Sunday, August 30, 2009

Reuters vs Bloomberg

The Sunday Times has the latest on Reuters vs Bloomberg.

When the banking crisis tore through Wall Street and the City of London there wasn’t much Devin Wenig could do, apart from sit and watch the trading screens in his office turn red.

As for any supplier to investment banks, a string of collapses including Bear Stearns was not good news for Thomson Reuters, even though the financial news and data provider claims to thrive on volatility.

Wenig runs the company’s markets division — essentially the old Reuters business plus Thomson Financial, which supplies legacy systems like Topic and Datastream. He knew a new banking elite would mean fewer potential customers.

However, Thomson Reuters has been dealing with another change in its market. Thanks to the rise of the internet, today’s traders are more familiar with clicking their way through YouTube than memorising a complicated series of codes for using Reuters’ trading screens and information feeds.

“You see very different behaviour from a 25-year-old just out of the London School of Economics to a 55-year-old who has been trading for the last 25 years,” said Wenig.

“People who grew up with Google have totally different expectations of how to interact with information and media. We can’t ignore that.”

Despite the recession, in the next few months it will unveil Project Utah, the final leg of a $1 billion (£613m) technology investment to upgrade its systems in four key areas.

“We are not going to be the greatest technology company in the world and nor should we be,” said Wenig. “But technology is an enabler. We have to put money into it. We can’t just talk about it.”

In the 158 years since Reuters began flying pigeons with news alerts tied to their legs, it has had to move with the times. But the company, which merged with Thomson last year and has delisted itself from the London stock market, has never really been known for its cutting-edge advances.

New versions of old systems have underwhelmed or been released late. Innovations such as offering instant messaging between users have often been introduced first by its nimbler rival Bloomberg, which has caused a headache for Reuters ever since it set up as a direct competitor almost three decades ago.

It recently trailed in Bloomberg’s wake in mobile, but the launch of a news application for the BlackBerry and iPhone was a hit, drawing 90,000 subscribers in its first month. However, long-term followers of the industry see a change of tack.

“The difference now is that Thomson Reuters is taking a more friendly approach to how it presents information,” said Douglas Taylor, managing partner at Burton-Taylor International Consulting and a former executive at both Thomson Financial and Reuters.

“In some cases they are playing catch-up but I think their expectation is to leapfrog Bloomberg.”

Clients also have high hopes. “This is a fiercely competitive market and I welcome any change that makes business easier to execute as long as quality isn’t compromised,” said Bryan Hotston, chief information officer at JP Morgan Cazenove.

In contrast to newspapers, providers of financial information that rely on subscriptions rather than advertising have held up well despite free news and statistics being readily accessible online through Yahoo Finance and other websites.

Despite the financial crash, underlying sales at Thomson Reuters’ markets division are still growing, although only by 0.2% in the last quarter.

Taylor forecasts that the $23 billion market for electronic financial information will shrink by 1%-3% this year, with Bloomberg holding a 26% share and Thomson Reuters 34% because it dominates in areas such as fixed income. Where they compete directly, the pair are judged to be roughly neck and neck.

Often it is not the news they convey that makes one or the other a must-have for City dealing rooms. If the information is market-sensitive, it is the immediacy of it and how it is packaged, including commentary and analysis, that makes all the difference.

For this reason, Thomson Reuters is trying to drive down split-second delays in its data feeds. Some investment banks have asked it to host their applications in its data centres to increase efficiency.

The biggest change to its news provision will be Insider, a video news service for the financiers who already use its news terminals. If they pay, they can call up interviews as if they were trawling YouTube and they will also be able to search quickly through transcripts for the key points. “I don’t want to turn us into a consumer company but you ignore at your peril what YouTube and Twitter have done to online behaviour,” said Wenig.

He invoked Apple and BlackBerry maker Research in Motion as the type of company he wants Thomson Reuters to emulate.

“We didn’t tend to think of ourselves as a product innovation company. I am trying to move the company forward and encourage people to think about new things,” he said.

The biggest technology bet he will place is Project Utah. Almost two years in the planning, and arriving early next spring, it aims to create a common platform for all of Thomson Reuters’ 200 financial products for the first time, making Reuters’ systems simpler to use.

It is likely to look and feel more like a conventional web portal and all its 500,000 customers will be moved on to it, replacing 3000Xtra as its flagship product. For a company that has previously tailored everything to different customers, it marks a new direction. So does the way that Wenig plans to introduce it.

“It is the first time we are going to properly launch a product,” he said. “We never really launch products. They just emerge. This will have proper marketing and advertising.”

Some of the changes mirror Reuters’ rivals, which are also investing during the downturn. Dow Jones — which is part of News Corporation, owner of The Sunday Times — is revamping its newswires’ arm by beefing up web applications so it is less dependent on data terminals. Meanwhile, Bloomberg has added news providers such as Associated Press to its terminals and a tagging system that lets users search across them more efficiently.

The challenge for all of them is a common one: to remain not just faster than the web but to make sure they still click with the newest internet-savvy generation of City workers.

Friday, August 28, 2009

Central banking

Pepys' Diary 17th August 1666

Then to Sir W. Batten’s, where Sir Richard Ford did very understandingly, methought, give us an account of the originall of the Hollands Bank, and the nature of it, and how they do never give any interest at all to any person that brings in their money, though what is brought in upon the public faith interest is given by the State for. The unsafe condition of a Bank under a Monarch, and the little safety to a Monarch to have any; or Corporation alone (as London in answer to Amsterdam) to have so great a wealth or credit, it is, that makes it hard to have a Bank here. And as to the former, he did tell us how it sticks in the memory of most merchants how the late King (when by the war between Holland and France and Spayne all the bullion of Spayne was brought hither, one-third of it to be coyned; and indeed it was found advantageous to the merchant to coyne most of it), was persuaded in a strait by my Lord Cottington to seize upon the money in the Tower, which, though in a few days the merchants concerned did prevail to get it released, yet the thing will never be forgot.

The value of networks

Edward Glaeser highlights the importance of social interactions in a NYT article.

As an urban economist, I focus in my research on the advantages that cities create by connecting people to one another. Cities facilitate trade and learning and even friendship, by bringing people literally closer together. It is somewhat ironic that Rand chose Frank Lloyd Wright to be her model for lone wolf Roark. Wright is better seen as an example of the virtues of social learning, for he was part of a chain of connected Chicago architects — including William LeBaron Jenney, Daniel Burnham and Louis Sullivan — who learned from each other and collectively gave us, among other things, the skyscraper. The enduring strength of cities reflects the social nature of humanity which Professor Cacioppo so ably demonstrates.

Monday, August 17, 2009

Counting cards

New Scientist discusses money-making from probability theory.

The simplest way is to start at zero and add or subtract according to the dealt cards. Add 1 when low cards (two to six) appear, subtract 1 when high cards (10 or above) appear, and stay put on seven, eight and nine. Then place your bets accordingly - bet small when your running total is low, and when your total is high, bet big. This method can earn you a positive return of up to 5 per cent on your investment, says Thorp.

Seems a reasonable return.

There is also a good explanation of arbitrage.

Each bookie has looked after his own back, ensuring that it is impossible for you to bet on both Oxford and Cambridge with him and make a profit regardless of the result. However, if you spread your bets between the two bookies, it is possible to guarantee success (see diagram, for details). Having done the calculations, you place £37.50 on Cambridge with bookie 1 and £100 on Oxford with bookie 2. Whatever the result you make a profit of £12.50.

Simple enough in theory, but is it a realistic situation? Yes, says Barrow. "It's very possible. Bookies don't always agree with each other."

Guaranteeing a win this way is known as "arbitrage", but opportunities to do it are rare and fleeting. "You are more likely to be able to place this kind of bet when there are the fewest possible runners in a race, therefore it is easier to do it at the dogs, where there are six in each race, than at the horses where there are many more," says Barrow.

Even so, the mathematics is relatively simple, so I decided to try it out online. The beauty of online betting is that you can easily find a range of bookies all offering slightly different odds on the same race. "There are certainly opportunities on a daily basis," says Tony Calvin of online bookie Betfair. "It's not necessarily risk-free because you might not be able to get the bet you want exactly when you need it, but there are certainly people who make a living out of arbitrage."

Arbitrage is not risk free because you might not be able to get the bet you want exactly when you need it. But there are certainly people who make a living out of it
After persuading a few friends to help me try an online bet, we followed a race, each keeping track of a horse and the odds offered by various online bookies. Keeping track of the odds to spot arbitrage opportunities was hard enough. Working out what to bet and when was, unsurprisingly, even harder. Arbitrage is not for the uninitiated.

Monday, August 10, 2009


Solow at the Stiglitz conference:

I also doubt that universal rational expectations provide a useful framework for macroeconomics. One understands the appeal. Think of it this way: Herb Simon was surely right about bounded rationality; no one would deny that most economic agents are actually like that, and natural selection does not work fast enough to eliminate them. Why did the notion of "satisficing" never catch on? I think it is because the assumption of complete rationality tells the modeller what to do, whereas bounded rationality only tells the modeller what not to do. That is not helpful. Something similar is true about rational expectations. If there were a nice parametric family of alternative ways to model expectations, it might catch on. Most of us would happily go along with the notion of expectational equilibrium: if specific underlying expectations generate an outcome in which those expectations are systematically and non-trivially violated, that situation can not be an equilibrium. It is what happens then that needs thought. The situations that agents need to anticipate need not even be probabilistic, surely not stationary. The popular device used to be adaptive expectations; that may have been inadequate. Maybe this is a case for the application of psychological research (and sociological research as well, because the formation of expectations is a social process). Maybe experiments can be designed. Heterogeneity across agents and classes of agents is certainly important precisely here. One would like a simple, definite way to proceed, if that is possible. A good example of the sort of thing I mean is the way the Dixit-Stiglitz model made monopolistic competition easy. (The trouble is that we are dealing with an unobservable.)

Thursday, August 06, 2009


Eric Falkenstein assesses the EMH.

No one thinks markets are perfect, and EMH never says this. The proof that markets are efficient is that it is so improbable one can generate alpha — something you, like most EMH critics, concede. But the implications do not seem obvious. That you were able to find one person in 2004 and turn his measured warning into something that would have drastically reversed the regulatory emphasis on weakening underwriting standards is classic hindsight wisdom.

Thanks to Chris Dillow for the pointer.

The wider point is that though markets are very far from perfect (and we have been shown many examples of that over the last couple of years), we should not be comparing markets against perfection but against the alternative. The alternative is some command (probably political of firm-orientated) structure. The Guardian looks here at local government planning.

Saturday, August 01, 2009


The Epicurean Dealmaker tells us something that has interested me for a while.

But I guess I see why you didn't publish that data for all the banks. It would have diluted the message to disclose for everyone what Goldman Sachs insisted you report for them: that 953 Goldman employees earned bonuses of $1 million or more, but no-one at the company took home more than $885,000 in cash. Sorta undercuts the image of fat cats dining freely on the shareholders' and taxpayers' dime, doesn't it? Joe Sixpack might not get so worked up about a banker's $10 million bonus when he learns that over $9 million of it is tied up in his firm's stock for up to five years, huh?