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
Reported share volume (mils.)
400,000.00
350,000.00
300,000.00
250,000.00
200,000.00 Reported share volume
150,000.00 (mils.)
100,000.00
50,000.00
0.00
1960 1970 1980 1990 2000 2010


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/

Law's Future from Finance's Past - ReInvent Law, Silicon Valley

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