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Monday, April 11, 2022

Strike, algorithm and more - Money Monster

A  century ago – there was a strike by   the workers of Buckingham and Carnatic Mills in the city of Madras, against the managing company, Binny and Co. The strike, which lasted from June to October 1921, caused severe losses to the Madras economy. It also created a rift in the ruling Justice Party.

Half a century or so ago, industrial activities were at their peak at Ambattur – a blooming Industrial estate with mushrooming small scale units. Sadly, strikers broke the backbone of small upcoming entrepreneurs – by those orchestrated strikes by Left Unions, the worst sufferers were the workers themselves, as one after the other Units started closing.  Now the Estate is struggling more so with migrant workers not being available due to Covid 19. A couple of decades ago, in Banks and PSUs – Unions could threaten the management calling strikes too often – all that has changed ! totally.  One would remember witnessing – ‘agitations / demonstrations at lunch or at the start of the day itself – workers shouting – worker’s unity zindabad ! management murdabad !!’.

The right to strike in the Indian constitution set up is not absolute right but it flow from the fundamental right to form union. As every other fundamental right is subject to reasonable restrictions, the same is also the case to form trade unions to give a call to the workers to go on strike and the state can impose reasonable restrictions.

Section 2(gg)(q) in The Industrial Disputes Act, 1947 – defines :  " strike" means a cessation of work by a body of persons employed in any industry acting in combination or a concerted refusal, or a refusal under a common understanding, of any number of persons who are or have been so employed to continue to work or to accept employment; Whenever employees want to go on strike they have to follow the procedure provided by the Act otherwise there strike deemed to be an illegal strike. Section 22(1) of the  Industrial Dispute Act, 1947 put certain prohibitions on the right to strike.

An interesting movie purportedly about stock market – the  story unfolds the day after a major listed company, Ibis, has declared a “glitch" in its algorithms has led to the loss of $800 million. The chief executive officer, Walt Camby (Dominic West), due to appear as a guest on Money Monster, is said to be mid-air between Geneva and New York and therefore unable to attend the show.  May be of more interest to those investing in Shares ?

How much have you invested in shares ? – is that more than 50% of your portfolio – and how closely do you follow the market ?- daily, hourly or at a higher frequency ! – it is close follow-up and mental Maths one may think .. .. more wise people would use algorithms.  Instead of following the market, and buying (online or through a broker) intra-day – you could set rules.

I am an absolute novice in this :  but suppose, if you want to invest Rs.2 lakhs – and would like to keep your portfolio by buying 100 shares of a stock when its 100 day moving average goes above 200 day moving average !  and sell your owned stocks when their 100 day moving average goes below 200 day moving average ! (sounds pretty complex!) – you can have a program written which would constantly monitor the stock price and the moving average indicators and execute ‘sell / buy’ orders when the set conditions are met.  You need not monitor the market on hourly basis but this will happen based on the ‘algorithm’.  

The basis of any computer application and its functions is algorithm. With the advent of advanced technologies, almost every sector is basing its effectiveness on this piece of logical coding. Algorithms leverage user data, past patterns and a designated set of prespecified instructions to achieve the set goals. In the financial domain, the rise in demand for reducing transaction cost is fuelling the demand for use of algorithms in everything, from customer service to stock trading.  In Mathematics and Computer Science, an algorithm, is a finite sequence of well-defined instructions, typically used to solve a class of specific problems or to perform a computation.

Algorithmic trading (automated trading, black-box trading, or simply algo-trading) is the process of using computers programmed to follow a defined set of instructions for placing a trade in order to generate profits at a speed and frequency that is impossible for a human trader.  The algorithmic trading strategies follow defined sets of rules, and are based on timing, price, quantity or any mathematical model. Apart from profit opportunities for the trader, algorithmic-trading makes markets more liquid and makes trading more systematic by ruling out emotional human impacts on trading activities.

On a not so fine day, flamboyant television financial expert Lee Gates is in the midst of the latest edition of his show, Money Monster. Less than 24 hours earlier, IBIS Clear Capital's stock inexplicably cratered, apparently due to a glitch in a trading algorithm, costing investors $800 million. Lee planned to have IBIS CEO Walt Camby appear for an interview about the crash, but Camby unexpectedly left for a business trip to Geneva, Switzerland.  Midway through the show, a deliveryman wanders onto the set, pulls a gun and takes Lee hostage, forcing him to put on a vest laden with explosives. The man reveals that his name is Kyle Budwell, who invested $60,000—his entire life savings—in IBIS after Lee endorsed the company on the show. Kyle was wiped out along with the other investors. Unless he gets some answers, he will blow up Lee before killing himself. Once police are notified, they discover that the receiver to the bomb's vest is located over Lee's kidney. The only way to destroy the receiver—and with it, Kyle's leverage—is to shoot Lee and hope he survives.

With the help of longtime director Patty Fenn, Lee tries to calm Kyle and find Camby for him, though Kyle is not satisfied when both Lee and IBIS chief communications officer Diane Lester offer to compensate him for his financial loss. He also is not satisfied by Diane's insistence that the algorithm is to blame. Diane is not satisfied by her own explanation, either, and defies colleagues to contact a programmer who created the algorithm, Won Joon. Reached in Seoul, Joon insists that an algorithm could not take such a large, lopsided position unless someone meddled with it.

Lee appeals to his TV viewers for help, seeking to recoup the lost investment, but is dejected by their response. New York City police find Kyle's pregnant girlfriend Molly and allow her to talk to Kyle through a video feed. When she learns that he lost everything, she viciously berates him before the police cut the feed. Lee, seemingly taking pity on Kyle, agrees to help his captor discover what went wrong.

It turns out that Camby bribed a South African miners' union, planning to have IBIS make an $800 million investment in a platinum mine while the union was on strike. The strike lowered the mine's owners stock, allowing Camby to buy it at a low price. If Camby's plan had succeeded, IBIS would have generated a multibillion-dollar profit when work resumed at the mine and the stock of the mine's owner rose again. The gambit backfired when the union stayed on the picket line. Camby attempted to bribe the union leader, Moshe Mambo, in order to stop the strike, but Mambo refused and continued the strike, causing IBIS' stock to sink under the weight of its position in the flailing company.  In the aftermath, the SEC announces that IBIS will be put under investigation, while Camby is charged with violations of the Foreign Corrupt Practices Act.  .. that's movie Money Monster!

Some movies carry strong messages !  .. .. ..  some may think and relate this to the happening down South, in what was put up by media,  to be a people’s movement – a factory was sought to be closed. There were strikes, lockdown, police shoot out – who was right, on whose side was truth – whether strikes were manipulated ? whether there were political gains – Qs and more Qs – it is clear that it has impacted people in a big way, affecting their livelihood and the stoppage has denied wage earning of many directly and indirectly too !! 

Interesting and life offers so many learnings, if only we are ready to !! 

With regards – S. Sampathkumar
10th Apr 2o22. 

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