This episode is an experiment. Actuaries need to attest to having done 30 hours a year of continuing education and three of those need to be in what we call “professionalism” which can loosely be thought of as ethics for actuaries. Satisfying these is a pain so I thought I’d do something about it.
In this conversation with Don Mango, we discuss a series of cases (some listed below) that I thought might be interesting to interpret in the context of the actuarial code of conduct. Quite unexpectedly I had more fun with this one than maybe any of the previous interviews, which is saying quite a lot!
I won’t pretend this is for everyone but I suggest to give it a listen, even if only to hear our thoughts on Bitcoin, what a stock trader is to do if choosing between lying and screwing their client and many other examples (to actuaries: I promise it’s about actuaries!).
I’m also looking into a dedicated podcast for professionalism CE credits. If you’re interested, go to notunprofessional.com to sign up to a mailing list about that project.
Disclaimer: actuarial members, you of course need to use your own judgement on whether this podcast satisfies the CE guidelines. I’m counting it for mine, though!
The below are the cases we discuss with my own notes. Many ideas are shamelessly stolen from Matt Levine’s newsletter. If you don’t know Matt Levine drop everything and subscribe to his daily newsletter. It’s brilliant.
* Bitcoin (of course there’s a bitcoin section!)
Amazing article by Matt Levine describing the insanity that is Bitcoin. from 12/19/2017
Words lose their value in society. Things like ‘crazy’, ‘insane’, ‘madness’ get devalued because we use them for everyday things. Which brings me to Bitcoin. This shit is crazy.
It is hard to believe that anyone commits securities fraud anymore. Right now you can design an electronic token, say in big bold letters that the token is utterly useless, and raise $700 million selling it to people who “don’t think it’s fair reading into that language too tightly.” Why bother to scam anyone?
* what is advice?
from Matt Levine 1/3/18
One problem with making banks charge for research is: What is research? We talk from time to time about “desk commentary,” which is a thing where someone at a bank emails a client with a trade idea, but the person at the bank is not a “research analyst,” and the trade idea is not a “research report.” If you are in the business of regulating research — as U.S. regulators long have been, and as European regulators now are — then you have to distinguish a salesperson selling a trade idea from a research analyst selling research. That is not necessarily easy, as the ultimate goal of both salespeople’s emails and research analysts’ reports is, after all, to get clients to do trades. And in early going MiFID’s distinction might be crude:
“Solicitations from traders looking to pick up business from the buy side will drop significantly as the regulations stipulate that all research must be paid for. Money managers are even taking steps to block emails from those firms that have been dropped from their broker lists.”
It’s going to be weird if the only emails that money managers are allowed to receive are the ones that they pay for.
Isn’t this interesting context for assessment of an actuary’s work!
* Brokers enabling predation
From Matt Levine 12/14 email
DW: Brokers who tell clients that a large position is being liquidated. Bad, on the surface, but how can they drum up the liquidity? They need to say *something*! Shows that liquidators definitely get scrweed in this situation.
* Judge applying economic logic
Michael Dell took Dell private at 13.75 per share vs its stock price of 9.35. They were sued for the price being too low. And a judge agreed! Violates EMH massively and has all kinds of inconsistencies that led to the creation of EMH. This judge was out of his depth but would an actuary be if he were in such a chair?
DW: This is an exmaple of when a judge has applied his duty but it was clearly nuts! I wonder if that kind of thing happens to actuaries.
* how about when immoral activity hinges on intentions?
Matt Levine 11/15/2017
A fun thing to do, if you are a trader at a bank, is to trigger stops. If a customer has an order to sell a thing when it gets to 80 or below, and it is currently at 82, then you might consider selling the thing short to push down its price to 80. At 80, you know someone else will be selling, because you have a customer order to sell at 80. So you sell short at 82 and 81, and the stop triggers, and your customer pukes out her position at 80, and you go ahead and buy in your short at 80 or 79 or whatever, making a nice little profit.
This is fun but also obviously very much frowned upon. It is not good customer service: Your customer put in the stop order to limit her losses, and you went ahead and handed her exactly the losses she was worried about. It is probably — using even a reasonably narrow definition of the term — “front-running.” In the foreign exchange markets, it is forbidden by the FX Global Code (Principle 10). It’s probably illegal most places. But at least in theory, it might be hard to prove: Maybe you sold at 81 to lay off risk, or to accommodate customers, or because you foresaw the market moving against you. How can anyone prove that you did it to trigger stops?
The answer is usually “because you sent your colleagues dumb chat messages high-fiving about how you made so much money triggering stop orders,
* disclosing conflict. When is it ok to violate?
check this out:
Disclosure is often proposed as a solution to conflicts of interest, but research finds that disclosure is often ineffective. Years of research on the ?anchoring bias? (Tversky & Kahneman, 1974) suggest that once bad advice is let out of the bag, its impact on judgment is difficult to undo. Indeed, disclosure may even have perverse effects and can sometimes make matters worse. For example, disclosure can make advisors feel free to give worse (i.e., more biased) advice because advisees ?have been warned? (Cain, Loewenstein, & Moore, 2011). Also, disclosure can pressure advisees into satisfying the advisors? disclosed interests, because these interests are now common knowledge and are begging to be satisfied, just as a panhandler puts pressure on passersby to donate (Sah, Loewenstein, & Cain, 2013).
PRECEPT 7. An Actuary shall not knowingly perform Actuarial Services involving an actual or potential conflict of interest unless:
(a) the Actuary’s ability to act fairly is unimpaired;
(b) there has been disclosure of the conflict to all present and known prospective Principals whose interests would be affected by the conflict; and
(c) all such Principals have expressly agreed to the performance of the Actuarial Services by the Actuary.