Disruptors in the Stock Plan World

Transcription

1 Disruptors in the Stock Plan World Crispin Hanshaw, Managing Director, Charles Schwab & Co. Georgina Lai, Equity Programs, Pinterest Carine Schneider, CEO, WFFConnect Johan Toll, Associate Vice President, Nasdaq

2 Agenda Introduction Understand new technology o What is Blockchain? Changes in brokerage o Robo advising o Voice recognition verification (versus pin codes) o intelligent advisors Change in the private market o Liquidity programs and secondary shares trading Millennial behavior o Changes in communicating o Changes in plan design (private and public)

3 What is blockchain?

4 Technology trends shaping financial services? INNOVATIONS ADVANCING THE FINTECH LANDSCAPE Cloud Services Smartphone Ecosystem BLOCKCHAIN Internet of Things Intelligent/ Personal Virtual Assistant Machine Intelligence Cryptography Quantum Computing Big Data Microservices Augmented / Virtual Reality Digital Money

5 What WHAT is IS the THE BLOCKCHAIN? Blockchain? SECURITY. INTEGRITY. CONSENSUS. FOUNDATIONAL. GROWTH. INNOVATION. SECURE DATA STORE Only parties who should access it, can access it. FOUNDATIONAL TECHNOLOGY It is not a financial asset, it is not a business. STABILITY THROUGH DECENTRALIZED CONSENSUS Input is guaranteed / validated through decentralized consensus. CRYPTOGRAPHY ENSURES INTEGRITY Data remains consistent, once written it cannot be modified. GROWTH Potential enabler for cost savings but also for growth, new business models and market structures. INNOVATION Part of Nasdaq s larger tech innovation portfolio.

6 What is a ledger?

7 What is a blockchain (distributed ledger)? USERS NETWORK Private Keys Nodes Web Wallet Paper Wallet Essential components: o Public-key cryptography (Diffie-Hellman ca 1976) o Proper decentralized peer-to-peer network (Gnutella 2000) Ledger

8 There are different kinds of blockchains Public Blockchains Open Internet Many miners / independent nodes Any and all can join the network High complexity / difficulty in verification process Independent nodes provide full auditability Public BUSINESS APPLICATI vs. ON Private Private Ledgers Restricted Network Centralized mining / limited nodes Participants must be permissioned Lowered complexity / quicker verification Requires trust of the node operators and/or third party verification

9 Where can distributed ledgers be useful? Securities Money Intellectual Property Votes Deeds of Ownership This technology is good at keeping track of possession of any digitized asset.

10 Blockchain affecting us quicker than expected NASDAQ STRATEGIC DIRECTION Full senior management commitment Initial blockchain offering launched to the market in 2015, i.e. Nasdaq Linq Continued strong focus on investment and evolution of our blockchain technology into more tangible assets during 2016 Several projects now ongoing within our own clearinghouse as well as with external customers, to develop and launch BC enabled business applications on our core framework A global play where major benefits occur through collaboration between major marketplaces Market Technology well placed with more than 80 marketplaces running on our framework FINANCIAL INDUSTRY MOVING FAST > 1B USD in venture capital invested since 2012 World Economic Forum believes 10% of global GDP will be registered in blockchain by 2025 More than 40 banks in a blockchain consortium for how to tap into the blockchain technology. Pilot case launched in January 2016 Linux Foundation unites industry leaders to advance the blockchain technology Exchanges and Clearinghouses invest and pilot on several initiatives Adoption will occur much faster than expected, heavy focus on clearing/settlement with clear synergies also in the derivatives clearing Strategy Industry

11 CAPITAL MARKETS ON BLOCKCHAIN Capital Markets on Blockchain Investor Marketplace Investor Asset and Cash ledger(s) Government Corporation Central Bank

12 ESTONIA VOTING APPLICATION Estonia Voting Application VOTING APPLICATION Created to manage the voting life-cycle for the Estonia Proxy Voting Proof of Concept. BLOCKCHAIN Ballot Record of Truth Built using the Voting and Blockchain Services and supports: Creation of Voter and Administration Accounts Issuance/Transfer/Rescinding of Voting Rights Creation of Voting Token(s) Registration To Vote/Cast Vote Viewing Voting Results VOTING SERVICE Created to provide a uniform method of developing secure voting applications. First generation powered by Chain Smart Contract Scripts developed jointly by Nasdaq and Chain. Second generation powered by Trusted Oracles developed by Nasdaq.

13 VOTING SERVICE TOKEN STATE DIAGRAM Voting Service Token State Diagram Reset Register To Vote Cast Ballot Revote Distributed Registered Voted Locked Session End

14 Nasdaq Private Market - LINQ IN PRODUCTION Enables First-Ever Private Securities Issuance Documented with Blockchain Technology A Blockchain-enabled platform for managing electronic records of ownership in privately issued securities Issuance and immediate transfer of shares without CSD or CCP Complete historical record, Cap table management interface to blockchain Will support liquidity events through integration with bank partners

15 Hurdles to Wide-Scale Adoption of Blockchain Technology in Capital Markets The technology itself needs to evolve and be proven Visions need to be distilled down to workable market models and structures Existing legislation and regulation does not anticipate new business models enabled by blockchain technology New technology and market structures need to be integrated with existing complex ecosystem of infrastructure E.g. in relation to security. Smart contracts. 50 different ledger protocols. Governance a key piece of this. Information security policies, data policies. Legislative and regulatory voids. Credible integration and transition plans need to be developed and communicated before market participants are willing to make a bet on new technology and market models. Increasing belief that the technology will work. Industry initiatives. Legal certainty not fully in place.

16 Changes in the Brokerage World

17 Important trends are reshaping investment advice Changing investor demands Evolving technology Rapid Industry Growth

18 Digital advice is growing rapidly Cerulli's estimate of US digital-advisory AUM, $B High Estimate Projection Low Estimate 40-60% annual growth Sources: Cerulli, Retail Direct Firms and Digital Advice Providers 2015.

19 Underpinning the projected growth of digital advice is a broad appeal Consumer likelihood to use robo-advice Not Likely 31% 33% Likely+ Schwab Intelligent Portfolios TM shows wide age appeal Clients under 40 New to Schwab 35% 36% Somewhat Likely Existing Clients 24% 40% over 60 Sources: A.T.Kearney 2015 Robo-Advisory Services Study of 4000 banked consumers. Likely+ is Likely, Very Likely or Extremely Likely. Schwab data as of 1/12016.

20 Schwab Intelligent PortfoliosTM illustrates appeal of digital advice Launched Mar 2015 $12.1 B in AUM 118K accounts $105K account average o 14% have $250 K+ in Intelligent Portfolios o 14% have $1 Million or more at Schwab For Illustrative Purposes Only

21 What we are learning about clients Need Help making good investment choices Benefits Peace of mind Technology Diversified portfolio Automatic rebalancing No Advisory Fees Charged Human Backed Professional investment insight from Charles Schwab Investment Advisory, Inc. Access to Schwab professionals 24/7/365 Schwab Intelligent Portfolios charges no advisory fees, account service fees, or commissions. Schwab affiliates earn revenue from the underlying assets in Schwab Intelligent Portfolio accounts. This revenue comes from managing Schwab ETFs and providing services relating to certain third-party ETFs that can be selected for the portfolio, and from the cash feature on the accounts. Revenue may also be received from the market centers where ETF trade orders are routed for execution.

22 Voice Biometrics Improving Customer Experience and Security 17 million calls per year 1 million chats per year 14 contact centers 335 branches

23 The numbers, thus far 77% enrollment opt-in rate 530k total voice authentications 94% successful authentication rate 3000 hours of handle time saved

24 Update from the Private World

25 U.S. Companies are staying private longer On April 5, 2012, the Jumpstart Our Business Startups (JOBS) Act was signed into law by President Barack Obama. The Act requires the SEC to write rules and issue studies on capital formation, disclosure and registration requirements. JOBS Act primary objective is to increase American job creation and economic growth by improving access to the public capital markets for emerging growth companies. The JOBS Act is considered as the most significant Congressional relaxation in memory of restrictions surrounding the IPO process, public company reporting and private capital formation Includes provisions that ease the IPO process and subsequent public reporting obligations for emerging growth companies. EGC is defined in the Securities Act and the Exchange Act as an issuer with total annual gross revenues of less than $1 billion during its most recently completed fiscal year. Increases the shareholder threshold requiring a private company to begin public reporting.

26 Liquidity Programs continue to be popular Average time from founding to IPO is between years (depending on the source) Shareholder rights are changing (i.e., Snap class A versus B stock) Concern should be taken with your stock plan (ISO/NQSO issues in the U.S.) Are private company ESPP s becoming trendy?

27 Nasdaq Private Market statistics $1 Billion in Transaction Volume over 32 Liquidity Programs -- 58% share repurchases -- 42% third-party tender offers Median Program Size: $34 million Average Company Profile of NPM s Clients in 2016:-- Company age: 11 years -- Number of employees: Primary capital raised: $120 million -- Valuation: $500 million Profile of Eligible Seller Pool-- 74% current employees -- 17% former employees -- 8% investors -- 1% other

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29 How does this impact public companies? Recruiting Retention Flexibility The rise of the private market/liquidity

30 Changing labor demographics Disruption from a changing labor force Millennials to baby boomers work is changing

31 Millennials Those born in 1982 or after Endpoint is 2004 Graph credit TheAtalntic.com

32 Millennials - Characteristics Most educated generation Multitaskers Instant gratification Connected

33 Millennials - Communications is considered old-school TL:DR Be Concise o Use bullets Provide various options o On premise presentations Stream/record o Intranet/Wiki o Office hours

34 Millennials - Mobile Consumption of information via mobile device o Mobile phones o Tablets Format friendly Brevity Use of videos Interactive

35 Trends in Employee Equity

36 Stock Option Extensions Private companies are staying private longer Employees have less liquidity to exercise their stock options Extending the time to exercise stock options is becoming more acceptable

37 Stock Option Extensions Pros Value to employees Parity with RSU Grants Allows employees who want to move on the leave o No handcuffs or those employees resting and vesting Competitive with other pre-ipo companies

38 Stock Option Extensions Cons Potential Turnover Triggers Modification for SBC Expense Tracking of Terminated Employees ISO/NQ 100K Rule* Administrative Difficulties o System Limitations o ISOs will require a Tender Offer o Education/ Need to partner with Tax Advisors

39 Stock Option Extensions Things to Consider Estimated Timing of IPO (if private) Expense Impact ISO/NQ Adverse International Impact...? Population Affected Equity System Capability o Will workarounds be needed; what is the cost? Strategy Are Stock Options Still Being Awarded? Already Terminated Employees Consistent Messaging

40 Stock Option Extensions Recommendations Extend Post-Termination Exercise Period to the life of the grant One and Done and All or Nothing Approach

41 Stock Option Extension Plan Design Considerations ISO/NQ benefit Design the option award with exercisability for the life of the award o No worries of a modification of the award Expense concern

42 Thank You Crispin Hanshaw Charles Schwab & Co Georgina Lai Pinterest Carine Schneider WFFConnect Johan Toll Nasdaq

43 Thank You Thank you for attending GEO s 18 th Annual Conference in Rome. We hope you enjoyed this session. If you require CPE Credit, don t forget to Sign Out Two ways to give us your feedback on this session o Mobile app o Paper surveys available at the door