1 Modern banking and automated cheating (Financial
Times/Gulf News) Back in 2012, when banks first started paying fines for
manipulating interest rates, regulators and experts proposed a simple solution
to prevent unscrupulous traders from rigging the markets: get rid of the human
factor.
Libor and other interbank lending rates had proved
vulnerable to misbehaviour because they were set by averaging estimates
provided by a panel of banks. High-profile global task forces considered the
problem and concluded that indices would be more reliable if they used actual
transactions to set prices. Trading, meanwhile, would be cleaner if it were
done on electronic exchanges rather than through voice brokers.
National regulators were then encouraged to look at
the benchmarks set in their countries and push them to conform to this new,
cleaner standard. But recent events have cast doubt on that comforting
narrative. Last week, Barclays paid $150 million to settle allegations that it
had used its electronic system to block foreign exchange trades that would have
lost it money.
This penalty comes just six months after Barclays
and five other banks paid a combined $5.6 billion to settle allegations that
some of their human traders sought to rig the forex markets. Even worse, the
latest Barclays penalty was about abuses that could only occur in an electronic
trading system. According to the New York State Department of Financial
Services, Barclays’ computer system held trades for hundreds of milliseconds.
If the markets moved against the bank in that period, the trades were denied.
If they moved in the bank’s favour, the trades went through.
Other banks also build tiny delays into their
computer systems. They are known as “last looks”, and were intended to protect
market makers and clients from predatory high-frequency traders, who were using
superfast computers and data connections to jump ahead of everyone else.
A “last look” was supposed to allow a trade to be
cancelled if markets moved unexpectedly in the milliseconds between placing and
execution. The tabular content relating to this article is not available to
view. Apologies in advance for the inconvenience caused. Bankers say they have
cleaned up their act since the financial crisis. If this case is not a one-off,
it suggests they have simply figured out how to make technology do the dirty
work for them.
2 Europe recession ‘could be permanent’ (BBC) The
worst effects of the European recession risk becoming permanent in places,
according to a left-leaning think tank. The IPPR's latest report pointed to the
high level of unemployment and underemployment across Europe and said the
chances of these becoming entrenched is "deeply alarming".
It said there was 10% unemployment and a 5% underemployment
rate in Europe. The official unemployment rate for the 28 countries in the EU
was 9.3% in September, down from 9.4% the previous month. The rate in the 19
countries that use the euro stood at 10.8%, down from 10.9% in August.
The IPPR said that unemployed workers risked being
left behind as globalisation and technological progress lead to changes in the
skills that employers require. The report suggested that European countries
look to Germany as a good example of maintaining workplace skills and high
productivity rates. Germany - Europe's largest economy - invests 50% more on
average than other countries in research and development.
2 Uber is slick, but not ‘disruptive’ (John Naughton
in The Guardian) Disruption, says the Shorter Oxford Dictionary, is “a
disrupted condition, disorder; a disrupted part; a rent; a tear” or “the action
or an act of disrupting something”. In other words, bad news. Islamic State,
for example, specialises in the disruption of orderly democratic life. Over in
Silicon Valley, however, disruption is the holy grail of the tech industry.
Why this obsession with disorder? It all goes back
to a book, The Innovator’s Dilemma, by Harvard scholar Clayton Christensen,
which was published in 1997, just as the first internet boom was beginning to
build. The subtitle summarises the book’s theme: “When New Technologies Cause
Great Firms to Fail”. It was a study of how profitable and successful companies
can sometimes be unhorsed by scrappy upstarts that enter the market with novel
(or different) technologies that are initially inferior to anything offered by
the successful incumbents.
These upsets happen, in Christensen’s view, not because
successful companies do not innovate, but because they only engage in a
particular kind of incremental improvement that he calls “sustaining
innovation”, whereas insurgents specialise in “disruptive” innovation, ie
technologies with the potential to enable new products and services or to
enable existing products and services to be delivered in radically new ways.
Christensen and his co-authors of a new article are
obviously irritated by the valley’s conviction that the car-hailing service Uber
is a paradigm of disruptive innovation. They argue that while Uber might be
disruptive – in the sense of being intensely annoying to the incumbents of the
traditional taxi-cab industry – it is not a disruptive innovation in the
Christensen sense, for two reasons.
The first is that disruptive innovations originate
in low-rent segments of existing markets or in entirely new segments. Uber,
they point out, did not originate in either of these. “Neither did Uber
primarily target non-consumers – people who found the existing alternatives so
expensive or inconvenient that they took public transit or drove themselves instead:
Uber was launched in San Francisco, and Uber’s customers were generally people
already in the habit of hiring rides.”
They’re right. Uber is having a big impact on its market
and looks like becoming a dominant company, but really it’s just a slick
implementation of an idea that’s as old as eBay – providing a technological
platform for putting buyers and sellers in touch with one another and taking a
cut of the resulting proceeds.
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