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Real Time Incompatible

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When we pay salaries to our people in the Netherlands, Czech Republic, Spain and the US, it has always frustrated me that transferring the required funds from a bank to another takes at least 24 hours and sometimes three working days.

Technically speaking, these transactions could happen in milliseconds, as nearly all banks in the world are interlinked with high-speed connections. However, the naked fact is that the banks benefit from keeping our money for a day or three, as it is convoluted into various derivatives within the bank’s structure, accumulating profitable interest. It has always been so – in the past, there was also a convenient technical reason as letters and early data connections were slow.

Banks naturally argue that if they lose this interest benefit, they’d have to increase other fees which would make customers unhappy. This is maybe true, but it could camouflage a much deeper problem in our current, global economical structure.

On the other side, banks and financial institutions always seek out the latest communication technologies in order to get more real time (eg. stock price) information from various stock exchanges. There are now even dedicated ‘financial’ fiber routes between for instance New York and Chicago, built at high cost through difficult terrain and property, but saving a few crucial milliseconds in transmission times. This gives an edge for automatic trading systems to track trends and make deals earlier and more profitably.

Company stock prices were originally truly based on expected increases of shareholder value. The exchanges were not designed to be the casino riots of today, with an arsenal of next to incomprehensible derivatives being traded. But what has changed?

Stock exchanges have strict rules on how companies must report their financials and major events. There are quarterly reports, profit warnings and closing of books reports, in addition to many other duties. Similarly, whole countries report their GDP figures, jobless rates, capital interest rates and so on. Central banks steer their reference interest rates, with grand annoucements preceded by clandestine meetings.

All this is based on tradition – quarterly numbers used to take time to be collected. Jobless people counting used to manual. Yes, 30 years ago. But all this data could now be processed and presented in real time, just like the stock prices.

Take a quarterly report. That is data with.. granularity of three months. If I’m a shareholder of a company, why can I get it’s stock price at a millisecond’s delay, while uncomfortably waiting for three months to get vital information about the company’s financial health?

My draft postulate is that this fundamental disconnect between this stop motion and millisecond grade data is deeply unhealthy and is likely to create bigger and bigger economic bubbles if the system is not re-engineered for synchronized real time processing. Every time these disconnections are widened by artificial rules favoring lagged data, someone somewhere creates money out of nothing.

So how about a Real Time Corporation? Upon buying shares, I’d get a portal to its finances – how many phones were sold in the last.. 30 minutes? What was the manufacturer suggested retail price for a particular phone.. 5 minutes ago?

This way real time data would be utilized evently and democratically, which could greatly decrease the amount of speculation leading to the various financial bubbles we’re seeing around us now.

PS. Real Time Country? That is perhaps material for a new blog entry..

//Pasi

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