Will Wall Street require Python?

http://www.itworld.com/government/105031/will-wall-street-require-python

by arockwell • 16 years ago

127 67 16 years ago

hakan• 16 years ago

"... with Release 33-9117, the SEC is considering substitution of Python or another programming language for legal English as a basis for some of its regulations."

If this was actually implemented, it'd be incredible. No more ambiguity when you have to define all the parameters and outcomes explicitly!

die_sekte• 16 years ago

Knowing governments' actions, this is going to be a proprietary mix made out of APL and PHP—the worst of both worlds.

stan_rogers• 16 years ago

Don't be bad-mouthing APHeLP -- we don't need to be getting into a language holy war here.

(Actually something as straightforward as a de-crufted PHP with APL's matrix handling would be a pretty wonderful language, when you think about it.)

sp3322• 16 years ago

I'm sure someone will apply Gödel's incompleteness theorem to the Python syntax, and complain that they want to do something that isn't expressible in python (or any other language you choose).

eru2• 16 years ago

You know that Gödel's incompleteness theorem concerns itself with provability and not with expressiveness?

ay3• 16 years ago

The regulation will be very state-dependent, though.

EDIT: oh, and that annoying halting problem...

stcredzero6• 16 years ago

Is a monkey-patching friendly language really the best thing for this? (Asks the Smalltalk guy, whose language is just as monkey-patching friendly and is used in a lot of Financial apps.)

Functional languages would be much better for this purpose.

btilly2• 16 years ago

No ambiguity?

Suppose the deal goes out there, bonds are sold, but then real world inputs result in an endless loop. What happens to the money then?

ay3• 16 years ago

One can still collect the functions that loop into lambdas and start passing those around ?

wtn• 16 years ago

Same thing could happen with human language legal copy.

omouse2• 16 years ago

It'd be incredibly stupid. The language and some other programming languages don't even have proper standards written out or they change on the whims on their creators or community. Which version of Python will you use? 2.x or 3? Oh hey and will you use the map and filter functions or use generators instead or maybe you'll use a for-loop? What are the rules for that?

Don't kid yourself, there's still a lot of room for ambiguity.

ZachPruckowski2• 16 years ago

You may be able to obfuscate the code, but so long as the investor can easily test your model with values of their choice, it doesn't matter if you use a map or a for-loop.

ippisl2• 16 years ago

If this works well, this might cause more legal fields to work with computer languages, enable more legal automation , and could be really disruptive to the legal profession.

markkoberlein• 16 years ago

This could open up a very lucrative market for Python experts.

thorax2• 16 years ago

The cynic in me thinks it will actually push the state of the art of obfuscating Python (which isn't widely experimented with as far as I know).

arebop• 16 years ago

I was under the impression that Wall Street typically develops and hosts in-house, regarding both algorithms and operations as competitive advantages. Is that incorrect, or is there some other reason to obfuscate?

omouse2• 16 years ago

Decorators, generators and all the other syntactic sugar that's been added over the years is already too much experimentation with obfuscation for my liking.

mkramlich5• 16 years ago

Heck, just pushing up the demand for Python devs is a good thing. Rising tide lifts all boats. Probably indirectly raise the boats of non-Python devs as well.

kurtosis• 16 years ago

Well I love python, but this reminds me of a set of an old paper by Peyton-Jones of GHC fame, which developed a Haskell combinator lib that did something like this. I'm sure the state of the art has left this system long behind, but it's a pretty interesting concept.

Composing contracts: an adventure in financial engineering, Simon Peyton Jones, Jean-Marc Eber, Julian Seward. ICFP, 2000 http://www.lexifi.com/downloads/MLFiPaper.pdf

dons• 16 years ago

"Composing Contracts" launched much of the use of FP in the finance industry. It was specifically cited in Credit Suisse's use for modelling contracts, for example.

That said, any required language should be fully formally specified -- what's the semantics of a Python contract? Implementation defined? A testsuite?

malkia• 16 years ago

I would only consider a language with built-in big rational numbers.

ableal2• 16 years ago

http://docs.python.org/library/decimal.html

JeremyBanks• 16 years ago

That's not rational, this is: http://docs.python.org/library/fractions.html

eru2• 16 years ago

Why built-in? Good library support (and bearable syntax) should be sufficient.

ig1• 16 years ago

To some extent financial transactions are done on the basis of code anyway.

It's not unusual for transactions to specify a price based upon an agreed software-as-a-service calculation, for example an agreement might say "we will purchase 10,000 shares, on the 12th of May at the price defined by Bloomberg VWAP (volume weighted average price)".

So rather than the parties having to draft a five page document defining exactly the criteria used to calculate VWAP (i.e. which trades to include and exclude) they just say "we'll use the criteria defined by this code".

cma• 16 years ago

previous discussion: http://news.ycombinator.com/item?id=1272541

ctkrohn3• 16 years ago

Quick explanation of what exactly this is:

It's a rule change regarding asset-backed securities. ABS are a type of bond where the interest and principal payments come from the cashflows of some pool of underlying assets. The simplest example is the now-infamous mortgage-backed security: a bunch of mortgages are put into a pool, and each month the homeowner's payments are passed through to the mortgage-backed securities holder (with some amount taken off the top to cover the cost of collecting, processing, and insuring payments).

There are many generalizations of this concept. There's no reason the underlying asset has to be mortgages. It could be auto loans, credit card receivables, student loans, whatever. And there's no reason that the cashflows have to be passed straight through to the bondholders. This is where Python comes in.

There are a number of complicated rules you can define. For example, let's suppose I have $100mm of assets. Rather than just having $100mm in bonds on the other side, I can define two pieces, or tranches. Tranche A is $80mm and gets paid first; the $20mm Tranche B gets paid next. So if some assets don't perform and the $100mm face value only turns out to yield $90mm, the investors in A are completely unaffected. This method is helpful because it can create a safe asset out of a pool of generally unsafe assets.

Another possible rule would be again to define two tranches, A and B. Each month, A and B receive the full interest payments on the $100mm assets. But A gets the first $50mm in principal, and B only starts getting paid principal when A is completely paid off. That way, tranche A has a shorter average life than the underlying pool of assets, and tranche B has a longer average life. This is helpful because some investors might want to buy short-term assets, but others might want to buy long-term assets.

You can define a hugely complex range of rules, depending on the purpose of the investment and the type of underlying asset. From what I can tell (I obviously haven't read the whole document), the SEC is proposing to require ABS issuers to specify these rules in Python, and to specify the underlying asset pool in an XML format. This will make it easier for independent investors to analyze the securities on their own, without having to let the now-discredited rating agencies do their work for them.

In general, sounds like a great rule to me.

anamax3• 16 years ago

> From what I can tell (I obviously haven't read the whole document), the SEC is proposing to require ABS issuers to specify these rules in Python, and to specify the underlying asset pool in an XML format. This will make it easier for independent investors to analyze the securities on their own, without having to let the now-discredited rating agencies do their work for them.

Except that this just makes it easier to figure out who gets paid given a set of events, which isn't the hard part. (Yes, there can be lots of rules, but ....) It's also not where the ratings agencies screwed up.

The hard part is predicting the likelyhood of various events. This proposal does nothing to address that problem.

ctkrohn3• 16 years ago

That is true. But it makes it much easier for potential investors to load up a bond in their own modeling tools, and run their own scenarios. They don't have to reverse engineer the cashflow structure based on the legal wording in the prospectus.

ZachPruckowski2• 16 years ago

The hard part is predicting the likelyhood of various events. This proposal does nothing to address that problem.

Actually, it does. It lets you, as a potential investor, plug in your own values to the model. So if you think the issuer is undervaluing the default risk, you can use your own default risk numbers and remodel just by changing some values in a XML file or Python script and then running the interpreter again.

Of course, you need your own predictions for the likelihood of various events, but you could even just toss in a "default_risk = default_risk*1.5" line if you wanted to.

WarDekar• 16 years ago

Part of the problem with the mortgage bubble though was that no one (other than a very select few, that were shorting them by buying CDSes) really knew what was in all the mortgage bond derivatives, especially once they got put into CDSes and then re-packaged into CDOs. By the end of it even the people that knew what was going on had to spend tremendous amounts of time figuring out what specific mortgages were in what packages, whereas under the new proposed rules at least all that information will be available up front (in theory).

And as sibling comments say- once you know what's actually in them, you can use your own risk models. If you don't know what's in them, tough to do that.

ctkrohn3• 16 years ago

It's also worth noting that this is a minor part of a much larger proposal that came out more than a week ago. A bunch of media outlets ran stories... the NYT article is here:

http://www.nytimes.com/2010/04/08/business/08sec.html

ShardPhoenix2• 16 years ago

I would think a DSL would be more appropriate than straight Python for the proposed purpose.

rit3• 16 years ago

But then you need a standard DSL interpreter platform. For any platform that investors use. I suspect this is a solid reason to take and use an existing language.

Saying "You need a standard install of Python 2.6 to execute this", versus "You need a SECLang 2.6 compatible interpreter with support for Spec version 9.1".

Remember - it's not just about providing a common platform for developers to build their code. The purpose is to have investors able to run the program, punch in their assumptions and get numbers out.

ShardPhoenix2• 16 years ago

I'd think a DSL would be better for this purpose (defining rules for a specific type of financial assest) than Python in general.

branden• 16 years ago

You're probably right, but compared to the DSL that hasn't been specified and that no one has agreed on, Python wins.

The more I think about it, there should be a DSL for all laws. (Something better than the legalese dialect of English, at least.)

mkramlich5• 16 years ago

arguably "legal English" is already a DSL.

A DSL whose programmers are lawyers and whose interpreters are courts.

mseebach• 16 years ago

The problem with the law isn't the language of the laws themselves, it's the input.

I mean, please show me the typedefs for attempted rape and reckless driving.

Most of the time, the interesting cases are about figuring out who's lying, if there was intent, determining what's reasonably expected, how a certain condition might count as an aggravating circumstance etc. etc.

drawkbox• 16 years ago

I think for financials it should be Python. It is perfectly fit for it and a DSL would only further cloud the amount of people that can easily look at the operations. I think Python is perfect for open financials and maybe gov't.

etal• 16 years ago

Maybe so, but first we need to consider the requirements:

- There's a reference implementation, because the whole point is that the asset specification is executable

- At least one implementation is open-source, so it can be validated independently (could compromise here, but why bother these days), and cross-platform

- Financial-industry programmers, including investors, are already familiar with it and want to use it

- More readable and concise than legalese (since the goal is transparency)

- Has a built-in XML parser, or simple bindings for one, since XML configuration is another part of the proposal

I'm not sure how important type-checking or automatic code verification is here, but since Python was even mentioned in the proposal, it must not be crucial -- the main point is that investors can download the code and play with it. If the emphasis was more on creating a rigorous specification of how things work, I'd expect SML or maybe Prolog would be at the top of the list.

pmb• 16 years ago

This is definitely a strongly-typed-language situation.

rbanffy2• 16 years ago

What if the rules are self-mutating bytecode?

rbanffy2• 16 years ago

Better yet: what if the contracts become self-aware?

kuahyeow• 16 years ago

Why not a framework which uses plain English like Cucumber? http://cukes.info

mkramlich5• 16 years ago

I don't know if I fully understand or agree with their proposal but I like the fact that they are trying to innovate.

mkramlich5• 16 years ago

article title is wrong, this isn't Ruby.

should be: "Will Wall Street import Python?"

Will Wall Street require Python?

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