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    How to protect your crypto with Solace

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    How to protect your crypto with Solace – Defi Pulse Blog




















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    November 2021 Rebalance DeFi Pulse Index

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    November 2021 Rebalance DeFi Pulse Index

    Objective of the DeFi Pulse Index (DPI):

    The DeFi Pulse Index is a digital asset index designed to track tokens’ performance within the Decentralized Finance industry. The index is weighted based on the value of each token’s market capitalization. Please see Pulse.inc for more details on the methodology.

    DPI Rebalance Weights:

    Rebalance summary:

    The above weights were calculated based on prices and circulating supply as of 11-23-2021. 

    DPI incrementally changed its weighted allocations of all assets with the exception of UNI. UNI’s allocation under market cap weighting once again reached our asset allocation limit of 25% and was therefore set to increase by 5% at the time of weight determination. 

    CREAM has been removed from the DPI due to a locking feature that disadvantages passive holders and recent security incidents.

    The allocation to Loopring’s LRC was frozen during this rebalance due to very low DEX liquidity. 

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    The Rise of Women in Investing: A Seismic Step Forward

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    According to Fidelity data, 67% of women are now investing their savings in the stock market. This represents a significant 50% increase in the volume of female investors active in 2018. Further research suggests that women are not only arriving on the stock market in greater numbers, but they generally outperform their male counterparts too. Let’s take a deeper look into a seismic step towards financial inclusivity: 

    While Fidelity notes that the rise of female investors was a trend that was already emerging in 2018, the emergence of the Covid-19 pandemic accelerated female adoption of investing platforms. As lockdowns and social distancing measures loomed, more women acted quickly to prepare for the uncertainty – from building their emergency savings to updating their financial plans and evolving from their role as a saver to an investor. 

    Roundup investing platform, Nutmeg, has also found that the acceleration of women embracing investing tools had increased in the wake of the pandemic. According to annual figures, 40% of new Nutmeg investors in 2020 were women, whilst 44% believe that their shift towards investing will continue in the long term. 

    “It’s terrific to see women taking greater control of their finances and getting more invested to help achieve their financial goals,” said Kathleen Murphy, president of Personal Investing at Fidelity. “The last 18 months have been extremely challenging, and for many women, driven historic levels of stress surrounding their finances, job security and long-term savings. However, in working with millions of women across the country, they have clearly demonstrated their ability to persevere and focus on positive financial steps for the future.”

    This growing trend of women embracing investing tools may present a significant opportunity to the industry. As more fintech platforms launch in a bid to make investing more accessible, female investors represent a fresh opportunity to earn new customers that are yet to establish loyalty to a single firm. 

    Women outperform men

    Not only are women becoming more prevalent across the world of investing, but they’re also outperforming their male counterparts. On average, women investors achieve positive returns and surpass men by 40 basis points or 0.4%, according to analysis that spans 5.2 million accounts between 2011 and the end of 2020.

    “It demonstrates that women are great investors, and when they take action, it can work out quite well for them,” noted Lorna Kapusta, head of women investors and customer engagement at Fidelity.

    One of the trends that drives this level of outperformance comes from women making more risk-averse moves across their investment portfolios. 

    On average, women trade shares 49% less frequently than men, whilst funding their account 67% less frequently, avoiding fees associated with trading costs. 

    This buy and hold strategy is a tried and tested strategy that holds far less risk than the popular trading approaches that men appear to adopt more frequently, particularly as growth stocks like Amazon (AMZN), Apple (AAPL) and Microsoft (MSFT) have all shown that investing in a single asset can generate significant returns over time. 

    The path to investing inclusivity

    So why has it taken so long for women to begin changing the tides across the investment landscape? It appears that the lack of gender equality spans across the world of finance.

    When it comes to venture capital firms, just 4.5% of the partners are female, while only 10% of senior roles in private equity are held by women. However, we can already see evidence of tides changing and the broader financial landscape becoming largely more inclusive. 

    Whilst we can see more women, particularly those from the millennial and Gen Z generations, investing in both the stock market and cryptocurrency, there are still sizable gaps between women and men across the investment landscape, with men still far more likely to turn to building portfolios and buying stocks. 

    Whilst traditional finance may still suffer from the unconscious biases that cause institutions to market towards male investors, emerging fintechs have an opportunity to market themselves in a far more inclusive manner. 

    Maxim Manturov, head of investment research at Freedom Finance Europe, looks to leading fintech platforms to revolutionize the future of retail investing for all.

    “Revolut, a $33 billion global financial technology player, will soon offer commission-free stock trading to U.S. customers for the first time,” he explains. “In addition, the start-up should soon announce that it has obtained a broker-dealer licence in the U.S., allowing it to compete with the likes of Robinhood and Square in the red-hot world of retail trading.” 

    This new generation of challenger banks and investing platforms have an excellent opportunity to tap into a female market that’s previously been left behind by traditional institutions. In an increasingly congested marketplace, winning the trust and custom of female investors is likely to be a money-spinning achievement for the platforms that champion inclusivity.

    The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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    The Rise of Women in Investing: Number of Female Retail Investing Accounts Accelerates in a Big Step for Financial Inclusivity

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    According to Fidelity data, 67% of women are now investing their savings in the stock market. This represents a significant 50% increase in the volume of female investors active in 2018. Further research suggests that women are not only arriving on the stock market in greater numbers, but they generally outperform their male counterparts too. Let’s take a deeper look into a seismic step towards financial inclusivity: 

    While Fidelity notes that the rise of female investors was a trend that was already emerging in 2018, the emergence of the Covid-19 pandemic accelerated female adoption of investing platforms. As lockdowns and social distancing measures loomed, more women acted quickly to prepare for the uncertainty – from building their emergency savings to updating their financial plans and evolving from their role as a saver to an investor. 

    Roundup investing platform, Nutmeg, has also found that the acceleration of women embracing investing tools had increased in the wake of the pandemic. According to annual figures, 40% of new Nutmeg investors in 2020 were women, whilst 44% believe that their shift towards investing will continue in the long term. 

    “It’s terrific to see women taking greater control of their finances and getting more invested to help achieve their financial goals,” said Kathleen Murphy, president of Personal Investing at Fidelity. “The last 18 months have been extremely challenging, and for many women, driven historic levels of stress surrounding their finances, job security and long-term savings. However, in working with millions of women across the country, they have clearly demonstrated their ability to persevere and focus on positive financial steps for the future.”

    This growing trend of women embracing investing tools may present a significant opportunity to the industry. As more fintech platforms launch in a bid to make investing more accessible, female investors represent a fresh opportunity to earn new customers that are yet to establish loyalty to a single firm. 

    Women outperform men

    Not only are women becoming more prevalent across the world of investing, but they’re also outperforming their male counterparts. On average, women investors achieve positive returns and surpass men by 40 basis points or 0.4%, according to analysis that spans 5.2 million accounts between 2011 and the end of 2020.

    “It demonstrates that women are great investors, and when they take action, it can work out quite well for them,” noted Lorna Kapusta, head of women investors and customer engagement at Fidelity.

    One of the trends that drives this level of outperformance comes from women making more risk-averse moves across their investment portfolios. 

    On average, women trade shares 49% less frequently than men, whilst funding their account 67% less frequently, avoiding fees associated with trading costs. 

    This buy and hold strategy is a tried and tested strategy that holds far less risk than the popular trading approaches that men appear to adopt more frequently, particularly as growth stocks like Amazon (AMZN), Apple (AAPL) and Microsoft (MSFT) have all shown that investing in a single asset can generate significant returns over time. 

    The path to investing inclusivity

    So why has it taken so long for women to begin changing the tides across the investment landscape? It appears that the lack of gender equality spans across the world of finance.

    When it comes to venture capital firms, just 4.5% of the partners are female, while only 10% of senior roles in private equity are held by women. However, we can already see evidence of tides changing and the broader financial landscape becoming largely more inclusive. 

    Whilst we can see more women, particularly those from the millennial and Gen Z generations, investing in both the stock market and cryptocurrency, there are still sizable gaps between women and men across the investment landscape, with men still far more likely to turn to building portfolios and buying stocks. 

    Whilst traditional finance may still suffer from the unconscious biases that cause institutions to market towards male investors, emerging fintechs have an opportunity to market themselves in a far more inclusive manner. 

    Maxim Manturov, head of investment research at Freedom Finance Europe, looks to leading fintech platforms to revolutionize the future of retail investing for all.

    “Revolut, a $33 billion global financial technology player, will soon offer commission-free stock trading to U.S. customers for the first time,” he explains. “In addition, the start-up should soon announce that it has obtained a broker-dealer licence in the U.S., allowing it to compete with the likes of Robinhood and Square in the red-hot world of retail trading.” 

    This new generation of challenger banks and investing platforms have an excellent opportunity to tap into a female market that’s previously been left behind by traditional institutions. In an increasingly congested marketplace, winning the trust and custom of female investors is likely to be a money-spinning achievement for the platforms that champion inclusivity.

    The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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    Inside the yAxis v3 upgrade and UI

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    Dependable and diverse yields: Inside the yAxis v3 upgrade and UI





















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    The Journey to Digital Member Services

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    Digitalization of member and client services is a key focus at Nasdaq’s markets, moving towards self-service and streamlined communication channels to cater to the evolving demands from members and other clients. The digital service portal used at Nasdaq’s markets was recently launched as a white-labeled service portal that Nasdaq’s Market Technology customers can use to digitalize their member services. In this interview, David Lawn, Vice President and Head of North American Client Services at Nasdaq, discusses how Nasdaq’s digitalization journey started and the vision moving forward.  

    First, can you elaborate on what drove Nasdaq to digitalize member services? 

    Our vision for self-service is rooted in three main drivers. First and foremost are client expectations; exchange members and other clients that we serve have evolved, and new demands from exchanges emphasize the self-service aspect. They expect to be able to manage their exchange relationship, configurations and settings themselves just as easily as they manage many of their personal accounts with service providers in their private lives. There is also a demand, especially from our larger member firms, to be able to integrate and embed data processes from Nasdaq into their own systems. 

    The second driver is efficiency and scalability. Our analysis showed that a substantial part of the service and support requests that we process manually today could be standardized and made self-serviceable. We saw the opportunity to free up time from managing these standard tasks that can be focused on value-adding activities and services that require personal interaction. In addition, by automating tens of thousands of standard requests, we can shorten response times and reduce manual errors. And when interactions are digitalized, Nasdaq can leverage data to analyze user behavior, providing an opportunity to improve processes, interact proactively with clients, and increase revenue.

    Thirdly, digitalized service interfaces can help improve resiliency at times of market stress or incidents. Being able to log in and verify configurations in real-time can give clients improved confidence to reenter the market after an intraday market halt or other disturbance. By providing a self-service view of their status across Nasdaq’s markets, we can provide that extra layer of comfort to our clients. 

    What’s your vision for the Portal? 

    Our ambition is to enhance the client experience across the board and turn that into a competitive differentiator for Nasdaq. We want to allow clients to embed their workflows with Nasdaq’s, creating a more streamlined experience for them but also for us internally. 

    The way we are delivering this to our member and client base is through our digital Customer Portal. We’ve approached the digitalization of the client experience in a stepwise manner to ensure we’re delivering incremental value. The first step was moving from using email and phone to clients submitting requests using interactive forms in the Portal. We have implemented what we call Smart Forms, which can be pre-populated with data and logic relevant to the client using their inventory of services, configurations, and settings. This way, communications between clients and market operations are streamlined and standardized into a single format for a given request. This helps reduce errors and gives clients the ability to monitor the status of their requests, which they previously didn’t have. Moreover, the Smart Forms are easy to build without the need for programming and are maintained directly by the operations team, without the need to involve technical teams. 

    Once we had both Smart Forms and the data to populate them in place, we started to think about how to leverage that data and the relevant connections to enable straight-through processing, thereby further enhancing the client experience with near real-time processing of requests. While the end goal is to automate as many of the requests as possible, initially, the operations staff are the ones that perform the relevant updates in the back-end systems. For sensitive changes, manual approval steps are performed before updates are pushed into the receiving back-end systems.

    Finally, we look to enable the same straight-through processing services via APIs as well for clients who want to interact in a programmatic manner rather than in the user interface. 

    Can you tell us a bit about the roadmap ahead? 

    The Portal was first developed to support our European venues and launched there in 2015. In 2019, it was turned into a global product to also support Nasdaq’s North American venues. Functionality has continuously been built out to support a higher degree of automation and additional services across areas, including regulatory compliance, reporting, connectivity and port management, membership settings, ordering of additional services and subscriptions, invoice distribution, etcetera, and we continue to invest heavily in the product. 

    The solution now supports all Nasdaq markets globally, and our teams in Europe and North America collaborate to ensure the product remains harmonized. In addition, a white-labeled version called Nasdaq Client Connect is available to the Nasdaq Market Technology customer base of exchanges and clearinghouses to configure and brand to serve as their digital service portal. 

    Looking ahead, data access and analytics is an area that we are excited about to further enhance. In 2016, we moved from pushing reports to our members to members instead of self-servicing and pulling their reports. This was a very successful launch; clients loved being able to manage their reports independently, and we relieved our operations team from a lot of manual work. We are now in the process of building out a business intelligence offering that we call analytics and digitalization. Our aim is to embed a dashboard filter within the Customer Portal where clients can build custom views of their data or select from Nasdaq’s pre-built views. This will lend itself especially well to certain pricing in tier-related information, where clients can visualize where they stand in the fee schedule. 

    What tips can you share with market operators that are planning to introduce digital member services?

    Talk to your members and clients about how you can service them better and what drives operational burdens on their side. Their feedback can help you prioritize the next steps in your journey. 

    Leverage your operations team as an asset for defining service requirements. Data-driven analysis on request types, time spent, and other key metrics paired with client feedback help to define and prioritize the feature roadmap. 

    Finally, pulling data out of disparate legacy systems can be complex and time-consuming. But once that data is unlocked and in a portal, you can do powerful things with it to service clients in new and innovative ways.

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    DeFi Is A Frightening Prospect For The Banking Industry, But It Doesn’t Have To Be

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    By Brad Yasar, Founder and CEO of EQIFI

    At its dawn, internet skeptics were overtly critical, highlighting their distaste for the technology. Acclaimed astronomer Clifford Stoll asserted the idea that ‘commerce and business will shift from offices and malls to networks and modems’ was ‘baloney’, and the potential for the internet was nothing more than a hype train traveling too fast for its own good. Obviously, he was wrong. Right now, Decentralized Finance (DeFi) is experiencing a similar phase of growth. Regardless of those opposed to the idea, the technology is booming, reaching a market cap of $133.34 Billion in 2021, and a system that opens up access to finance for millions of people around the world is certainly not ‘baloney.’

    Just as the likes of Google and Amazon have become the customer-facing representatives of the internet, brands that offer DeFi products, such as EQIFI, Nexo and Celsius, will be the consumer-facing representation of the technology, which is geared towards disrupting financial intermediaries. Currently, we are focused on what DeFi is and how it works, which is of course, necessary and follows the progressive path previously travelled by the World Wide Web. Soon, however, we will begin to see the focus shift to actual products and services as more people begin to understand the tech.

    DeFi’s role in finance will soon expand 

    Yield farming, the process of staking cryptocurrencies to earn more as passive income, will likely continue to drive the majority of DeFi’s growth. Though yield farming is currently mainly on the Ethereum network blockchain, cross-chain bridges and interoperability solutions will soon close the gap between blockchains Yield farming will draw continued institutional investment to the space as well as attracting retail investors hoping to turn a profit on their crypto portfolio.

    Beyond yield farming, innovations built using DeFi will alter the financial landscape of the future. Trustless liquidity protocols and other DeFi products are at the cutting edge of finance and cryptoeconomics. By eliminating intermediaries from these financial processes, DeFi money markets can help create a more accessible, fair, and open financial system available to anyone with connection to the internet.

    DeFi is poised to transform traditional financial systems that have existed for thousands of years into decentralized models. For example, prior to the introduction of DeFi, yield farming was only available via centralized sources to institutions lending funds to individuals and businesses. Opening processes like this up to retail consumers and to the world’s 1.7 billion unbanked people through decentralization will deliver the financial opportunities enjoyed by the privileged few to the masses.

    Created to be a trustless alternative to the traditional financial structure, DeFi enabled smart contracts already have already begun to filter into mainstream industries. In sectors like insurance and real estate, DeFi can facilitate the implementation and management of derivatives much more so than current technology and people power. Trustless communities will begin forming around industries, aiding the creation of democratized financial economies through newly established parameters. In this sense, DeFi holds the ability to transform the procedures associated with almost every aspect of society, which it will begin doing should regulators allow it.

    The CeFi (Centralized Finance) – DeFi hybrid model

    DeFi’s role in the future economy, many years down the line, will be one of absolutes. The likelihood is that in half a century, traditional banking structures will be abolished, and decentralized structures will reign supreme. In fact, according to Gartner, the next decade will see 80% of financial firms go out of business or be rendered irrelevant by new competition, changing customer behavior and advancements in technology. This, however, will be a slow and arduous process, rife with opportunities for banks and centralized players to adapt and innovate for new profitability.

    The disruption of the world of finance will involve a hybrid financial model interconnecting the revolutionary technology enabled by DeFi with the long established structures of traditional banks. Central banks, clearinghouses, regulators, and overseers of the economy will have vital roles to play in the digitization and decentralization of the financial system. Although traditional and decentralized practices are often pitted against each other, few seem to visualize the advantages associated with combining the best of both worlds.

    Fintechs like Revolut are actively participating in crypto finance, having facilitated crypto trading for their users as early as 2017 and now holding over half a billion dollars of cryptocurrency on behalf of customers. As a centralized business model offering consumers access to crypto, Revolut hints at a future where digital assets and CeFi co-exist. It also shows us that consumers need a comfortable crypto experience. We will soon see crypto and DeFi offerings being made more accessible to the masses. This is already happening with the likes of EQIBank, the digital bank offering regulated access to crypto.

    With DeFi offering improvements to digital identity, the ability to tokenize derivatives, and the facilitation of payment solutions for the underbanked, it seems like a win-win for all involved. So what is holding us back?

    Regulation and reputation

    Regulatory agencies such as the Office of the Comptroller of the Currency (OCC) are working to change banks’ perception of digital currencies, believing digital assets could positively drive financial institutions to a new era of innovation and efficiency. Although a promising start, more initiatives like these are needed in order to shift perceptions of crypto. Traditional banks are continuously defending their territory in believing that the inherent risks associated with digital assets and DeFi outweigh the myriad of benefits associated with adoption, stifling innovation and progress for both the DeFi and CeFi worlds.

    Currently, there is no regulatory framework or standard-setting body focused on the continuation of DeFi’s growth and its integration into the world of mainstream finance. In traditional financial markets, bonds and stocks are verified and ranked through long-established systems. Until similar regulatory principles are used to categorize DeFi enabled products, the industry will be suffocated and prevented from scaling to its full potential. Without immediate regulatory clarity, DeFi will be forced to remain on the fringes of innovation along with other blockchain based developments, progressing slower than it should.

    A large concern for regulators is that DeFi could replace the bankers and brokers that are enforcing laws against money laundering, creating an unknown economic environment that the regulators would have to traverse. Without being armed and understanding of the benefits of adoption and the potential for CeFi-DeFi collaboration, one cannot really blame regulators for their reluctance to change the processes to which they are so accustomed.

    It falls to the crypto community to continually advise and guide regulators and governments in the right direction. Initiatives such as DeFi for the People can help industries identify how to integrate DeFi into their existing business models. Education and action such as this will help traditional bankers and regulators to become familiar with blockchain technology. Coupled with DeFi’s continued boom, with the industry’s total assets under management in the sector growing 936% in one year, initiatives like this will work to generate continued investment and growth.

    Following this period of education and growth, DeFi is set to change the financial processes of the economy for the better. Much like the rise of the internet, there will be several speed bumps along the way. Whether you’re on board or you’re calling ‘baloney’ on the rise of DeFi, it is clear to see that the revolution is well underway.

    The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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    Crypto Needs a New Development Paradigm

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    By Mark Lurie

    Blockchain development is hampered by systemic issues

    Something is broken in blockchain development. We hear about hacks in crypto all the time, the industry is filled with hastily developed products, and project delays are often expected. The common wisdom is that this is a talent shortage: blockchain is a new space, and developers are still learning the language and the tech.

    However, the problem goes beyond talent. Many projects with plenty of resources and long development timelines have faced exploits and delays. For instance, THORChain was hacked three times this summer, and the Ethereum 2.0 Beacon Chain launched almost a year after its original deadline. This suggests it’s less a talent problem than a systems problem. 

    Traditional software development isn’t cutting it for crypto

    All three of the main paradigms of traditional software development fall short when applied to crypto. 

    • Waterfall development was the predominant paradigm of the pre-internet era, when software ran on desktops and mainframes and updates were delivered via disk. However waterfall requires a huge amount of upfront planning, and changes are expensive and highly discouraged. Most importantly, firms do not always know what customers want in advance, and missteps can torpedo years of work. As a result, waterfall development is undesirable for blockchain projects, especially when the technology and demands of the market evolve so quickly.
    • Agile development was the next method to arrive, and this paradigm made it easier to update client applications frequently and almost imperceptibly. The Agile Manifesto, published in 2001, presented the principles of this new paradigm, which allows products to be launched while still in development as teams improve features based on user feedback. However, when it comes to crypto a bug can cause the loss of billions of dollars in an instant, meaning even a quick-fix response will often be too little, too late.
    • Open source code is open to the public and is essentially a form of crowd-sourced collaboration. Following this philosophy, the open source development paradigm involves minimal planning and often leads in unexpected directions, evolving organically from user contributions. However, open source often falls short when applied to consumer-facing products that are used by non-developers. This is an issue for crypto projects, which have a massive usability issue that must be overcome. Additionally, even minor updates to a blockchain require the publication of an entirely new version and a wholesale user shift, meaning the rapid-fire updates of open-source and agile would be impractical.

    Crypto development processes are ripe for disruption

    If the pre-existing paradigms are round pegs, crypto is a square hole. The blockchain space is highly adversarial, which means coding errors are unacceptable and security is of the utmost importance because the tiniest of errors can be existentially costly. At the same time, crypto is a fast moving market with constantly evolving needs, which means long development timelines are a nonstarter.

    But the frustrating results are there for all to see: long development timelines, frequent delays, regular bugs and hacks, billions of dollars lost, and unused vaporware. These issues can be traced back to systemic flaws in the current approach to blockchain development that lie somewhere between Brook’s Law from the waterfall age, and the warning left behind by the third THORChain hacker: “Do not rush code that controls 9 figures.”

    Back in the 1960’s, American philosopher Thomas Kuhn drew a distinction between “incremental science,” in which existing theories are added to and tinkered with, and “paradigm shifts,” in which past theories are discarded in favor of promising new ideas. DeFi’s massive amounts of capital and usage represent an unsolvable problem for the existing paradigms. Blockchain needs a new development paradigm to ensure this fast growing community is able to build safe and useful products.

    Mark Lurie is CEO of Shipyard Software, the developer of Clipper.exchange. Shipyard is backed by Polychain, 0x Labs, 1inch Network and other members of the DeFi community. Mark is a former investor at FJLabs and Bessemer Venture Partners, and has an MBA and BA from Harvard University.

    The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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    It’s Time to Take a Closer Look at Your Fixed Income Surveillance

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    Securities regulators across the globe have demonstrated their willingness to investigate and prosecute market abuse in all asset classes, and fixed income is no exception.

    Regulators, such as the Financial Conduct Authority (FCA) in the U.K. and the European Securities Markets Authority (ESMA), have recently called out fixed income as an asset class where firms need to focus their attention. Regulators want firms to ensure that monitoring takes the unique characteristics of the asset class into consideration. In addition, the FCA recently expressed its concern over the relatively low number of suspicious transaction reports for fixed income compared to exchange-traded products.

    The feedback from regulators, coupled with recent prosecutions and large fines for market abuse in fixed income, demonstrates the need for firms to reexamine the effectiveness of their surveillance programs and update them to accommodate the nuances of the asset class. 

    In December 2019, France’s financial market regulator, AMF, fined a U.S. bank €20 million (about US$22.2 million) for manipulating the price of French and Belgian government bonds in June 2015. Over a 15-minute period, the European government bonds desk aggressively purchased French and German sovereign bond futures contracts and then immediately sold various cash bond issues on two electronic trading platforms.

    That same month, the U.S. Commodity Futures Trading Commission charged an executive at a British bank with manipulating an interest rate swap price between a bond issuer and a global investment bank in 2012. The scheme, which was executed with the help of a trader he supervised and an interdealer broker, was designed to maximize the bank’s profit at the issuer’s expense by manipulating the prices of five-year basis swaps. 

    In April 2021, the EU imposed an antitrust fine of €28.5 million (about US$31.2 million) total on three banks from the U.S., France and Switzerland for taking part in a bond cartel. The scheme operated in the European secondary trading market related to U.S.-denominated supra-sovereign, sovereign and agency bonds. Traders at the four banks colluded on trading strategies, exchanged sensitive pricing information and coordinated on prices over five years via chatrooms on Bloomberg terminals. 

    Fixed income – an entirely different animal

    Herein lies the challenge; many firms’ surveillance systems are often more attuned to exchange-traded products such as equities, where markets are centralized, and there is an abundance of order-book transparency and market data. Those assumptions are often transferred to fixed income surveillance and have throughout the years been built into the setup of many legacy fixed income monitoring services.

    Fixed income requires a different approach since the market is highly concentrated, making it susceptible to collusive behavior among banks and primary dealers. It is also widely understood that market data may be opaque or patchy due to the vast number of liquidity providers and platforms.

    There is another level of added complexity that comes from the “Request For Quote” mechanism. RFQs are a common price discovery mechanism, and it is vital for surveillance teams to monitor interactions for front running as traders move between clients’ requests and the dealer market. By not capturing this interplay between traders and clients, a firm becomes open to front-running risks and associated penalties.

    Monitoring fixed income instruments on a “like to like” basis is half the battle. There is interplay between correlated instruments; cash instruments are highly correlated with their financial derivatives, the relationship between bond futures and cash bonds being one example. With this potential for cross-market manipulation, surveillance professionals must adapt strategies to include these risk scenarios.

    Insider trading takes on a different form in the fixed income space where it is not necessarily driven by market news but rather by information garnered from client orders or RFQs. The information contained in these client requests can include market-moving information upon which entities can act in order to aggressively pre-hedge or front-run that information for financial gain.

    Time for a review

    There is no better time than now to review your firm’s current surveillance configurations to ensure they’re designed to capture the end-to-end trade lifecycle in fixed income securities and related products. As you go through that process, here are six best practices to consider:

    1. Incorporate Yield to Maturity (YTM) and modified duration into alerting metrics and visualizations. This allows you to view normalized bond trading data across a range of attributes and detect and identify volume or size anomalies. You can also identify yield/price outliers by overlaying trading in related bonds – those with the same issuer and similar maturity, for example.
    2. Incorporate DV01 into your data model and alerts. This data point is the most effective way to identify unusually large trade sizes and trading risks.
    3. Distinguish dealer-to-client flow from dealer-to-dealer flow because that allows you to better address risks by enabling alerts for the appropriate order and trade flows, which leads to an overall reduction in false positives. 
    4. Integrate RFQ flows as well as dealer-to-client orders, and track these against dealer-to-dealer trading flows. This context helps detect client front running, where an entity subsequently trades in order to be positioned ahead of and take advantage of the client’s activity.
    5. Integrate a market data feed that sources data from venues, interdealer brokers and other intermediaries. You’ll be better equipped to identify trades that are priced significantly away from the evaluated price.
    6. Review your capabilities for linking related fixed income products across the cash markets and exchange-traded bond futures markets. The surveillance across price correlated products is a challenging area of surveillance. However, progress is being made in defining relatedness between bonds and futures and monitoring across those products.

    For more information about how the Nasdaq Trade Surveillance solution can help you improve fixed income market monitoring, please contact us

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    Modern Finance is Going Mobile

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    By Kosala Hemachandra, CEO of MEW

    In the evolution of technology, across decades and generations, there are expansions of new offerings that create solutions to all sorts of challenges. Then, inevitably, the expansion peaks and begins to consolidate. We have witnessed this with the supercomputers expanding to the size of entire buildings to now having a MacBook Pro fit easily inside a backpack. Rotary phones once hung on the wall, video cameras came with shoulder pads to help handle the weight and your Sony Walkman clipped to your belt — All only to be replaced by one smartphone that can do all their jobs, but better.

    So what is the next significant consolidation of services? Well, we are witnessing it right now, as your brick & mortar bank, your brokerage, your accountant and even your crypto assets are finding their way into all-in-one mobile applications. 

    How did we get here?

    In 2007, the first iPhone came out and gave us the modern idea of “apps” that rivaled websites and computer programs for attention. 14 years later, it’s safe to say that apps have beaten out the competition, as a study found the average American checks their phone every 12 minutes and 88% of that time is spent on apps. 

    With my company, just having a web-based platform wasn’t enough– Four years ago, we saw a need to release a mobile app to meet our users where they wanted to spend their time. Since its release, we have witnessed demand in what can be offered through mobile skyrocketing. Our mobile development team has grown from just one developer to over 13, as decentralized finance becomes a larger wing of the modern financial services industry.

    Why are mobile apps so good at bundling services?

    I believe as more of the financial industry evolves to be decentralized, it has the biggest potential to be revolutionized by mobile apps. Let’s look at investing in the stock market, something that seemed exclusive to only those with hundreds of thousands of disposable income. Now, with apps like Robinhood or Public, the idea of investing has been turned on its head. These mobile apps offer unprecedented levels of access to services that can change the lives of those who utilize them. The delivery through a mobile app simplified the process for anyone to understand and feel comfortable. 

    These disruptors cause the traditional players of an industry to begin bundling services. Financial institutions like Charles Schwab were forced to evolve or die, and so they cut trading fees, offered fractional stock shares, all-in-one brokerage and checking account services, and more to become more appealing to mobile-first users. 

    The market expands large enough to give people everything they want most from that industry, and then it consolidates because both companies and individuals prefer to stay in the same app to do more. 

    People gravitate to mobile apps, as a matter of convenience and efficiency. With a Marketing Dive survey, reporting that 85 percent of mobile users prefer apps over mobile sites, because a well-designed mobile app can create a quicker, more streamlined user experience. We all love Target because they offer groceries, medicine, clothes, and entertainment all in one place — the same can be true for our financial services. If we can deposit money, check our investments, buy crypto and pay down our credit card all in one app, we will. 

    Financial freedom; simplified

    “Super apps” exist already in the form of WeChat, Facebook and Google, offering individuals and businesses more complex offerings for the sophisticated needs of app users. However, the financial industry faces a different challenge as it attempts to consolidate. There is currently a revolution happening in how we think about our finances, investing and defining value. 

    Crypto Market Trade and the socialization of finance have upended the traditional financial playbook of the last hundred years. Much of this change has yet to be wholly defined by any set of standards and best practices. Simply stated, the next phase of financial services is still expanding and becoming more decentralized. 

    We are at the early adopters’ stage of the digital assets industry, and companies like Coinbase, Ledger, and my own, MEW, are offering solutions to roll up the best crypto services for users in what I consider to be the first stage of delivering the best services to a broader user base.

    Consolidation and centralization are not the same

    Just because a company makes a mobile app consolidating services, doesn’t mean it’s superior though. When Napster consolidated our CD collections, it revolutionized how we listened and accessed our music. However, when Spotify continued to refine how to bundle audio entertainment, they centralized the experience to the point where new apps like Apple Music and Tidal found users looking for different bundled offerings. Understanding how your unique users want to interface with the services is an important distinction that can be overlooked.

    I believe that consolidating services in a decentralized way creates an all-inclusive ecosystem that pulls from the best developers without limiting the user’s ability to access the most innovative services. Offering financial platforms the ability to evolve, while using decentralization as a resource to offer the best user experience.

    If they don’t, users who don’t want their options to be limited or overly controlled, as we saw in January with the Gamestop short squeeze, when Robinhood halted trading for millions of users, will be forced to move away from the traditional names in order to find the companies who are building with their users future in mind.

    The right developments are more important than ever. Building a trusted brand in your community has to come first before users believe that the services you’re bundling are the best for them. I have heard from our community of users that they only decided to try something like DeFi (Decentralized Finance) because we began offering the services directly in our mobile app. They have to trust we are filtering out the bad actors, especially when it comes to protecting, storing, trading, or earning on their personal finances. 

    Conclusion

    Mobile apps are expected to generate over $935 billion in revenue by 2023. Crypto is reshaping how we invest and earn by the billions. This means the development process is more important than ever, as bundling services in an easy-to-use app is not going out of style anytime soon. We are currently writing the script for what financial services will look like for the next fifty years or more. I believe that we will begin to see the biggest names in the financial industry adapt and decentralize their offerings or begin consolidating the most popular services from blockchain companies for their users. Either way, the future of finance will become easier, more profitable, more focused on the individual and decentralized.

    The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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