October 22, 2009
I noticed yesterday this story which suggests that the EU is hoping to be able to regulate the derivatives market.
Good. Clearly it needs to happen.
But honestly, who is going to do it?
It has been widely known – at least in the UK – for some time that if you happen to graduate with good grades and a good mathematical brain in any subject, that you should move to work in ‘The City’. Mathematicians, physicists, engineers and more now gravitate to the high-wage Mecca that is Canary Wharf.
It has also been – less widely – known for some time that if you work for a regulator in the UK and genuinely understand the complex financial products that you are overseeing (very few people do) then a job awaits in an investment bank for several times the salary currently being earned.
To try and put it in perspective, being a regulator earns perhaps 40,000 per year while working on the same contracts for an investment bank, they can earn more like 250,000 plus bonuses!! Who’d be a regulator?
Under such circumstances, where do the financial services regulators and the European Commission think that they will get their staff from?
The slightly easier route, as discussed in the article is that a clearing house be put in the middle of trades. This would almost certainly make the market less volatile and safer and in theory – at least – more transparent.
The problem is that many contracts are custom written, meaning that you need to be involved in the drafting to understand the implications. This means that a clearing house would face the same problems as a regulator – they would find it almost impossible to find and retain competent staff.
My recommendation is that if you have a head for numbers and are thinking of a new career and possible retraining, study mathematics and start looking for a job in the derivatives market!financialguy