EQUITY MARKET 4.0
- Equity Market 4.0 is a single global network for the equity market. It fuels the growth of SME’s globally, enhances accessibility (from large companies to SME’s, ventures and innovation), expands functionality (from determining price to content management and facilitating collaboration) and improves capital allocation (from a few liquid geographic clusters to a truly global market)
- Equity Market 3.0 recreates what people do in the equity market everyday in Central Brain or Web 3.0 network for a country, financial centre or organisation.
- Each company, adviser and investor can self-publish 20+ types of information or link to third party content to create a single, comprehensive information “storefront”. A critical mass of “storefronts” improve transparency and market efficiency.
- Open letter to Stock Exchanges: Equity Market 3.0 is better, faster and cheaper than mergers. Equity Market 3.0 improves liquidity, transparency and visibility of listed companies through an online network.
- Open letter to Social Network 2.0: Industry 3.0 extends customer relationship from social to industry and delivers exponentially higher ARPU (pending)
- Open letter to financial market data providers: Web 3.0 networks reach deeper and expand products (pending)
- Sustainable competitive advantage available to partners from memorable domain name clusters in 20+ countries (including the top 5 financial centres)
Market opportunity (summary)
There is an enormous opportunity in re-casting the financial services markets and service delivery by applying social networking concepts to the participants in these markets. An online industry network for the equity market can bring together companies, advisors and investors in an online space where they can collaborate and distribute information to facilitate the growth of small and medium enterprises. Equity Market 3.0 is an opportunity for strategic and financial investors to create shareholder wealth by applying online social networking principles to revolutionise the financial market.
Existing investment banking and equity markets are essentially a cottage industry with asymmetric information flows between potential customers, customers, advisors, brokers and sources of capital. As such they are highly ineffective and deliver bottle-neck returns to some brokers and investment bankers. Importantly, many small and medium-sized companies find it very difficult to access correct skills and capital, while the full universe of experts and potential investors is not fully utilized.
What is Equity Market 4.0?
Equity Market 3.0 is a collaborative hub (or social network) which manages the content of the equity market. It is not a stock exchange, although stock exchange software could be added to create “Collaborative Macroexchanges” for large financial centres or “Collaborative Microexchanges” for small or niche financial centres. Summary information is provided below.
Equity Market 3.0 applications and benefits
- transparency: the community can find all market participants and content quickly through tag based search
- capital effectiveness: investors can apply capital quickly and diligently across competing markets and companies
- accessibility: effectively service SME’s below the radar in major financial centres (Collaborative Macroexchange 3.0)
- market expansion: increase the community of companies, advisers and investors active using a virtual platform for financial centres with small populations (Collaborative Microexchange 3.0)
- productivity: increase the utilisation of advisers and facilitate their contribution to SME’s remotely
- global market: companies advisers and investors can participate in a global capital and labour market
- reduce poverty in the Third Worldby fueling the growth of SME’s in the Third World and earn income from remote services (Microequity 3.0)
- enhance cross-border competition between financial centres
- expand labour pool: deliver surplus labour in the Third World to satisfy a shortage of labour in the First World
Equity Market 3.0 (details)
The Equity Market online network is a Web 3.0 online network (or Facebook) which allows companies, advisers and investors to see straight through the market and collectively self-publish, match, learn, validate and consume 20+ types of equity market content in hours (not months). It is a platform for a global market. It provides a costless and immediate means to distribute information, facilitate collaboration, exchange content and facilitate transactions. The system provides applications to enable companies, advisers and investors to do what they do everyday in an open, transparent internet platform. Content includes Profiles (companies, advisers and investors, countries, industries), Classifieds (Research, M&A, Investment, Employment, Project, IPO / Bookbuild, Events) and News (Audio, Video, Blog, Article, Announcement, Report, Pictures).
The Equity market online network applies Web 3.0 online network principles. This includes semantic search, peer to peer networks, communities of common interest focused on a common purpose, comprehensive user generated content, workflow management, scalable open source web applications and cloud computing power from Amazon.
Over the last two years, a revenue capable software platform has been developed. The Equity Market Web 3.0 online network is operational on the Amazon cloud. It uses open source software from a variety of open source projects. This application could be delivered in five days for customisation and launch by a partner in 30-90 days.
Improves the way news and information are delivered to the community
Comprehensive information is distributed direct amongst companies, advisers and investors in real-time, rather than slow, labour intensive, opaque channels in regional markets. Companies can publish all their equity market information at one location for their stakeholders. Advisers can find projects, pick clients and pursue international business. Investors can search for international investments and organize a virtual analyst for due diligence. This Web 3.0 online networks delivers a globally transparent market with instantaneous exchange of comprehensive information using Web 3.0 social networking concepts. Market participants can find each other using tag based search in hours, rather than use 3rd parties for labor intensive searches.
This idea is new or different from what already exists
Existing investment banking and equity markets are essentially a cottage industry with asymmetric information flows between potential customers, customers, advisors, brokers and sources of capital. As such they are highly ineffective and deliver bottle-neck returns to some brokers and investment bankers. Many small and medium-sized companies find it very difficult to access correct skills and capital, while the full universe of experts and potential investors is not fully utilized. This Web 3.0 online network transforms a Web 1.0 industry which profits from retaining information. It is designed to be applicable in more than 20 financial centres and delivers new levels of liquidity, market accessibility and transparency in the equity market.
I have entered the Harvard Business Review-McKinsey M-Prize for Management Innovation with Equity Market 3.0. You can review and rate my application here.
The primary function of our political leadership is to safeguard the essentials of our community - our global community. There is action that can be taken on key issues of oil, food, water, climate change, national insolvency and retirement of the baby boomers. There is just enough time for action. The resources are available for most of the pressing issues. However, precious public funds are spent on more interesting ambitions, rather than the fundamentals. If questioned, more complex issues are introduced to defer the need to make difficult, but simple, decisions. The world confronts key challenges. Action on fundamental issues seem to be perpetually deferred until after the next election. Ambitions receive priority. The demand for leadership is growing rapidly. The supply of leadership is in declining. Perhaps, the law of diminishing returns applies to our political leadership.
Offshore financial centres had a reputation for being havens of criminal activity. The following five year old articles show this reputation is undeserved.They suggest that the "persecution of tax havens is not the fight against money laundering but the fight against low taxes". The persecution of "tax havens" was simply an instrument of the nation state to protect domestic tax revenues from foreign tax competition. Today, the majority of financial centres are well regulated and well respected. The also offer companies and investors the opportunity to reduce compliance costs and take advantage of countries dedicated to servicing their needs. Some countries are focussed on attracting a specific type of company. They enact legislation that is necessary to provide a respectable base for specific types of business. For example, the Isle of Man is focussed upon attracting EBusiness. These smaller financial centres are likely to be significant beneficiaries of the globalisation of financial markets. Business owners and entrepreneurs may choose to incorporate in these centres and derive significant benefits. They will need to pay taxes on any foreign income they derive or is attributed to them by their tax laws. The majority of financial centres are havens for business, rather than a means to reduce taxes.
The Open Source model of building software harnesses the collective knowledge of a group of volunteers to build complex software. Over the next few years, collective knowledge networks like the open source movement will move beyond developing open source software, to manufacturing and distributing products products and services in other industries.
The Government of Malta has announced framework discussions with Tecom Investments of Dubai on the setting up a new Ã¢â‚¬ËœSmartCity@MaltaÃ¢â‚¬â„¢. The Government of Malta has agreed to invest the land into the project whilst Tecom is expected to undertake an investment of approximately US$300 million over the coming 8 years. The first deliverables from this project are expected by 2008. This is a very exciting development. It may establish a cluster of IT companies in the EU, just like Dubai Internet City has done for the Middle East. It is also a visible sign to Middle East economies to establish new sectors and reduce their dependence on dwindling oil reserves.
"Shares in the London Stock Exchange (LSE) have jumped by 30% on Monday following speculation of a bid war." Consolidation in this market is an inevitable consequence of the compeitive pressure from competing electronic networks which utilise lower cost technologies. The fundamental function of the stock exchange - matching buyers and sellers of shares - is not as lucrative as it was twenty years ago. "In the New Reality a complete minnow of a stock exchange will grow to be a world player." A merger between the LSE and NYSE would produce a dominant exchange, but can it compete with the inevitable compeititon from the internet?
The McKinsey Global Institute (MGI) examined the financial assets of more than 100 countries since 1980. The result is a comprehensive profile of the global capital market (GCM) and an in-depth analysis of its evolution across geographies and asset classes.
Moore's Law is forecast to continue. If the rate of improvement continues, technology will be 128 times more powerful in ten years, and over 4,000 times more powerful in 15 years. Will it be possible for a single laptop capture, store, process and transmit information for entire industries? Could a single laptop replace the global music industry, a stock exchange or provide voice calls for the world? There are billions of dollars of historical investment, hundreds of years of history and tens of thousands of people being challenged by new companies. Starbucks may have enough bandwidth to run a bank, but you probably would not want to live there 24 hours a day, seven days a week, 365 days a year.
Existing industries have billions of dollars of historical investment, hundreds of years of history and employ of tens of thousands of people. These industries are being challenged by more innovative players that apply new business models to reduce costs. Challenges to the introduction of the railroad included "Rail travel at high speed is not possible, because passengers, unable to breathe, would die of asphyxia." This article offers a brief insight into the emerging responses of industry and their efforts to lobby government. Will government "asphyxiate" the people on the information superhighway? Will we be forced to travel by canal? Will we be forced to use the telephone?
Online social networks will drive a significant lift in productivity over the next decade. The internet will be essential to coordinating these networks. Online social networks are likely to be more efficient at manufacturing and distributing information. Consumers may be offered more convenient means to purchase, at lower cost using open source philosophies that may deliver greater customer satisfaction. Government can allow people to benefit from economic development, although some industries may perish or need to evolve in the short term.
"Power will shift from the traders who have benefited from merely facilitating transactions to the buyers and sellers who take positions on either end of the trade, and that which is most highly prized in financial markets Ã¢â‚¬â€œ the ability to create value Ã¢â‚¬â€œ is likely to experience a renaissance as transformational as anything the industry has ever witnessed." - IBM report. The opportunity for online social networks in financial markets is becoming clear.
On the 1st April 2006, the World Bank released a policy paper titled “Promoting access to primary equity markets : a legal and regulatory approach”. The report is available from here.
““Abstract: This paper examines legal and regulatory measures that can be taken to promote access to the primary market in emerging market economies. While capital market development depends on many factors including, primarily, a favorable macroeconomic environment, an appropriately designed and effective legal and regulatory framework can help to encourage market growth and to increase access to finance for all companies, including small- and medium-sized enterprises. In this paper we identify the basic necessities that underpin a regulatory regime that is cost effective and strikes an appropriate balance between, on the one hand, laws and regulations that may be too restrictive to achieve a supply of capital and, on the other, those that may be so relaxed that investors feel that there is an unacceptable level of risk and do not care to venture into the market.…
During the period ending 31st March 2006, the market capitalisation of stock exchanges in the America's, Asia Pacific and Europe grew 15.3%, 36.2% and 23.3% resepctively. This was driven by increasing valuations of listed companies, but was also influenced by changes in the number of companies. There were changes in the number of companies:- The America's decreased 0.5%, Asia Pacific increased 2.5% and Europe increased 3.5%. Despite strong equity markets, there was a decline in the number of companies listed in key markets and specific exchanges that implemented niche strategies experienced growth.
NYSE may announce merger with Euronext / NASDAQ has acquired one quarter of the London Stock Exchange
For the year ending March 2006, the number of companies listed on the NYSE and NASDAQ fell 3.1% and 0.9% respectively. Could the decline in their home markets have inspired these major exchanges to acquire or merge? A combined NASDAQ / London Stock Exchange represents 15% of the number of global listed companies and 14.7% of global market capitalisation. A combined NYSE / Euronext represents 8.5% of the number of global listed companies and 25.7% of global market capitalisation.
Did you Digg the recent Yahoo analyst briefing? Is this the beginning of community based investment analysis?
Could an online social network undertake investment analysis. Perhaps, a company or freelancer could prepare an equity research report. This report could serve as the foundation for analysis by an online social report in the same way that just occured on Digg. The tools could be extended further to include Wiki's so that the report could also be prepared by the community using an open source approach.
I recently read a series of articles by Paul B. Farrell at Marketwatch.com . I will extract a paragraph from each article to encourage you to read them. "The Planet of the Apes is a perfect metaphor for the way America's 95 million investors are being psychologically manipulated and controlled by a small cartel of less than one million people in and around Wall Street. For both that 95 million and the one million the stakes are huge, because $8.6 trillion is invested in mutual funds alone." "Research from critics like Vanguard's Jack Bogle have longed warn that Wall Street and the financial-services industry are "skimming" one-third off the top of investors returns, substantially reducing your retirement assets. Some critics like Boston research firm Dalbar go further: Most investors make less than inflation, but are clueless because they're brainwashed to think otherwise."
Web 2.0 was a phrase to describe new web companies that emerged over the last year. I could not understand how many of them were going to make money. Crash 2.0 may become the reference to the failure of these companies over the coming year. Companies will always fail as a result of poor execution. Investors that fund companies with bad ideas, non-existant revenue strategies or in unattractive markets may also fail. It is all part of the capitalist system which ultimately moves capital from those that pick losers, to those that can pick winners. The coming .NET, or Nextnet, boom is likely to based upon greater substance than the .COM boom. Crash 2.0 may be one of the early chapters in the .NET boom, or could it be the final chapter?
Offshore: What? Who? How? Where? Why? Onshore reaction? Tax competition? Pitfalls? The collapse of income tax systems?
Approximately, 33-40% of the worlds financial assets and 50% of financial market transactions occur in offshore jurisdictions. In recent years, onshore countries have collaborated to stamp out "harmful tax competition". The offshore jurisdictions are, and will remain, a critical part of the financial system. The internet and standardisation of offshore "products" has made offshore accessible to all. The onshore economies may continue "enforce" existing laws which seek to tax residents on world wide income. They may engage in "tax competition" or restructure misunderstood and unworkable tax systems. Whatever happens, the internet is likely to play a significant role in facilitating change.
The internet would appear to facilitate greater participation in the "listed company" market by the offshore stock exchanges. Offshore centres can list companies at a fraction of the cost of onshore exchanges. Onshore equity markets are expensive and can only be used by large companies. Does the current standard of compliance and regulation mean that small companies can not get capital for growth so that they become large? What does society gain from ensuring effective capital allocation to early stage companies? In the internet era, the offshore stock exchange may ultimately have a greater role.
Financial modelling is highly specialised. A template is useless unless the skills are available to customise it for a specific need. The skills required include Microsoft Excel, a knowledge of accounting standards and being able to communicate the business model by using a financial model. I was reluctant to provide this model, but it does represent a "start" for many people. If you improve the spreadsheet, I would also welcome the opportunity to include those improvements here. Perhaps, we will create an "Open source" financial forecast model for the world. Maybe, the world only needs one and this can be our contribution to the world.
The British Virgin Islands (BVI): an insight into the principles underlying regulation in the leading offshore financial centre
The BVI has incorporated over 700,000 companies, which by some estimates represents approximately 40% of companies registered in "offshore" jurisdictions. It has achieved its leading position by offering a specific mix of corporate law, investor protection, simplicity and privacy that others have since copied. The BVI has unique attributes that mean it is always considered as a place to incorporate. It has a cost-effective regime that has been recognised by the British government, the International Monetary Fund, the Organisation for Economic Cooperation and Development (OECD) as being compliant with the relevant international standards. Although, these same organisations also demonise offshore jurisdictions to discourage their use and protect domestic tax bases. Eleven BVI companies are listed on the the AIM stock exchange including an E-Gaming company.
I found a great blog for startups - onstartups.com . It contains some interesting perspectives from an experienced entrepreneur. I have extracted the key points from two of his articles below and then provided brief comments of how I have applied similar principles to my current startup. I encourage you to read the original articles and subscribe to the RSS feed.
"A true sea change is taking place in the capital markets industry worldwide. Driven by sociological, regulatory and technological developments, this wave will completely alter the face of the industry and the roles of current market participants over the next 10 years.": Bearingpoint. Stock exchanges will move beyond order execution, to providing investment banking services and enhanced clearing and settlement. Smaller firms will follow Google's IPO example and approach the public directly rather than through intermediaries.
“Offshore” encourages lower global tax rates, boosts global economic performance and channels the worlds capital into the United States
"Low-tax jurisdictions play a valuable role in the global economy. Economic research indicates that so-called tax havens provide a tax-efficient platform for cross-border investments, help boost saving and investment, and thus increase global economic growth. Tax havens also encourage good policy in non-haven countries ... The United States is the world's largest beneficiary of tax havens and tax competition, both because the U.S. is a tax haven for foreigners and because tax havens facilitate the flow of capital to the American economy. "
The United States also driving companies away from their home market. :sarbanesoxley:, increased regulation and complexity have increased the cost of raising capital and the risk of non-compliance. Offshore centres are attracting companies away from the United States. "23 of the 24 firms recently looking to raise more than a billion dollars in capital chose to list overseas rather than in the U.S."
Are we entering an era of zero (real) investment returns? Is it time to readjust investment portfolios for an era of rising inflation?
"Of course, it's been a 20-year bull market because of the victory of the world's central banks over inflation following the Paul Volcker, post oil shock recession of 1982. The previous 20 years produced a long-term sharemarket return of about 7.5%, which was a real return after inflation of zero (the real return of past 20 years has been about 8%): Alan Kohler". I believe the recent correction is a "Tipping point" that will usher in an era of investing in a rising inflation environment. This will have a dramatic effect on portfolio weightings, share price valuations and drive greater interest in private equity. "The best strategy is to build a small portfolio of high-quality, 20-year stocks and not try to time the market": Alan Kohler
Shareholders may sacrifice $2.50 for every dollar they pay in taxation. Tax competition may encourage lower levels of global taxation. Structural changes could include simpler systems and an alignment of income and corporate tax rates. Of equal importance will be how government spends every dollar it receives. Some government are better than others in balancing social needs, long term infrastructure investments and immediate needs of business and tax payers. Government's may not receive $1 of value for each dollar they spend. Whoever receives the dollar, it must be spent wisely for the greatest social or economic benefit in a mix endorsed by the community.
Australia has a population of 20m, compared to Europe's 460m. Per head of population, Australia raised more capital for buy-outs than Europe, but invested an equal amount in early stage companies. Europe offers early stage companies greater opportunities to attract investment and achieve an exit. Europe invested US$4.2b in early stage investments compared to Australia's approximately USD150m. Acquisitions of startups in Europe amounted to US$7.5b compared to a nominal amount in Australia. Australia has achieved stunning investment returns from buyouts (a 25% IRR over 5 years), exceeding the returns from the same class in Europe. Not surprisingly, buyouts dominate private equity in Australia. Australian buyout industry is liquid, but early stage investing is small with few opportunities for exit. Europe may offer a greater addressable market for the early stage entrepreneur, more opportunities to raise capital and a greater probabiltiy of achieving an exit. If a country is not an active investor in early stage companies, the entrepreneur may consider moving. Most of the industries currently of interest to investors can be based anywhere.
"The Semantic Web (or Web 3.0) promises to organize the worldÃ¢â‚¬â„¢s information in a dramatically more logical way than Google can ever achieve with their current engine design." The lack of metadata around information and closed information systems ensure financial markets remain a highly profitable industry. In Web 2.0, the information could be organised into structured databases from a single location made available over the internet. Web 3.0 must still be organised, but intelligent distributed agents could answer your question - "Which corporate adviser should I use to list my Web 3.0 company in Bermuda?" and "What are my chances of getting liquidity?". It will be very interesting to see what type of answers Web 3.0 gives us?
The Isle of Man is a world class financial centre. I recommend the Isle of Man Finance web site for more information. It is a very competitive offshore offering, but may have been less flexible and more expensive than other "offshore" jurisdictions. Amongst other requirements, an Isle of Man company had to have at least one resident director and a resident company secretary. This is about to change. The Isle of Man is about to introduce the "New Manx Vehicle" ("NMV") company structure. The NMV has many of the attributes of the International Business Companies of the BVI and other offshore jurisdictions. With the NMV, the Isle of Man is a compelling offshore proposition (particularly for European E-Business). The opportunity to use "meeting rooms earmarked for use by Manx companies" in the Isle of Man's London office is an innovative marketing tactic.
The key reasons that Europe and other regional economies have not developed a "Silicon valley" is not cultural and not lack of capital. There are enough entrepreneurs and the capital will mobilise. There needs to be predictable risk for involvement in early stage, greater transparency that reduce the costs of involvement and a significant reduction in the time/cost to find opportunities. Entrepreneurs and investors need to know who to call. The recipients of those calls need to be willing to get involved. Is there a way to achieve transparency, without waiting for decades to pass and relationships to form in the conventional way? There must be a role for an online social network to assist each regional economy, company, advisers and investors with sincere early stage aspirations.