SEC Proposes Wall Street Transparency Via Python

An anonymous reader writes "A US federal agency is considering the use of computing languages to specify legal requirements. 'We are proposing that the computer program be filed on EDGAR in the form of downloadable source code in Python. ... Under the proposed requirement, the filed source code, when downloaded and run by an investor, must provide the user with the ability to programmatically input the user's own assumptions regarding the future performance and cash flows from the pool assets, including but not limited to assumptions about future interest rates, default rates, prepayment speeds, loss-given-default rates, and any other necessary assumptions.' Does this move make sense? If the proposed rule is enacted, it certainly will bring attention to Python or other permitted languages. Will that be a good thing?" The above quotes were pulled from pages 205 and 210 of the dense, 667-page proposal document (PDF). Market expert and professor of finance Jayanth R. Varma says it's a good idea.

Comments

Ugh!

[oldhack]

Now, in addition to lawyers and accountants, you need computer programmers to invest. This smells like a racket. On the other hand, it can't get any worse than the legalese, and maybe that is the point.

Good Idea

[BabyDuckHat]

If you want to confront the devil, a programming language is a good place to do it, since it's all about the details.

Re:Investors are already making their own assumpti

[modmans2ndcoming]

actually... they were selling a car with no brakes... claiming it is safe, then taking out a life insurance policy on the sucker they sold it to.

Sounds silly to me

[cdrguru]

OK, how about if instead of providing mileage ratings that car advertisements simply had a URL to a Python program that if you entered information about your driving habits that it would come out with an MPG value for a specific car. Obviously, there would be a completely separate Python program for every single car.

Of course, 99% of the weighting would be handled by the questions "Do you drive with a lead foot?" and "Are jackrabbit starts your normal mode?" But the other 34 questions would be there as specified by the government regulation governing the production of these Python applications.

Having a model and the user gets to make up the assumptions, you are getting a traditional garbage-in, garbage-out algorithym. Any model can conform to any belief system given the "proper" inputs. Isn't this half of what the climate arguments are about? Not the code, but the assumptions being pushed into the model?

I can't imagine that this would provide the average Joe Sixpack any useful information. I would say this isn't "transparent" in any way - unless the inputs to the model were published and required to be adhered to. This would make legally binding assumptions like in 2050 there will be fewer literate people than in 2000. I'd like to see the government come up with a plan for that.

Or worse, if a fundamental assumption of the model is rising interest rates and every investor makes 100% return in five years, great. Does the ability to push out a program that says if you enter the five year interest rates as steadily rising then justify advertising that every investor will make 100% of their money?

This also reeks of the idea that if you can't read a programming language you are a second-class citizen. Richard Stallman would be proud.

Re:Sounds silly to me

[jmcvetta]

I can't imagine that this would provide the average Joe Sixpack any useful information.

Joe Sixpack doesn't typically buy collateralized debt obligations. In fact, if he bought a tranche of a CDO, I think that would immediately disqualify him from his everyman status. The main customers for these sometimes obscenely complex instruments are investment firms.

Problem is, the legalese is so dense, even professional investment analysts have a hard time understanding the payout scheme. If I understand the proposal correctly, the Python code will itself authoritatively define the flow of funds from the investment vehicle. It won't simply be a model that makes predictions based on initial assumptions -- it will also "allow the use of the proposed asset-level data file that will be filed at the time of the offering and on a periodic basis thereafter". Thus given specific data about the performance of underlying assets up to any given point, the code will spit out an authoritative answer of "who gets paid what (if anything)".

Since a structured investment vehicle is essentially an algorithm wrapped in a contract, it makes sense to use a programming language to specify that algorithm. I personally like Python; but I agree with other posters who have said the regulation should ensure that other languages can be added over time.

Re:Huh- why?

[ZachPruckowski]

The problem this solves is a financial company's tendency to say "the model predicts this complex asset has a value of $Money" without explaining the model and its assumptions. Forcing them to show you the model lets you decide how much you think the asset is worth, and how full of crap the bank is. I'm sure if you asked in 2009, many banks had the modeled value of sub-prime mortgage derivatives at like 50 cents on the dollar or something, because they built their models to show a value that wouldn't make them bankrupt, instead of a more realistic value like 10 cents/dollar. This regulation would make it easier to call them on that stuff.

Re:its a step in the right direction

[ianare]

That's a good point to make, though I think your estimate of 5 years does little justice to Python. Regardless, the problem with NOT specifying a language is that it means I can make my own proprietary language and release that source code (and not the compiler, say).

Also, Python is open source through and through : community developed, open specs, several open source implementations. This means that even if one day 25 years from now Python is a dead language as far as practical usage goes, it will be no harder to understand and execute as it is today.

Re:Python's readability makes it a good choice

[poopdeville]

What is the difference in Gambling and Investing?

Whether the odds are with you or against you.

Re:its a step in the right direction

[timeOday]

The problem with mandating a particular language(s) is that these are subject to change with time. A legal framework should stand the test of time, and thus not include requirements for "Python". Python might not exist in five years, or may become obsolete in five years.

You could say the same for English, since it changes constantly. Then again, English never had well-defined syntax or semantics in the first place...

One reference language is a far better choice than a whole slew of them. To much unnecessary flexibility just adds complexity. Even if mainstream Python went in a different direction, the legally mandated dialect would survive for that purpose.

Re:Good idea.

[Eivind]

Better yet: If you do not understand an investment, don't buy it.

Really. There's no shortage of investments that are *easy* to understand, and the lack of free lunches means that investments you -don't- understand, tend to come with drawbacks that are invisible to you, because you don't understand them.

What's wrong with: "Buy 100 shares of a company with a total of 1M shares, if the company pays a dividend, you get 100/1M of it, if the company goes broke, your investment is lost. There's a $5 fee for the purchase, but other than that no fees or associated costs whatsoever"

Too simple ?