Why Is US Delisting Chinese Stocks?

Why Is USA Delisting Chinese Stocks?

As straight as a Jalebi, this deal has managed to gain all the footage since New Year’s Eve. A derivative would be easier to understand when compared with this case of NYSE delisting the Chinese stocks. A rare event wherein NYSE has seemed as a flip-flopper, let us try and dissect the chunks of this not so simple case.

Crux of the Matter

But First, Terminologies

  • Delisting means the removal of listed security from a stock exchange, thus barring all further trades in that market.
  • Secondary Listing is when the company is listed on stock exchanges other than its primary listing exchange (market where its IPO was released).
  • American Depositary Shares (ADS) are equity shares of non-US Companies held by US Depositary Bank and are available for purchase to American investors.

The Turn Of Events
November 12, 2020: The executive order passed by Donald Trump banned US  investments in Chinese firms that are linked with the ‘military of People Republic of China’.

Trump claimed that Beijing is exploiting US Capital to finance the development & modernization of its military through its civilian corporates listed in US Stock Exchange. Moreover, China has never complied with the US Audit Standards reasoning them with national interest of Mainland and thus the Chinese firms lack financial transparency and accountability

The Delisting Plan
As per the November orders,  the New York Stock Exchange (NYSE) had decided to delist the stocks on New Year’s Eve.
The three telecom firms within gunshot were:

  • China Mobile Limited
  • China Telecom Corporation
  • China Unicom Hong Kong Limited

Changing Course

  • January 4, 2021: The NYSE announced that it is not going to delist the Chinese firms under the rubric that they had consulted with the relevant regulators.
  • January 6, 2021: NYSC again changed the plan and decided to carry on with the delisting of the Chinese telecom majors on January 11th. The decision came after Treasury Secretary Steven Mnuchin criticized the decision to grant pardon to the firms.

Aftermath

  • These Chinese firms made their secondary listing in the Hong Kong stock market. Thus, all international investors will still be accessible to the firm. 
  • Investments will now be going into HK’s Index instead of the US markets, whereas significant money inflow may still come from US investors.
  • The firms said that US investors who wish to continue investing can get Hong Kong Listed Shares in return to their American Depositary Shares (ADS) deposit in a predefined proportion. 

The Undecided Part
Will Joe Biden continue with this executive order or will he further reverse the decision? The question remains unanswered and so does the sustainability of this delisting. 

Curiopedia
  • The Shanghai Stock Exchange is one of the world’s largest stock markets by market capitalization at $4.0 trillion as of November 2018. Unlike the Hong Kong Stock Exchange, the Shanghai Stock Exchange is still not entirely open to foreign investors and often affected by the decisions of the central government.
  • The bid-ask spread is the difference between the prices quoted for an immediate sale and an immediate purchase for stocks, futures contracts, options, or currency pairs. The size of the bid-ask spread in, security is one measure of the liquidity of the market and of the size of the transaction cost. If the spread is 0 then it is a frictionless asset.
  • A ticker symbol or stock symbol is an abbreviation used to uniquely identify publicly traded shares of a particular stock on a particular stock market. A stock symbol may consist of letters, numbers or a combination of both. “Ticker symbol” refers to the symbols that were printed on the ticker tape of a ticker tape machine.

Why Has Signal App Become The Talk Of The Town?

Why Has Signal App Become The Talk Of The Town?

Ever since WhatsApp gave an ultimatum to its users for abiding by the new privacy rules or leaving the popular messaging app, an underdog has risen: Signal. The latter has been topping charts in app stores after being supported by whistleblower Edward Snowden and currently the world’s richest man, Elon Musk. Let’s see what’s the hype all about.

Crux of the Matter

Underdog Rises On App Stores
Over 1 lakh users downloaded Signal, both on Google’s Play Store and Apple’s app store whereas WhatsApp’s new downloads declined 11% after its announcement of new privacy rules.

What Is Special About It?
On Whatsapp, you have to create a single-member group to send notes to yourself. However, on Signal, you can use ‘Note to Self’ to jot down thoughts while messaging others.

How Secure Is It?
Like Whatsapp, Signal uses open-source Signal Protocol, for implementing End-to-End Encryption. But it goes one step further by encrypting metadata too via ‘Sealed Sender’.

What Is Sealed Sender?
It is a new way to communicate between the sender and the recipient wherein no one, including Signal, will know who is messaging whom, which ensures ultimate privacy

Which Data Does It Collect?
None. It claims to use only the mobile number for registration and doesn’t link it to the user’s identity, unlike rivals WhatsApp, Telegram, iMessage, etc.

It is Open Source
Signal’s source code is published for anyone to examine and use under a GPLv3 license for clients and an AGPLv3 license for the server. This means it has less potential for hidden vulnerabilities.

What’s More?
By default, Signal encrypts all the local files with a 4-digit passphrase. It also supports encrypted group calls and encrypted local backup and allows disappearing messages, from 5 seconds to 1 week.

Curiopedia
  • When Facebook announced its plans to acquire WhatsApp in February 2014, WhatsApp’s founders attached a purchase price of $16 billion: $4 billion in cash and $12 billion remaining in Facebook shares. But the actual price Facebook paid was $21.8 billion, or $55 per user.
  • Brian Acton is an American computer programmer and Internet entrepreneur who co-founded WhatsApp. Acton left WhatsApp in September 2017 to start the Signal Foundation in 2018 with initial funding of $50 million.
  • Matthew Rosenfeld, known as Moxie Marlinspike, is an American entrepreneur, cryptographer, and computer security researcher. Marlinspike is the creator of Signal, co-founder of the Signal Foundation, and currently serves as the CEO of Signal Messenger. He is also a co-author of the Signal Protocol encryption used by Signal, WhatsApp, Facebook Messenger, and Skype.

Dissecting CRED’s Business Model

Dissecting Business Model of CRED

Think of IPL 2020 and think of CRED! We were literally bombarded by this company’s advertisements throughout the series. Curious to understand its business operations? Well, let’s find out.

Crux of the Matter

What is Cred Into?
Founded by Kunal Shah (also a co-founder of FreeCharge) in 2018, CRED is a Bangalore based fintech startup offering rewards to its customers who pay their credit card bills using its platform. It came to the maximum light by becoming the official partner of the 2020 IPL season.

Business Model

  • Step 1: To use CRED’s platform, an individual has to give access to his/ her credit information to the company.
  • Step 2: Cred processes the information provided through a credit rating agency CIBIL. An individual with a minimum of 750 credit score is availed with its membership.
  • Step 3: Uses AI-backed systems & statistics to keep track of an individual’s entire credit card payment journey.
  • Step 4Rewards users for making Credit Card bill payments through its platform.

How Does It Earn?

  • For the early phase, CRED’s focus was on achieving scale rather than opting for revenue generation.
  • They deliberately wished to expand their cream customer base in the first leg of their operations.
  • Resultantly, in the year 2019, their expenses stood at ₹64 crores with absolutely zero revenue.

Avenues For Revenues

Product & Offer Listing Fees:

  • CRED has partnered with various businesses whose product offerings would be listed on its application. 
  • Whenever a member opts for redeeming the CRED coins from the app, the business pays fees to CRED for directing customers to them.

Data Monetization:
CRED members are usually prone to be the affluent ones. With such niche data collection, CRED can easily monetise data by availing them to various financial institutions.

Launching Lending Products:
(A) Rent Pay:

  • To pay recurring household expenses & monthly rent payments.
  • CRED would charge a fee from its members who opt for this service.

(B) Credit Line:

  • Offered to the customers in association with banks and other institutions with interest at 1/3rd the market rate.
  • CRED will get a revenue share from the credit line offering.

CRED In News
CRED recently raised $81 million in its Series C funding round and bought shares worth $1.2 million from its employees. Employees holding shares in CRED were able to sell up to 50% of their ESOP’s (Employee Stock Ownership Programme)in the funding round.

Curiopedia
  • Stock options are also used as golden handcuffs if their value has increased drastically. Golden handcuffs, a phrase first recorded in 1976, refers to financial allurements and benefits that have the objective to encourage highly compensated employees to remain within a company or organization instead of moving from company to company.
  • CRED’s ads starring iconic celebrities from the 90s during the IPL 2020 made the startup trending on Twitter during its campaign. The company has registered six to seven times increase in daily sign-ups after the company released its IPL campaign. Shailendra J Singh, Managing Director at Sequoia Capital, who is the investment advisor with the payment app, tweeted about the feat.
  • On 8 April 2015, Snapdeal acquired Freecharge, in one of the biggest take over in the Indian e-commerce sector so far. The deal was for approximately $400 million as cash and stock. On 27 July 2017, Axis Bank acquired Freecharge for $60 million.

Anatomy Of Google’s Union

Anatomy Of Google’s Union

Years of activism finally manages to get a structure and platform as for the first time in the history of Google, a formal union has been formed by its white-collar employees on 4th January 2021. Startling, isn’t it? Folks, meet Alphabet Workers Union!

Crux of the Matter

The Formal Announcement

  • On 4th January 2021, about 230 Google workers came forward and announced Googles’ first-ever Alphabet Workers Union.
  • Affiliated by Communications Workers of America and is open to company’s employees & contractors working in the USA & Canada.

Events Leading to Union Formation

(A) Project Maven

  • The most controversial project with USA’s defence ministry that involved analyzing drone footage by AI.
  • It can further be involved in carrying out assassination operations overseas.

(B) Andy Rubin’s Payment

  • Google paid its former executive $90 million as an exit package after he was accused of sexually harassing a woman co-worker.

(C) Project Dragon Fly:

  • A huge hit on ethicality, DragonFly involved designing a ‘censored search engine‘ for China.
  • Information on individuals searching for concepts like democracy, human rights, or protests would be shared directly with the Chinese authorities.

(D) Firing of Timnit Gebru:

  • On of the raging reasons of the union formation, Google abruptly fired their leading AI ethicist Timnit Gebru.
  • Gebru had been working on a research paper but ran into resistance from her superiors.
  • Thereafter she expressed her frustration in that email which Google found “inconsistent with the expectations of a Google manager.”

Read about Timnit Gebru in detail here:

Purpose Of The Union

  • Would provide a platform to workers (both contractual and permanent) to raise their concerns on discriminatory work practices.
  • To unite the interests of all the workers from janitors to project managers.
  • To give a sustainable structure for ensuring that the shared values as employees of Alphabet are respected.

What is So Unique About The Union?

  • It is one of the first attempts of unionizing activism efforts by white-collar workers in a tech giant as Google.
  • It allows contract workers to join the Union.
  • It aims for employee activism rather than negotiating a contract.
  • Forming a union at Silicon Valley that is staunchly hostile towards the same is definitely worth noting.

Google’s Response

We’ve always worked hard to create a supportive and rewarding workplace for our workforce. Of course, our employees have protected labor rights that we support. But as we’ve always done, we’ll continue engaging directly with all our employees.

Kara Silverstein, Director of People Operations

Although too soon to commit upon the union’s success, it definitely is a breakthrough event of such unionization amongst  Google’s white collar employees.

Curiopedia
  • Andrew E. Rubin is the co-founder and former CEO of both Danger Inc. and Android Inc. He was nicknamed “Android” by his co-workers at Apple in 1989 due to his love for robots, with the nickname eventually becoming the official name of the Android operating system.
  • Essential Products was an American technology company and manufacturer founded on November 9, 2015, by Andy Rubin. The company developed, manufactured, and sold Essential Phone and accessories for it but closed its doors on February 12, 2020, stating that it was developing a new handset, but that there was “no clear path to deliver it to customers“.
  • The HTC Dream is a smartphone developed by HTC. First released in September 2008, the Dream was the first commercially released device to use the Linux-based Android operating system, which was purchased and further developed by Google.

Nifty Financial Services Index Introduced In Futures & Options

Nifty Financial Services Index Introduced In Futures & Options

Nifty Financial Services, heavier weight than Bank Nifty, will now be traded in the Derivatives segment. In our previous story, we cleared the basics of Derivatives, including Futures and Options. If you missed it or want a recap, you can read it here. Well, now let’s delve deeper into the new financial product – Nifty Financial Services Index Futures & Options.

Crux of the Matter

Nifty Financial Services F&O
Launched on September 7, 2011, Nifty financial services is the index to record and reflect the behaviour of the Indian financial services companies which include banks, insurance companies, financial institutions, housing finance and other financial services companies.

  • This index has 20 constituents – all of them are listed on the National Stock Exchange (NSE). We can say that the underlying assets (securities) for this derivative product will be these 20 stocks.
  • The Nifty Financial Services (NFS) Index will be traded on Futures and Options from 11th January 2021.
  • The contract lot size will be 40, meaning 1 NFS derivative will have 40 contracts.
  • The beta (sensitivity of the stock to the movement in the Nifty or the stock market) will be 1.20 to 1.25, meaning a 100 point movement in Nifty may lead to 125 point movement in NFS F&O.
  • The Index will be a more powerful indicator than Nifty Bank index since it has a few other important non-banking financial companies.

The total free-float market capitalization of the Nifty Financial Services index is 25.11 lakh crores as compared to 17.44 lakh crores of Nifty Bank. (Free-Float Market Cap = Total Shareholding – Promoters’ Holdings).

Looking forward to the mega-IPO plan of LIC by the Government, the plan of making the Nifty Financial Services Index traded in Futures and Options seems reasonable and inevitable since LIC will be added to this index in future post its IPO.

Summachar brings you this story in collaboration with Finmedium that can be found on Instagram at @finmedium and on the web here.

Curiopedia
  • In finance, being short in an asset means investing in such a way that the investor will profit if the value of the asset falls. This is the opposite of a more conventional “long” position, where the investor will profit if the value of the asset rises.
  • A corporate promoter is a firm or person who does the preliminary work incidental to the formation of a company, including its promotion, incorporation, and flotation, and solicits people to invest money in the company, usually when it is being formed. An investment banker, an underwriter, or a stock promoter may, wholly or in part, perform the role of a promoter.
  • A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person.