Thursday, June 22, 2017

Netherlands June 2017

I usually keep a travel diary for trips. The one for our upcoming trip to the Netherlands can be found here. Short trip - should be short diary.

Wednesday, June 14, 2017

The 'Mom Test'

Coinbase allows people to buy and sell digital currencies and exchange them with fiat currency. For most people, digital currency can be confusing and intimidating. Coinbase is out to change that and make it simple. On Bloomberg TV yesterday, Adam White of Coinbase, to explain how simple their system is, described it as having passed the 'Mom test.'

How many times have I heard male technology executives describe their software as 'so easy even my Mom could use it'? Too many to count. You get a twofer with such a remark, offending both women and older people. This time, something snapped. So I wrote an irate email to Coinbase. 

I'm writing about Adam White's recent appearance on Bloomberg TV. He referred to the 'Mom Test'. This expression is totally offensive. Mr. White should be ashamed of himself.

Tech executives (almost always men) typically describe an application as so easy to use 'that even my mom could use it'. No one could get away with saying something was so easy to use that 'even a black person could use it', or 'even a gay person could use it'. What makes men think it's acceptable to make such a derogatory statement about women? There are countless households (including mine) where the resident tech is the female in the house. 

Statements such as Mr. White's also fly in the face of sincere and concerted efforts to attract girls and women to STEM, where there is a shortage of talent. What young girl would think she's capable of a successful career in STEM when such comments float around the ether (pun intended).

Lib Gibson
a tech pioneer who has been using email since 1970, who led global networked application development in the 80s, who was CEO of a mobile data company in the 80's, who launched Canada's largest ISP in the 90s, who ran Canada's largest Internet company in the 90's and 00's and who currently serves on various high tech boards of directors

(Pardon those last phrases. I was pretty sensitive about being labelled as a dumb old woman!)

To my amazement, almost immediately I received an email from Adam, followed by a phone call today. Adam is a very pleasant young man and he was most apologetic about his words. I started out upset with him and ended up an admirer.

Adam said Coinbase was very dedicated to diversity in their work place, pointed out that his own mother, an engineer, was the techie in his own home, and explained that he meant no offence. Basically he seemed puzzled about what made him use this phrase - he usually describes the Dad Test. (That's only a onefer as you only insult older people.)

Adam acknowledged that his careless statement was wrong, and that it contributed to the stereotyping of women as non-technical - not to mention older people. He said he was grateful to have it pointed out and would change his language in the future. It just shows how deeply the stereotype is embedded, if a well-meaning young man like Adam can use an offensive phrase so nonchalantly. I've challenged this kind of language often, but never received such a fulsome apology and commitment to behaving differently. We women should make sure we never let such remarks pass without commenting on them.

Adam and I had a discussion about what phrase he could use instead of Mom Test, and the best we could think of was "it's so easy that anyone can use it". Not as good a sound bite as the Mom Test. Any ideas out there for a better catch-phrase?

Thursday, April 27, 2017

The Last Men in Aleppo

A city under attack. Devastation everywhere. People struggling to live in the brutality of war. Eyes  looking ever upward in fear of the next attack. Courageous volunteer Syrian White Hats working to free survivors from the rubble. A charismatic central character, Khaled, a big burly guy with a big burly personality. World Cinema Grand Jury Prize at Sundance. No wonder I expected a lot of this Hot Docs movie.

The Last Men in Aleppo was moving - and horrifying. For an hour and 40 minutes, one felt as if one were living in the ravaged city of Aleppo, worse than the words of news reports can convey, as people struggle to live in bombed-out buildings, and fear to take their children to a playground.

Yet, as a movie, it was rather unsatisfying. Essentially, the sequence was: Russian planes arrive. Bombs drop. The White Hat team rushes headlong into danger as fast as their rattletrap truck will go. They work with excavators, shovels, pickaxes and hands to rescue people. Sometimes they find a survivor. More often they find dead bodies, or dead body parts. Not enough body bags to handle the dead. Repeat. Repeat. Repeat.

The repetition of the same scenario dulled its impact. What elicited gasps in the audience at the start drew only silence as the movie progressed. Granted, the scenario was interspersed with  a few scenes of the men discussing again and again the eternal question, whether to leave Aleppo or not. But it's their city, and the camps in Turkey are not a very pleasant alternative. So they stay. The eternal discussion underlined the trap they were in and the hopelessness of their situation. The movie is leavened by some charming scenes of Khaled with his captivating little daughter (the only time we see a female in the movie, except in one crowd scene), and his quixotic purchase of some tropical fish for his rebuilt fountain and pond. But essentially it was rather repetitive.

The movie ends with a horrific body blow, as we see Khaled's body laid out on a plank. The shovels and pick axes are put to work digging his grave. A brave man who lost his life while he worked as a White Hat.

Saturday, November 19, 2016

Katsuyama and Flash Boys

The ebullient Brad Katsuyama recently spoke at University of Toronto. It was a wonderful talk, and here are some reflections on what I learned. (Any errors are of course due to my own misunderstanding.)

Why Stock Exchanges Weren't Fair
Brad Katsuyama became my hero when I read Michael Lewis' riveting book Flash Boys.The book describes how Katsuyama, a Canadian working for RBC in New York, discerned how stock exchanges are not unbiased referees in the markets. He would observe the price of a stock, place an order, and, consistently, the fill price would be higher. It was only a small increase, but still, it shouldn't have been there.

Katsuyama initiated a detective hunt to figure out why this was happening. He pieced together that the exchanges had huge conflicts of interest: their  profits at stake motivate them to tilt the odds in favour of their best customers, the high frequency traders.

Traders have many choices of where to places their trades, putting the exchanges in competition with each other. Exchanges entice brokers to place trades with them by giving the brokers rebates. These rebates stayed in the pockets of the traders not the customers on whose behalf they were trading. In order to force traders to choose the best price, not the exchange which offers the best rebate, new regulations were introduced. These regulations required a trader to take up the cheapest offer price when placing an order for shares.

The Law of Unintended Consequences
The regulation had a totally unintended consequence. Suppose you're a trader wanting to buy 100,000 shares of Microsoft.  Large buys like this get filled with purchases on many different exchanges. Before placing your order, you determine the price on your trading terminal - say it's X. But high frequency traders have laid a trap for you - on one exchange they  offer to sell 5,000 shares at, say, 'X minus a tiny little bit'. As a buyer, you buy those shares because they're the cheapest available and because regulations require you to buy at the cheapest price for your customer. But you still have most of your order left to fill - 95,000 shares.

The high frequency traders, knowing about this demand, rush around to other exchanges to buy shares at the quote price X. This demand pushes up the price of Microsoft. By the time you arrive to complete your purchase of 95,000 shares, the price has risen to 'X plus a little bit'. The high frequency trader has bought at X and sold at 'X plus a little bit', a tactic called front running. Thus he's made 95,000 times 'a little bit' in profit. For the original baiting trade, it only cost him 5,000 times 'a tiny little bit' to set this up.

We're Talking Billionths of a Second
You might ask how these high frequency traders beat the buyer to those other exchanges. Well, the laws of physics are at work. Distance travelled equals time. The closer you are to the exchange, the faster your messages get there. Flash Boys opens with a description of cable being laid in an obsessively straight line to minimize transmission time from Chicago to New York. It's a stealth operation so that the land rights sellers don't realize just how valuable their particular piece of land is. Builders don't want the cable to deviate even a foot from the optimum route.

Of course, the best place to be is right in the computer room of the stock exchange. So stock exchanges charge big bucks for you to co-located your computers within their computer room. It takes a billionth of a second to travel over 11.8 inches of cable. So the closer you get to the exchange's computer, the faster you can trade. In order to be able to sell space to many different players, the exchanges introduce the exact amount of coiled cable between a customer and their computer so that all the customers buying space in the room have exactly the same arrival time at the exchange's computers.

The business of selling computer room real estate is hugely profitable for the exchanges, and accounts for their conflict of interest. It behooves them to cater to the high frequency traders - the flash boys - who account for the majority of their profit. The exchanges also make a lot of money selling data, with the high frequency traders again being their best customers.

Feeling the Pain - First Step in Addressing A Problem
Katsuyama says he would never have tackled this problem if he himself hadn't experienced the pain of getting dinged on his own trades. When he first arrived in New York in 2006, he could get his whole order of 100,000 shares filled at the quote price X. Every year, the proportion of the order filled at the quoted price X kept dropping. By 2009, he observed that he could only get about 60,000 of his desired 100,000 filled at the original price X. (Note that I exaggerated the proportions in my example above to emphasize the point.)

Katsuyama didn't initially understand this. But he was a humble and indefatigable searcher for truth.  He was willing to admit his own ignorance and doggedly talked to many people who did understand these things until he figured out what was going on. He had taken the job as Manager of the Algorithmic Programming Team based on the assurance from RBC that he would have a free hand in hiring the best people.  He doesn't think he'd have had the persistence for his painstaking research if he hadn't felt the pain himself. He didn't say this, but I think he was also motivated by his innate sense of fairness which was offended by the way the market was working.

Thinking Differently
Once he understood what was going on, Katsuyama concluded that there was no way RBC could win in this rigged market. Because RBC was trading on behalf of customers, there were checks and balances in the system that would always make them slower than the flash boys. RBC took about 2 milliseconds, whereas the HFT guys were taking 476 microseconds: they'd always be four times faster than RBC.

He'd read Michael Lewis' previous book, Moneyball, which described Billy Bean's unorthodox approach to making the Oakland As a successful team despite the disparity in their budget. It all came down to thinking differently. He decided to apply this lesson to the financial markets.

Katsuyama concluded that the key for RBC was to get slower. Introduce delays in your messages to all the different exchanges so that your offers arrive at the same time and the flash boys can't front run you. In my innovation courses, I call this Letting Go Of What You Know. If the industry 'knows' that the way to succeed is to get ever faster, let's get slower! Selectively slower. Insert a delay into the orders to the closest exchanges so that all your orders arrive simultaneously at all exchanges. Suddenly, you're seeing 100% of your trades getting executed at the original offer price X. A diagram in Wikipedia explains it very simply:

Start trading this way, tell your customers about it, and in one year RBC moves in the trading rankings from #19 to #1.

So what do you do about it? IEX
Now that Katsuyama has untangled the secret of the market, he faces several fundamental choices: stay at RBC and help their customers get fair trades, get very rich by becoming a flash boy himself or reform the entire market by publicizing what he's learned.  

Katsuyama choose the third option and decided to create a new exchange. He has to leave RBC to do this, and the great people he's hired there follow him. They call it the Investors Exchange and it is designed to be fair, simple and transparent. No co-location. No fees for trading data. An even playing field for everybody.

IEX started as an 'alternative stock exchange' but soon reached volumes that required it to get approved by the SEC as a full exchange. Naturally there was lots of opposition from the incumbents, the exchanges and the high frequency traders; IEX was attacking their livelihood. 

Katsuyama described this as Diffuse Harm, Concentrated Benefit. For the exchanges and high frequency traders, there was a lot at stake and they were prepared to fight hard; for the ordinary traders, it was just about fractions of a cent, and there were more important issues for them to worry about. Nevertheless, mostly because of the Flash Boys book, the SEC received more input supporting IEX's application than in their total history before. In the end, the exchanges' insertion of cable in their own computer rooms (to equalizes things for all those who'd bought colocation) set a precedent for the equalization that IEX was imposing and so IEX won the day.

Did Being Canadian Make A Difference?
At the presentation, I asked a question of Katsuyama. I started by saying that, when reading Flash Boys, I'd been incredibly proud that he was Canadian. The audience - a completely packed room - burst into spontaneous, exuberant applause. (The Economist had just put Canada on the front cover as an example to the world. It was US election day and the extent of Trumptastrophe was not yet known.)

Katsuyama, with typical modesty, said he didn't spend much time thinking about himself, but Michael Lewis did feel that only a Canadian would have reacted the way he did - seeking to make the world a better place by creating a level playing field, rather than seeking personal profit. You could almost feel a maple leaf tattoo mystically appearing on everyone's forehead!

Flash Boys the book
I would put this book on your must-read list. It reads like a suspense novel, with high frequency traders as sinister predators and the boyish, charismatic, unassuming Katsuyama as the hero. Lewis explains the technical and financial details clearly. He brings the characters to life. It's just an enjoyable read in every way.

For my other book reviews, click here.