When I first went down to sunny old Saudi Arabia, besides the various other things which totally gobsmacked me, the biggest pain in the patootie was the concept of moving weekends. You see, weekends in Saudi Arabia were on Friday and Saturday, India was on sunday and the alternative 1/2 day saturday, Pakistan was Sunday only, UAE was 1/2 day thursday and friday....... A totally bewildering variety compared to the rest of the world where saturday and sunday was the weekend. So why is this a problem?
Well, when we price any financial instrument, we need to know the number of BUSINESS days that we will pay/receive interest. We also need to know when the instrument will reset or finish or open so that we can send instructions to our banks to send/receive cash/paper. So way back in time, i was a pointy headed rocket scientist dreaming up mathematical models to price complex interest rate, commodity, fixed income and foreign exchange derivatives. One of the fundamental assumptions was that the weekend was saturday and sunday. But when I started dealing with clients and instruments relating to these weird and wonderful weekends, my hair started hurting and eyeballs started feeling itchy.
Take the simplest example of a cable deal or an exchange of Euro against the dollar. So I promise to purchase dollars for a certain amount of Euro's and the settlement date is friday. All fine and dandy, and on friday, both our bank accounts will be credited/debited with Euro's / Dollars respectively.
But say I do a Saudi Riyal - USD deal which settles on Friday. Now USD will be taken off my account in the USA on friday but I have to wait till Sunday to get my Saudi Riyals. Besides the obvious credit risk and liquidity risk this produces, this produces nightmares in trying to fix trading models, computer systems, confirmation systems, dealings with banks and correspondent banks, counterparties and the like.
To fix this for one trading system, we had to basically break apart a system which was 12 years old and rebuild it totally to cater for totally flexible weekend nomenclature. Very difficult indeed. But one of the advantages was that we got around the Y2K problem because of fixing this issue.
Now I got this email which talks about how Microsoft has made the same booboo in its Excel application here. Just one thing which I want to point out to the authors is that they shouldnt be so idiotic to think that Microsoft is anti-muslim, this situation occurs in many other non-muslim countries as well and it has nothing to do with Miscrosoft being against Islam. This issue has a long pedigree and has been because of common usage.
Does the fact that no western fixed income trading system can handle sukuk's mean that Malaysia or UAE is against the west or Christianity? Really stupid formulation by the authors. But besides that spectacular piece of sillyness, you can see the challenges of building and getting agreement on a global comunications protocol.
All this to be taken with a grain of piquant salt!!!
No comments:
Post a Comment