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Photo of Pantera Capital CEO Dan Morehead

Dan Morehead,
Pantera Capital

I might have been hasty in my last post regarding being bearish on institutional investments in bitcoins. After interviewing Pantera Capital CEO Dan Morehead for Trader Magazine’s current cover story, I refined my views a bit.

Buy-and-hold asset managers will still find investing in the digital currency directly difficult. The bitcoin market remains relatively small, highly fragmented, and illiquid from an institutional investor’s perspective.

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Bitcon LogoThe more research that I dig up for an upcoming feature on institutional investors and bitcoins, the more I believe that it will be a few more years before asset managers are able to profit from digital-currency investments.

This has nothing to do with the maturity of the bitcoin infrastructure, which is fine and only needs more users to exploit the network effect.

It is that Satoshi Nakamoto was thinking about the individual, and not of banks or institutional investors, when he proposed the digital currency.

If he had, he would not have designed an anonymous currency that traded over-the-counter (OTC) in a peer-to-peer fashion. Read the rest of this entry »

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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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Since today is the US quasi-holiday Columbus Day and Thanksgiving Day for our northern neighbor, I do not feel really bad about sharing my thoughts about the Investment Company Institute‘s Capital Markets Conference held on October 10.

I have to admit that the conference had a pretty impressive line up. Commodity Futures Trading Commissioner Scott O’Malia started the conference by providing some interesting volume data for OTC swaps since some swap execution facilities (SEFs) went live on October 2.

Of the approximately 6,500 OTC swaps trade executed during this period, only 50 or so elected to do the electronically via request for quotes (RFQs) or using a best bid and offer (BBO) platforms, or that 99.23% of the trades were voice traded.

I have to admit, I was scribbling my notes while handling a minor IT issue at the time, so please take the figures with a truckload of salt. I’ve seen other coverage that claims that the figure is closer to 50%, which sounds a bit high since not a single SEF operator has submitted a list of contracts it would they would like to make “available to trade,” according to a trusted source.

Until that happens, all transactions fall into the “permitted trades” bucket that let’s investors decide how to execute their centrally cleared trades.

Commissioner O’Malia also discussed his concern that each SEF should provide pre-trade certainty for every transactions. If SEFs do not have it place soon, he would be calling the CFTC’s Technology Advisory Committee (TAC) into session in early November to seek a technology solution to the issue. Read the rest of this entry »

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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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