Security Tokens: 20 Important Things you need to know (Detailed Guide)

What is a security token?

Security Token Offering can be best defined as a “Public-Private” security offering that utilizes regulatory body framework such as Securities and Exchange Commission ( SEC ) or Ontario Securities Commission ( OSC) to offer investment products via blockchain technology.

Preface

A securities offering (or funding round or investment round) is a discrete round of investment, by which a business or other enterprise raises money to fund operations, expansion, a capital project, an acquisition, or some other business purpose. A securities offering (or funding round or investment round) is a discrete round of investment, by which a business or other enterprise raises money to fund operations, expansion, a capital project, an acquisition, or some other business purpose.

STOs would be a process to move traditional assets to blockchain & evolving the way assets are issued, traded, held & transferred. It’s a work in progress with blocks built around it to support the ecosystem.

Background of Security Tokens:

Blockchain, cryptocurrencies, bitcoins, smart contracts aren’t alien terms anymore. Information is at all time high but there is a fair bit of noise on the benefits with thousands of companies finding the use cases for this revolutionary technology. While there has been interesting technical progress, there hasn’t been a killer case which would attract industry wide adoption. Exciting news on how the industry is progressing is a weekly affair but it rarely has put a dent on world economy more than pure speculation. Bitcoin did emerge as a libertarian movement with a promise of banking the unbanked, revolution against the status-quo, decentralized system with no manipulation but so far there is very little to show. Despite all of these there isn’t any reason to write-off this industry, because we’re still in infant stages. It’s a work in progress for last 10 years & it may take maybe a decade before utopia dream is fulfilled. Digitisation had a lot of impact on our daily lives in multiple sectors but financial industry is far from perfection when it comes to frictionless banking. I still have to go to bank to do a wire transfer & it takes couple of days for funds to get to other end at a exorbitant cost. Counter-argument would be that the banks are already digital & majority of the people don’t go to the bank anymore, so we’re on the right track. I take cryptocurrencies as an experiment lab or a sandbox where ideas can be tried, tested & could be launched into masses if successful. Current regulatory environment is fairly conservative when it comes to investment product or any other financial instrument. It’s either due protection of consumer or status-quo, that’s a different discussion, but it is what it is.

We’ve seen the exponential rise in cryptocurrency valuations, institutional interest through acquisitions & whopping billions dollar of raise in Initial Coin Offerings ( ICOs). ICOs could be simply explained as pre-prepaid credits in a game that was sold before the game was launched. It was fine till recently there were issues with this model.

  1. The game was never launched
  2.  these credits were trade-able way-before game launch leading to speculations & hype.

That ended about 10,000X returns in few cases & 99% loss in value from All Time High(ATH) in extreme cases.

Fear of Missing out ( FOMO) is a common term in which a person gets into a deal without due diligence because time clock is kicking in. Majority of the time it doesn’t end well. This FOMO lead to retail investors buying useful tokens of every kind. Doge currency was created to make fun of these tokens but that lead to 1.5B in valuation while the creator clearly mentioned that it’s a joke. In an another case a person clearly mentioned that he is creating a useless token with no use however people still bought them. Around that time Ripple CEO was worth more than
CEO of Facebook. While these tokens were marketed along the lines of prepaid tokens, they clearly weren’t. This is where Security Exchange Commission (SEC) & other regulatory bodies jump in.

Despite the legal language used in building analogies around network usage, setting up non-profit foundations in friendly offshore jurisdictions, taking shelter behind fancy buzzwords such as open-source software movements, decentralisation, blockchain 99% of them are securities & I’ve doubt about the remaining 1%.

There is a famous duck test,

“If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck”

This term was popularised in the US during the cold war in 1950 when Richard Cunninghand Patterson Jr, US ambassador to Guatemala at that time accused Jacobo Arbenz Guzman government of being Communist. These were the exact words
“Suppose you see a bird walking around in a farm yard. This bird has no label that says ‘duck’. But the bird certainly looks like a duck. Also, he goes to the pond and you notice that he swims like a duck. Then he opens his beak and quacks like a duck. Well, by this time you have probably reached the conclusion that the bird is a duck, whether he’s wearing a label or not”
In 1946, Supreme Court heard a case that set the precedent on what’s a security

  • It is an investment of money
  • There is an expectation of profits from the investment
  • The investment of money is in a common enterprise
  • Any profit comes from the efforts of a promoter or third party

If either of the above points satisfies during a financial transaction, whole new set of requirements kick-in. Entity is bound to register with the Security Exchange Commision ( SEC) regardless of whatever they think they’re. SEC only however generally looks over cases that involves US entities but other countries follow similar guidelines in their jurisdiction. Despite billion in funding ICOs have very little to show. Lack of investor rights, governance structure & geographical restrictions people are left with these useless tokens, but SEC has intervened in multiple cases leading to fines, capital return & other punishment. I expect them to rise, however despite all this drama, there is a very good case for issuing tokens that are actually securities but still have the benefits that a token provides. There is where Security tokens come into play which will have the legitimacy of a Initial Public Offerings (IPO) but flexibility of ICO ( Initial Coin Offering ). Welcome Security Token Offering (STO).

Business Case

There is a capital scarcity when it comes to private markets for small & medium business (SMBs) . Just to talk in terms of numbers, there are 28 Million small business in the US vs 3671 publicly traded companies. Number of public companies is decreasing year over year & this trend will continue to drop due to complicated nature of managing public market listings. SMBs are the backbone of any country economy & 70% of new job creation is due to them, but still they suffer growth due to lack of capital available. There are Venture capitalists, predatory lenders, angels & limited public after JOBS act, but that’s still a very limited segment. If they are able to access debt in return for a fractional ownership in the firm, that can be traded back & forth, it will get them out of the capital drought. It could be debt, equity, convertible note or combination of these but important point is access. This could lead to trillions of dollars in economic benefits.

Real estate is considered to be the best & safest asset class however it’s expensive to own. We’ve Real Estate Investment Trust ( REITs), but they’re still fairly out of reach for the masses. Real estate globally is worth around 265 Trillion but only 1% is accessible through these complex REIT structures. Security Token offering can remove lot of overhead making it flexible, simple & convenient for average investor to participate in an potential economic upside event. Lot of investments currently require the investor to have an accredited investor status despite there isn’t any relationship between IQ & wealth, but net worth does serves as a barometer for qualification of investor acumen. There is an argument that it’s not an acumen test but more of a ability to sustain loses. If that’s the case why isn’t a test before entering a casino or any high-end luxury store. No one gets inquired of his/her financial health at the gate while entering these establishments. If these high-risk or luxury establishments aren’t bound to do a background test on the consumer ability, why should a potential upside event be restricted ? Regardless of whatever I think, it’s a law which I respect & abide. This is where I think Security Tokens will make a lot of sense since they can solve major issues around public markets abiding with the current financial structure yet flexibility of tokens.

Here are the 20 major reasons to make a business case for Security Tokens to exist

No.Content
1.Liquidity
2.24/7 markets
3.Fractional ownership
4.Immediate settlement
5.Elimination of 3rd party services
6.Real-time ownership reconciliation
7.Cost reduction
8.Compliance automation
9.Expansion in the offering options
10.Custody
11.Vested Stocks
12.Pedigree proof
13.Preferential treatment
14.Infungibility
15.Debt restructuring
16.Global Assets
17.Larger investor base
18.Stability
19.Front running avoidance
20.Ownership Proof/ Title

1.  Liquidity

90% of the assets in the world are illiquid. It’s not possible to get in/out quickly without accruing significant slippage and/or paying a significant fee.Though liquidity is referred to as speed at which you can trade an asset, however it’s much more than just the speed in practice. Another parameter is also cost. Example is that you may be able to sell your house within 24 hours but that’ll be generally classified as a distressed sale & will lead to a loss in comparison if you wait. Price difference delta between distressed sale & regular sale is the liquidity discount that you’ve to offer. Other impact of these sale is that it lowers the bar for fair market value ( FMV) of similar houses in the vicinity.

In comparison you can trade Microsoft stocks at market value during business hours without having any major impact on the market prices by paying a very small fee. Now there are fractions if you’re a whale and cause market crash. Take this further with cryptocurrency which you to trade even a fraction round the clock.

Total world assets are 700T, but less than 10% of them are liquid. If Security Tokens are able to turn them liquid, there would be trillions dollar worth of economic activity generated.

2. 24/7 markets

Majority of the traditional exchanges operate between business hours such as 8 – 4:00 am in the morning with respect to local time zones. They’re closed during the holidays so if you want to make a move while having Saturday dinner, that’s not possible. Tokens on the other hands are tradeable 24/7. Due to the nature of STOs, it would be possible to trade them round the clock even on Christmas eve.

3. Fractional Ownership

It’s impossible for 95% of the world population to diversify into more than 2 investment classes due to high unit costs but if there is a mechanism to buy a small ownership, it’ll attract a whole new set of investors effectively increasing liquidity & raising premiums. Now in case of equities, there are options to buy them from public markets & similarly you can buy publicly-traded or private market RIETs but an estimated 99% of the real estate assets isn’t available through either of these tools. There would also be ability to make profits when the markets are going down rather than just buy & hold strategy and capture the gains with appreciation. Retail investors are unable to balance their portfolio to de-risk their investments across multiple assets, but availability of vast set of liquid assets would allow them so. Ultimately, it’ll lead to more efficient markets

4. Immediate settlement

There is a time difference between when the actual trade is executed & settled. Example is buying a house today but paperwork, transfer of funds & ownership might take 4-6 weeks. Even in stock exchanges, though you’re able to trade immediately, it’s usually 2 business days (T+2) before the owner get his hands on the purchase. It used to be 3 days but reduced to 2 in 2017. With STOs there should be a possibility of execution & settlement at the same time.

5. Elimination of 3rd party services

Blockchain has the potential to increase settlement speed for securities, but it’s more complicated than a comparison to cryptocurrencies. The degree to which these processes can be automated through interoperable smart contracts will determine the gains in settlement speed. There is a moral hazard with the usage of these companies since they can manipulate with insider information & little oversight on governance matters. With an open system, there’ll be a more transparent, fair & balance playing field.

6. Real-time ownership reconciliation

Even though the trade Trading books are balanced by the end of day. It’s costly & not optimistic. After stock issuance, there is a bundle of paperwork that goes in producing friction that leads to inefficiency. Contractual features including but not limited to liquidation preferences, depositories and depository participants management and drag-along rights etc could be easily calculated making it simple for the participants to decide their risk-reward ratio. Through STO, there would be a chance to have a real-time asset reconciliation in a transparent manner.

7. Cost reduction

There are massive costs associated with operating the exchange which could be reduced by having a lean-operated STO exchange. These smart contracts will reduce the complexity, costs and paperwork with managing securities (collecting signatures, wiring of funds, mailing of distribution checks, collection of W-2s, Sending K9s, etc).

8.  Compliance automation

KYC & AML policy are the two most basic compliance things any financial institute has to take care of. There are two major frictions in the current system

  • Legal Restrictions
    Financial institutes have to filter out the people who’re ineligible to be involved in the transaction mostly due to regulation. These restrictions could be due to buyer financial profile, industry, jurisdiction of transaction/seller/buyer or past history etc. Failure to abide can lead for serious repercussions. It slows down the onboarding process.
  • Complex chain of stakeholders
    There is a chain of stakeholders who’ve to be on the same page during the transaction. Lawyer, government, accountant, exchange is to name the few and all of them have their own of reconciliation which leads to inefficiencies in terms of cost & time. Unless & until all of them can match up their record, it doesn’t go through.

With blockchain, every transaction can be downloaded or broadcasted in a standard format in real time which should be able to make this process more efficient. Customers can get an ID that is verifiable by any party in real time at time of settlement. Currently, you’ve to create an account in every exchange that you use but in future you only provide ID if requested.

9. Expansion in the offering options

Currently there is a very rigid set of requirements to be listed on these exchanges, but in future it might change because companies would be able to innovate on compensating their investors. Staking, proof of work, token burn, forks are few of the unique innovations that has been used to reward investors by the current token offerings.

10. Custody

Financial institutes are generally a storage for your assets and issue you I Owe You(IOU). This increases the risk just if incase a FI goes into default. Beauty of cryptocurrency is that owner can hold the private keys & no 3rd party can seize them. With STOs, investor would have ability to control and take custody of the tokens. He isn’t obliged to store them with any 3rd party if he doesn’t want to. In unforeseen condition such as war, he can transport them himself.

11. Vested Stock

There might be interesting structure for the long-term holders if they lock up their tokens. This effectively reduce the sell-pressure & encourage the company to thing big & focus on long term strategy. Firms can issue more stock in shape of interest to vested folks where if you lock the token for suppose 12 months, you can 2% in extra tokens towards end of year.

12. Pedigree proof

It’s really tough to invest into the top funds or private REITs because they keep it private. Mostly it’s because they don’t want to deal with the headache of onboarding & dealing with new Limited Partners or backers. It’s a relationship play. In regular markets, it’s hard to establish trust & have inroads if you’re trying to get into these funds. Through STOs an investor would be able to prove that he already owns ABC stock for 5 years & that might break the ice. As an investor, I do have to sell companies on taking my money if there is a good interest. I usually do that by telling about my portfolio or testimonials from the founders I’ve worked with. Through STOs I can just show proof of ownership to build the pedigree. A company can also put a restriction to raise money from people who own specific tokens already to maintain the pedigree. Ferrari is a good example of maintaining the exclusivity since they don’t generally sell it to anyone & in few cases you’re required to show a track record of ownership before getting special editions.

13. Preferential treatment

There is a big disconnect between company stock holders & customers. If you work for a company they generally have perks for using their own products, but in case of stockholder no such perks exists. Now, through STOs it would be easy to establish proof of ownership & be entitled to some perks which can be restricted by how long you had them & point. I may buy stocks of airlines I travel on to get into the line first or utilize a dedicated lane at grocery store. Through STOs, businesses will be able to encourage their users to hold onto their tokens which results in stronger brand following.

14. Infungibibility

In private capital, there are different classes of shares with “common” & “preferred” as being the most popular however there is option to have exotic stock structure. In public markets, it has to be the same but through STOs, there is an option to create different STOs for the same asset well suited for the investor type. Commonly investor is either looking at appreciation play or seeking dividends. Ideally he wants both but that isn’t possible in a practical world. Company can separate both type of assets by issuing two types of STOs at different price. You may want dividend so you can purchase stock at a different price than someone who just want to hold for long term. At the moment, it’s somehow built into the price but a clear separation would make much easier for retail investors & help company with their growth plan.

15. Debt restructuring

Debt financing have sunk ships for many businesses. Delay in permits or any other hurdle that temporary caused borrower to default on payment has lead to disaster for many. It’s not an ideal outcome for neither the borrower nor a lender however options are limits. Through tokens debt can be restructured very easily automatically. Imagine you gave someone a loan but he is unable to pay the payments such as in house cases. In this case the bank takes over the entire asset, but what instead of that, bank keeps on adding the default payment towards the loan. In STOs, upon debt issuance, tokens of the assets are pledged towards the loan & in custody of the lender. Effectively borrower is buying back those tokens. If borrower is unable to buy back token at a scheduled time, lender will repossess tokens worth that missed payment providing better breathing space in tough times. It’s fairly complicated in current scenario but through smart contract all of this enforceable & Security Tokens would be really effective at this.

16. Global assets

Access to majority of the assets is limited by geographical limits. It’s impossible or very difficult to invest in Africa from Asia for a retail investor. Approximately 97% of the global assets are inaccessible for entities outside the geographical limits. Security Tokens do eliminate that by empowering companies globally to build an STOs and raise capital. There would be less requirements to issue STOs.

17. Largest investor base

In order to trade on New York Stock Exchange ( NYSE) or NASDAQ investor has to go through a set of stringent requirements which crypto exchanges on the other hand are able to onboard customers globally with excluding sanctioned countries of course. STOs will be able to open doors to these assets to investors globally. This’ll lead to more healthy competition.

18. Stability

Every company wants to list in NYSE or NASDAQ despite them US not being their biggest market. This being said, US economics has impacts on the company valuation which is totally uncorrelated to company’s operating jurisdiction. With Security Tokens, there would be a global set of investors with different sentiments leading to more stabilized markets.

19. Front running avoidance

Front-running also referred to as tailgating is the practice of a broker or trader stepping in front of large orders to gain an economic advantage. It’s a prohibited practice of entering into an equity (stock) trade, option, futures contract, derivative, or security-based swap to take advantage of a confidential information that has impact on price. Multiple times bad actors get away with it due to lack of data availability required to establish a proof. Another reason for this is unfair access to market for different participants. Blockchain treats everyone the same & the books are open, reducing the chances of front running.

20.  Ownership Proof/Title

Whenever you’re acquiring an asset, you generally go for a title check or get a title insurance to make sure the asset is free of any liens or disputes. Blockchain can track back the ownership transfer from inception without the fear of record being forged.

Conclusion:

Majority of the ideas here are not solely linked to tech but also are restricted due to regulation. I consider STOs as being the sandbox for next generation of Securities. They might eventually be offered by traditional exchanges or can operate totally separately where companies graduate from these STO exchanges into the top exchanges.

If Bitcoin is programmable money, then Security Token is a programmable ownership. They do add improvement to current security industry which may be frowned upon status quo but eventually be able to prove it’s worth & get institutional support.

Security tokens would new way to build, fund & grow companies & it’ll happen quicker than many people anticipate.

2018-12-08T17:20:06+00:00December 3rd, 2018|Categories: Security Tokens|Tags: , |Comments Off on Security Tokens: 20 Important Things you need to know (Detailed Guide)

Who is going to win the transportation battle? Car manufacturers, Taxis or the consumers?

So uber launched self driving cars yesterday. It is pretty interesting move since it will basically kills the jobs that they created in the first place. So with Uber every individual can drive for them as per their own schedule, but with self driving cars, there is no schedule. (more…)

2018-12-08T22:09:18+00:00September 15th, 2016|Categories: Startups|Tags: , |Comments Off on Who is going to win the transportation battle? Car manufacturers, Taxis or the consumers?

Justifying Microsoft’s biggest bet since inception

Microsoft just announced to acquire LinkedIn for $26 Billion which is almost 50% higher than the public market valuation. For the sake of comparison, Google purchased YouTube for $1.65 billion 10 years ago. Facebook paid $715 million for Instagram in 2012 and $19 billion for WhatsApp two years ago. (more…)

2018-11-23T22:26:55+00:00June 15th, 2016|Categories: Startups|Comments Off on Justifying Microsoft’s biggest bet since inception

One line that changes your approach

In old times Kings had strange requests and they had advisors whose jobs was to fulfill them. Failure to do so results in punishments that varied from imprisonment, demotion or in severe case even death penalties. (more…)

2018-12-08T17:20:20+00:00March 29th, 2016|Categories: Life|Comments Off on One line that changes your approach

Important vs Urgent – Who takes the lead ?

Time is the most limited commodity that any successful person have & time management is one of the most sought after skill for majority of us. Urgent & Important are the two major parameters used in prioritizing where to focus our resources on.

Eisenhower matrix is ever-green cheat sheet for any one looking to help prioritize their day. Biggest issue we struggle with is “urgent” taking priority over “important”.

Eisen Hower Matrix

If you give some one two tasks with following
– Task A is urgent
– Task B is important

99% of the times, they will go with the urgent one. There could be multiple reasons for this behaviors, but following two are the most common one.

– Urgency creates emergency giving you the adrenaline rush for the day
– It is easy to get motivated while accomplishing a task that is time driven because it could be quantified

The most urgent decisions are rarely the most important ones.
– Dwight D Eisenhower

However, while focusing on urgent task, we oversee important tasks requiring our attention. It could be a business goal as well as personal goal. Such as joining a gym, going on a vacation, spending time with your family, calling an old friend or be by yourself. Even in business, we mightn’t have updated our website or done a SWOT analysis or the most important one – sitting down with the team over dinner.

So next time, there is a choice between Urgency or importance, chose wisely!

2016-03-21T16:13:11+00:00March 21st, 2016|Categories: Life, Startups|Comments Off on Important vs Urgent – Who takes the lead ?

It’s March – but interest rates are stable

Yesterday, FOMC announced that they are not making any changes to the interest rate. Later last year, they made an upward move after almost a decade.

They also changed their stance on frequency of changing the interest rate. Earlier they indicated that they would change interest rate 4 times in 2016, but it was not well received in the market. Now they have backed-off to resonate with their counterparts. While it’s not as exciting, this will bring stability to the economy. Stable interest rates are boring but it is good in the long run. Feds assurity about the stable interest rate will bring confidence to investors so they can plan and forecast better. Low interest rate acts like a catalyst to economy by encouraging people to rotate the money and invest rather than just leaving it in fixed deposit.

The new stanceis similar to what European Central Bank ( ECB) and Bank of Japan are taking to boost their economy. This however would affect the USD strength against other currencies. People will prefer to invest in alternative assets, making USD less in demand as an asset class. There are both pros and cons of weaker currency, but overall there are always advantages for a stable currency. So if you are an importer, you should be unhappy and if you are an exporter you should be happy. Historically, Fed movements can be well predicted in advance, which is a good indication of them being more realistic with the economic condition. In near future, we should be assure that interest rates are going to be stable and FOMC meetings would have no exciting news to share.

2016-03-17T20:02:34+00:00March 17th, 2016|Categories: Fintech, Startups|Comments Off on It’s March – but interest rates are stable

Privacy == Liberty

I recently had an honor to meet Mike Janke ( Co-founder & Chairman Silent Circle – Encrypted Communication Firm), which prompted me to write over this issue.

Mike Janke - Silent Circle

From Wikileaks to recent open letter by Apple in response to request for a backdoor in iOS , there are arguments on both sides on privacy and surveillance acceptability. While there is no denial that better information leads to better decision making which will be helpful for the agencies to protect us, however it might violate the citizen rights which includes privacy. There is a reason why we have private house rather than sharing a big house. While I live in an apartment and like people around me, most of the people have economic reasons to live in shared housing.

People in favor of allowing security agencies to access personal data are making a very strong argument that if there is nothing wrong, why do I need to hide? As popular as it looks like, this is not as simple as it looks like.

Many people have camera or stage phobia. As perfect they are in their job, when asked to perform the same job in front of people, they get nervous or are unable to reproduce the same results as they would individually. This is not because they are bad at what they do, it’s because of the external pressure that they have to be extra cautious. Now take the same example and apply it on your daily life.

Imagine a person watching everything that you do; Every word you spoke and every action you did is recorded in an archive which is saved for decades and is accessible by a person unknown to you. How would you feel about it?

Not taking it to an extreme where you are also observed while you are singing in your bath tub, but imagine being watched in your living room. While there is nothing wrong about watching a hockey game with your friends at your home, but would you be able to enjoy it with a camera over you? Taking example of house might turn off a lot of people, even recording the conversations at a dinner-date is totally awkward as well. Next time when you are having a conversation over a phone, imagine an unknown 3rd party listening to it or even worse recording it.

Here is Obama portions from SXSW’16 on encryption

Cell phones, laptops are very personal now and we spend most time with them than any other living or non-living object. It’s no longer the phone that the entire house shared to communicate, but it’s like a private diary.They possibly have the most amount of data or attachment than anything else and allowing it to be watched all the time makes me uncomfortable. Law enforcement is a difficult job and I am thankful to all the wonderful people who are working day and night to ensure our safety but liberty is what allows us to enjoy it the fullest. There should be no absolute stance from either parties & I hope there would be a good balance between liberty and security as we transform into a more progressive society.

2016-03-15T18:18:46+00:00March 15th, 2016|Categories: Life|Comments Off on Privacy == Liberty

Weaker Loonie against USD – Who’s getting hammered here ?

From Acuras to iPhone applications, suits to sweet potatoes, Canadians will be paying more for imported products, on account of the loonie’s fall against the U.S. dollar. It has dropped by almost 10% in last 12 months which is a significant drop in a short horizon of time. Although it’s not the highest one, but certainly rank among them.

Weaker Loonie

“Who wins and who loses when the loonie gets hammered”

Obviously it’s the end customer who will be paying more. Increasing costs are passed on the end customers and if they are earning in CAD, too bad. It’s now happening . Food costs have been expanding for quite a long time. Attire, while regularly made abroad, has a tendency to be evaluated in U.S. dollars and has additionally been getting more costly. So too a first-class thing that Canadians are purchasing in record numbers. Automakers have begun to raise sticker costs on Canadian vehicles.

The Automobile Protection Association says Toyota and Honda, among others, brought costs up in the primary week of January. A few extravagance brands, including Lexus, Acura, and BMW have additionally rolled out improvements to their valuing, with Audi purportedly set to follow in mid-January, the affiliation says. The APA says the greater part of the expansions are unassuming, an additional couple of hundred dollars for every vehicle. Be that as it may, it says Honda has raised the proposed retail cost on its 2015 CRV Touring, all-wheel-drive model by an amount of $750.”Auto organizations will take each open door that they can to expand exchange costs or minimize their introduction to the conversion scale,” says Jason Stein, distributer and supervisor of Automotive News.”We do see costs expanding. We’ve seen costs expanding crosswise over North America. Will they build a smidgen all the more quickly north of the fringe, because of the conversion standard? I believe that is presumably the case.”

It doesn’t cut both ways. Stein, a Canadian who lives in Windsor, and goes for work in Detroit, echoes a portion of the disappointment of some Canadians, who feel automakers were much slower to drop costs in this nation when the Canadian dollar was high. “Interestingly, when the Canadian dollar was over the U.S. dollar, a year, 18 months prior, you didn’t see costs dropping.” Loonie oil costs could fall much even further, Don Pittis said.

A week ago, Apple brought costs up in its Canadian App Store. The 99-penny applications will now cost $1.19 Canadian, a 20 for every penny increment. Different applications under $10 went up by around 15 for every penny. Apple says the expansion is connected to the conversion scale. Different countries feel it as well

However, it’s not every terrible new. The loonie isn’t the main cash falling against the greenback. “This is not imagination of a powerless Canadian dollar story. Some of it is a solid U.S. dollar story,” says BMO’s Porter. “The U.S. dollar is inclining against a considerable measure of monetary standards. So a few things we won’t not be paying significantly more for. For example, a few things from Europe or from Japan, won’t not be going up that much in cost in light of the fact that their monetary forms are additionally debilitating.”

In any case, with the U.S. representing about portion of all Canadian stock imports, the dollar’s doldrums will hit most Canadian shoppers in the wallet.

2016-03-09T16:47:55+00:00March 5th, 2016|Categories: Fintech, Life|Comments Off on Weaker Loonie against USD – Who’s getting hammered here ?

Negative Interest Rate Policy (NIRP) – Friend or Foe?

Whenever we borrow any amount, we expect to pay an interest on top of the principal amount. Recently it was increase after almost a decade however buzz word of negative interest rate have started to circulate in financial world. It’s not a new concept and currently exist in multiple EU countries.

Banks - Haseeb Awan

“Consider it as a Tax on your balances without even defining it to offset loss in revenue due to reduced economic activities”

NIRP is a desperate attempt to boost economy in tough times. As the name states, instead of giving the depositors profits, they are punished to hoard the money by returning them reduced amount. As an example if the interest rate is -.03%. In this case banks will start deducing .3% of the total amount from the deposits. Now consider if your cash is decreasing day by day, you are more inclined towards investing it in alternative asset such as real estate, gold etc. Interest rate operate on pure principle of supply and demand however NIRP is like a steroid for the economy.

NIRP is an incentive for individuals and institutes to circulate the money rather than hoarding it. During challenging times, fear leads to cutting down costs and saving as much resources as possible to overcome any unforeseen circumstances. This creates a ripple effect with conditions getting worse and recovery becomes more challenging in such stagnant society.

Here is excerpt from Mises in 1912

[This view of money] regards interest as a compensation of the temporary relinquishing of money in the broader sense — a view, indeed, of unsurpassable naiveté. Scientific critics have been perfectly justified in treating it with contempt; it is scarcely worth even cursory mention. But it is impossible to refrain from pointing out that these very views on the nature of interest holds an important place in popular opinion, and that they are continually being propounded afresh and recommended as a basis for measures of banking policy.

Cash register
NIRP is charged by central bank and in few cases retail banks take the hit themselves without affecting their end users. While negative interest rate does circulate the money, it drives up the valuations of possible investments such as real estate, gold etc. high creating a bubble. Recent hike in stock, tech and private companies’ valuations are by-product of decade old almost zero interest rate.

People take more risks due to availability of cheap debt & have led to economic crashes. People buying houses at high rate and in-experience people starting their businesses are all high-risk loans which are threat to the financial system. While it looks pretty lucrative to implement it, best practice is to leave it as it is, so businesses can at-least be certain about this aspect.

2016-03-06T15:44:34+00:00February 29th, 2016|Categories: Fintech|Comments Off on Negative Interest Rate Policy (NIRP) – Friend or Foe?

11 facts about Cayman Island

I was in Cayman Island recently and was fascinated by how developed it is. Sharing some of the interesting facts here

1 – Cayman has its own currency; the Cayman Island Dollar (CI$). This is tied to the U.S. dollar and does not fluctuate from it. The cash exchange rate is CI$1.00 = US$1.25.

2 – There is no income tax, capital gains tax, or corporation tax. There is a 10 percent government hotel tax and a stamp duty ranging from 7 ½ to 9 percent on the value of real estate at sale. A departure tax of CI$20 is also collected when you leave the Caymans
3 – Grand Cayman is the 5th largest financial center in the world. It ranks after London, Tokyo, New York and Hong Kong.

4 – There are more than 449 banks and 115 trust companies licensed in the Cayman Islands.

5 – There are no casinos on the Cayman Islands.

6 – You will see equal number of left hand and right hand cars.

7 – The world-famous ‘Seven Mile Beach’ is actually only 5.2 miles long.

8 – There are no embassies in Cayman Island but 13 consulates.

9 – The birthplace of recreational diving. There’s over 150 diving sites on Grand Cayman Island. The island will soon have 365; one for each day.

10 -There is a place called Hell in Cayman Island.

11 -The Cayman Island Turtle Farm is home to 16,000 green sea turtles at any given time.

I have posted few pictures at my facebook page.

Cayman Island

2016-03-06T15:44:45+00:00February 10th, 2016|Categories: Fintech|Comments Off on 11 facts about Cayman Island