An archaeological demonstration of path dependency in finance

2 points

6 years ago

"It is an archaeological demonstration of path dependency in finance, a bizarrely branching vestigial tail. I confidently assert that hundreds of computer programmers have shown up on their first day of work at financial services firms to build bond trading platforms, and they were like “we’ll let people input prices up to four decimal places, does that sound good,” and their bosses were like “hahaha decimals no we don’t use decimals here,” and they went slowly mad. No one could possibly want this, but it’s what we have."

"Unlike U.S. equity markets, which switched to decimal pricing in 2001, U.S. Treasury securities still trade in fractions. In particular, prices are quoted in 32nds of a point, where a point equals one percent of par, with the 32nds themselves split into fractions. On the BrokerTec platform, for example, 3- and 5-year notes trade in quarters of 32nds, whereas 7-, 10-, and 30-year securities trade in halves of 32nds. The quoted price for a 5-year note might be 98-15¼, for example, indicating a price in decimal form of 98.4765625 (that is, 98 + 15⁄32 + ¼⁄32).

Imagine coming up with that! Imagine being a human, with 10 fingers and 10 toes and centuries of decimal-based culture, and being like “instead of using 100ths of a point, we’ll use 128ths of a point, and we won’t even call them ‘128ths,’ we’ll call them ‘quarters of 32nds.’” Of course that’s not what happened, no one designed this; what happened is just that prices were quoted in points, and then someone wanted a bit more precision and went to half-points, and then someone wanted a bit more precision and went to quarter-points, and then the binary subdividing continued for a while and stabilized at 32nds, and then when it picked up again everyone was so used to 32nds that you had to say “half of a 32nd” instead of “1/64th.” "

https://www.bloomberg.com/opinion/articles/2020-01-15/it-s-not-insider-trading-if-the-president-does-it