swim for a good cause.  crossing from one land mass (UK) to another (The Isle of Wight).

Sea Temperature (circa a toasty 17.5 degrees)

Any feedback always welcome.

Have a great week-end one and all!


Friday, June 5, 2015

Back to blogging, Flash Boys, Order Handling, Order Types...and Knowledge a system, not a goal.


G'day All,

Well, it's been a while between drinks, oops, blog posts, but time to start collecting some thoughts again.

Old news now, but I did want to put some thoughts down about flash boys.
First of all, I do not want to recommend the book. I would hate to encourage anyone to buy the book as I don't think it is meaningful enough to advance the debate around best market practice and the role of HFT.

Sure, there are parts of it that are a good read but I do think it is a wasted opportunity to have added some real perspective to the debate.

For me there are 2 stories going on in the book. One about market access and low latency and then another story about enforcing proprietary rights, sometimes over open source code. I feel throughout the book Lewis fails to take the time to distill and demark the issues he is trying to address. E.g. Software and Hardware are often bundled together. It just leaves me feeling this book was rushed to press prematurely.  

Lets set aside the sad story of Sergey Aleynikov. That leaves a tale of HFT.
The story of building Spread Networks line from Chicago to New Jersey is nice, but nothing new. To me it is no different to a toll road. We all use them. We know we have the option not to, but sometimes, lets say time is money. But again, is this so different from having a line of sight from the old trading booth onto the pit floor?

By the middle of the book we start to get into the detail of order handling and order types...and it is here that Lewis, in my view, fails to go deep enough or to clarify the issues he is trying to address.

For example...what is front running? Lewis implies all HFTs, by virtue of having access to technical infrastructure, front run the market.  

"In common usage there are at least two meanings to the term. One common meaning is as shorthand for "front-running demand," which is what happens when someone tries to figure out whether your mutual fund or your pension fund is buying or selling stock, realizes that it will change supply-and-demand dynamics for the stock, affecting the price, and front-runs that demand to profit.

Imagine if someone made a reasonable guess you needed milk, raced ahead of you to the only store in town to buy up all the milk before you got there, and then offered to sell you milk at a higher price than the store sold it to him; this is one example of front-running demand, just as described in "Flash Boys." (It's also called "trading ahead.") Another common meaning is "front-running a customer order," a type of insider trading, where a stock broker believes his own customer's order will change supply-and-demand and tries to profit from that"
By In the markets Published on

The next bit that I thought could have been just as useful was a deeper exploration into order types. Again, we just get a scratching of the surface with a bit of fear mongering thrown in. Hardly advances the cause.

I did however find this run down of order types more useful:

I am often amazed at the quality of analysis done by the people at Nanex.
This paper specifically investigates exploratory trading that attempts to determine whether the bid/ask spread is about to shift up or down a level.

The last part of the book is just a slavish devoted sales pitch for the IEX exchange and their business model. Looks like Mr Lewis took the bait: hook, line and sinker.

Their story here:

So, my takeaway is that regulatory scrutiny around equity execution is not going to fade away. I think it will remain front and center for the coming years and the regulatory lasso will probably tighten under the guise of harsher interpretation of 'best execution'.

TR14/13 - Best execution and payment for order flow.

Right, enough of a Flash Boys rant.

A few other snippets below. More to follow.

In terms of logisitics, I will post this blog (obviously) at:
I will also post it on the LinkedIn Group CCP Clearing Houses.
I will also try and "push" this out via my contacts list.

If you would like to be included...please just ping me a note.
If you'd like to be excluded...sorry for the spam and please just ping me a note.

...and for  bit of fun, I recently did this (Fat Boy Slim and Zoe Ball observed)..
A spot of charity fun on the 'beach' (?)...the Brighton Big Balls run.

Whatever your pleasure...have a great week-end.



EFAMA has today published a response to the second FSB/IOSCO consultation on the assessment methodologies for identifying non-bank, non-insurer (NBNI) globally systemically important financial institutions (G-SIFIs).
*** I'm not so comfortable with extending the net over Asset Managers.

Building a Capital Markets Union.

EU REFORM A view from TheCityUK

I did used to like Scott Adams and Dilbert very much. Now I think some of the material is not so fresh. That said, he does still hit the nail on the head. I notice he has also started blogging. I enjoyed this post:

In terms of my practical application I see knowledge and learning as a system, not a goal. We all travel various paths in our careers. It is how you transfer your skills and knowledge across disciplines and how we learn to communicate in the right context with other practitioners that is part of the fun of the journey.

The opposite of talking isn't listening.
The opposite of talking is waiting.
- Fran Lebowitz.