Disruptive Technology

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This may be a poorly timed post since the Tabb Forum’s annual fixed-income conference is tomorrow, I’m pretty bearish on meaningful changes in corporate-bond market these days.

There’s been a lot of activity in the electronic-trading space for fixed income over the past year as agency brokerage ITG and Tradeweb launch their respective trading platforms for corporate bonds to compete against MarketAxess’s all-to-all trading model.

Even this week, we saw Lime Brokerage co-founder and former-CEO Alistair Brown announce the February launch of the first phase of OpenBondX, a new electronic fixed-income trading venue.

All of this activity and innovation is reminiscent of all the ECNs that sprung up after the US Securities and Exchange Commission (SEC) changed the order-handling rules in the 1990s and swap-execution -facility(SEF) explosion when the SEC and US Commodity Future Trading Commission (CFTC) began writing the new rules for over-the-counter (OTC) swaps trading mandated by Dodd-Frank.

BlackRock only added gasoline to this fire when it published its white paper calling for a reform of the corporate-bond market’s market structure in September 2014 asking for new and innovative trading models for the market.

However, maybe the buy side should start looking for change internally and not externally.


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Today kicks off the 21st annual International Conference on Case-based Reasoning in Saratoga Springs, NY.

The four-day event brings CBR veterans and novices together to discuss research on and applications for the problem solving methodology.

Never heard of it? Neither had I, until I spoke with representatives from Verdande Financial Services, one of the conference’s sponsors.

In its most basic form, as explained to this 18th century history major, the CBR methodology uses past experiences to identify occurring trends, which may lead to a familiar event. (You can find far more academic explanations and reading here and here.)

Organizations can employ CBR to identify potential problems and arrest them before they cause a major headache.

For example, Verdande Technology, Verdande’s parent company, first deployed its CBR-based Edge platform in the energy industry, where it identified potential problems for off-shore drilling rigs. By comparing current performance data with historical performance data, oil companies could address issues before they needed to replace a drill bit or sink a new drilling shaft. Each process could cost a company millions of dollars.


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In a time of layoffs, belt tightening and the chanting of “do more with less” ringing through departments, there is nothing better than watching startups pitch for capital. They are dye-in-the-wool optimists who think they have the better mouse trap. That’s why I’m happy that I managed to attend the last 2013 regional startup challenge sponsored by Innotribe, SWIFT’s innovation initiative last Thursday.

This was the third and final regional challenges hosted by Innotribe this year. It held one in Singapore in April and another in London in May. In each competition, the audience, which is composed of venture capitalists and angel investors, select three startups and two innovative companies to send to Sibos, where they will compete for a $50,000 grand prize.

Second- and subsequent place winners can expect a warm handshake, according to Innotribe’s Nektarios Liolios, who emceed the New York event with colleague Matteo Rizzi.

With heightened airport security, I guess a set of steak knives really was out of the question.

To be honest, the face time that participants had with venture capital firms attending and judging at these events is more valuable than the actual cash prize.

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Will the financial services industry limit its use of social media as yet another branding and marketing channel?

For Mike Manning, co-founder and CEO of start-up DealVector, social media offers financial institutions a way to connect and interact to drive revenue. The key, he says, is to protect one’s identity and provide just enough information to avoid any unintended information leakage.

DealVector launched its LinkedIn-esque investor-to-investor networking platform approximately two months ago so that user could find fellow collateralized loan obligation (CLO), collateralized debt obligation (CDO), residential mortgage-backed securities (RMBS) and trust preferred securities (TRUPS) investors without tipping their hands to the world like CXA Corp. had to do in 2012.

For those who don’t remember the event, CXA took advertisements in the Wall Street Journal and other publications seeking other investors in several RMBS series so they could pursue “rep & warranty” breaches against the dealers who sold them the securities. The advertisements were a simple laundry list all of the instruments in question. CXA did not published how much of each instrument it owned, but the world knew that CXA had inventory in those securities.

To avoid information leakage, DealVector provides access to its networking platform to only those who can bring something to the table. The vendor vets everyone who applies for membership and users should not expect to sign up with a G-mail or Hotmail address. And if they are purposely vague on their details, expect a follow-up phone call from DealVector.

Once vetted, users will notice that there is zero creativity when it comes to user names. Everyone has a DealVector-assigned user number- 62, 183, 451 or whatever. This prevents users from accidentally revealing their identities accidentally by using a name that they might already use for an email account, social media site or online gaming.

Users can message known community members directly or send a message to the community at large and only those users who previously registered interest in that specific topic can see the message.

When it is time to take a conversation offline, a click of a button will send the user’s contact details to the fellow user. However, DealVector’s holds all the identity and contact information in escrow and users will not see another user’s information until they send their own.

This is not to say that DealVector users know absolutely nothing about other community members. Similar to eBay and e-commerce sites, each user is given a “seller’s rating” based on previous transactions as well as the number of fellow users a member has recruited personally to join the platform.

No other information is stored on the hosted platform beyond user contact details, conversation details and interaction statistics, which should make information security staff sleep sounder at night.

As Manning often says, “DealVector’s purpose is to bring parties to a table so that they can start a conversation and that is it.’

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About eight months ago, Australian low-latency networking equipment provider Zeptonics, made a hit at SIFMA Tech Leadership Forum and Expo with the announcement of its new 50-port low-latency Layer-1 ZeptoLink networking device.

Everything seemed rosy for the trading appliance start-up until the Australian Federal Court ruled on a tort brought against Zeptonics by fellow-Australian low-latency trading and networking equipment provider Zomojo.

In its decision issued this week, the Federal Court of Australia has ordered Zeptonics cease all use of its ZeptoLink, Zepto Access KRX, ZeptoNIC and ZeptoMatch offerings and turn them over to Zomojo.

All existing third-parties using or testing vendor’s ZeptoLink and ZeptoAccess offerings, which include about half of the top global proprietary-trading firms, also are under order by the Australian court “to not facilitate directly or indirectly their use.”

The basis of Zomojo’s tort is that while Zeptonics founder Matt Hurd was a co-managing director and head of the its R&D team between 2005 to early 2011, he used knowledge gained from his position to develop and market high-speed trading devices beginning in 2010 when he founded Zeptonics. Other complaints made in the same lawsuit include breach of fiduciary responsibility to disclose business opportunities presented to Zomojo and soliciting Zomojo employees during their restraint periods.

According to an official statement from Zeptonics, its products are the result of starting from a clean slate and two years of “inventiveness and hard work of a talented team of more than twenty people” and millions of dollars in investment.

However, the company will comply with the court order, but believes that it has “substantial ground for appeal,” the statement adds.



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