Where have all the traders gone? - Rey Husain

This article discusses the impact computers have on the investing world. Investors have realized that the processing speed and volume that a computer offers has led to a “quiet revolution” throughout the financial world. Today Investors are in what is called an arms race among other investing firms to develop the best algorithmic trading systems. These trading systems help decides which trades are the most profitable and then executes the deals.
When looking back at the market, ten years ago algo-trading barely existed, but according to research done by a Boston-based consulting firm called the Aite group, one third of all trading decisions in the U.S. markets are now made by machines. The Aite group predicts that by 2010 more than half of trading decisions will be made this way. One really interesting statistic that I mentioned in class was that Deutsche Bank in London has over 70 percent of spot trades carried out each day without any human intervention. The impact of algo-trading is that even if an individual does not own any shares, more than likely shares within your pension fund are being bought and sold using algo-trading.
Algo-trading is an efficient practice considering that computers can make multiple trades, monitor thousands of stocks and do it all at a remarkable speed. Another point is that transactions made by machines can also be done without anyone even noticing! Considering that the market is also reacting to purchases and sales of one another, there is significant profit potential when transactions are not noticed. When a person sees a stock change price, they might react in a few hundred milliseconds. A computerized trader is at least 10 times faster! These few hundred milliseconds might seem trivial, but if the price changes by a fraction of a percent in the split-second before a trade worth several millions, it could mean a difference of tens of thousands of dollars. Ideally a computerized trader offers a trader low latency market access, which means that there is little delay between placing an order and seeing it fulfilled.
Another advantage to an increase in computerized trading is the use of Stealth- trading. Many of the leading brokerage firms now have computers running volume-weighted average price (VWAP) algorithms. The algorithms break up big transactions into significantly smaller and separate transactions so that the rest of the market does not detect what a company may be doing. In an attempt to diffuse the use of these algorithms, Pattern-Spot software works to detect algos trying to sneak in transactions. This type of software also attempts to determine what is going on with these algos by studying the size of transactions.
The final point of this article which I found to be the most interesting were recommendations on how to beat algo-trading in markets. One of the most important concepts is to go with your gut feeling by making predictions in regards to where the market will be going. This of course means using some computerized data to help distinguish additional data needed. Another strategy suggested is looking for signs of liquidity. This means looking for the presence of buyers and sellers for specific stocks can open up a chance for a trade ahead of algo-trading. Unfortunately, signs of liquidity have also opened the door for new types of algo-trading called “sniper” algos which wait for a suitable buyer or seller to emerge and then conduct the trade as fast as possible, before the price can be affected by other traders.
After reading this article, it amazed me to see how much of an impact computerized algorithms have on the stock market. However, one important thing to realize is that human traders can make up for lack of data with instinct and experience. These components are what essentially designed these type of programs in the first place.


Matthews, Robert. "Where have all the traders gone?." New Scientist 194,260602 June 2007 42-45. 13 Noc 2007 .

Phil- Google fails to win EU approval for DoubleClick deal

Shannon, Victoria. "Google Fails to Win EU Approval for DoubleClick Deal." Herald Tribune 13 Nov. 2007. 14 Nov. 2007

The article talks about how Google was trying to buy DoubleClick, which is an Internet advertising company. Google was prepared to buy the company, but the European Commission refused to approve Google's $3.1 billion purchase. The reason why this deal did not go through was because the European Union was concerned about competition and it need more time to think over the impact such a merger would have on the Internet advertising business. Also, they are waiting on approval from the U.S. Federal Trade Commission. Furthermore, Internet regulators in Australia and Brazil have approved the deal.

Privacy issues also come into play in this article because since Google is can gather a lot of data in terms of demographics. Having a large advertisement company like DoubleClick use the information to make a marketing entity would be like having direct information from the IRS. ComScore performed a study of Internet searches and discovered that almost 57 percent of Internet searches are done through Google. Since that is true the information Google collects through their search references people use. That information could be used to place advertisements on the sites owned or run by Google. Since the European Commission rejected the merger between Google and ComScore, it is still unknown what Google will do.

I am kind of glad this merger did not work with the European Commission because what is searched on the Internet is the customers choice and that information should not be used to help companies figure out what what advertisements to make. Even though people with stocks in Google would have loved if the merger worked out. It would have probably would increased Google's revenue. Google could still be able to get ComScore because the U.S. Federal Trade Commission still has not given their opinion about it.

Banking 2.0

Sorry guys, I just saw Rawan posted this same article but I had already written mine up before I went to the site...here's my take on it:

Social Networking, Web 2.0, and Banking

No discussion of business today is complete without the mention of Web 2.0 or some form of social networking. Banking is not exempt from this trend.
Banks are especially eager to make a connection with young customers who may not have an existing relationship with another financial institution. Building loyalty early on is key to developing valuable lifelong customers. It is more difficult for banks to establish this “cool quotient” as a part of their brands compared to companies in other industries because banking is often perceived as boring and dull. Innovators in the industry are looking to Web 2.0 resources to change this.
Wells Fargo created Stagecoach Island. It is a virtual world where users can interact, and engage in fun activities, but also learn about money management. Royal Bank of Canada (RBC) created a special p2p forum for young people to exchange financial advice in one common area. TD Bank runs several blogs and established a Facebook profile early on.
All of these are aimed at making stronger connections with their customers. Virtual worlds have gained in popularity so Wells Fargo figured they would establish their name as a part of it. RBC knew young people already looked to their peers for financial advice so they decided to facilitate this discussion. TD sought out the ways they knew young people communicated and spent their time and looked to establish a presence in these networks. The common theme in these three initiatives was not to push specific bank products, but to just engage the customers.
Marketers understand the viral nature of the internet, or, simply how fast ideas can spread between people. This goes for good or bad opinions. While there is an amazing opportunity to reach a large audience, there is also an increased aspect of reputational risk at hand. It is critical for banks to know what the online community is saying about them. Wells Fargo VP of Social Marketing combs blogs each day to find posts on his company and often responds to any postings. The opinions voiced by bloggers and circulated through prominent networks have a large impact on how any brand or product is perceived.
Web 2.0 is a unique challenge for any business. It forces executives to adjust to a new set of expectations and deliver to consumers or face being left behind. Banks know the key to success in their business is engaging their customers as much as possible and developing long-term relationships. New media is a great opportunity to do this and you will undoubtedly see more banks embrace the methods used by those in this article soon.

http://www.banktech.com/features/showArticle.jhtml?articleID=202801088

“China’s E-Tail Awakening”

Deepak Shahani

New online-payment systems are drawing wary consumers into the world of Web commerce.

BusinessWeek, p.44, Nov. 19, 2007.

In this article, it discusses the increased use of online payment systems in emerging economies such as China. In China, people are more willing to use online payment methods similar to PayPal, rather than using credit cards. Credit card penetration in China is low, as compared to other countries such as India, where their financial systems is more deregulated and more developed, aided by the infiltration of foreign banks.

In China there is an interesting phenomenon, where the citizens are more comfortable with paying for everything by cash. It is difficult to change consumer habits, but this is changing slowly. The article mentions that the skepticism about the use of credit cards is because they are: “afraid of online fraud, so they don’t use them.”
As a result, online commerce or e-retailing has been facing many challenges in China. Nevertheless with the growth in online payment companies, they are seeing increasing growth in the industry: “Consumer e-commerce in the country will top $1 bn in 2007.” It is also expected that the industry will grow at an average of 34% in the next three years.

Online payment methods has greatly affected e-commerce in China, and has provided a solution to the security issue faced in the minds of the Chinese people. Many businesses are experiencing increasing sales from their online sections of their business such as Joyo Amazon and Taobao company which uses AliPay. AliPay is the number 1 online payment service in China with a market share of 50% of the market. AliPay has greatly increased the confidence of online shoppers. A method to increase security, enforce contractual obligations, and reduce the problem of trust, is where online payment to a seller is only made when a buyer has received the merchandise.

Lower-tech methods of payments still need to be provided as not all citizens are comfortable with online payments. Therefore businesses need to train staff in recognizing counterfeit bills at cashiers and face the risk of its delivery people to carry large amounts of cash. Chinese businesses prefer customers to pay through more secure methods such as by credit card or online payments because it is more efficient and less risky. Yet as the saying goes, old habits die hard, and the Chinese have a habit for paying for most things with cash.

Junichi - Blackboard and Sony Partner to Offer Contactless Card Technology in U.S. Education Market

November 7,
http://www.lexisnexis.com.proxyau.wrlc.org/us/lnacademic/results/docview/docview.do?risb=21_T2496218431&format=GNBFI&sort=RELEVANCE&startDocNo=1&resultsUrlKey=29_T2496218441&cisb=22_T2496218440&treeMax=true&treeWidth=0&csi=8054&docNo=1

Nowadays in Japan, there is no need to carry wallet with you when you go shopping or ride a train. The only thing you need is your cell phone. “Invisible money” which is called “electric money” has widely spread all over Europe and Asia.
The Japan's largest mobile phone service provider, DoCoMo, became the world's first mobile phone operator to offer its own branded platform for mobile phones incorporating a credit card and a contactless payment capability. It utilise Japanese software vendor Sony's FeliCa near field communications system. The FeliCa chip enables mobile devices to store multiple forms of data including bank account numbers and balances, credit account information, transport service passes and personal identification. The FeliCa system was first adopted by East Japan Railway in November 2001 for its Suica contactless transit card and now Moble Suica has appeared in early 2007. Stated quite simply, it is like there is a “credit card” and “Smart Trip” inside your cell phone. In Moblie suica, process will be conducted as follows. First, holder have to "charge" e-money to cards before using them and how much they can pay with the cards depends on how much they have charged them. The electronic money which is charged to a mobile telephone will be settled an account by the credit card which holder registered. After, you charge it, you just put your cell phone above the receiver and it will settle account immediately which is about 0.1 second.
However, there is a security problem. When registering the credit card, all you need is holder’s name, birthdates, and credit card information such as card number. In this registering process, you don’t need your PIN number. And there is a possibility that people abuse the card information that they obtained illegally and register since only one part of the information of the card company being collated with member information.
As mentioned above e-money has been widely spread all over Japan, but not in U.S. yet. However, this is likely to change in a very near future. On Nov 7, Sony Corp. said it has inked a deal allowing U.S. education systems developer Blackboard Inc. to use "FeliCa" contact-free integrated circuit chips in its student identification card system. Blackboard's current student ID card system, dubbed Blackboard Commerce Suite, uses magnetic cards; however, by using Felica IC chips, Blackboard will be able to add electronic money functions to the cards.
With this, using e-money will be common among the university student. The biggest issue to popularize e-money would be advance of security problem and establishment of receiver. Even though the Blackboard supply card with e-money function, you need a receiver to use it. Therefore they should increase the company number which adopts e-money. I think that the faster the problem (security, receiver etc) will be dissolved, the sooner the life without wallet will become reality in U.S.

Rawan- Banks Are Creating a New Kind of Customer Intimacy With Web 2.0 and Social Networking

By Nancy Feig
Bank Systems & Technology
November 01, 2007
http://www.banktech.com/news/showArticle.jhtml?articleID=202801088

With the advance in social networking technology, banks are looking at their strategies to create competitive advantages in social networking, which shapes about 72% of active teens using social networking. Banks are going to introduce Web 2.0, which is the second generation for World Wide Web, including: Myspace, Gmail, Facebok, etc. The banks that are leading the way: Well Fargo, RBC, and The Toronto-Dominion Bank.
In this article it stresses out the importance and the rapid speed of technology in social networking. Banks are realizing how different the new generation is communicating, and they have to find a strategy to meet their needs. For example: Well Fargo realized that people are more approached through social media, with them studying into that they came up with a blog; with more experiment that choice topics like: “student LoanDown,” and Stagecoach Island blog. In the other hand, RBC, other than using blogs, they also engaged in facebook, and podcasts. They also came up with RBC p2p, which is for student, and it is also done by students. They would learn more about budgeting and saving, or anything they are interested in.
With this increase in the use of Internet and high tech the article also states that this new generation has little or no association with financial institutions, and having more potential. I found it very interesting how banks are getting to the new generation, and never realized that the use of social networking when that far too fast. It also seemed that they are assembling social networking a priority to the new generation of customers. Apparently, social media is the new strategy to maintain customers.

The bad news about online insurance-- Jess Roper

http://www.insurancenetworking.com/protected/article.cfm?articleId=3685

http://www.globalchange.com/insurance.htm

Between the two articles that I read, I found that online insurance is not the best idea. The global change article points out the multitude of problems that come along with having online insurance: from not actually having a binding contract to no firm price. The article went into how online insurance could work for people in certain countries, but not other countries. Meaning, if you are an American citizen and you drive into Canada or Mexico and get into an accident, the insurance will not cover you because you are no longer in the United States and the insurance is not valid in any other country.

Even aggregators of insurance companies are not necessarily fair to individual customers. They give the price of only certain insurance companies: those who are willing to give them a commission to advertise their company online.

Another problem with online insurance companies is that they do not necessarily care who you are or if the information that you gave is accurate. They do not have people that could come and check up on you. They do not know if the address or phone number that you gave is necessarily correct unless they check up on you and many online companies think that if the credit card information you gave is correct (meaning that the payment went through), the other information is correct. This can be a big problem when it comes to getting a claim check. If you accidentally switched two numbers in your zip code or something similar, then you may never get the check.

The second article goes into customer satisfaction of online transactions. 49% of customers surveyed had problems with online insurance. Almost half of the people were not happy with their online insurance. While that means that half is happy, there is a very large chance that you will not be happy either.

With all this information, you would think that I have a very pessimistic view of online insurance. I do to an extent. I think that all online companies are risky and probably a bad idea. There is no reassurance that they will be here tomorrow. However, without the costs of a physical location, they most likely have lower rates than traditional insurance companies. Traditional insurance companies who have gone online to streamline their service are a very good thing. There is reassurance that they will be there tomorrow because they have the physical locations. It is also nice to be able to walk into their offices or call the office and speak to a human.