Re-energizing the moribund bond market

January 15, 2015 05:14 AM

Interactive Finance

“Interactive Finance” came to me as a comprehensive definition for concept created by Michael and Constance Erlanger to power efficient markets through a neutral risk assessment framework. It is, in the simplest sense, a system that drives liquidity in exchange for risk revelations and disclosures. It scores and values any individual or aggregate of risk elements to generate contractual clarity thereby lowering uncertainty risks and increasing asset values. Essentially, interactive finance crowd-sources risk assessment and, in so doing, clarifies the DNA of risk. 

Beyond enhancing BlackRock’s market reform recommendations, interactive finance enables the private sector to power systemic vitality with solutions that serve the public interest. 

Its inventors are partnering with technology interests to see that this work is deployed world-wide to pull us out of this global quagmire of an estimated $1.2 quadrillion in notional risks.

The system supports a near real- time risk assessment framework with an advance that improves both transparency and liquidity in ways that turn some of the data collection necessary for regulatory compliance into financial and strategic benefits.  

Interactive finance incents disclosure by directly rewarding any party for risk revelations throughout the life of any instrument or currently illiquid, asset-backed and residential mortgage-backed security. New information can be monetized with cost saving benefits. Any individual or counterpart can offer incentives in the form of transaction credits or system credits for risk information through an exchange of a lower cost of either transaction fees or strategically critical market information. 

Interactive finance monetizes new behavior and sustains standardization with specificity by verifying current and changing monetary and risk values of credit and debt instruments.  It expresses confidence scoring of certainty, risk disclosures and value in real and near real time. This innovative risk assessment framework deploys and leverages the “quality and quantity” of data, a generational improvement over largely retrospective credit scoring. This important advance responds to G-20 risk rating reforms.  

This system empowers “all to all” markets, clarifies multiple electronic trading protocols, addresses standardization that accommodates specificity, generates granular market information, monetizes new behavior and also transforms regulatory compliance into fresh revenue-generating opportunities for corporate, asset-backed (mainly mortgage-backed securities) and municipal bonds. By so doing, it clarifies risks in murky markets and stimulates liquidity.  

Interactive finance anticipates and goes beyond BlackRock recommendations and offers more in the form of ongoing incentives for participation like risk-determined scoring, continuous revaluation of contracts and component analysis of pooled securities. All of these features derive from incentives for risk revelations that are exchanged among participants as time sensitive grants that lower costs. 

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