Thursday, January 26, 2006

Treasury Skills

InFeb,2005, I took charge of treasury function though Ihad no prior hands-on experience.When I entered thedealing room for the first time,I could notdistinguish it from a gamblers'den.Swaps,options,swaptions,derivatives--it was allmumbo jumbo.I had no option but to pretend that Iunderstood all this.Every trader said that he/she wasmaking money ("was in the money")every day.Was freelunch possible in treasury? Soon I realised that when marked to market,ourposition would turn negative.Around the same time,RBImade MTM disclosure compulsory for derivatives also.Istarted sharing such info with others in theorganisation.I was shifted fromtreasury.Transparency,I learnt,is the eighth deadlysin in treasury. In the brief period I was in treasury,I understoodthat multitasking is de rigueur for a trader.Nothaving a conversation on a mobile ,while on twolandlines already,is considered infradig.A trader isnot worth his pay if his attention is not constantlydistracted by his BlackBerry and the Bloombergmonitor. In India,hedge derivatives have a betteracceptance.Speculation is a no-no.The mantra is:"Hedge if you can;fudge if you cannot;but,never admitspeculation."Every trader reflexively claims,"Ihedge;my predecessor was speculating."Once, I heard atrader say,"My predecessor was speculating;mysuccessor will do the same.I do only hedging."How didhe know what his successor would do?"Foresight",boasted the dealer.My takeaway was,"Atrader ,in addition to multitasking,must be capable ofmultisights also." Performance-related bonus is a strong incentive fordressing up figures.Figures don't lie,except intreasury.Given the intense competitive pressures,thetipping point for a normally ethical person to adoptdishonest means is reached faster.The irony is thatprofits/losses are determined more by market movementsthan by trader's skills.It is unfortunate that plaindame luck masquerades as performance.