Financial Regulation 2.0 – Great Thought Leadership

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I recently read a great post by Fred Wilson talking about regulation 2.0:

Regulation 2.0 is a framework that we have been working on with a bunch of others who are rethinking what government means in a networked world. In the Regulation 1.0 world (the one we are in now) regulators are required to give you permission to do things. In a Regulation 2.0 world, as long as you report openly and transparently about what you are doing to the government and everyone else, you are free to innovate and operate. But you are accountable to live up to the rules that are set by the regulators and the data you report about your actions will be measured against those rules.

Regulation 2.0
Regulation 1.0 Vs 2.0

A Google search for Regulation 2.0 suggested this is a new term. The recent Cyprus Bailout which threatens financial stability in Europe, and the recent new regulation guidelines around bitcoin, show that that a discussion on how financial regulation should work on the internet is more important than ever.

As an ‘activist in residence’ at USV, Nick Grossman, deals with several industries in his presentation about peer networks and regulation 2.0. I believe (though I am a bit biased) that the main discussion should be about financial regulation 2.0 .

This is a great initiative. There is no doubt the values presented for Regulation 2.0 are more aligned with the social web, and the era of information networks. The question is how do we get from 1.0 to 2.0. 

Like in the startup world, it seems that the jump from 1.0 to 2.0 does not happen through the incumbents adopting new technology, but rather through new and innovative companies that don’t need to “fight” the various policies and procedures already in place in the 1.0 companies. In regulation that would suggest we should  build new regulators; ones that are data driven and innovative, lead by geeks and quants, that deal only with companies which provide full data API access.

Think about reinventing investing in the network era, where innovative and agile thought rules, new transparent capital markets, new social investment networks, accountable investors, VC’s that invest billions in the new public markets, real time KPI’s in addition to quarterly financial statements, everything as APIs, everything global, everything open, everything on the internet.

Everything settled in bitcoin 🙂

The Official Agreement for a Financial Assistance to the Republic of Cyprus

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Ministry of Finance Announcement

Agreement for a Financial Assistance to the Republic of Cyprus


On the 16th of March 2013, an agreement has been reached by the Member States of the
Eurozone, for granting financial assistance to the Republic of Cyprus. Financial assistance up
to an amount of €10 billion is to be granted to cover fiscal needs, the restructuring of the
banking system and for the support of the economy in general.
With this financial assistance, the Government will proceed with structural changes in the
public finances, in the banking sector and in the economy in general. More specifically, the
urgent needs of the public sector will be financed, as well as the huge needs for the
recapitalization and for the restructuring of the banking sector for the period 2012-2015.
Due to the large banking recapitalization needs, as well as the urgent public finances needs,
the Eurogroup agreed with the Cypriot authorities on the need to impose a one-off levy on
the deposits. The levy, as agreed at the Eurogroup level, is 6.75% on deposits up to
€100,000 per account, and 9.9% on deposits over €100,000.
Shares of banking institutions that will be recapitalized will be offered to depositors.
Provided that the deposits are kept in the banking institutions for a period of at least two
years, the shares can be convertible into bonds, the yield of which is to be backed by the
expected natural gas revenues, in accordance with a scheme to be determined and issued
by the Minister.
Eurogroup’s decision supported by European Central Bank, European Commission and the
International Monetary Fund, is, without any doubt, a one-off, extraordinary measure that
will not be repeated under any circumstances. The levy will be imposed on the credit
balance of deposits accounts as of Friday, 15th March 2013. This effectively means that no
new withdrawal or deposit will affect the levy that would have been imposed or collected
until Monday 18th March 2013.
Admittedly, this decision is very difficult and painful for all of us. However, under the
circumstances, the implementation of the decision is necessary in order to end the
uncertainty in the economy and to ensure the rescue of the country. Without the levy, the
sovereign debt would have undoubtedly be non-sustainable, and no financial assistance
would have been given for the rescue of the Cyprus people.
We do recognize the severity of the situation. In order to avoid more painful consequences,
such as the foreseen collapse of the banking sector, we have decided, with a strong sense of
responsibility, to accept the imposition of the levy on deposits for the rescue of the country.
With the imposition of the levy, we ensure the country’s stability, the smooth operation of
the economy and the return of Cyprus and its people to the path of growth and prosperity.
Furthermore, the future generations will not be imposed with the unbearable burden of the
re-payment of a loan similar to the ones granted in other member states of the Eurozone. At
the same time, the chances of a possible second Memorandum of Understanding to deal
with the pressing problems of the economy are minimized.The Cyprus people have, in the past, faced equally serious difficulties and challenges. We
need to remain calm and united, so as to successfully face this challenge, in order to
safeguard the security, prosperity and progress of our people.
18th March 2013

http://www.mof.gov.cy/mof/mof.nsf/All/BB670607715A44D6C2257B3200368FE9/$file/aggreementforafinancialassistance.pdf

 

Could MIT Research on Sustainable Trading Advance the End of Poverty?

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It was released this week that MIT is conducting a $1 million test to see if social media can make investors money. These are very exciting times for us at eToro, where we see this great academic research done around social investing.

MIT are researching what they call ‘sustainable trading’. Everyone is talking about sustainable energy, and how it could change the world if anyone came up with an unlimited energy source that can produce energy without any perishable resources. MIT is talking about sustainable trading, and how it could change the world if they come up with a social trading algorithm that can produce positive gains with little risk and none perishable returns.

Anyone who ever dealt with finance or economics, must now be thinking that this is impossible. How can a trading algorithm always be right? If the markets are perfect (which they never are), everyone will start using that algorithm and therefore its returns will perish. MIT researchers, Sandy Pantlant, and Yaniv Altshuler are working on research that shows that social investing is no only more profitable tha manual trading, but that it could become sustainable. How is that possible?

For Quants and Financial Traders

At eToro, all users share all of their data in real time, their actual real trading data, and they can all see, follow and copy from investors across 200 different countries. The MIT algorithm looks at the data, and calculates in real time the social signal of each trade done by each trader. In other words, if eToro shows that “Yoni Assia just bought gold”, MIT checks Yoni Assia’s win ratio in buying gold, who else is buying gold, what are the statistics of everyone who is buying gold now VS the people who are selling gold now, how many people follow the buyers, how many copy the sellers, etc. They can even see if the top gold buyers are talking about what they are doing.

You can think of it as a very sophisticated algorithm. This algorithm has over 50K real people who trade with their real accounts and each of them tries to make a profit. These are skilled and creative people, who try multiple strategies to try and beat the market. Moreover, they have more information than most people since they follow people from around the world and copy them. This is basically a neural network algorithm operated by people, with the simplest and most coherent target – making money, and the algorithm know EVERYTHING about each of them. That’s one powerful algorithm; where else do thousands of people work for an algorithm?

For the Economists

The markets are not perfect, and the most relevant data regarding most assets is eventually in the hand of consumers. People in a specific country will know more about the local banks than the top analysts in another country, and the owners of Apple products and shares will know more about Apple than any analyst. What do consumers know? They know if a company’s products are good or not, and can decide based on that whether they should buy their shares. They can discuss it openly with thousands of other members and they can even actually decide together to sell or buy shares of a specific company. When it’s all public, the rules become different.

How Can This End Poverty in its Ideal State?

Very simple. If there are ways for millions of people to share data and create constant profits for everyone, than there will be no need for loans, people could loan indefinitely and then invest it in sustainable trading, so money will be distributed more equally faster.

The Bitcoin Act – Legistlation of Bitcoin and Promoting Global Digital Finance

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“Financial regulators can’t regulate consumer behaviour” brett king

As part of the emergence of bitcoin and digital finance, there are a lot of questions regarding the legality of bitcoin and its derivative projects.

One of the main hurdles in financial innovation has always been legistlation and regulation, while regulators have the to keep the best interest of it local citizens, the ussually block innovation due to the exisitng local legal insfrastructure, and the lack of a more agile global infrastructure.
I suggest forming a collaborative brainstorm wiki to create a legal act that people of all countries can try and pass. That will, in effect, formalize bitcoin as a legitimate and legal virtual currency, which business and people can transact with.

I suggest crafting a simple act, that any person can read, understand and promote, for example :
1. Any Person buying/selling virtual currencies is exempt from any future claims of taxes, money laundering or securities law violation, as long as the person reports its buying and selling activity either publicly or privately to a goverment website.
2. Any Company/Business dealing with virtual currencies is obliged to report its buying and selling activity either publicly or privately to a goverment website. Company/Business that report are exempt from future legitlation
3. As Goverment are studying legal aspects of Digital finance, companies who deal with virtual currencies are obligates to provide answers to general questions regarding their activity to help form and promote AML and consumer protection.
4. This legal act is global, and protects companies adhering to the reporting standards.

This will allow a country to build a framework to gather information and usage, and gradually shift its economy toward complete digital transparency. This type of law can draw international businesses which seek legal/regulatory certainty to the country that passes it. Once the volume become significant enough, the country can consider adding taxes on the selling/buying portion or specific virtual activity, so we could look at it as potential revenue.

If just one country claims passes the bitcoin act and by so making is legitimate, there will be a domino effect legalizing it around the world. Of course some countries might try to make it limit its scope and over regulate it, but since they can’t stop or control a decentralized free market they will simply pass a law that they can’t enforce, tey will simply shift business to other countries.

I believe there will always be a black market in bitcoin, just like in the existing economy there is a big http://en.wikipedia.org/wiki/Black_market, but creating simple rules to privately/publicly report activiry can create a white market for it as well. Since the total amount of bitcoin is limited to 21M bitcoin, every company and person who report their activity will in fact will whiten the bitcoin black market, and in fact it should be fairly simple to whiten the majority of bitcoins out there.

While I find the idea of free markets and no regulation romantic, I do not believe governments will (or can) allow their people to hold a majority of their assets in an anonymous digital world, and I truly believe creating competition between governments in which one makes the laws of digital finance more attractive, and drawing people and business around the world to open their business there is a great step towords digital finance.

I would love to get people on board to see how the bitcoin act can be further defined and pushed forward.

Bitcoinlegal.org – The Open Legal Site to Help Legalise Digital Finance

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As part of the emergence of bitcoin and digital finance, there are a lot of questions regarding the legality of bitcoin in general, and its derivative projects.

I propose an open source source project: to build a website that is dedicated to solving all the legal issues of bitcoin and digital finance. The website will invite law firms to publish their articles or written advice on the subject, and allow users to pay with bitcoin to get specific legal advice (or get it free of charge).

The main theme is OPENNESS. If a user pays for legal advice, it is then shared with the entire community for free, where other members can donate to both the user who paid and to the law firm that provided the advice.

Think of a database containing hundreds of legal letters assuring bitcoin business is legit and legal opinions on tax handling issues of bitcoin. These databases should be open to questions from either the person requesting the advice, or the law firm providing it.

The Holy Grail of this project should be to sponsor the BIG projects of passing legislature around the world, protecting the holders of bitcoin and making it official, like the bitcoin act.

So, here is the website on WordPress.com (since they accept bitcoin as payments), and I would love to contribute some bitcoin to setup a website, to allow people from all around the world to access the largest free library of legal documents supporting bitcoin.

PS – if Matt or anyone from Automatic reads this we would love to be sponsored by WordPress if you are looking to spend your bitcoins 😉

Hippies and Techies, Culture, Purpose and Talent define Companies

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Sheryl Sandberg caused a lot of buzz this week, saying that the Netflix document about culture is the most important document to ever go out of the valley.

This was preceded by great input from Marissa Mayer, CEO of Yahoo, who discussed the 3 key growth factors of any company, mentioning culture as the primary factor.

A company’s culture is its DNA; it’s how people manifest the vision and values of a company. In a good company most people would be able to define the company’s culture easily, and even more would be able to say if something is within the company’s vision or not.

What really surprises me is how the traditional business culture is very different from the new ‘tech’ culture. Most of the ‘cool’ companies like Netflix, Yahoo, Google, Facebook (and eToro) and many more are talking about culture and talent in a very similar way, they promote openness, leadership, simplicity of design and all emphasize that freedom and enjoyment of the people in the company are key factors in delivering innovation and creativity. “Old companies” promote rules, procedures, policies and rigid management which kills innovation. Its amazing how the Techies culture, and the 60’s Hippies culture are close, you say the social media revolution is the pragmatic manifestation of the “make love not war” dogma.

Culture, by definition, is not a set of rules. It is how we communicate what cannot be communicated explicitly. It is not about right and wrong, but rather about what everybody communicates, how everyone sits (open-space), how people communicate (no hierarchy), who people go to eat lunch with, what and how everything is communicated.

All great companies understand their ability innovate depends on their employees’ freedom to do what they want and to want what’s best for the company. They are able to give great freedom, but employees also take the responsibility that come with that freedom.

Freedom isn’t the ability to do whatever you want. It’s the willingness to do whatever you want.

-Seth Godin

In his new book, The Icarus Deception, Seth Godin explains over and over this brave new world we are entering, where people have the freedom to choose what they want to do, and companies just need to provide the best environment possible for them to make their dreams come true .

 

Mobile first or die, even babies go mobile first

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When I think about eToro’s most important goals in 2013, one thing is clear: Our user experience must be optimized for mobile users.
We should assume that the most frequent interaction with our products are through mobile devices, and we must make sure our mobile products are better than our web products.
It was recently announced that more than 50% of Facebook engagement is on Mobile. We expect this number to grow in 2013. There are significantly more phones than computers, and they are all gradually becoming as smart as your computer.
What does focusing on Mobile mean? It means taking your best people and making them work only on mobile. It means designing your products and your new features for mobile first. It means demanding that ALL your products work on mobile or let them go. It means checking whether your business model is different for mobile. And if it is, change it. It means rethinking about distribution, if online advertising to mobile advertising is not trivial, offline and B2B distribution and mobile play is a completely different ball game. It means understanding it’s a decision, and might be a long and expensive process, but also a necessary one.
In most industries, the shift to mobile is a paradigm shift: it changes how audiences behave. eToro’s mobile users are not the same as our web users. They log in as much as 10 times more, on average more than 5 times a day.
To illustrate this shift in approach to user experience, I look at my 2 year old son. The interaction he has with his iPad (and my phone) shows the shift in where the attention needs to be. My son knew how to use YouTube when he was 1 year old, and in the last year learned very basic English and math using his iPad.
If you are creating content for kids, you need to realize that a huge audience of kids from 1-5 suddenly can consume content on their own. It is a new paradigm, your audience which was once captive of cable networks, is now free to download any app or video over the internet. This will bring about a new business model, more direct and with fewer intermediaries.
Mobile is a new (ish) paradigm shift. It has the potential to bring a new, ever-connected audience to every business model.
A great way to test if your business is already “mobile first” is using two simple KPIs :
  1. Are at least 50% of your active users on Mobile ?
  2. Do you attribute at least 50% of your revenue to Mobile ?
We always quote the famous “innovate or die”: In 2013, its time to realize “Mobile first or die”.

Anonymous’ We Are Legion – Movie about The Story of the Hacktivists

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I just saw a great movie about Anonymous (its version on youtube). The film is available on Youtube for free, but I chose to pay and download it from the movie’s official website, which also includes reviews Huffington Post, New York Times, Wired and more.

This is what Wikipedia has to say about Anonymous:

Anonymous (used as a mass noun) is a loosely associated hacktivist group. It (is estimated to have) originated in 2003 on the imageboard 4chan, representing the concept of many online and offline community users simultaneously existing as an anarchic, digitized global brain.[4] It is also generally considered to be a blanket term for members of certain Internet subcultures, a way to refer to the actions of people in an environment where their actual identities are not known.[5] It strongly opposes Internet censorship and surveillance, and has hacked various government websites. It has also targeted major security corporations. Its members can be distinguished in public by the wearing of stylised Guy Fawkes masks.

I believe in the free Internet, and strongly oppose Internet censorship, and therefore relate to what people do to promote these concepts. I believe Anonymous and bitcoin are a part of the coming revolution which I described in an earlier post as the Internet Revolution.

Since Anonymous is only “loosely associated”, just like bitcoin, no one can really support everything ‘they’ stand for.
There are actions taken by the group that I object to, but seeing as their position are only defined by members’ actions which can change every day, you can only relate to their cause.

No one can also destroy or close a loosely associated distributed group, you could try to outlaw it, you could try to slander, but it is almost impossible to crush an “idea”.

So here is What I learned from the movie

Chan4.org B Board was the basis for the Anonymous group, and is considered the place where a lot of the internet memes (or all of them) are born.

Anonymous began with light hacking and hoaxes like ordering pizzas to known Neo Nazis.

Anonymous declared war on Scientology with their Message to Scientology.

Anonymous were a part of the Tunisian Revolution and the 2011 Egyptian Revolution.

There is no doubt we are entering a brave new world, where loosely defined and distributed communities can form and potentially be as powerful as governments. I hope and believe they will bring more freedom and free the internet and finance. The movie is undoubtedly worth a view.

Why The Future Of Money Is In Japan

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It’s morning and I’m drinking Miso and eating Dim Sum. Must mean I’m in Japan.

I arrived in the beginning of the week to Osaka, where the largest banking event called Sibos was taking place. It  is organized by SWIFT, a cooperative of 8000 banks in charge of most money flow in the world. 5000 suited bankers came from all around the world to attend hundreds of lectures on the latest developments in banking.

I was invited by Innotribe, the Sibos innovation group, to participate in a panel on “The Future of Money“. It was a great and illuminating session. The Innotribe folks are awesome, and I felt at home with people who understand innovation and how magic happens, but they are still a small minority in a sea of traditional bankers in suits who think the world is theirs for the taking. My feeling is that change will have to come from the outside and rock their world.

Then I moved to Tokyo, and I suddenly realized that while a natural storm was raging in NYC, a financial storm has started in Japan. Everyone has a bank or a brokerage. Everyone is dealing with finance. Sony has a bank, Mitsubishi is one of the largest banks, 7-Eleven has a bank, the largest retail brokers are Rakuten (the Japanese eBay) , GMO, SoftBank (which own Yahoo!) and check this out: the second largest broker in Japan is the number one porn company in Japan.

No wonder Japan is the country where Mrs. Watanabe trades actively in the global markets, where he corners the global currency market and where largest retail trading community in the world resides. Take the zero interest and zero growth in local stocks, add fast paced Internet companies which bundle Internet trading in everything they do, and you get mass market penetration never seen anywhere besides in global trading. This really is the future of money: nearly unlimited access to the global markets from your 7-Eleven and even your local porn shop.

Based on the social gaming trend in Japan, where the 2 biggest companies, Gree and DeNa, make Zynga look bad, and the fact that they are going global, I believe the Japanese miracle might hit more countries .