Blast you Chris Hayes why must you be so reasonable

When I found out Chris Hayes was interviewing Michael Lewis on his show tonight, and they were going to talk about Lewis’s controversial new book Flash Boys, I was jazzed – I was ready to unleash hell on them for peddling alarmist rubbish and scaring people away from equity markets. (It’s a slow Wednesday night, what else am I going to do?)

But no. The interview was sensible (though can we stop using the word “rigging”?). They even managed to agree that the real target of HFT is large investors – mutual funds, hedge funds, pension funds – rather than “the guy in his underpants e-trading”. If you’re the guy in your underpants e-trading, you’re probably being net helped by HFT, as Felix Salmon explains, and also please put pants on.

Lewis took exception to Felix Salmon’s claim that he “queered the narrative”, creating heroes and villains – but if you think the heroes and villains of HFT are as clear-cut as Lewis makes them out to be, go read Matt Levine’s alternate take on the Flash Boys story (and then come back). 

There was only one part of the interview that really struck me as overtly wrong:

Scalping – trying to jump in front of big flows to get ahead of them, or in front of small orders to preferentially trade with them – has been around since financial markets were a bunch of dudes punting rice futures in 18th-century Osaka. (Here it is back in the day-trading days of 1995.)

For that matter, so has proximity arbitrage. Open-outcry futures traders fight for positions closer to the top step of the pit, where they can see more activity and be closer to the top step where the big brokers traditionally stand; HFT firms colocating their servers next to the exchange’s matching engines is the electronic equivalent of standing on the second-top step in the futures pit. If you bar the exchanges from offering colo space in their datacenters, the HFT firms will just bid up space in the datacenters next door instead. 

Flash Boys is a great read, an exciting story of plucky outsiders bringing down the old regime (like The New New Thing, like Moneyball, like The Blind Side, like The Big Short, you might notice a pattern here). But it seems to have turned into a policy paper for financial regulators, and if we ran the government by who can write the most interesting narrative then we’d have David Simon running the justice system and Teju Cole or Chimamanda Ngozi Adichie running immigration policy wait that might not actually be so bad. 

Here’s the video. It’s worth a watch. 

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Trading while insolvent is apparently fine if you’re a bitcoin exchange

Amid the fiasco of MtGox’s apparent collapse last night (acquisition? rebranding? god knows), some kind person leaked MtGox’s “Crisis Strategy Draft”. It’s an internal Powerpoint that appears to describe a plan for shutting down MtGox and relaunching it as “Gox” – a new, trustworthy Bitcoin exchange from the people who brought you this. And this.

And there is so much icky stuff in there.

On page 2, there’s the admission that they’ve been robbed of nearly 750,000 BTC – call it  $400 million and you’re not far off.

There’s also a couple of paragraphs arguing that if MtGox fails, it’ll destroy the public perception of Bitcoin’s worth. This seems like a tenuous argument at best, and you can come up with any number of good arguments against it – not least the fact that everyone already knows that MtGox is up the spout – but the MtGox crew seems to take it as gospel, and that leads them to a very icky strategy to revive the exchange.

The first step in their strategy – “Immediately reduce liabilities as much as possible with partners” – seems to involve making money by arbitraging the MtGox discount that they created. The rest of it is basically “shut down, rebrand, and relaunch in a month” with a low-cost platform that people will want to use… or, to put it another way, “trade our way out of insolvency”.

The Financial Assets and Liabilities slide, if it’s even remotely close to reality, should be enough reason to shut down MtGox (and maybe send the management out in handcuffs?).

The first thing I like on this slide is that they value the bitcoin deficit using the cheaper MtGox price ($160), not the broad-market price ($500-ish). The only way that valuation would be legit is if they can buy enough BTC to cover the deficit at the MtGox price – again, exploiting the discount that MtGox created through its own incompetence. (Arbing your customers – it’s the Bitcoin way!)

The exchange’s assets exceed its liabilities by somewhere around $21.5 million of actual cash. Even if you leave out the 742,000 BTC bitcoin deficit, that sounds a lot like an admission of insolvency. Is trading while insolvent as illegal in Japan as it is in the UK or Australia?

Update: a kind Redditor named pyalot has unredacted the blacked-out financials slide, and it is comedy gold. Despite some fairly enthusiastic growth assumptions, the revised would only be making $40 million a year by 2016 – so it’d still take somewhere close to ten years to dig itself out of its half-billion-dollar hole and refund all those missing bitcoins.

MtGox doesn’t deserve to be acquired, bailed out, or saved. It’s a disaster. It needs to be liquidated.

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Bad Ideas: “Be A Stockbroker!”, Sez SGX

The SGX wants Singaporeans to quit their jobs and become stockbrokers

Singapore Exchange (SGX) is partnering NTUC’s e2i (Employment and Employability Institute) to draw more Singaporeans to the stockbroking profession and equip new joiners with the necessary skills.

“A career as a licensed broker offers Singaporeans the opportunity to be an entrepreneur, a financial professional and a front-liner in the exciting world of markets and investments.” … said Lynn Gaspar, Senior Vice President of SGX who oversees SGX Academy.

Never mind that stockbroking as a career is slowly being destroyed by online discount brokers (on the execution side) and independent financial advisors or RIAs (on the advice side). 

Nobody in their right mind would pay 30 or 40 bps to trade Singaporean stocks through some dude on the other end of a phone line when they can pay 18bps at Standard Chartered or 8bps at Interactive Brokers. (Or is that just me? Do people actually do this? Has Singapore not had its Stratton Oakmont to sour people on cold-calling brokers yet?)

You can excuse the NTUC for not knowing this, but the SGX should know this. 

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JRE Sells Out: Snugg iPad Mini Retina Case

So the fine folks at emailed me and asked me if I’d like to review one of their iPad Mini cases. I said yes; they sent me a fetching one of these – the iPad mini Retina Leather Case – and I wore it around on my iPad for a week. 

If you’re the sort of person who wants to wear a case on your iPad, the Snugg cases are pretty great. They’re rock-solid, stitched nicely, made of decent leather and fabric both inside and out. They’re built rock-solid, and the elastic hand-strap makes it easier to hold the cased iPad up while you’re reading. 

It’s got all the usual bells and whistles an iPad case should have – the flat-on-the-desk or propped-up-for-TV configurations, magnetic sleep/wake when you close or open the case and cutouts for the speakers and microphones (including the new dual noise-cancelling microphones in the Retina mini – watch out if you’ve bought yourself a Retina mini and use a case that’s not designed for it). 

One thing I particularly like is their height when they’re in “desk mode”. The iPad Smart Cover (my usual cover of choice) leaves the iPad almost flat against the desk, and leaves you hunched over it while you’re typing;  the Snugg case lifts it up a little higher, making it easier to type on and a bit less of a strain to use. Heavy iPad typists will probably like this case a lot. 

If you’re a light typist, or you only use your iPad for reading, though, you’ll probably be wondering why you need a case at all – and not unjustifiably. Any case – even the slimline Apple cases – is going to make your svelte iPad significantly thicker and heavier, making it harder to hold up to read, heavier to tote around in your backpack, and generally a lot less practical than it was designed to be. 

So that’s the tradeoff you make with any case. But honestly, if you’re going to make that tradeoff – and if you’re a heavy iPad user, and your use skews toward writing instead of reading – you’re probably going to like the Snugg case. (Plus, at $25 – it’s on sale right now! – it’s cheaper than Apple’s cases and sturdier than the no-name off-brand cases you find littering the iAccessories market.)

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Tiny Robot is Disappointed by Wall Street

Jeez, it’s been quiet around here lately, hasn’t it?

Here’s some Tiny Robot for you, to break the monotony. Tiny Robot heard about a place called Wall Street, deep in Bryce Canyon National Park. This Wall Street is a deep slot canyon between two huge sandstone massifs… but there’s nobody there to help Tiny Robot with the IPO of Tiny Robot Industries.

Tiny Robot was disappointed.

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This is what we call idiosyncratic risk

So despite having been away from Disneyland-with-the-death-penalty for more than a year, I can’t resist keeping up with the news from Singapore’s spectacularly dodgy S-chip stocks – the Chinese small-caps that infest the lower reaches of the SGX because it’s the only exchange that will take their listing fees. 

And one of them – an abalone-farming firm named Oceanus Group – dropped an absolute humdinger of an announcement a few days ago. It requested a trading halt on August 5th, but waited until August 11th to explain the reason for the halt (at the same time as it asked for a suspension from listing, leaving shareholders in the lurch): 

The board of directors (the “Board” or “Directors”) of the Company hereby would like to further request for a trading suspension of the shares of the Company and provide clarifications on the same matter. The Company previously announced that, at the Company’s [AGM], one of the resolutions tabled at the AGM to re-elect Mr Wu Yong Shou (“Mr Wu”) as a Director of the Company was defeated by a 95.51% majority of the shareholders of the Company (“Shareholders”) present and voting at the AGM. […]

As a result of the AGM, Mr Wu retired at the conclusion of the AGM and has consequently ceased as the Executive Director of the Company. […]

While Mr Wu remains as the General Manager in charge of the Company’s China operations and production in the interim of the Board re-composition, he became increasingly un-cooperative towards the re-constituted Board ever since he was not re-elected as a Director of the Company at the AGM. The Company was notified on 02 August 2013 and again on 05 August 2013 by the Head of Production of the occurrence of substantial and abnormal mortalities of abalones at the Company’s China farms within a very short span of time immediately following the AGM.

There are two broad categories of risk in investing. There’s systematic risk: risk that affects all companies in an industry (for example, the risk that yield curve flattening will dent the profits of the banking sector). And then there’s idiosyncratic risk: risk that only affects one company… for example, the risk that a disgruntled board member will take revenge for his sacking by poisoning all your abalone.

(And was there a sudden 10% selloff on higher-than-normal volume two days before the trading halt? Was there ever!)

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Prior Art

An eagle-eyed colleague recently pointed me to the case of CLS Bank v Alice, where Alice Corporation is trying to enforce a set of patents against CLS Bank, the little-known (but systematically vital) central settlement point for interbank FX trades. 

The judgment itself is interesting because it tries to rule on the patentability of computer-implemented inventions (that is, business methods implemented “on a computer” instead of “in real life”). Alice’s patents specifically refer to computer-based implementations of certain processes, rather than the processes themselves, and the Federal Court was asked to rule whether the computer-based implementation might be patentable even when the business process itself isn’t. 

The end result was a hung bench – five people saying that computer-based implementations are patentable, and therefore Alice has a case; five people saying they’re not. The end result is that they’re apparently not, though there’s a lot of talk that Alice will appeal to the Supremes. (…never mind.)

I’m going to leave the “they were wrong! they were right!” arguments over jurisprudence to the people who know better. But it seems to me that Alice’s patents – even if you look at them purely as computer-based implementations, not as claims on the underlying processes – might have problems with prior art. That is, the patents aren’t valid because someone else already did it. 

Have a look at the patents linked off the PatentDocs article (the very first link in this post). Here’s the abstract of 5,970,479:

Methods and apparatus which deal with the management of risk relating to specified, yet unknown, future events are disclosed. `Sponsor` stakeholders specify a particular product relating to an event or phenomenon for which there is a range of possible future outcomes. `Ordering` stakeholders then offer contracts relating to the predetermined phenomenon and corresponding range of outcomes. The offered contracts specify an entitlement or (pay-off) at the future time of maturity for each outcome, and a consideration (or premium) payable, in exchange, to a `counter-party` stakeholder.

Independently of the offered contracts, the `counter-party` stakeholders input data as to their view of the likelihood of occurrence of each outcome in the predetermined range into the future, or specifically at the predetermined date of maturity. Each offered contract is priced by calculating counter-party premiums from the registered data, and a match attempted by a comparison of the offered premium with the calculated premiums. Matched contracts can be further traded until maturity, and at-maturity processing handles the exchange of entitlement as between the matched parties to the contract.

Here’s a decoder ring: “ordering stakeholder” = “market maker”; “probability” = “delta”; “premium” = “premium”. The claimant is describing an options exchange. Or, specifically, he’s describing an electronic implementation of an options exchange. (Have a read further down in the Claims section if you’re suffering from insomnia, it’s gold.)

All well and good. But the patent’s dated 1992… and CBOE implemented an electronic options limit order book in 1978.

Another patent – the one at issue in CLS Bank - is 6,912,510:

A method of exchanging an obligation between parties where the exchange is administered by a supervisory institution that ensures real-time settling of obligations between parties by updating shadow records in real-time and instructing one or more exchange institutions to effect, from time to time, the exchange of obligations in accounts maintained external to the supervisory institution. Updates to the exchange institution accounts may reflect the net obligations of parties over a nominated period of time. The role of the supervisory institution is to ensure that obligations are only settled where parties have sufficient balance in their shadow records to complete the transaction.

Obligations that can be exchanged include, but are not limited to: shares in financial or physical assets, participation rights in wagers, national or synthetic currencies, exchange settlement account deposits, taxation account deposits, and deposits of financial instruments or precious metals.

The decoder ring again: “shadow balances” = “bank accounts”; “exchange institutions” = “banks” (and credit card companies, but you get the idea). The claim describes real-time gross settlement systems. (Claim 58 reads to me like they’re trying to claim nostro accounts as part of the patent, which seems remarkably ambitious.)

And again, the patent’s dated 1992. But CHIPS – a privately-run American settlement system that competes with Fedwire – has been doing electronic RTGS settlement since the 1970s, and Fedwire itself seems to have been doing the same thing long before CHIPS appeared

I’m not sure where I stand on the issue of software patents. I mean, I have no problem with patenting an innovative business process. But I think saying “we’re patenting this already-existing process… on a computer!” is a bit of a stretch. And attempting to patent something that’s already been in existence for twenty years is a real stretch – and I think that’s what Alice has done, at least in these two cases. 

Have I misread these patents? Or is there a possible serious issue of prior art here? 

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The Million-Dollar Pizza

In 2010, a Florida man parted with 10,000 units of a new-fangled anarcho-currency thing called “bitcoins” in return for two hot, fresh, tasty pizzas

At the time, that was about $40 worth of these “buttcoins” (NSFW), so that was already quite an expensive pizza. (Must’ve been a pretty serious case of the munchies.) 

Three years later, and Bitcoin has boomed, busted, and boomed again. It’s been used by Cypriots, Iranians, dope fiends, and people who just want to buy a pizza without Big Brother knowing whether or not they like anchovies. 

And after three years, one bitcoin buys you right around USD 100 - so those pizzas back in 2010 are now worth a cool one million dollars.


Bitcoin does this occasionally. Unlike most currencies, the supply of bitcoins is extremely tightly constrained, so the currency undergoes sharp bouts of deflation whenever Bitcoin becomes trendy. And if a currency’s undergoing deflation, you’re not going to buy anything using that currency (lookin’ at you, JPY); you’re going to hoard the currency, and the deflation becomes a self-fulfilling prophecy. 

And when the supply’s as tight as it is with Bitcoin (and when it’s not possible to borrow the currency to short it), you end up with the world’s first case of what’s been coined “hyperdeflation“. 

Let’s imagine a hypothetical pizza… like the potato pizza at Ragazza on Divisadero. It’s really good pizza. It’s got potatoes, smoked bacon, leek, thyme and gorgonzola on a thin, crispy, crunchy, tasty crust. And it costs USD 16 – or 0.16 bitcoins. 

But let’s imagine you live in Bitcoinia, where the currency’s deflating by two-thirds every month. (BTCUSD’s gone from 33 to 100 in the last month, so this is pretty much bang on.) In a month’s time, if this trend continues, that pizza’s only going to cost one-third as much – about 0.05 bitcoins. Would you buy a pizza now for 0.16 bitcoins if you knew it would only cost you 0.05 bitcoins in a month’s time? 

…okay, you probably would, because Ragazza’s pizzas are phenomenally tasty. (Don’t tell anyone, though. It’s our little secret, OK? Just you, me, and the internet.)

But imagine if you were talking about a big durable good, like a car. Would you pay 2400 bitcoins for a brand-new Ferrari California if you knew you could get it in a month’s time for only 800 bitcoins? 

Exactly. And neither would anyone else – so your economy grinds to a Japan-style halt.

That, incidentally, is why central banks actively try to encourage inflation – because the alternative is so much worse. It’s also why Bitcoin is a badly-designed currency – its natural deflationary tendencies mean people will hoard it instead of spending it. 

Unless they really, really want a pizza.

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Comet PANSTARRS, originally uploaded by Shiny Things.

GOT IT! I GOT THE LITTLE BASTARD AHAHAHAHAHA… I mean, here is a photo of the dim Comet PANSTARRS, low in the western sky and sinking into the San Francisco fog.

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DBS Bank, keyword spammers

Short and sweet: DBS, Singapore’s largest bank, is keyword-spamming on Silicon Valley’s favourite Q&A site Quora.

They’ve been doing this for ages on, a Singaporean tech forum, but their activity’s recently started spreading to Quora.

The spammers’ modus operandi – and I don’t know whether this is being done directly by DBS or by a misguided external marketing team – is highly unusual, and seems designed to make the answers less likely to be flagged as spam. 

While most keyword spammers try to automate their posts and flood the target site with volume, the DBS spam posts appear to be handwritten, and are tailored to the question being asked. The only giveaways that the answer’s not authentic are a link to a DBS or POSB website, attached to a relevant phrase in the post; and a history of posts filled with similar links. 

Here are two Quora profiles that’ve been used by the spammers – and recently banned: Sebastian Lai; Sarah Beringer

The Sarah Beringer profile has been taken down by Quora and the answers blanked, but I was able to take some screenshots from the Sebastian Lai profile before it was taken down. 

All of the links in the screenshots below point to DBS’s Private Banking or Treasures (private-client) websites, and most of them point to this “Investments” page on the DBS Private Bank subsite

Each answer appears to be manually written, and each one has a DBS link wrapped around the keywords “investments, “hedge funds”, “wealth management”, or “investment banking services”. 

A quick search on Google for “” pulls up a few more profiles engaged in the same spamming for the personal banking side of DBS: Jolin Chén; Alison Fisher; and searching for “posb” brings up the Jolin Chén and Alison Fisher accounts again, this time linked to posts about DBS’s wholly-owned subsidiary POSB

It’s not clear – and there’s no way to tell, without access to Quora’s logs – whether this is being done by DBS themselves, or by a marketing agency going off the reservation. But whether it’s an in-house job or not, it doesn’t make DBS look very good. 

DBS Keyword Spam 1DBS keyword spam 2DBS Keyword spam 3


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