Thursday, December 31, 2015

When the great Truth is abandoned


When the great Truth is abandoned, the teachings of benevolence and righteousness become fashionable.

When wit and cunning are highly esteemed, the adepts in hypocrisy become fashionable.

When discord reigns in the family, the teachings of filial piety and fraternal love become fashionable. 

When chaos prevails in the country, the loyal ministers become fashionable. 

-Tao Te Ching Chapter 18, Cheng Lin translation (1995)

Tuesday, December 29, 2015

Crowdfunding - Some thoughts

Crowdfunding has morphed into many forms. Many crowdfunding initiatives have charitable or socio-political objectives. Such types of crowdfunding are not the focus here. It is the "investment-based crowdfunding" exercises that I wish to examine.

Malaysia is one of the jurisdictions that has established investment guidelines on crowdfunding. As such, the current swirls of discussion on the matter of crowdfunding is highly relevant.

On 21.12.2015 the International Organization of Securities Commissions (IOSCO) published a survey update on crowdfunding some key observations that I set out further down in this post.

Disclosure-Based Regulations (DBR) versus Merit-Based Regulations (MBR)

I have always maintained that Malaysia still needs a large degree of Merit-Based Regulations (MBR) largely due to the rustic mindset of many investors. The retail investor is still indolent and very susceptible to market noise. That is why Malaysia's regulators need to maintain guidelines and regulations that require regulatory scrutiny and some degree of regulatory prescription.

HKex has an excellent paper that critically examines DBR versus MBR and there is, therefore, no need for me to delve too much into it. Read the paper here if you are interested to understand these policy principles in greater detail. 


In the past decade we have witnessed the Securities Commission (SC) make attempts to institute the Disclosure-Based Regime (DBR). Officially, the SC has shifted from the MBR to the DBR as stated in a guidance note here.

But, with everything said and done, we have IOSCO reminding regulators and investors alike that while DBR still holds as the prevailing principle, I would submit that there is clearly a need for some degree of MBR-type prescription especially when the IOSCO has flagged the ever-present issue of "information asymmetry" which may be loosely defined as-

A situation in which one party in a transaction has more or superior information compared to another. This often happens in transactions where the seller knows more than the buyer, although the reverse can happen as well. Sourced here.

IOSCO's timely survey findings on Crowdfunding
  
Here are excerpts of what IOSCO's report says-

The goal (of the report) is to achieve a balance between promoting crowdfunding and ensuring investor protection and market integrity.  Some of the regulatory measures described in the Crowdfunding Report include-
  • Customizing entry, registration, or licensing requirements;
  • Setting disclosure requirements for issuers and funding portals;
  • Limiting the services  that may be provided  by  crowdfunding platforms;
  • Requiring the appointment of a third party custodian to hold investor assets;
  • Imposing measures to favour the channeling of resources into local businesses;
  • Addressing crossborder issues.
The report also seeks to raise investors’ understanding of crowdfunding, e.g., that crowdfunding may differ from investing in more traditional securities products. In addition to take note of risks common in traditional finance such as conflicts of risks, data protection and fraud, it suggests that investors pay attention to certain key aspects, including:
  •  Information asymmetry: Risk of default or high failures is often associated with start-up businesses. The risk of fraud may be high in case of internet offers. Investors should review disclosure and education materials to further their understanding of the essential features and main risks of the crowdfunding offer and see if third party custodians are being used.
  • Platform failure: There is risk of platform failure for crowdfunding portals. Portals should be evaluated based on their credibility and soundness, including if it has the proper IT systems, back-up facilities and procedures to ensure continued service.
  • Investing limits: Investors should consider if the investment amount is appropriate for their net worth.
  • Rescission, cancellation: Investors should be informed of and understand the investment terms including cancellation or rescission rights.
  • Illiquidity: As restrictions could be put on the resale of crowdfunding securities, investors should pay attention on warnings and information regarding liquidity and the availability of secondary market.
  • Suitability: Investors should consider that a crowdfunding offer may not be suitable and consistent with their investment objectives and risk profile.

Sunday, December 20, 2015

Crowdtasking: Disrupting conventional ways of earning a livelihood

Here's a great new business model that leverages on the principle of crowdtasking along the lines of Uber. The Age Melbourne carries the report here and here's a snippet-

Is your mouth watering at the thought of gelato? Just realised it's your mother's birthday?  One Sydney company will take care of that for you. With just the click of a button you'll have ice cream in your hands, and flowers in your mum's. 

Get acquainted with ASAP, the service that will deliver anything from food to forgotten wallets.  The premise is simple. Text your (legal) request to 0437 825 625, they will reply with a quote, then it's up to you to accept their offer. The wait is usually about half an hour per task. 

It's fascinating and highly encouraging to see another step in conventional concepts of earning a living. People no longer need to resign themselves to a career that requires them to be an employee and be enslaved to an employer. Or, for those who wish to run their own business, they no longer need massive capital to start-up or, incur huge franchise fees.

Crowdtasking business models are leveraging on the incredible pervasiveness of smartphones and apps. This connectedness, it turns out, has unlimited commercial possibilities.

The thing that really makes me happy for the our current generation is the great flattening of untethered income earning opportunities. What I mean is the great democratisation of opportunities to earn a living.

You could be a retiree, a university student, a stewardess, waiter, shop assistant or, executive who can just sign up to offer your time, your effort and, your motor vehicle. Immediately you are part of the network that offers a solution. And, you get paid for it.

An enlightened economist once told me that being employed is a modern form of slavery. My corollary to that insight would be that crowdtasking is a form of emancipation.