Where can you spend your Bitcoins, Legally

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BITCOIN – Acceptance around the world As humans evolve the future where automation and robots replace and / or compliment all professionals, including cab drivers, doctors, engineers, and even sex workers; some version of crypto-currency for the micro-payments shall enable several new age business models. The first version of crypto-currency, Bitcoin was introduced in 2008, for one major reason – to get away from a centralized system where financial institutions, state and regulators were not trusted. Remember, the first whitepaper on Bitcoin appeared in November 2008, after the Lehman Brothers bankruptcy in Sep 2008, when several financial institutions did not honor their commitments. Bitcoin has been a major disruption of the 21st century. Who would have imagined in 2009, that […]

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Why are Banks using Blockchain?

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The B words – Bitcoin, Blockchain and the BANKS Background – Bitcoin Overview Bitcoin concept was introduced in 2008, for one major reason – To get away from a centralized system where financial institutions, state and regulators were not trusted. Remember, the first whitepaper on Bitcoin appeared in November 2008, after the Lehman Brothers bankruptcy in Sep 2008, and several other financial institutions did not honor their commitments. Bitcoin has been a major disruption of the 21st century. Who would have imagined in 2009, that people would be giving away their real hard earned money ($900 for 1 digital coin), to get a digital currency which nobody owns, no central bank guarantees, is not backed by any gold or any […]

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Why P2P lending opportunity may not scale for a long time

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What is Peer-to-Peer Lending? Peer-to-peer lending (also known as person-to-person lending; abbreviated frequently as P2P lending) is lending and borrowing which occurs directly between individuals or “peers” without the intermediation of a traditional financial institution like a bank. The counterparty risk in the transaction is directly between the peers. A P2P platform is basically an online market place which allows borrowers to attract lenders, and allow these lenders to identify reliable investment opportunities that meet their criteria.   Person-to-person lending is for a for-profit activity managed by match making platforms.  These platforms may utilise credit models (applied on borrowers) for loan approvals, pricing of the loans and matching borrowers with lenders (using social media or other mechanisms). In February 2005, […]

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Bitcoin Simplified and its Future

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Say you’re planning a cross-continental trip to three different countries. The usual hassles accompanying such a trip would be the exchange of currencies and the inevitable fee that accompanies each exchange. Say you run short of cash, and now need to head to the nearest ATM, and pay ridiculously high international transaction fees. Frustrating, right? Now imagine an alternative scenario- one where you don’t need to convert your currencies, travel with actual cash in your wallet, or pay any fees to use it. Sounds like a dream, right? Well this may very well be the future of money- thanks to a unique little invention called the Bitcoin.   What is Bitcoin? The Bitcoin has garnered a lot of international attention over […]

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What is a Blockchain and why does it matter?

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Blockchain is likely to be the most hyped database in the current decade. It is the core technology that enabled bitcoin, which has had challenging ups and downs due to business reasons.   Blockchain has the ability to bring lot of efficiencies in how information is created, shared, accessed, secured, and relies upon crowd efforts for validating the correct information. Hence it is compared with the Internet revolution that started in late 90s. Similar to the early days of Internet revolution, Blockchain has lot of useless attempts of me-too players solving a meaningless problem. The important thing to understand is what is the core problem and can block-chain really help at all. 80% efforts should be allocated to validating the […]

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API Economy: Why Every Tech Company needs an API Strategy

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Businesses run a variety of applications, each containing and holding data vital to the needs of an organization. These applications cannot operate in isolation and eventually; there is a need to integrate them with various other applications. This is primarily driven by complex business needs, which call for information and resources, to be shared across the boundaries of these applications. This interconnection and overlap of business applications and the information sharing across boundaries of application has led to an emergence of Application Programming Interfaces (APIs), which encapsulate and hide the details of one application from another and enable them to share data and information with the surrounding applications. This leads to better insights into data and showing the linkages with […]

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Future of Fintech: Beyond 2015

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  Fintech will continue to grow and stay in headlines, but it will be far from the full disruption. I do not see a Google or Facebook alike company emerging in Fintech in this decade. It will continue to be highly fragmented with various small-ish leaders driving the disruptions. Higher VC capital getting allocated to Fintech shall lead to some key leaders emerge by the end of this decade. Payments shall continue the fragmentation for now, with Paypal, Apple Pay, Banks, and various other smaller localized payment initiatives gaining traction. But it remains to be seen whether mobile, a new device (like square), or what else becomes the payment mantra of the future. Bitcoin shall face continue to face the regulatory […]

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Role of Technology in the Growth of Indian Financial Markets

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Indian financial markets have seen a major growth in the current decade in terms of technological advancements. This has enabled growth in algo trading volumes, leading to Indian exchanges featuring in the world’s largest exchanges by volumes. Technology has helped in – faster dissemination of market data and other relevant information by exchanges and trading participants – capturing and consolidation of market data from various exchanges and other sources of relevant information – making complex calculations on live and historic data, leading to trade decisions – trading and managing risk – lowering the latency and cost of trading – various post-trade processes   The exchanges started offering co-location to its members, which means that member servers can be hosted in […]

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NSEL crisis – Mini Version of US subprime crisis in Indian capital markets

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The US subprime crisis in 2007 had shaken the foundation of US economy and eventually the global economy. Subprime loans (loans for people with not so good credit history, jobs, assets etc.) had high probability of default. These loans were structured by investment banks into Bonds and sold to various Financial Institutions around the world. The mortgage (subprime loan) issuers had the incentive to issue as many mortgages as possible. The practice became so unprofessional, that the loan applicants were asked to fill the form in pencil so that issuers could misrepresent certain details so as to meet the issuer’s lending criteria and get the loans issued. The package of such loans was not managed well from risk perspective, not […]

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Social Benefits of HFT and Algo Trading: Regulators should Embrace them

Posted on 1 CommentPosted in Finance, Trading

The tremendous growth in financial trading volumes in the last couple of decades has been made possible only with the use of technology. Technology has helped in – automating the dissemination of market data and other relevant information by exchanges and trading participants – capturing and consolidation of market data from various exchanges and other sources of relevant information – making complex calculations on live and historic data, leading to trade decisions – trading and managing risk – lowering the latency and cost of trading – various post-trade processes Technology is heavily and generally efficiently used by brokers (providing various retail and institutional investors access to financial markets), high frequency traders (who trade in huge volumes aggregating small profits in […]

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Open Source Technology for Financial Services

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    Financial Services play an important role in the countries’ and their economies’ functioning. Following the credit crisis (2008), and its various consequences (de-leveraging, lesser sophisticated financial products, shift towards increased regulation and transparency, reduced transaction volumes and margins, etc.) have lead to a massive shrinking of the financial services market size. This has led to a large down-sizing amongst the key participants including brokers, investment banks, exchanges, technology vendors, institutional investors (funds), etc. With the above mentioned business scenario in mind, and the fact that all these participants need technology for automation, growth and even sustenance of their  business, do we need every participant (10,000s of brokers,  100s of exchanges, 1000s of technology vendors, 100s of regulators, 100,000s […]

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Financial Institutions

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Understanding the Investment Landscape Other than Investment Banks, there are other financial institutions in the market that play a big role. Below is a possible representation of Investors, Investment Intermediaries and Financial Markets as the Investment Landscape. It’s not perfect but a good way of looking at how the value chain typically operates. The purpose of this illustration is to provide a high level understanding and the awareness of different kinds of players in the markets, how they mostly interact with each other and how they are similar or different from each other. Please also note that it is not a theoretical or text-book representation of the investment landscape, it’s more of a representation I am choosing to make things […]

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Securitisation: The 1-O-1

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Securitisation has been a key factor in the rise of financial services businesses and it poorly managed sub-prime loans distributed across the world through securitisation led to the subprime crisis in 2008. In this article, lets look at the details of securitisation. Securitisation is the process of creating financial securities, that can be traded by the investors. Investment banks are sometimes referred to as Securities houses, as they are responsible for creating and trading of these financial securities by bringing and buyers and sellers together.   Securitisation Explained Imagine that an Investment Bank could originate 3 loans for example as shown below, $100,000 each, and then issue 2 bonds worth $150,000 each. The monthly interest paid by A, B and […]

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The Rise of Investment Banking in the Last 3 Decades

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The Rise of Investment Banking Investment Banking has offered one of the best paid jobs and it’s questionable whether the Bankers did enough for the kind of money they got. Since the beginning of civilization, there have been borrowers and lenders going to intermediaries who operated as individuals, family business to bring together the borrowers and lenders. It used to be more local region-centric operation. Then Commercial Banks started as bigger organizations taking deposits and offering loans. Investment Banks came into existence in 18th / 19th century. The Investment Banking business grew with continuous financial innovation (notably derivatives and securitisation in the last 3-4 decades), geographical expansion and establishment of capital markets (stock markets for example). By some estimates, the […]

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Root of Sub-Prime/Credit Crisis of 2008

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  What caused the sub-prime problem will be discussed and debated for long time. Many blame the Sub-Prime crisis upon Greedy Wall Street Investment bankers, or on “Risky” Hedge Funds, or on Incompetent Regulators. But the fact is, such a massive problem can be hardly attributed to only one participant in the market. I believe it’s the whole marketplace (including regulators, investment banks, mortgage houses, credit agencies, as well as investors) that should share the blame. Securitisation took off in the early 80s, and was an efficient tool to spread risk, and reduce costs of financing. Since the mid 1990s, mortgage issuers were encouraged to offer home loans to all Americans including the ones without a good credit history or […]

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How does an Investment Bank differ from a Retail Bank?

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  A bank is a financial institution with the purpose of lending and borrowing money. Retail banks are banks with retail customers (most individuals and smaller institutions / businesses) where the customers typically deposit money (their savings, earnings, etc.) and where other retail customers would go to borrow money. These banks are better understood by most of us as we do have a savings account, and some of us do have loans with the banks too. Retails Banks are typically regulated by National Governments or their appointed agencies, and they are supported in their day-day operations and Cash management by a supervisory National Bank. The next thing to consider is that how do these retail banks make profits. These banks […]

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What is Investment Banking?

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  What is the role of an Investment Bank? Different Investment Banks would have a variant of the following generic business structure. Investment Banks in simplest terms help match investors and institutions who need capital, and then help bring together buyers and sellers in the financial markets. They typically would have a Research division providing analysis of companies, their financial situations etc. to all the internal businesses as well as to the external clients. Corporate Advisory business also known as Investment Banking would basically help companies raise and spend money. This is done through primary issuance of Debt (loan), Equity (shares) and other related securities, and Mergers and Acquisition activities. The Capital Markets business of Investment Bank helps investors buy […]

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