Another day, another blockchain distributed ledger technology (DLT) report*. Today’s comes from the World Federation of Exchanges, which provides us with a survey of what financial market infrastructure types are thinking about DLT. And, interestingly enough, the bulk of the survey is dedicated to unknown, unknowns. Since DLT hype is exclusive to all other media outlets on the internet, we won’t feel bad about highlighting some of the real concerns being raised by market practitioners in the space with respect to DLT rollout.
Financial hype cycles are predictable mostly because they mimic fashion fads and music fads. For example, there was a time in this reporter’s life when she aspired to be cutting edge and cool. Joyfully, no longer. This involved dying her hair pink (as much as she could get away with without being expelled), reading NME and Melody Maker, and listening to the most obscure bands available in the acceptable genre, which was Indy rock. If and when the bands went “mainstream”, however — something assessed by whether the year below was listening to them — it was time to move on and find something more obscure. “Are you seriously listening to Blur? What seriously? Jeez. I much prefer Radiohead. What!? You’ve never heard of Radiohead? I can’t believe it. I’ve been a fan for like ‘forever’. You’re not cool.“
By Jennifer Hughes and Peter Wells in Hong Kong We’re not sure US and UK regulators attend hedge fund conferences, but in Hong Kong they do. Ashley Alder, head of the Securities and Futures Commission even opened the gig and described hedgies as “a breath of fresh air.”* See below for some of the ideas presented – and the first short ones in five years of the conference in its various guises.
We’ve flagged cryptocurrency enthusiasts’ distinctly mystic beliefs in spontaneously emergent headless organisms before. Now something called the “Decentralised Autonomous Organisation” — The DAO, not to be mistaken with Tao — project has begun to attract actual column inches in mainstream publications, albeit in keeping with the new style of journalism… i.e. devoid of critical evaluation and taking all claims at face value. The DAO is currently raising Ether tokens (the pre-mined currency of the Ethereum blockchain, itself funded via a bitcoin capital raising) — $110m at mark-to-market rates today — in exchange for DAO, a token which “grants its holder voting and ownership rights.” As Techcrunch put it, holders of DAO “can use their tokens to vote on big governance issues (akin to traditional shareholders) but also on minute details of how The DAO spends its resources. In this way, token holders have total control over The DAO’s assets and its actions.” The DAO explicitly states its tokens are not a form of equity — even if to the average bystander everything about the DAO token looks, smells and feels like common equity. (Perhaps the feeling is that if you dazzle them with “tokens” instead of stocks, those pesky unlicensed stock solicitation rules won’t apply? We’re not sure regulators will see it that way.)
Blockchain fever has, as we all know, turned into private permissioned distributed ledger fever — loosely summarised as the idea that the advantages of blockchain can be stripped out of the only tried and tested blockchain (bitcoin) then applied to pre-existing token framework (a.k.a fiat money), without the need for costly proof of work verification mechanisms. The hype on that front is now astronomical. And yet, despite all the column inches written about the system, nobody seems to have cottoned on to a critical contradiction with the premise. Blockchain, like the euro, makes little sense if it’s applied to participating institutions that don’t share the same business logic or governance standards. As a result it encourages unification around central systems, which don’t necessarily appeal to all parties involved.
The Sorcerer’s Apprentice is the story of a sorcerer who learns the hard way that it’s probably not wise to leave a young apprentice in charge of your workshop. Rather than getting on with tasks set by his master, the apprentice grows tired of having to fetch water by pail. To ease his burden, he enchants a broom to do the work for him, albeit with magic he doesn’t fully understand yet. The problem is, the broom ends up being so effective it floods the entire workshop. When he tries to intervene by splitting the broom with an axe, the Apprentice ends up with a decentralised liquidity broomchain nightmare he can’t control. Each piece becomes a whole new broom and begins to fetch water independently, now at twice the speed. When the master sorcerer gets back he sees the chaos and unleashes his own superior magic to bring things under control. The moral of the story is that a little knowledge can be a dangerous thing and, of course, to be careful what you wish for.
That, at right, is a slice of Saudi Aramco history that you probably won’t be seeing in an IPO prospectus any time soon — a story on the strikes that once wracked the Saudi Arabian state oil company’s eastern oil fields (in 1945, 1947, 1953 and 1956)… A little bit of political risk on the way from the first Saudi oil concession to foreigners in 1933 and Aramco’s modern role as the might behind Saudi Arabia’s swing producer status in the oil market.
It’s the eternal question with environmental, social and corporate governance: Does it just make investors feel good, or is it good for making money? Barclays analysts have come away with what they’ve dubbed a “surprising conclusion” in a recent report assessing the US corporate bond market in light of ESG ratings.
The euro may have been pointless, but it might have been a whole lot less pointless if there’d been political union from the onset. So implied Mario Draghi, ECB President, at the BoE Open Forum on Wednesday. For the laissez faire radicals out there, here’s how he went on to define the nature of “truly free” markets in that context (our emphasis): Consider the case of markets that are truly open – by which I mean, as open as the Single Market of the European Union, where internal frontiers have been abolished entirely, where passporting of services across the entire EU is a right, not a privilege. In this situation, national governments, or national courts of law, cannot alone provide full protection to their citizens against abuse of property rights or any form of unfair competition that may arise from abroad. Nor can they alone protect the rights of their citizens to carry out business abroad unimpeded by protectionist restrictions. For the market to be truly free, there needs to exist a judiciary power that can enforce the Rule of Law on all, everywhere. It has to have jurisdiction across the entire market.
Touting Ponzi schemes, or as the hip and the cool prefer to call them these days ‘mutual aid’ programmes, is so much easier if you have a handy Marxist-esque ideology to hand. The MMM scheme, which we wrote about on Wednesday, has an ideology and it certainly doesn’t disappoint. Some snippets from the imaginarium of Mr. Sergey Mavrodi: The modern world is bad. It is inhumane, unfair and unjust. This is the world of money. It is not for people. It is for those who who produce this money, for bankers and financiers, government and millionaires. And people are mere “pawns” in this game. They just serve them as attendants.
You may have encountered some fanfare this week surrounding Nasdaq’s unveiling of “Linq”, its blockchain-enabled platform for managing and trading shares of private companies. Here’s the extremely upbeat press release: NEW YORK and LAS VEGAS, Oct. 27, 2015 (GLOBE NEWSWIRE) — Nasdaq (Nasdaq:NDAQ) today announced the initial roster of private company clients for Nasdaq Linq, its blockchain-enabled platform. The first participants will include: Chain.com, ChangeTip, PeerNova, Synack, Tango and Vera. Nasdaq will unveil a first-ever demonstration of its blockchain technology at the Money20/20 event today in Las Vegas. The first platform of its kind, Nasdaq Linq is a digital ledger technology that leverages a blockchain to facilitate the issuance, cataloging and recording of transfers of shares of privately-held companies on The NASDAQ Private Market. It will complement ExactEquity, NASDAQ Private Market’s cloud-based capitalization table management and stock plan administration solution. Nasdaq Linq clients will be provided with a comprehensive, historical record of issuance and transfer of their securities, offering increased auditability, issuance governance and transfer of ownership capabilities.