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DRM and the Financial Industry

A fantastic article about copyright and Digital Righs Management (DRM) – a manifesto by Cary Doctorow.

Digital Rights Management by Cory Doctorow

Some darn good points he makes:

  • Here’s the social reason that DRM fails: keeping an
    honest user honest is like keeping a tall user tall.
  • “Here’s how anti-circumvention works: if you put a lock—an access control—around a copyrighted work, it is illegal to break that lock. It’s illegal to make a tool that breaks that lock. It’s illegal to tell someone how to make that tool. It’s illegal to tell someone where she can find out how to make that tool.”
  • No Sony customer woke up one morning and said, “Damn, I wish Sony would devote some expensive engineering effort in order that I may do less with my music.”
  • “Go build the record player that can play everyone’s records”

I guess Microsoft didn’t listen. But Jon Johanssen did, it seems; check out DoubleTwist. It can play iTunes and Amazon MP3s on devices that the shops don’t otherwise let you play on.

But I digress. What does this have to do with the capital markets?

It got me thinking about plagiarism in this space. If you build a quality product – a way to structure a financial deal, an offering that a customer can get X upside but no downside, a fund that is “capital guaranteed” but still has Nifty linked upside upto a certain point – anything of that kind, these products come with innovative ideas. And no matter how good the deal is, you find that it’s easily copied – so if Nifty linked debentures were an innovation, they soon get copied and everyone’s offering it.

On the other side are those deeply devoted to secrecy – the hedge funds who won’t tell you how they do it, they ask you for money and offer you returns. Or the banks and brokers who offer only partial information but you realize what a bad deal it is when you see how easily they sucker you (see: Low annuity returns in India). And the fights to keep it secret – by using non-competes for employees, or by disallowing retail people into bond markets, or by curtailing shorting and things like that.

It’s strange that both co-exist. At one end you have the ultimate rip-off – you design a product with a lot of effort and the minute it’s out there people copy you and claim the idea as their own. At the other end, secrecy and access control are paramount to success. As times move, things move from the “secret” end to the “open” end – when “arbitrage” was a word only brokers could use, today everyone can do it from screen quotes. Where you couldn’t buy government bonds direct, now they encourage you to participate even in primary auctions (though no one else wants you to, so it’s not popular). Envy those Nifty debentures? You can build one on your own using Nifty long term options. It’s that cool, it’s that easy. The fight for “rights management” will continue, but it’s getting increasingly obvious that information won’t be curtailed, and providers will do well to adapt rather than fight.

Having said that, I’m not revealing the underlying details for my system just yet! For one if i did reveal it I’d have to go find another one. Second, I doubt it would make money once it’s out there in the open. And last, I’m just as much a hypocrite!