Monday, 16 May 2016

Fairfax versus Westpac

Some fanciful meanderings appeared in the press today:

Australian Financial Review: ASIC backs Westpac rate rigging claim with explosive recordings
Sydney Morning Herald: ASIC backs Westpac rate rigging claim with explosive recordings
The Age: Rate rigging scandal: ASIC set to dish more dirt on the banks

Fairfax, the owner of those mastheads, are certainly gunning for Westpac in a powder-keg charged, pre-election, roll your own Royal Commission atmosphere.

Here is the graphic Fairfax has "objectively" constructed to show both sides of the story:

Balanced reporting?
Graphic used by Fairfax in their articles today. (click to enlarge)

Fairfax continue by closing out their piece comparing this matter to the LIBOR scandal in London:
"These [the potential fines] pale in comparison to banks in the northern hemisphere that have paid around $US235 billion in fines since 2008 for widespread manipulation of the Libor rate by banks in Europe and the United States. In 2014, three foreign banks - UBS, BNP Paribas and Royal Bank of Scotland - admitted to submitting false bids to try to influence the BBSW rate. They all chose to enter enforceable undertakings and paid voluntary contributions totalling $3.6 million to fund financial literacy programs."
Now, I'm no great fan of the banks. It is hard to be a fan with the Macquarie Bank financial planning scandals, and the CommBank planning & CommInsure scandals. There is much to be concerned about. Not all Fairfax reporters are bad. Fairfax had some excellent reporting around the CommInsure scandal.

Every swallow does not a summer make.

Interest rate trading

Today, interest rates remain largely traded over the phone. Yieldbroker and ASX IR futures provide some electronic marketplaces but the majority of physical IR trading is still the variety where you pick up the phone and call another institution. Old fashioned and somewhat quaint.

Watching a desk load or unload a large line is still an interesting spectator sport. Even close to a work of art. No matter what you trade, moving large amounts is difficult. You show size, the market learns, and the price moves. Like Thor in Flash Boys, you have to co-ordinate your timing to try to hit as many bids or offers as you can simultaneously.

There will be a book runner, with a notebook or spreadsheet on hand, ready to record the trades as they come. The word will go out that the colt from old Regret should not get away. People rally. Often even the economists and analysts on the desk, who don't normally trade, gather from stations near and far. Every one is briefed and has a short call list. The desk gets crowded. Some people have two or more handsets pinned to hands, necks, shoulders, elbows, or underarms. Hand signals at the ready and every one calls and gets quotes. The book-runner writes or types as fast as they can accepting or rejecting deals quoted from the desk. It starts off pretty quiet as you try not to let the other side hear the action. Then it becomes a vocal frenzy as the calls continue. Quickly the market starts to move away from you. Eventually the cascade reaches a crescendo and the deal is done with as little impact as possible which usually translates to quite a bit after the initial pounce. This is how IR shit happens, even in the 21st century.

Moving big blocks of shares used to be the same until algos came to take the jobs and push the disenfranchised into being complainants in the media.

In Sydney there are not more than a couple of dozen significant players in this market. Only 14 institutions used to set the BBSW rate under the supervision of AFMA. It is a very competitive marketplace with locker room language and bravado being the traditional staple of the banking industry. There is not much love lost between the desks with everyone always trying to get size away without the other party knowing. This is done so they can get the best possibile price for their book or their client. The other side of this will often be as angry as a cut snake. They just bought or sold into a wind blowing against them. That is, when the counterpart sees the price has moved against them, as it will with a large order, they will feel aggrieved and out for revenge. This is how the enmities, rivalries, and bloodsport analogies come to be. Being a price maker is necessary to earn the spread but you will occasionally get flattened by Mr Market's steamroller. In a dealt market, such as physical IR, it is easy to blame and identify the causal party. Hence, it is also easy to seek revenge. Queue gladiator cue.

Fairfax refers to a $460M size as if that is something big and scary. It is to me as a I struggle to eat and find somewhere to sleep. To a large Australian bank like Westpac, with a balance sheet having assets of $812,156M, it doesn't even get to 0.001 of assets. It is less than 0.057%


Now, there may yet be a substantial case for Westpac yet to answer, as alluded to by Elizabeth Knight, "there's more to come on Tuesday."  Presently, I don't see it in the horrendously biased and defamatory reporting from Fairfax.

If you look at all the quotes from audio or correspondence published so far, exactly none of them point to any particular failing. Indeed, if you consider alternate contexts you could even argue they support the argument that the market for interest rates (IR) is highly competitive and far from rigged.

For Fairfax to juxtapose the Westpac case against the LIBOR rigging scandal is especially problematic. In the LIBOR case, institutions were colluding to rig rates with inter-company co-ordination that was plainly illegal. There is no collusion suggested by ASIC in this matter. Fairfax's unfair juxtaposition is simply defamatory and they should know it.

Unfortunately in Australia there is a little law that says a company cannot be defamed if it has over around 10 employees (update: correction from 15). My limited, very limited, understanding of this law was that it was brought in by a deal with the Greens as part of the argy bargy of legislative passage so that people could criticise things, like a Big Mac, without fear of retribution. From memory I think there was some funk around the beef in Big Macs that was untrue that the Greens thought should be fair game for protest. There is some merit to being allowed to protest as a citizen without being sued, given the power imbalances often at play, but the current legal balance seems all wrong. There clearly needs to be legal reform, especially with respect to sophisticated media organisations.

I don't think the current laws support Westpac suing for defamation but perhaps Mr Colin Roden could. If I was Westpac for a day, not only would I be pulling all Westpac, St George, and related corporates' advertising from all Fairfax media; I think I'd be providing litigation funding to Mr Roden to enable him to file suit. It would not really be in Colin's interest to file suit, as defamation is pretty futile in Australia with almost no upside for the defamed, but Westpac may get some related benefit by forcing Fairfax to clean up their act.

Selective quotes

"I'm going to f--- the rate set on the 10th..." is kind of a 'so what' statement. Clearly if the bank has a position in a competitive market place a bit of bravado locker room talk is hardly evidence of a manipulation. In the hard ass game of IR trading you have to "Ride boldly, lad, and never fear the spills." The distinction between courageous trading at scale and manipulation is going to be difficult to discern, especially for external third parties who lack real world trading expertise. Who knows the context for this excerpt? It could mean virtually anything and lots of those are completely within the bounds of reasonable behaviour.

Shock. Horror. Traders swear. Get over it.

Fairfax seems particularly enamoured with these pieces of conversation from Colin Roden quoted as, 
"Some end users who you don't know, you know, corporates and people who don't know who get stiffed by people. ... And then in two years time there's some enquiry (sic) that you have been f------ with the rate set that's cost them all of 10 basis points and you know what, leave me alone, it's got nothing to do with me, right. That's my biggest fear and that's what I will express to them..."
That could be equally Machiavellian or just a smart observation. A bank is an IR market maker. They will have a hurt in a positive or negative direction but will generally try to stay hedged. If rates or a rate reset is up or down, some customers will gain and some will lose. That is the nature of being in the middle. A natural conclusion when considering the impact of your rate trading would be that customers that are hurt may complain leading to close examination and any rate impacts are then seen in a manipulative way rather than the impactful conclusion of day to day trading.

Colin Roden

Colin Roden was the joint head of the Bankers Trust Money Market (MM) business I joined as a young, greenish IT tech in 1992. He wasn't my direct boss as I was way too junior. Both MM business heads were highly intelligent, street smart, and had good vision. Colin was perhaps the more trade focused of the pair with his co-head being being a bit more visionary, as far as I could tell. It was a good team. I doubt Colin even remembers who I am, but I fondly remember this business as a good warrior organisation. It was an 'us against the world' kind of a biz. I did get a bit of a shock at the Fairfax photo of Colin as he has certainly aged a bit in over twenty plus years.

One of the great things Colin did in our business was change the team building stuff from the normal corporate teamwork gigs to focused charitable works, such as weekends building structures for charities out of donated materials. It was a better use of money and time with good team building or morale returns. Colin is one of the few people I know who sacrificed his own Christmas Day to deliver gifts to those short of bounty without fanfare. There are many bankers that pay lip service to charity but few who actually make real sacrifice as Colin did. This is part of the reason why I find the attacks by Fairfax particularly galling. Journalists besmirch the reputation of good citizens all too easily. If Fairfax is wrong, they should be held to account.

Where is the truth?

It's certainly impossible to say from the scurrilous reporting so far from Fairfax. Maybe it will be clearer tomorrow when Fairfax reports on further "explosive recordings" as intimated.

Presently the quotes such as, "f---ing NAB", "deadshits", "I hate those f---ers as well," just point to a competitive marketplace and not any malfeasance or collusion. An objective news service should form a balanced view rather than forming a baying lynch mob out to kill a mockingbird.

Fairfax also points to the loading up of paper heading into a rate set war as a malfeasance. Yes, you would do that if you had ill intentions. However, you would also load up on paper heading into an IR battle if you had good intentions. It's the obvious thing to do. You don't head into a period of heavy trading with your hands tied behind your back. You need capabilities. It's not like an equity market where you can short with no stock and buy back later, you have to have assets ready to trade when you need to make markets, hedge, thrust, and parry.

The setting of the rate reference BBSW is not similar to LIBOR. It is based on real trades in the market, not a generic opinion. There is no sense of collusion in this matter as you can see from the banter being quoted regarding "f---ing" competitors in the market.

Was Westpac manipulating rates? The information Fairfax via The Age, SMH, and AFR have not pointed to any particular smoking gun yet. It smacks of a lack of objectivity and poor reporting. 

ASIC believe they have a case and Westpac oppose. There is a court case. This means a contest of ideas. Fairfax's biased reporting gives you no idea of the contest. I'm no reporter but it smells a little of over reach by ASIC but perhaps the case will crystallise. Presently you have to have some sympathy for Westpac and Colin Roden as Fairfax have provided no substantial justification at all for the lambasting handed out.

You'd certainly hope in the climate of a federal election, Fairfax's anti-conservative stance (remember Mr Hockey) along with their support for a Royal Commission and punitive action against the banks has not coloured their reporting. I too can reach for conclusions not fully justified.

Where is the media regulator?

Happy trading,


Sunday, 15 May 2016

Saturday, 7 May 2016

Solarflare versus Exablaze / Zomojo complaint update

Solarflare (good guys) have filed their complaint against Exablaze (bad guys) with the New Jersey District Court. The complaint's patent information I've previously linked here.

Here is a link to a pdf copy of the 29 page complaint for those interested in such things.

Solarflare is indeed asking for triple damages as is normal for willful infringement. I suggested this may be an appropriate penalty in the previous blog. Solarflare is obviously seeking to enjoin, as is necessary, the distributors and resellers in the action such as CDW, Synnex, Tecnologika USA, and Info-X.

Will Exablaze (bad guys) get their patent troll #karma served?
It seems to me a pretty clear cut case for the assertion of Solarflare's rights though trials can be a lottery at times. After the litigation threats Exablaze has made in the USA themselves, let's hope Exablaze gets the penalty they deserve.



Relief requested

Plaintiff requests that this Court: 
A. Enter judgment that Exablaze has directly and indirectly infringed one or more claims of the Asserted Solarflare Patents. 
B. Preliminarily and permanently enjoin Exablaze, and its officers, agents, servants, employees, representatives, distributers, resellers, and all persons acting in concert or participation with any of them, from committing further infringement of the Asserted Solarflare Patents.
C. Award Solarflare damages in accordance with 35 U.S.C. § 284, including all damages adequate to compensate it for Exablaze’s infringement, in no event less than a reasonable royalty, such damages to be determined by a jury, and additionally an accounting sufficient to adequately compensate Solarflare, and that such damages be awarded Solarflare, together with interest, including prejudgment and post-judgment interest, and costs; 
D. Enter judgment that Exablaze has willfully and deliberately committed acts of patent infringement, and award Solarflare treble damages in light of Exablaze’s willful infringement of the Asserted Solarflare Patents pursuant to 35 U.S.C. § 284; 
E. Determine that this is an “exceptional case” pursuant to 35 U.S.C. §285 and award Solarflare its reasonable legal fees, costs, and expenses that it incurs in prosecuting this action; 
F. Award Solarflare its costs, pre-judgment interest and post-judgment interest; 
G. Award such other and further relief as the Court deems just and proper. 

Jury Demand

Plaintiff demands a trial by jury of all issues so triable.

Friday, 6 May 2016

ITG shutters prop trading business

I just listened to the live $ITG conference call.

ITG changes its spots
ITG announced they are shuttering their Cad/US interlisted stock arb business. They are expecting to drop around $8M per year from their operating profit as a result.

This is the business I've written about previously here. Also announced was the closure of their US matched book securities lending. This is as from May 2016. It's a fresh decision.

In this 10-Q, on page 23, Canadian "other revenue" was $1.918M for the quarter.  On page 24 ITG wrote,
"Other revenues were relatively unchanged as increases in our principal trading gains on inter-listed arbitrage trading were offset by lower foreign exchange trading gains and higher client trade accommodations."
The next 10-Q should be the last ITG report with prop trading for a while you'd think.

ITG indicated they have some regulatory queries or issues that have increased expenses related to those shuttered businesses. The scope was unclear. I wonder if they'll have to pay some of the $70-$100M in prop trading profit back along with penalties? Agency-only should be agency-only after all.

It suggests there will finally be some honesty in representing an agency-only business to their clients. This newly found integrity is obviously good for clients, but perhaps it is more important ITG's staff now have some confidence that they are no longer misleading their clients.

Perhaps ITG's US POSIT ATS business may improve too?

Can ITG's POSIT come back from over 50% down and rise from #14?
(click to enlarge)
OTC Transparency data is provided via and is copyrighted by FINRA 2016

Happy trading,


PS: I do wonder if my meanderings from the other side of the world had any effect? Probably not, but it's nice to pretend there is a purpose to it all...

Tuesday, 3 May 2016

Craig Wright - Bitcon #noi

Craig Wright is a desperate man trying to avoid gaol time. He has committed fraud. The Australian Tax Office (ATO) is after him. He has received millions of dollars in unworthy tax rebates from the Australian government. He may be liable for sentencing of up to ten years in gaol for his fraud.

Part of the back-story is telling the ATO he had invested millions of dollars via Bitcoin into R&D and, consequently, receiving cash rebates from the ATO. Wright lied to the tax office. 

Two friends of mine, former employees, worked in Craig Wright's companies here in Sydney. One bailed quickly shaking his head in disbelief. The other decided the ride was too bizarre and scenic to miss out on, at least until the employees had to sue for wages and entitlements. Wright's personality has best been described as hubristic, untrustworthy, and a little nuts. False qualifications, fake blog entries backdating claims, grandiose hyperbole, and numerous unsupported claims relating to skill and resources.

At least the Economist came to the story with some scepticism and back pedalled shortly after. The BBC went out too supportively but has now published on the scepticism. A lot of media picked up the original supportive BBC story without caveat. The global media should be back pedalling hard. 

Wright could easily, in a short amount of text, less than I've typed here, provide uncontroversial and incontrovertible cryptographic proof he had the appropriate ID. Simply provide a properly authenticated current Satoshi Nakamoto message. 

Even moving Satoshi loot would not mean Wright is Satoshi. He may have stolen the ID from Dave Kleiman, now sadly deceased, who many suspect as being Satoshi or a key part of the group that was Satoshi. It has been written that Wright spent some time skulking around Klieman's estate and met with his father. Perhaps that was an effort to leech the IDs Wright needed? 

The bottom line is that Wright's blogged "proof" was a scam and quickly jumped on by Redditors as summarily pointed out by the well regarded Dan Kaminsky. Rob Graham has a nice readable step by step guide to Wright's replay authentication scam. The bottom line from Dan Kaminsky's blog, 

"Yes, this is a scam.  Not maybe.  Not possibly."

Not since the Adam's Compression scam has Australia been so embarrassed by tech fraud. Fortunately, there are plenty of good Australian tech companies doing great work that Australian techs' reputations should easily see off this mad Madoff. There is great tech down under.

Cryptography has a purpose. You don't need interviews, videos, nor personality tests. You don't even need to like Satoshi and should be accepting of a less than god-like status if you believe the cryptography. As Bloomberg's Matt Levine succinctly tweeted:

Enough said. 

Monday, 18 April 2016

World closer to ending in tears: customers being paid to have a mortgage

Fire-fighting is dangerous
Negative interest rates have seemed a somewhat cute theoretical issue to many consumers. Negative interest rates? Perhaps just for the big end of town?

You may have grumbled that someone must be making out like a bandit as you continue to pay your mortgage.

No longer.

A funny / scary story in the WSJ [Negative Rates Around the World, Duxbury & Gauthier-Villars, April 14, 2016] relates the personal story of a Danish bank mortgage customer being paid by his bank to have a mortgage.

Here are some choice sections from the WSJ article:
AALBORG, Denmark— Hans Peter Christensen got some unusual news when he opened his most recent mortgage statement. His quarterly interest payment was negative 249 Danish kroner. 
Instead of paying interest on the loan he got a decade ago to buy a house in this northern Denmark city, his bank paid him the equivalent of $38 in interest for the quarter. As of Dec. 31, his mortgage rate, excluding fees, stood at negative 0.0562%.
“My parents said I should frame it, to prove to coming generations that this ever happened,” said Mr. Christensen, a 35-year-old financial consultant, about his bank statement."
And some of the consequences:
Prices of owner-occupied apartments have been rising. In Copenhagen, prices were 14.5% higher in the fourth quarter of 2015 than in the year-earlier period, compared with a 5.5% increase in 2014, according to the Association of Danish Mortgage Banks. 
In Stockholm, prices rose 17% in 2015, following a 10% increase in 2014, according to price-tracking company Svensk Maklarstatistik AB.
This isn't going to end pretty.


Thursday, 14 April 2016

Solarflare is suing Exablaze for patent infringement

Solarflare issued a press release announcing the court action against Exablaze for patent infringement. I can't help but not be not silent about this one, so let's meander through...

Criminal firms, such as Exablaze, deserve bad karma
Solarflare are the good guys in this battle. Exablaze is the quasi-criminal, nasty, patent-troll-like organisation that deserves your scorn.

I've read through but have not done a full analysis of the four patents subject to Solarflare's infringement allegations. Most of the patents have a priority date significantly before Exablaze was created. I know this as I instigated and managed the first FPGA NIC development at Zomojo, the firm that owns and span out Exablaze. So Solarflare have good priority at least.

The patents in question are linked here:
  1. US8116312-B2: Method and apparatus for multicast packet reception, Feb 8, 2006
    Claim of using filter to bypass kernel for delivery to user endpoint.
  2. US8645558-B2: Reception according to a data transfer protocol of data directed to any of a plurality of destination entities for data extraction, Jun 15, 2005
    Relates to usurping the OS by a user, or higher than OS level mechanism, for directing network data to an endpoint.
  3. US8817784-B2: Method and apparatus for multicast packet reception, Feb 8, 2006
    A continuation of US8116312-B2 regarding the establishment of packet filtering.
  4. US9258390-B2: Reducing network latency, Jul 29, 2011
    Using templates in a particular way to set up for transmitting protocols, filling those bits in, and subsequently transmitting the completed network message.
Exablaze's CTO Matt Chapman has commented on Solarflare tech in the past so his familiarity with it may indeed open Exablaze up to triple damages.

It is easy for me to pick sides as my I've expended considerable energy fighting against Exablaze / Zomojo. Greg Robinson, Matt Chapman, and their lawyers, such as Matt Critchley, deserve gaol time for the lying to the court, obstruction of justice, and other criminal acts. Matt Chapman lied to the court about a myriad of over 100 confidential claims. Chapman even tried to claim Sir Issac Newton's interpolation method was a valuable and confidential secret, proprietary only to his firm,
MR WOOD: I want to ask you a question about paragraph 98 of your MC1 document?CHAPMAN:---Yes.
HER HONOUR: Sorry, what? I missed that paragraph number. I apologise.MR WOOD: 98, if your Honour pleases.HER HONOUR: Thank you.
MR WOOD: Who is the Newton referred to in paragraph 98?
CHAPMAN---I don’t know how that’s relevant. That’s – it’s a well-known method for numerical approximate. It’s not Isaac Newton, no, I don’t think, but it may be. I don’t see how that’s relevant.
MR WOOD: I’m suggesting to you that it was Sir Isaac Newton’s method that was first published in 1685?
CHAPMAN: ---Okay.
Do you agree with that proposition?---That’s feasible. I don’t know.
It’s basic mathematics, isn’t it?---I would agree with that, yes.
Secret & confidential! Chapman and Robinson couldn't lie straight in bed.

In my action against them they had the benefit of being a friend of the judge and employing barristers who worked alongside the judge during the day. Terrible bias. It didn't help that the matter was considered so important that the eventual appeal was tacked onto a long sojourn by matey judges where one of the Full Bench jurists, Honourable (sic) Justice Gilmour from WA, turned up intoxicated in court (4th March 2015). There was never a chance.

Without a corrupt Australian court process, I expect Solarflare may fare better in the District Court of New Jersey. Also, being a jury trial, it may fairer. The full bench of the Federal Court of Australia did make a ruling that Greg Robinson was lying in their written appeal judgment. Exablaze has a history of lying to customers, staff, and courts. Perhaps Exablaze's lack of credility will help Solarflare in their just battle. A NJ court certainly should discount everything Exablaze, Chapman, and Robinson have to say. They are known to lie to courts.

Getting back to the tech, Solarflare make the #1 trading oriented network cards in the world in my mind. Simply put, if you want a high performance card with no fuss, use Solarflare. Having said that, I typically use Mellanox cards as the performance for me has been slightly better, with an improved cost profile, but with gritted teeth. From time to time, Mellanox have been a pain to get working properly, especially with in house apps. Solarflare, for me, is the “goto” card as its driver, OpenOnload(R), has been so much “cleaner” to work with. The Solarflare driver was very nice tech and I presume it still is.

It was interesting to read the Exablaze response to the court action. After Exablaze spent many years in court, lying to the court, perverting justice to misappropriate the intellectual property and patents of others, and cynically exploiting court processes, they had the temerity to include the following line in their PR response,
“While we respect any company's right to protect and defend its IP, we sincerely hope that Solarflare's actions in this instance are not a cynical attempt to exploit the legal process, rather than use innovation as a strategy to advance its competitive position.”
Yeah, right. What an ass-hat Exablaze's Greg Robinson truly is.

I hope karma has its day and Solarflare succeed in punishing the criminal firm Exablaze in court. I
Asshole firms, like Exablaze, sometimes get the karma they deserve
would also hope other firms, such as Exegy and Mellanox, who are likely to have intellectual property being violated by Exablaze, also take action. Indeed patent law says they need to take action as they otherwise surrender their rights. It would serve the community well to drive scum like Exablaze out of the industry.

I feel sympathy for Exablaze's customers and distributors who have been duped by Exablaze. Those clients may now be subject to having to return or give-up their Exablaze products. Such action may be hard to swallow but it may end up being a good thing, as there are certainly much better vendors to deal with.

Happy trading,


Saturday, 2 April 2016

A simple transport plan - make a few billion - save a few billion

I've long been a fan of high speed rail. No longer.

Let's meander through why autonomous-only roads may be better than rail, save billions of dollars, and make billions of dollars.

I've not much personal experience of high-speed rail, but I like it. I've only travelled on the impressive Maglev in Shanghai to airport train and a Shinkansen on the Osaka to Tokyo route. Only a slow 300 km/h in Shanghai (it will do over 400 km/h) and just a bit short of 300 km/h in Japan. The Shinkansen E5 series now will do around 320 km/h.

High speed railways are expensive to build and very expensive to maintain. In Japan thousands of workers are constantly doing track inspections and maintenance. Despite the high costs, the economic benefits of over 300M passengers per year in Japan piling onto bullet trains are obvious. That's a lot of time saved. It has been estimated that alone saves some ¥500 billion per year.
JR West machines from 2008
(click to enlarge, source)
Europe has some productive high speed rail. The US has long pined for it but has not been able to generate the will for even modest speed rail. Australia has long flirted with the idea of an eastern seaboard or Sydney-Melbourne link without any realistic momentum. It may have been lucky both countries have failed to launch as, just as with any technology, disruptive new ideas could change the game.

Want to make a few billion?

Perhaps a way to generate a few billion in profits, especially around geographically challenged cities such as San Franciso or Sydney, would be to have an interest in land that is difficult to have a sane commute to. Arrange the land and build high speed rail to grease the value proposition.

This is commonly referred to as "value capture infrastructure." For example, say you built a 500 km/h Maglev commuter to Willows CA from down-town San Francisco. That's about 225km (140 miles) by road or a bit under 200km as the crow flies. See the following map. Willows CA is inside the second biggest circle to the north of SF.
San Francisco with 50, 100, 200 & 400 km rings
(click to enlarge)
Imagine you bought enough land for 100,000 homes around Willows or a similarly distanced locale. Now build your MagLev. Say it has a top speed of 500km/h and you get a commute of under 30 minutes. That's pretty convenient. If your land is suddenly worth $100,000 more per block, or maybe $200,000 more, then that is a nice increase in value of $10B-20B. I'm not sure this is a great example, but you get the idea.

Earthquakes aside, it makes the economics of a 1000km/h Hyperloop to "nowhere in particular" pretty interesting, no?

Grow your city to 1M blocks of land and there is a lazy hundred billion in economic value to share between gov't, developers, and their customers.

A better plan

Elon Musk's Model 3 and other cars with autonomous capabilities, electric or not, provide a simpler solution. Imagine roads for only autonomous vehicles. No humans, so why not allow 200km/h travel?

Build a private road of 100 km in length. Own the property around the end of it. Profit.

Not enough autonomous capable cars? Have your autonomous car capsules ranked up and ready to roll just like a tiny train. Small packets of people cut down the latency of travel through quick start times.

A condition of travel would be autonomous only at the road's gateways. I'd certainly appreciate the freedom to work and travel without worrying about my safety or the inconvenience of discontinuous public transportation.
Tesla Model 3

It will take a while for cars to be able to legally self-drive on all public roads for good reason. Whilst autonomous cars will save lives and be a massive net gain, they will also cost the occasional life that a human may have avoided. In this Age of Perception, with its attendant disruption, higher level artificial reasoning will be slow to arrive. You would slow down when a beach ball had rolled across the road, even if it was well in front of you.  Your high level risk assessment would suggest  a child may be likely to follow. This is not the kind of logic a computer will easily carry out for the foreseeable future. Saving a thousand lives for the cost of one may be a good trade-off but an unnecessary loss is hard to swallow. This is an example of the kind of thinking that necessarily complicates and slows full autonomous transport adoption.

Governments could immensely improve the economic efficiency, safety, and liveability of their cities by allowing protected autonomous only lanes or roads. It is not just an acceleration of autonomous driving economic benefits. It is tangibly different. The main thing is with the microsecond attention span of the computer it will be safer to travel at very high speeds. You don't want human unpredictability interference in an autonomous environment. That is, even with autonomous driving, I don't want my car travelling at 200 or 300 km/h if someone may disrupt my life fatally by glancing at their text message on their phone. The only real and safe pathway to high speed driving is to take the human out of the picture.

Another benefit over high speed rail is that you will not need a few thousand workers inspecting short sections of road all the time. Maintenance costs would be much lower than high speed rail. We know how to build autobahns and other high speed roads. Autonomous cars can adapt to conditions and other vehicles through local sensing and communication.

This is similar, in some regards, to the Personal Rapid Transport idea that has been floating around for a long time. Well, since Donn Fitcher's work in 1953.

Autonomous commercial driving of trucks and buses will eventually displace the >11M trucks and buses on US roads too. Over 3M commercial drivers in the US will be redundant with more than 400M road hours of driving saved (2013 stats). That's quite some disruption with some sadness attached to the displaced until they find new, and hopefully better, work. Whilst road deaths in the US have dropped from over 50k to just over 30k, that many people dying on the road is just way too many. However, with not just >30k deaths, but more than 2.3M people being injured on US roads, there is a moral imperative to hasten autonomous driving.


Here is a map for the difficult terrain around my home in Sydney, Australia. Sydney's geography is such that it is one of the most expensive cities in the world to own property. Many suburbs, run-of-the-mill suburbs, have property prices over $AUD 1 million. Due to this property stress, many people commute for two or three hours a day just to get to work. Not much quality of life in that.
Sydney with 50km and 100km rings from the CBD.
(click to enlarge)
If you send a private autonomous road, or lane-way, toward Newcastle, Nowra, or Bathhurst, I'd imagine many people would be attracted by a short 30 minute commute in a 200km/h car from Katoomba, Lake Macquarie, Woolombi, Kiama, or Bowral with the savings in the price of housing. It would be faster than the existing trip for many people, like me, who live the burbs.

Wake up at 7:45am in Moss Vale. A quick shower and change. Jump in the car at 8AM. Get half an hour of work in on the autonomous commute into the city and get your early e-mails done. The car drops you off at the office. Your car then goes off and finds a park. After work, summon the car to the office. It picks you up and you relax watching the Nightly News on the way home and you're home by 5:45PM to spend some quality time with the family without the mortgage stress.

Perhaps it may be a Google-taxi or a Musk-pod? Maybe it is simply a government run electric car-pod for the main highway. It all sounds a big win to me.

Win win

Autonomous only roads. Good for governments. Good for developers. Good for car manufacturers. Good for freight. Good for consumers. It's good economics. Please get on with it.


Saturday, 26 March 2016

ITG continues to deceive customers

Despite ITG's wows of recent times, the firm continues to take advantage of customer gullibility.

ITG engages in proprietary trading. ITG markets itself as an agency only business.

After their little incursion with the SEC that cost around $20M for some paltry trading returns, ITG has not been called to account for the $70-$100M in proprietary trading profits they have made over the years despite their agency-only claims.

In fact, the ITG 10-Q filings with the SEC were a little thin on mentions of proprietary trading after their fine. It should come as no surprise ITG were a little sheepish about further prop trading disclosures. Nevertheless, they are now bolder. Late February ITG filed their annual 10K. It reiterated their ongoing proprietary trading function in the inter-listed arb (US listed v CAD listed stocks) on page 35:
"Other revenues increased due to higher principal trading gains on inter-listed arbitrage trading."
Canadian Operations
Year Ended
December 31,
$ in thousands
20152014Change% Change
Commissions and fees
Total revenues
Compensation and employee benefits
Transaction processing
Other expenses
Total expenses
Income before income tax expense

Canadian "Other" revenue, once again, was higher than "Other" revenue for the rest of the planet.

$8M each year for the last couple of years is nothing to be sneezed at. How much of that trade is facilitated by or within their own pool facilities? A former ITG Asia-pac CEO told me that some of it is due to ITG pool trading. This CEO was not a trustworthy source about many things but maybe he was right about the incursions into the client pool?

It's worth remembering some of specifics of the SEC findings that resulted in that fine:
6. While Project Omega was engaging in proprietary trading, including with ITG’s own customers, ITG was simultaneously promoting itself, and POSIT, as an independent “agency-only” broker that did not have conflicts of interest with its customers and that protected the confidentiality of its customers’ trade information.
8. ITG Inc. and AlterNet violated Sections 17(a)(2) and 17(a)(3) of the Securities Act by engaging in a course of business that operated as a fraud and by failing to disclose to ITG customers and POSIT subscribers, among other things, that: (i) ITG was operating a proprietary trading desk while at the same time promoting its brokerage services and POSIT by describing ITG as an independent “agency-only” broker;
13. ITG has historically operated and marketed itself, and has a reputation as, an independent “agency-only” brokerage firm. This designation was meant to convey that the firm did not engage in proprietary trading for its own account.
Even the SEC findings make it seem like ITG only engaged in proprietary trading for a short time:
ITG Launched a Proprietary Trading Desk in Early 2010. 
22. During the period of late 2009 to early 2010, ITG explored initiatives to increase
diversification and revenues for the firm, including launching a proprietary trading operation that would engage in algorithmic high frequency trading. Thereafter, on the recommendation of senior management, Group’s Board of Directors approved a proprietary trading desk that was limited in scope to inform whether ITG should launch a fully-scaled and disclosed proprietary trading operation.
That is clearly not the case. Let's have a look to the Canadian proprietary trading that traded US listed and Canadian listed stocks for well over a decade. Most of the revenue in Canadian "Other" is prop trading from inter-listed arbitrage. Here is the list I scraped from the SEC 10-K and 10-Q filings:

$ in thousands
Y2015 8,295
Y2014 8,066
Y2013 8,193
Y2012 6,020
Y2011 6,282
Y2010 5,572
Y2009 8,450
Y2008 16,512
Y2007 11,042
Y2006 8,800
Y2005 increased from what?
Y2004 ?
Y2003 ?
Y2002 ?
Y2001 ?
Y2000 ?

Total 87,232

Whilst ITG deceived customers with the "Agency only" lie in their marketing, the actual trading has been hidden in plain sight with the following snippets from their SEC filings:

Y2015 Other revenues increased due to higher principal trading gains on inter-listed arbitrage trading.
Y2010 Revenues from principal trading (included in other revenues) were lower in 2010 as the expanded presence of professional trading firms has significantly reduced the spread to be earned and thus limited principal trading opportunities available.
Y2009 Revenues from principal trading (included in other revenues) were down in 2009 compared to 2008. Aside from an unfavorable foreign exchange impact of $0.6 million, the reduction was attributable to several factors including lower market volatility and the expanding presence of high frequency participants (which has narrowed spreads and therefore reduced profitable trading opportunities).
Y2008 Interlisted arbitrage trading revenues improved to $15.9 million compared with $10.9 million in the prior year, benefiting from higher market volatility.
Y2007 Other revenues included $10.9 million from our interlisted arbitrage activities versus $8.8 million in 2006
Y2002 (e) income/loss from positions taken by ITG Canada as customer facilitations (a customary practice in the Canadian marketplace) as well as income from same day Canadian interlisted arbitrage trading.

Some laughed at how inept ITG seemed at proprietary trading with Project Omega not reporting significant profits. North of $70M is not trivial for this lot of proprietary trading.

Disgorgement and a large fine would be painful for ITG.

The many good staff at ITG deserve better treatment by management so they don't continue to deceive their customers and betray their trust.

SEC & IIROC, over to you.

ITG POSIT Finra ATS Tier 1 Statistics
1TG at #14 and approximately half of pre-scandal levels
(click to enlarge)

ATS data is provided via and is copyrighted by FINRA 2016

Wednesday, 23 March 2016

Most people in Australian tech firms at risk of 10 yrs incarceration from April 2nd, 2016

If you work in a bank; if you export a cloud service from Australia; if you are Australian and work overseas and use encryption; if you directly or indirectly use a processor >40MHz such as any smart phone... you may be headed to gaol for up to 10 years from April 2nd 2016.

Do not pass go, do not collect any investment returns, unless you have Australian Government approval for your situation, service, or product.
Most Australian and foreign businesses may have significant
additional legal risks soon. Whether you're a tech start-up or a
bank, be careful out there.

Once you stop laughing and take in the seriousness of this stupidity, if you're an Aussie or otherwise interested party, sign the petition here against this abomination.

From New defence trade controls threaten academic freedom and the economy
The Defence Trade Controls Act (DTCA) goes into effect on April 2, 2016, and it applies to all Australians, including those now living overseas.
The DTCA brings in a new regime of Department of Defence (DoD) oversight for both military “goods”, meaning new scientific ideas and means of application, and “dual-use goods”, which are innovations that may have some military use. 
The DTCA introduces a permit regime for any “intangible supply” (especially electronic communication) of new ideas in DSGL areas. Researchers and innovators who communicate any new idea overseas without permission face ten years in prison and A$400,000 fines. 
In other words, if you deal in new ideas in any of these areas, and you do not apply for a DoD permit, you are putting yourself at serious legal risk. 
The DSGL is clearly difficult to maintain. For example, it refers to integrated circuits running at 40 MHz or above, which were state of the art around 25 years ago. Recently Daniel Mathews pointed out that the DSGL controls encryption using only 512 bits, also long obsolete.
From Paranoid defence controls could criminalise teaching encryption
The bar is currently set low. For instance, software engineers debate whether they should use 2,048 or 4,096 bits for the RSA algorithm. But the DSGL classifies anything over 512 bits as dual-use. In reality, the only cryptography not covered by the DSGL is cryptography so weak that it would be imprudent to use. 
Moreover, the DSGL doesn’t just cover encryption software: it also covers systems, electronics and equipment used to implement, develop, produce or test it. 
In short, the DSGL casts an extremely wide net, potentially catching open source privacy software, information security research and education, and the entire computer security industry in its snare. 
Most ridiculous, though, are some badly flawed technicalities. As I have argued before, the specifications are so imprecise that they potentially include a little algorithm you learned at primary school called division. If so, then division has become a potential weapon, and your calculator (or smartphone, computer, or any electronic device) is a potential delivery system for it.
The DTCA is in essence an attempt to clamp down on research, theories, essentially ideas, that could have possible military applications. The idea itself is nothing new; Australia’s latest attempt is merely an incredibly potent example of how inept governments can be at dealing with these concerns.

With Australia’s new Prime Minister, Malcolm Turnbull’s “innovation agenda” which aims to effect a major structural change in Australia’s economy by fostering high tech industries, and attracting foreign investment into the high tech sector one must say Australia’s government seems to be at cross-purposes with itself. DTCA will kill these plans and it seems unclear if anyone has actually explained this to the new Prime Minister.