Chewing the Fat

There's a scene in the 2011 film, Margin Call, where Zachary Quinto's character is sitting around a desk with the head of trading, head of compliance, general counsel and others at his bank, and they're questioning him on his credentials. One of the characters labels him as a rocket scientist, which he agrees with. Whenever I watch this film with friends, I'm always peppered with questions regarding the terminology, and there's always a groan at that scene. The conversation then generally follows this pattern:

"So what does he do?"

"He's a risk analyst."

"What does that mean?"

"Well, he assesses the risk levels on the bank's books, in its trading operation."

"Yes, but what does that mean?"

It sounds like my friends are morons, but I can assure you, they're not. It's just that basic terminology within the financial industry isn't understood by people who aren't in it, even when you explain that a hedge is an offsetting trade against a risk, or that risk is, frankly, just that. Not knowing the intricacies of asset-backed securities or collateralized debt obligations is one thing, but when basic concepts are impenetrable, there is a jargon problem.

Then move across to financial technology, and the pretense is gone. Take this, from a recent Calypso press release:

"ASX, one of the world's top 10 listed exchange groups, uses the Calypso solution to support OTC derivatives dealer-to-dealer clearing of standardized Australian Dollar (AUD) denominated interest rate swaps. ASX offers a cross-margining service on Calypso, enabling clearing members to offset initial margin between their interest rate swaps and 24 ASX exchange-traded interest rate futures products positions, thereby reducing the overall portfolio margin requirements."

I mean, I understand it, because I work in this space every day and it's therefore my job to know what cross-margining services and interest-rate futures are*. Nobody else will, though.

Why is this important? Do people outside of fi-tech need to know the ins and outs of technical language? Let's take the first question─it's important, because technology-related issues are in public debate at the moment. That can't be denied, whether it's to do with high-frequency trading or derivatives reform. The answer to the second question is no, Joe Public doesn't necessarily need to understand the full process of incorporating a FIX API to link your internal trading engines with a swap execution facility, but demystifying it can't hurt.

In this column, over the last few years, I've talked a lot about how education breaks down barriers and allows for an easier dialogue between practitioner and regulator**. With the public element now fully involved, the educational element isn't necessarily about the theory and practice, but about making it able to be understood. The arcane use of impenetrable jargon, though, doesn't do anyone any favors.

* I actually had a nightmare, when I first started at Waters, that I was being chased by an acronym.

** This is actually very necessary. Regulators, by nature, handle the entire range of the financial industry. Technology specializations can be thin on the ground, because they're all lawyers, not programmers. Moving away from compound adjectives and jargon hyperbole will create a better conversation.