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Flickr user: Andreas Poike

High-frequency trading is the practice where automated systems search for minor differences in price of stocks that can be exploited for small financial gains. Executed often enough and with a high enough investment, they can lead to serious profits for the investment firms that have the wherewithal to run these systems. The systems trade with minimal human supervision, however, and have been blamed for a number of unusually violent swings that have taken place in the stock market.

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Original author: 
Russell Brandom

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If you've spent any time flipping gadgets, you've probably noticed that they're much easier to buy than to sell. One can buy a used iPhone from half-a-dozen places at this point, often with no more than a few clicks — but try to sell one, and you're stuck with either eBay or a hodgepodge of forums and mini-marketplaces.

A new iOS app, launching today, claims to fix that, offering a streamlined path from listing to payment. It's called Sold, and it serves as photographer, broker and banker for each item, finding a price and a seller for you automatically, and collecting its fee from arbitrage. If the system works, all you'll have to do is snap a few pictures and pack a single box — as long as you're willing to let Sold set the price...

Continue reading…

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Technology-and-Finance1

Editor’s Note: Alexander Haislip is a marketing executive with cloud-based server automation startup ScaleXtreme and the author of Essentials of Venture Capital. Follow him on Twitter @ahaislip.

“Portfolio” is a word that Silicon Valley loves. Venture firms have portfolios of startups, web designers have portfolios of their work and even public relations agencies have a portfolio of clients. Now chief information officers and IT architects have portfolios of computing power made up of physical servers, virtual machines and public cloud instances at multiple providers.

For most people, a portfolio is little more than an accumulation of individual decisions over time. Look in a typical VC’s portfolio, and you’ll see a storage locker stuffed with buzzword bingo startups slouching toward an orderly shutdown. A web designer’s portfolio? A collection of unrelated commissions.

CIOs don’t have the same luxury to be so haphazard. They have to have a little more foresight when it comes to putting together a compute portfolio. They’re juggling functionality, availability, security and cost and can’t afford to drop anything. And they’re stealing concepts from the world of high finance to make it work.

Finance became a true science when Harry Markowitz invented Modern Portfolio Theory. His simple insight was this: each asset has a risk/reward tradeoff and there’s a single collection of assets—an optimal portfolio—that maximizes reward and minimizes risk. Then Markowitz did a lot of math to show how an investor could get to that optimal portfolio.

Today the most cutting edge IT professionals are starting to discover the idea themselves. For them, the tradeoff isn’t between risk and reward, it’s between functionality and cost. Functionality encompasses a range of variables, from availability to security to sheer processing power. Cost, on the other hand, has never really been that clear until now.

NAKED COST

Cloud computing exposes the naked cost of processing cycles. It strips away the long amortization of under-utilized physical hardware and confusing vendor contracts. It eliminates the abstraction of virtualization efficiency. It clarifies the ambiguous costs of IT employees. Public cloud vendors focus on a single metric: Cents per hour.

The naked cost of computing, once exposed, re-orients your thinking. You’re constantly appraising whether a given job would be cheaper to run on Rackspace or internally.

CIOs are thinking harder than ever before about the tradeoffs they make. They’ve got options now that they didn’t have before. They’re no longer stuck in a monogamous relationship with hardware vendors, so they’re thinking about the features that matter most and what they’re willing to pay for them. It’s clear that credit card data should run only on hardened machines optimized for security, but what about player data in a virtual world? The public cloud may be perfect when you launch a new online video game, but it may make sense to build your own private cloud when demand levels off.

The compute infrastructure has to fit the workload and the cost has to fit the budget.

OPTIMAL COMBINATION

The good news is that there’s an optimal portfolio of computing capacity—just like Markowitz laid out for stock and bond investors. Given a company’s functional requirements and its budget, there’s a perfect combination of physical servers, virtual machines and public cloud instances that maximizes the benefits and minimizes the cost.

Getting to that optimal combination of compute resources isn’t easy. IT Professionals need visibility their existing IT assets and the ability to reorient their resources. It also requires forethought, a truly rare commodity.

It’s often stunning to see how little systems architects know about their own systems. We’ve all heard about rogue IT and the BYOD movement, and some confusion about those devices might be understandable. But not know the basics of what servers you have, what they’re running, how close they are to capacity and how much they cost you is shocking. As Peter Drucker once opined: If you can’t measure something, you can’t manage it. Visibility is the first step to control.

Better information is necessary for creating an optimal compute portfolio but it isn’t sufficient. You also have to have the ability to swap one type of compute infrastructure for another. In finance, this corresponds to the concept of liquidity, or your ability to buy and sell assets on the open market. Getting liquidity in compute infrastructure is more complicated.

It’s long been possible to swap one machine out for newer one, or to re-provision a workload. Virtualization makes it easier to move processing around, but you’re still locked in to your underlying hardware and the operating systems you’ve loaded. Moving between cloud providers can be extremely tricky if you’ve not architected your instances with templates.

Most importantly, getting to an optimal compute portfolio requires forethought. You have to think carefully about the mix of functionality you’ll need and your willingness to pay for it. Not just now, but also in the future. You have to plan for the time when you’ll need to re-balance your compute portfolio. That means architecting your systems for portability from the outset.

Finance, when it’s done right, is a disciplined way of balancing tradeoffs and planning—that’s a rigor IT departments need to adopt as they build modern computing infrastructure.

Let’s just hope they don’t take it too far and start issuing compute default swaps.

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stock market

Editor’s note: Barry Silbert is founder and CEO of SecondMarket. Follow him on Twitter @BarrySilbert.

The SEC recently concluded its investigation of the emerging market for pre-IPO shares of private companies, resulting in charges being brought against three market participants. I am proud to say that SecondMarket was not among those investigated or charged with wrongdoing.

While the press focused on the SEC “cracking down” on the private company market, the investigation actually focused on wrongdoing that has existed in the securities markets for decades: broker-dealers using improper sales practices and charging inappropriate fees, and unregistered middlemen improperly acting as broker-dealers.

Nonetheless, the investigation should result in a better private company marketplace.  Because of market structure changes and regulatory hurdles, companies are remaining private longer than ever before. The public markets work well for the largest companies, but many observers believe a company has to have a market capitalization of more than $1 billion before it receives the sales and research coverage to successfully navigate the public markets.

That is an extraordinarily high barrier to entry and supports the notion that a robust private company market is critical to the startup ecosystem. An efficient private market can help a company provide its shareholders with interim liquidity, so that a company is not prematurely forced to go public or pursue an M&A transaction. At SecondMarket, we continue to develop practices and procedures that we believe all participants should adopt as we move forward.

Regulatory oversight: Quite simply, anyone facilitating trades of private company stock should be registered as a broker-dealer. Trust is an essential element of an efficient market. The ability to conduct trades in a regulated environment confers accountability on the part of the broker-dealer and provides assurance to participants that there is regulatory oversight of a transaction. SecondMarket was fully regulated as a broker-dealer before we ever conducted a private company stock transaction.

Robust Accreditation: Private company stock is not for everyone. Investing in a private company is inherently risky, and investors must have the financial means and risk tolerance to participate in the market. While we require companies that exclusively sell secondary shares with us to provide financial disclosures, the information is less detailed than public company disclosures.

Only “accredited” investors are eligible to buy private company stock on SecondMarket, and we have established a process to ensure that only accredited investors buy stock. We conduct online accredited investor questionnaires, background checks and reviews prior to a transaction, and contact each potential buyer to understand his or her investment intent.

Company Engagement: Every private company is different. Each company has unique goals, circumstances and objectives. SecondMarket works with each company to design a customized liquidity program to meet that company’s needs. The companies control who can buy and sell, how much each shareholder can sell, frequency of transactions, and share price.  Most importantly, as noted above, we require companies that allow secondary transactions on SecondMarket to provide financial disclosures to the company-approved buyers and sellers.  Providing financial information to participants ensures transparency and information symmetry, but it is important to private companies that only the eligible buyers and sellers (and not the entire world) have access to that information.

We will not permit a transaction if the company is not willing to work with us, and we encourage other marketplaces to follow suit. It is critically important that companies support secondary trading of their shares. A managed secondary trading process can provide a company with numerous benefits, including retaining existing employees and attracting new talent.

Mitigate Conflicts of Interest:  It is important that buyers and sellers understand that a marketplace is an impartial intermediary that is not on either side of a transaction.  We actively seek to minimize conflicts of interest in a variety of ways. We do not produce or pay for research. We do not buy private company stock for our own account or make investment decisions on behalf of our platform participants. And we do not offload our regulatory responsibility to third-party broker-dealers.

As we look ahead, I firmly believe that the continued success of this overall market is predicated on honesty, integrity and reliability. By following these guidelines, we can ensure that bad actors are forced out of the market and a healthy, prosperous secondary market for private company stock can continue to flourish.

[image via Flickr/Katrina. Tuliao]

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