law's future from finance's past - reinvent law, silicon valley

Law’s future from finance’s past

Michael J. Bommarito II

Quantitative Legal Solutions, LLP

Reinvent Law: Silicon Valley

2013-03-08

GOAL

Motivate two questions:

• Where can we go?

• Who can we learn from?

Analogy from broad strokes characterizations.

Devil-in-the-details.

Still valuable as a thought experiment.

Quantitative Legal Solutions, LLP; www.qlsllp.com

RISK

• From 10k’, law and finance are just two risk management strategies (finance ⊂ law?).

• Tools for entities as large as U.N. or as small as an individual.

• (Hammers are hammers; can be used for good and bad.)


HOW? (FINANCE)

Incentives

Creativity

Adoption

Formalization

Feedback


HOW? (FINANCE)

Incentives

• Exogenous

– Macroeconomic environment (end of post-war boom, globalization)

– Regulatory environment (de-peg in ‘71)

• Endogenous

– Labor/process bottlenecks as transaction volumes grow

HOW? (FINANCE)

Creativity

• Create new “products”

– Commoditized, non-commodity derivatives • FX and interest rate futures

• Stock and index futures and options

• Volatility futures and options

• Create new service delivery models

– Integrated exchanges and clearinghouses

– Online/electronic brokerage


HOW? (FINANCE)

Adoption

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

300,000.00

350,000.00

400,000.00

1960 1970 1980 1990 2000 2010

Reported share volume (mils.)

Reported share volume(mils.)


HOW? (FINANCE)

Feedback & Formalization

• Trillions of recorded actions.

• Thousands of derivative/securitized products.

• Hundreds of theories and models.


RESULT (FINANCE)

• Centralized clearing

• ETFs and mutual funds

• Global, automated, near-24/7 markets

• Online individual brokerages

• Derivatives products and exchanges

• Structured products, e.g., ABS, ILS


HOW? (LAW)

Incentives

• Exogenous

– Supply-demand mismatch post-2008

– Mostly-fixed-cost business models

– “Demand destruction” due to sustained high price level

• Endogenous

– Unauthorized practice laws (CPAs?)

– Ownership interest rules (GCs?)


HOW? (LAW)

Creativity

• Why we’re here - look around! – Regulatory policy proposals (ABA, state legislatures)

– Technology-enabled delivery models

– Technology-enabled decision models

– Frameworks for safe commoditization w.r.t. fact pattern variation

– …


RESULTS (LAW)

• Expansion in market demand

– Undo “demand destruction”

– Segment and profitably service low-cost market

– Educate consumers w.r.t. legal needs

• Improve lawyer efficiency

– More risk management per unit of labor

– Opportunities for engaged firms on buy and sell side


RESULTS (LAW)

• Net societal effects

– Better overall access to legal remedy

– Less unmanaged risk as a society

– Increased inequality intra-lawyers


ASIDE ON COMPUTING

N.B.: Computers necessary but not sufficient.

• Real change are:

– Conception of process, value, and role

– Formalization from art to science - measurement


WHEN?

So why not yet? What can we work on?

• Data, data, data; formalize, collect, clean

• Commoditization and creativity

• De- or re-regulation;

• Old dogs, old tricks; Kuhnian labor replacement


Thanks!

Michael J. Bommarito II

Quantitative Legal Solutions, LLP

http://www.qlsllp.com/