About a year ago we worked with a client who designed and developed financial trading software. We were immersed in the arcana of this century’s financial markets, learning about Credit Default Swaps, or as they are known to the financiscenti, CDS. Our time with our client and their customers (rogueish but not rogue traders) was an educational journey into a power-oriented, confrontational, macho culture. Indeed, this organization was a rocky place where our recommendations could find no purchase.

Now, here we collectively stand with our mutual fund statements as smoking ruins in our fists and the arcana is now mainstreama, with headlines like $62 Trillion Credit Default Swaps Threaten U.S. Government Bonds as common as can be.

Two responses: i) I didn’t do it. Nobody saw me do it. You can’t prove anything. ii) We told you so.

This piece in the Financial Times about how anthropology is important to understand the behaviors of bankers is well-timed and relevant (if indirectly related) to the story of Société Générale’s Jerome Kerviel, the rogue trader.

For one thing that anthropology imparts is a healthy respect for the importance of micro-level incentives and political structures. And right now these issues are becoming critically important for Wall Street and the City, as the credit crunch deepens by the day.
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But what is crystal clear is that if you want to understand which banks will emerge as winners from the current mess, it is no longer enough to look at their computer systems and balance sheets. Now, more than ever, investors need to understand a bank’s culture too – and the degree to which it is tribal.

We just wrapped up our second study of traders and it’s really gratifying to see this column. Traders, as a profession, have a lot of strong character traits (humor, macho/aggression, social) and much of their work is competitive and manipulative. The tools they use are pretty straight transaction machines, though, that don’t reflect the complex layers of intention that are driving everything the trader does. The only product that seems to echo or reinforce trading culture is the Bloomberg terminal which, in addition to all the data-oriented tracking and graphic capabilities, also offers an IM/email/Facebook-like platform to a closed, consistent, and co-located (The City in London, Wall Street in New York, and other neighborhoods in major financial markets) community.

There’s enormous potential for the other software tools used by these traders to similarly match their offering to the dynamic culture of their users. It’ll require these vendors to take a fresh look at how their products can really bring exceptional value to the people who make their living with them. Failure to understand and design for these folks will undoubtedly lead to more stories like the current scandal.

SocGen (as it’s known by people in the industry) in London (actual fieldwork photo!)

A new Krispy Kreme located in the heart of London’s The City (the financial district) gives away free boxes of donuts, causing a run

FT story via antropologi.info

A couple of months ago I spent a couple of weeks in London on-site with a client, meeting with different players and learning about how they did things, and how they were using the products they were developing.

This company is in the finance industry which has a pretty specific culture: high energy, male dominated, very social, very competitive. I was there as an outsider and I was obviously an outsider…strangely dressed, from “Silicon Valley” (one person I met with revealed that they had been anticipating my arrival by referring to me as Silicone Man, because, in part, they didn’t know my name), and of course asking a lot of ridiculous questions.

The trading floor (essentially rooms with rows of desks that have 3-6 monitors each) has a very hierarchical culture. For example, the young guys run out every day and bring back food for the other guys. One day I was working on the floor during lunch; the team I was with asked me if I wanted lunch, so I placed an order with two young traders from France, as they went out to Wagamama (or as they called it, Wags).

When the food arrived, one of the brokers noticed me with my bucket of noodles and announced to everyone “Hey, Steve is having lunch on the desk! Now he’s really and truly one of us!”

Being overtly included is always touching; I was struck by the power of the shared dining ritual (which in this case was simply the ordering, then we all sat at our desks with our computers and ate and worked) to delineate that inclusion.

I responded by announcing that one of the tools I use in my work is participant observation. “Oh…” he said, “We learn something new every day!”

The photo is definitely quaint but still matches our iconic image of how trading (whatever that is; most of us have little understanding of the mechanics of markets or the activity of trading). Maybe we picture men in jackets with numbers on ’em, holding phones and throwing pieces of paper and yelling and yelling. But that era has disappeared as technology has eliminated the need for a central place. Trading takes place in distributed facilities, owned and operated by “banks” (including Morgan Stanley et al) not in centralized facilities owned and operated by exchanges. The Chron today considers the history of the exchange in San Francisco, now a gym.

A 1999 article in The Chronicle reported that only about 5 percent of the 17.5 million shares traded daily there involved personal interaction on the exchange floor.

The romance was ending. Warren Langley, president and chief operating officer of the exchange from 1996 to 1999, wrote in an e-mail that those who had devoted their lives to the exchange “really were in pain as the world of technology and telecommunications made floor-based exchanges obsolete (and made the value of their jobs go away).”

In 2001, the exchange announced a merger with the electronic marketplace corporation Archipelago, eliminating the need for brokers to interact face to face, and sold the trading floor in 2002.