“Mind The Gap!” – The life and times of a man on the move Episode 5

Chopping your finger off, how a garage in Liverpool could be the savior of retail FX, roam may be closer than you think, the old and the new, and complete meltdown in the world’s capital.

In this new weekly series, I look back on what stood out, what was bemusing, amusing and interesting during my weekly travels, interesting findings within the FX industry and interaction with an ever-shrinking big wide world. This is purely observational and for your enjoyment.

Monday: Ouch! Let’s automate more, and less

I have lost weight.

Those who know me well can console themselves in the reality that this did not occur as a result of less food intake, thus the disbelief is understandable, however I have shed a very small amount of my former self.

Unfortunately, whilst for an appreciator of the epicurean delights of both the kitchen and the restaurant, dietary factors played no part, but an implement whose place is on one of my favorite domains, the kitchen, did.

App-controlled IoT systems such as this Anova Sous Vide smart cooking device won’t chop your finger off…..

I was rash enough to remove three millimeters of my digitus medicinalis, otherwise known as simply ‘the fourth finger’ of my left hand as a result of a rash and malconsidered action with a freshly sharpened chef’s knife whilst preparing the scallion and pepper garnish for piri-piri marinaded Argentinian merluza fillets prior to their two hours in the Sous Vide which preceded their final preparation on the barbecue. Once inconveniently disabled, how was I to prepare the remainder of the feast?

What was worse, the pain or the realization that the 10 inch Sabatier had cut through a full combination of nerves and flesh with absolute ease, is yet for me to reconcile, however the learning experience from this unfortunate and thankfully rare incident has been that some aspects of modern day life should not be automated, whilst some should.

We live in an age of IoT, a capital and lower case combination which stands for Internet of Things, enabling me to ensure full synergy with every component of my home with wherever I may be at any time, which is the antethesis of accident, and however an automated knife sharpener is not only the definition of abject laziness but also a menace. How did I manage before the car’s GPS system knew how to time my arrival and then send a signal to the lights and air conditioning system at home to set themselves accordingly?

The day before I waved (an activity that I am temporarily suspended from!) goodbye to the top section of a finger, I had used an electric knife sharpener to refine the cutting abilities of my venerable and much used set of chef knives. It was an effortless process, which led to the subsequent regression testing of such knife sharpener the following day!

Regression testing of said knife sharpener complete and resultant injury bandaged and isolated, I began to consider the importance of full automation.

Huge investment is being poured into artificial intelligence within banks at the moment, largely to facilitate two outcomes, the first being lower human resource costs and leaner physical operations, the second being to ‘learn’ the attributes and behavior of customers and build continually adaptable databases which mean far more efficient interaction with new and exisitng customers, both corporate and private.

But this 110v electric knife sharpener caused me to learn a sharp lesson. Some things we should automate, some we shouldn’t!

Back in the 1990s, whilst designing second-level support scripts for internal engineers within banks once a new server and trading system had been deployed along with several hundred MSI packaged deployable applications (I can hear the cacophony of Millennials deriding such a hardware-dependent system already!) I had become familiar with the ’cause and outcome’ scenario “Problem Exists between Chair and Screen” which was a derogatory yet mildly humorous definition for user error rather than software or network error.

Today’s AI seeks to banish that to the history books, however whilst it is certainly a good thing for online ether-based services, there are some things that should require the cognitive focus of the human form.

At a recent FX industry event, a product development manager from a well known brokerage software provider explained in a keynote speech that in our industry, the subject of using AI correctly was part of the agenda.

It was deduced that we should be using AI and automation for certain functions, but not to take over from things that the human being is a central part of. Simply, we are good communicators and have the initial ideologies to make many changes, thus computerization should only be there to build on and help manage them.

“We will be wired with sensors and our bodies will talk” say today’s AI proponents.

Global consultancy and professional services firm Accenture, for whom I have a tremendous amount of time having worked with the company for 2 years on a 3G project for market indicators for Tier 1 banks in the erly 2000s at Cambridge Science Park in the UK, have looked at this thoroughly.

“In a world where everything is connected, where everything is equally excellent, where performance is reaching perfection, there is only one space left to innovate in: YOU” says Accenture.

“Right now, you are a center point in the raging tornado of change fueled by digitization, mobilization, augmentation, disintermediation, automation. Where the list goes on” states the usually very corporate consultancy firm which is not best known for its use of superlatives and enthusiastic parlance.

Science fiction is becoming science fact. Think about self-driving cars or computers that can learn or think. The way we work will never be the same. The skills we need will be dramatically different.

Winning or losing are now happening faster than ever before. So what’s your response? How will you discover new opportunities in one of the most transformational times in human history? Are you driving change or are you being driven by it?

Disruption has become the new normal. With change it’s always gradually than suddenly, well things have stopped happening gradually. This change is exponential. Everything that used to be dumb and disconnected, it’s now wired and intelligent: cars, cities, ports, farms, even our bodies will be wired with sensors and will talk to each other, concludes Accenture’s analysis.

This is very much relevent for trading platforms that are currently provided by algorithmically managed distributors of liquidity. Removing the human element would create more trading volume, a far better success rate, no more succumbing to disingenuous baubles such as bonuses or vast leverage – we now see the result of this, many firms this week are looking to redistribute their client acquisition procedure away from Europe as ESMA prepares to set in place its draconian restriction.

Without the human interaction, trading could be not only automated – we have had that for some time now – but fully intelligent. Companies such as Acuity Trading use machine learning to scan the entirety of internet-listed events and trading patterns in order to predict market sentiment, which is absolutely genius and could easily be the basis for a fully AI-driven retail trading sector.

Who needs to make mistakes in front of a terminal or fall foul of a less than attractive sales tactic by a b-book broker who calls a client whilst trading and causes him to act on impulse? A wrong move on a trading platform can cause you to lose more than a few millimeters from a finger.

During the 2000s, Accenture, PwC, Steria, Capita IT Services, Fujitsu-Siemens, PA Consulting and EY began providing Solutions Architects for this type of system. Today is the age of automation for all trading, not just large institution-to-institution systems

I am all for the lane discipline system which stops me wandering out a lane on the highway in my Chevrolet SUV, just as I am now reliant on the rear view camera in the center console. When going from the new SUV into my now previous generation Buick LaCrosse, which only has audible parking sensors, I feel like I have been blindfolded as there is no camera, and no lane discipline system, making the car feel much more unwieldy than the SUV which is twice its size.

This means that whilst automation such as this which takes over from human input is a great safety aid and helps to keep fatigue at bay, it reduces skills as we become more dependent on it.

I do not think this is a bad thing, though, as it is human nature to become complacent, and complacency creates a situation in which confidence often outweighs skill, and no matter whether that occurs in trading, driving or using a kitchen knife, it is a bad combination.

Brokers should therefore look toward total automation. Simply sign up clients and let them switch their strategy on and then forget it and move on with their lives. AI could dictate market conditions, interact with the liquidity providers and vice versa, and perform a holistic and neutral means of generating the desired outcome without the human pitfalls. This way, people could concentrate on taking a pragmatic view from the capacity of oversight rather than involvement.

Thus, ecommerce, trading, management of assets and non-moving but important activities like this can be automated and provided with some self-learning incremental wisdom.

110 volt Chef’s Choice electric knife sharpeners, though, now that’s another story.

If you’ll excuse me I am now off to set the car to autopilot, the audio system to fully synchronize with Spotify, the vacuum cleaning robot to follow its self learned pattern of cleaning, whilst I use a traditional steel to complete the knife sharpening duty in a week’s time when the bandage comes off!

Tuesday: It’s not why or how, it’s who.

I was approached this week for some advice on how to establish a new spread betting and CFD firm and where to make the most efficient start. After a detailed conversation it is still quite apparent that somehow avoiding the major centers for FX such as London or Sydney, a similar outcome can be achieved via registration in an offshore jurisdiction – and I would include former British colonies such as the British Virgin Islands and Gibraltar in the ‘offshore’ category, especially from a perceptional point of view.

This conversation took place during a week of nervousness in the retail sector which was fueled by the impending leverage restrictions on OTC derivatives products that is about to be foist upon all European Union-based brokerages.

The dynamic of many conversations this week has not been relating to how to start such a firm with a European presence, but actually with regard to many Europe-based brokerages looking to avoid any marketing or client onboarding in Europe at all, and focus on less stagnant and more opportune markets in South East Asia, Africa and the Middle East.

One firm I spoke to this week has completely stopped all of its advertising and client onboarding campaigns in Europe altogether – and I mean a very big retail firm – in order to concentrate on Asia Pacific clients. This particular company has been conducting a series of offline events in the Far East to further meet this objective.

92 Seel Street, Liverpool. What is the difference between this………

Another well established technology firm contacted me, panicking that the end of Europe’s market would be disastrous. I reassured him that quite the opposite is true. I see it as an opportunity for the industry to stop focusing on the defunct, anti-business, bureaucratic European Union, which has hardly any FX clients anyway and those which it does have are not large investors or in the process of building huge IB businesses. It is simply an expensive, socialist conglomeration of non-aligned nations with no financial or technological participation.

Hence, the ESMA rulings should be the signal to start pursuing better, more dynamic and youthful markets. Europe has a long history of being a continent of political coercion, socialism, adversarial commercial disobedience (strikes and protests) and an anarchistic approach to institutions. It is all about the revolution and not the evolution.

Conversely, Asia, North America and Australia – combined making up a far larger region and populace than Europe, is about business, driving things forward, building, and efficiency.

Even start-ups are doing this too. A newly established retail company, one of the directors of which is a former KVB Kunlun senior manager, has closed its Cyprus office down and is very actively holding retail seminars in Asia, which are massively attended, and handling all clients via an office in Hong Kong.

Thus, the idea of starting a new brokerage in Europe to serve spread betting and CFD clients, especially at this juncture, was interesting to me.

Bold, and interesting, and if done properly, will be a welcome step in the right direction during a time when many smaller firms are eschewing proper business methodology and either disappearing offshore or being tempted to entertain the rash practice of offering cryptocurrency actuals.

The rationale and ideology behind this was certainly sound, but why go to an EU read across for a license?

…..and this? As far as running an FCA regulated brokerage is concerned, no difference at all.

Why not go straight to London and get an FCA license? Spread betting, CFDs and an FCA regulatory license go together like Marmite on toast, or the Queen and Windsor Castle.

That is an intrinsically British market, and the best possible customers for such products are domestic market British customers.

Hargreaves Lansdown, IG Group and CMC Markets have shown remarkable calmness and the usual degree of absolute organizational prowess in relation to the run up to the new ESMA regulations.

There are two reasons for this, one being that these are extremely well established companies – indeed some of the most established in the world in the retail electronic trading industry – therefore they take a pragmatic, corporate approach, with the usual exemplary procedural accuracy from internal legal and commercial planning departments, which tie in with every component of operations from their proprietary trading systems to the method by which products are delivered to customers.

The other is that they know their customer base better than pretty much all other firms. This is because their customer base is 80% British in the case of IG Group and CMC Markets, and 100% British in the case of Hargreaves Lansdown.

By standing out as benchmark companies in their own domestic market – one of the most respected nations for business prowess in the world and home to highly analytical and empowered customers – they have grown organically to massive strength.

The cost of emulating this model is sometimes what deters startups, along with the ‘path of least resistance’ notion that getting a packaged license from Gibraltar, Malta or Cyprus along with a $5000 white label platform solution will equate to a competitive business.

It won’t.

Another deterrent perhaps is the perceived might of London’s participants, leading newcomers to consider that the plate glass towers of Houndsditch and Cornhill, the vast payrolls consisting of highly skilled and knowledgeable sales and support staff, and the proprietary systems dedicated to providing CFD trading to a domestic audience amounts to a cost beyond anything rational.

This is not the case, however.

Quite the opposite. I would say that new firms in that sector cannot afford NOT to have a British base and FCA regulation, for many reasons, and the cost ultimately would be less than establishing in an offshore region.

This very familiar structure may well be ideal for the staff of your brokerage and as an admin base, but the garage in Liverpool would be a better head office.

By going FCA you get the best prime of prime and liquidity relationships and the best regulatory reputation and therefore good clients and IBs.

Ultimately its the same price to set up a small firm like this as it is to go offshire. Many people from outside the UK get scared off thinking that they need ot be like IG or CMC with huge london offices but that is not necessary.

A garage in Liverpool is compliant – its still FCA jurisdiciton and due to the online nature of retail electronic trading, it does not matter wher the offices are. Custoemrs see a British company, an FCA license, lots of recourse if something goes wrong, and British expertise in Spread betting/ CFDs, hence are more likely to do business.

The reputation of offshore firms is less than enviable. Often I am told by large partners in Asia and North America that they would be skeptical of placing business with any entity that does not have its operations and origins in Australia or Britain, hence by going offshore, a vast chunk of business would be alienated.

Yes, Gibraltar and Malta are in the EU, but so what? They are not regions with any particular business framwork or skill base. Greece and Romania are in the EU. Would you do business there?

Sales pitches would be easy. For example: “Hello, I’m John. Here is my FCA license, here is my nice english manner, here is the UK, the best nation in the world for FX and for all bsuiness in every sector, and if something happens you are protected, and britain has 40 yers of CFD expertise and top quality compliance.”

The customer then deposits and trades.

The cost would not be much different to any other European Union financial services license. You need a UK-based compliance officer, but they could be an outsource. Even large firms have outsourced contractors as compliance officers. Last year I spoke to a recruitment consultancy in London which stated that the average daily cost of hiring a compliance contractor these days is £1200. Per day!

That is fine for brokerages that have thousands of large clients and need onsite officers, but there is no reason why a UK-based compliance consultant with an FCA license cannot be hired on a contract basis part time, to work from home and visit the office when required. This is compliant. I have  good pal who is retired from 40 years as an FCA regulated responsible officer within some of London’s large institutional brokerages who now offers his services as a compliance/MLRO officer and this would tick the box and keep the cost down, as well as obtain a high quality level of compliance.

Hence, your operations could be anywhere where there are good employment pickings. Cyprus, with its vast ex-patriot English population and massive knowledge base relating to the FX industry. This would be the main home for operations, and is sustainable as staff are easily found and replaced with equally high skills, and then the aforementioned metaphorical “garage in Liverpool” with outsource compliance consultant assigned as responsible officer to report to the FCA would comply with rules in the UK.

Cost: Around £70000 for the licensing, bureaucracy and set up, followed by £125,000 regulatory capital for the FCA agency license. Let’s call it £300,000 in total once ready to go. Not much different to an offshore firm, but so much more growth potential.

Wednesday: The value of a future classic

Today’s new world of ether-based products, led by visionaries such as Airbnb, Google, Amazon, Alibaba, Spotify and Rightmove – all firms with absolutely no deliverable product, instead acting as an online intermediary or marketplace that connect those burdened with the products that they need to shift to those who will be burdened with their ownership, has created a whole range of spin-off ideas that in the end have created an entire generation of hardware-free super-trendies.

Yes, it is great to have no hardware, and this has made its way well and truly into our industry. Look at today’s possibilities with API connectivity to a whole range of services from aggregated liquidity to matching engines and from outsourced platform technology to customer retention automation.

You pay a fee per month and carry no physical hardware at all, rather unlike ten years ago when brokerages had server farms hosted in temperature controlled warehoused storage that a modern day youth may confuse with that of an abattoir.

The permutations are endless. No need to redevelop and refit – you simply tailor everything to your needs from one day to the next, at home or in the office.

However – here is the downside. No hardware = no appreciating antique value.

Look at these gems that I saw on Wednesday this week:

1929 Chrysler Roadster – An actual classic
2018 Forgotten Sound monobloc amplifier. A future classic
Even this pre-ATX IBM enterprise desktop is a current classic

Now ask yourself whether an ether-based API connection which is effectively air-ware, will have any appreciating value as a classic. A classic what? Exactly.

Thursday: When in Roam…

Roaming. Now there’s a dinosaur.

Talking with Michael Golan, a neighbor of mine, on Thursday this week made me revisit the notion of cellular telecommunications companies charging like a wounded rhino when calls are made from or to different regions to where the SIM card is registered.

Surely this is obsolete?

Michael Golan founded Golan Telecom in July 2011, when the company won a tender to operate a 3G wireless network in Israel beginning in 2012, and as of July 2015 it had about 800,000 users.

Golan Telecom built its business around the somewhat blunt and unusual slogan, “Enough of being a sucker,” which is currently shown as part of its logo. The direct approach in choosing such slogan arose from the frustration of Israeli consumers with the high cost of living in Israel, with cellular communication rates in particular, and as a means of empathy with consumers. Indeed, upon their introduction, Golan’s rates were significantly lower than those offered by the existing wireless providers in the country and quickly forced the other providers to drastically reduce their prices, thus providing a boon to many Israeli wireless telephone subscribers.

In October 2015 Golan entered talks with Hot Mobile on a possible merger. Following the announcement of a possible merger with Hot Mobile, Pelephone announced their intention to purchase Golan for 1 billion Shekels. In November 2015 it was announced that Golan has reached an acquisition agreement with Cellcom for 1.17 billion Shekels.

Following Cellcom’s announcement, Moshe Kahlon the Minister of Finance announced his opposition to the takeover plan, and stated he would do everything in his power to ensure the Antitrust Authority and the Communications Ministry would block the take over. Benjamin Netanyahu the Prime Minister of Israel, also announced his opposition to the deal, and his intention to use his power within the communications ministry portfolio, which he also holds, to block the deal.

Michael Golan has done his bit. Now let’s do ours to put a stop to this rip-off

Why would they do that? Fear of the end of a cartel, that’s why. Roaming has been a necessity in Israel for years, since the country is completely blocked on all sides and the only means of travel is to fly to other countries, resulting in vast roaming fees.

Golan Telecom’s system uses partnerships with other carriers in various regions of the world, and then charges a flat rate, hence with all of my travel which is extensive and completely global, I never receive a bill of more than 90 Shekels (around $25 per month).

The reason that this is of specific interest is that we in the FinTech and electronic trading business have for many years used VOIP (Voice over Internet Protocol) and yet the exact same people who have implemented VOIP systems for their customer contact centers still tolerate and patronize cellular firms that charge variable roaming charges, and even more to the point, CFOs of companies accept this and sign the agreements to the cellular providers, yet would never sign an agreement for desk based telephones on the same basis.

With cross-network messaging and citywide wifi in many major centers in the world, the ageing nature of roaming is easily avoided, however more needs to be done.

Good for Michael Golan, and let’s hope many others follow suit and if they don’t the laws set out to reform roaming are more stringently enforced to generate a good quality market.

Friday: Hotter than the sun!

I am not referring to Alan Partridge’s microwave-heated Bramley apple pie, but more to the heatwave that has encompassed most of the world this summer.

In London on Friday, some relatives and friends of mine were in London for a few days, returning to Israel only to say that it was extremely hot in London, yet Israel’s summer is well and truly in full swing, with 37 degrees C often registering on the temperature gauge.

Music of yesteryear, weather conditions of today

London in the summer is magnificent. The heat wave did not result in any outages or difficulties, as things just simply work, and the populace is tenacious to say the least.

It may well be hot in London, but it is more than just the weather that is raising its stakes. London’s importance matters more now than ever. It has evolved into a world class, plate-glass and ultra modern center for the entire world’s business.

Speaking on Friday with a family member who is a senior executive at a San Francisco-based internet UI development firm highlighted this further. Whilst in a meeting in London with some colleagues from Melbourne, Sydney, San Francisco and Berlin, they all concurred “You know what, let’s all just move to London permanently!”.

Yes it may have been said as an off the cuff comment, but this is very much the consensus of so many young executives. London is now a land of opportunity. A world center of culture and sophistication. An ultra-modern nation of its own, inhabited by global talent and as a result high quality of everything from entertainment to supermarket food.

It is indeed.

Next week, you will read my ramblings from Golders Green during my annual summer stay in what is one of the most important metropolitan centers, as well as one of the most pleasant.

Wishing you all a super week ahead!

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