Stock exchanges dominate finance. How?


September 16, 2020

PLUS: Amazing new product patents from Nike and Twitter.
September 16, 2020
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The Apple subscription bundle, Apple One, is here. Matthew Ball (who predicted Disney+ years before its launch) tweeted that hardware being added to the bundle is “inevitable.” Also inevitable: Apple taking every last dime of our paycheck.

Speaking of hardware: If you refer someone who signs up for this newsletter by 9/30, you can win a pair of AirPods.

The Big Idea

How stock exchanges came to dominate finance

In the annals of literal-sounding business names, the Long-Term Stock Exchange (LTSE), which went live a week ago, has got to be near the top.

Founded by Eric Ries — author of the entrepreneurial bible The Lean Startup — the LTSE was created for “trading the stocks of companies organized to sustain long-term thinking.”

Stock exchanges have transformed over the years

They used to be “clubby and obscure,” owned by their members (banks and brokers), The Economist reports.

At the turn of the millennium, more exchanges went public and — after a series of consolidations — their rise has been unstoppable.

Leading exchanges have exploded in value over the past decade:

  • Chicago Mercantile Exchange (CME): $23B → $60B 
  • Intercontinental Exchange (ICE): $8B → $57B 
  • London Stock Exchange (LSE): $2B → $32B 
  • NASDAQ: $4B → $21B 

Growth no longer comes from transaction fees

While exchanges still facilitate billions of shares changing hands, the trading business has become a commodity.

According to finance writer Marc Rubinstein, these services are the new “source of power” for the exchanges: 

  • Clearinghouses: After the financial crisis, regulators wanted more stringent rules around derivatives trading. Exchanges own the clearinghouses that set the rules.
  • Indexation: The rise of passive investing (Blackrock, Vanguard) created demand for indexes to track. The major indexes (S&P, NASDAQ) are owned by exchanges, dictating trillions in asset allocation.

Data is a major edge, too

Exchanges have access to critical market data, which they happily sell to financial institutions.

Per The Economist, data is sold via subscriptions, which is less volatile than trading volume.

In August, ICE acquired mortgage data provider Ellie Mae for $11B — while the LSE has a $27B bid out for data firm Refinitiv.

LTSE has a long way to go to

But its unique pitch could help shape markets.

LTSE will initially target private companies that share its vision around environmental, social, and governance (ESG) goals. Specifically, LTSE firms must publish and maintain specific policies that take into account all stakeholders.

The exchange also offers a number of software tools used by 60k+ builders to help manage startup resources.

Ultimately, the exchange’s standards will limit the market — but that’s fine, LTSE’s Ries told CNBC: “The goal [of the other exchanges] is to maximize trading revenue… [LTSE] is for companies who can get held to a higher standard.”

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Snippets
  • Here is The Verge’s Apple event round-up (ugh, #TakeOurMoney). And, Spotify is not happy about the Apple One bundle.
  • Opendoor, a digital home-buying platform, will go public via a SPAC (AKA blank check company) sponsored by Chamath Palihapitiya’s Social Capital.
  • Amazon has finally launched a high-end clothing section called Amazon: Luxury Stores. (Jeff Bezos is really tired of his normcore fashion rep.) 
  • The Juul boom may already be over — the company is laying off ⅓ of its workforce as teens ditch e-cigarettes.
  • Need a new side hustle? There’s a whole industry devoted to slapping decal ads onto your car to turn it into a moving billboard.
  • Bonus: In-person theater isn’t coming back this year, but Playbill, a major industry trade publication, is doing… actually really well?
Cha-Ching

Should the government pay people to take a COVID vaccine?

Researchers have been working around the clock to find a COVID vaccine. But once it exists, we may have another problem on our hands.

A recent poll by NBC News and SurveyMonkey found that only 44% of Americans would for sure get the vaccine, were it to exist.

This resistance has led some economists to propose that the government should pay people to down their doses.

How much are we talking?

The concept is still hypothetical, but the main economist behind it, Robert Litan, has pegged the number at $1k per person.

If 60% of Americans took up that offer, it would cost ~$198B. That’s a steep bill to foot — but it still looks better that the $460B our economy reportedly lost in Q2 of 2020.

An incentivization may be worth it if it jumpstarts economic activity.

If direct payments don’t work, maybe try… peer pressure?

A thousand bucks might not convince you to take the vaccine. But if it persuades your friends, that could be enough.

Litan wants to make sure we get to herd immunity — the tapering of an infection that occurs when a certain % of the population is immune. So, he’s proposed holding back a big portion of that vaccine money (maybe $800) until most of the population gets its dose.

With $800/person hanging in the balance, you can only imagine how intense the family group chats with your unvaccinated uncle are going to get.

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  2. Pay a fraction of that (if anything) for nonstop reviews from actual customers who love your brand and reach your target audience.

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More authentic content is the difference between good brands and great ones. Tap into your customers today with Upfluence Live Capture. 

Up, up, and away →
Playback

Need a new winter coat? Try buying it from a music video.

Has a favorite music artist’s outfit ever made you look down at your schlubby T-shirt and sigh? 

Good news: Now you can channel that shame into shopping.

At the end of July, a startup called droppTV launched a new way to buy clothes directly from music videos — all without exiting the stream.

Made-for-shopping music videos

Through droppTV’s website, you can cop music-video outfits as soon as they appear. And there’s no shortage of choices: the platform says that it has 2k+ musician partners.

If history tells us anything, the concept has some legs. Back in 2012, Iggy Azalea raked in $100k in under 2 weeks with an interactive video that allowed viewers to hover over outfits and buy them directly from the retailer.

Though YouTube is where the vast majority of people watch music videos, the platform doesn’t support interactive shopping. So, efforts like this hinge on viewers clicking out to external sites.

Is ‘shoppable TV’ really becoming a thing?

The trends-watching firm PSFK thinks that droppTV is one of several retail-tech companies headed for a breakout moment this holiday shopping season.

Elsewhere, the integration of commerce and entertainment is growing:

  • On Amazon’s fashion competition show, “Making The Cut,” the winning looks appear on screen with an Amazon “buy” button. #TakeOurMoney
  • On Teleport, a TikTok-like platform that lets randos show off their outfits, users get a cut of the profits on clothing sold to followers.
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Patent It

One way to see the future? Track corporate patents

If you want to see subpar government UX at its finest, go to the US Patent and Trademark Office (USPTO) website.

Thankfully, we have curators.

One of them happens to be Trends member Neer Sharma, who previously co-founded the social writing platform HaikuJAM.

Sharma rounds up the best corporate patents he finds on USPTO and writes it up every week in Patent Drop, giving us a peek into the future.

Here are some recent gems: 

Nike’s sports chair with live game integration

Nike’s in-game athlete chair patent has a really cool feature: temperature control. Athletes are always warming up or cooling down on the sidelines. This could be the lazy man’s way of doing it. #TakeOurMoney

Adobe’s real-time content personalization

Adobe wants to send you personalized digital content based on a live reading of various data points: facial recognition, object identifier, etc.

If you’re drinking a coffee and look relaxed, maybe it’ll send you that Friends episode when they’re all arguing at Central Perk about Rachel’s new haircut.

Twitter’s new patent might save the internet

This isn’t being hyperbolic. Twitter is exploring ways to (finally) give more context on quote retweets, which are usually just people dunking on each other.

With this update, you can quote multiple messages in a single tweet. Technically, you can still dunk on people but… ah sh*t… never mind.

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You’re not as safe as you think you are. That’s why Matt Holland is exiting incognito mode to teach us. He spent the last few decades working on top secret projects in the intelligence community before starting a cybersecurity company, Field Effect. Join us tomorrow at 12pm PST here.

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Today’s email was brought to you by Michael Waters, Caroline Dohack, and Trung Phan.
Editing by: Zachary “So much liquidity” Crockett, Donna Day Evvalurn (Italian Governess).

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