Thursday, September 9, 2010

Financial Jargon in the News: "Prop Trading"

"The Volcker Rule has forced Goldman Sachs to sell off its Principal Strategies unit, which was its internal hedge fund devoted to prop trading." Huh? A quick googling reveals that this refers to proprietary trading, which doesn't bring the translator any closer to an answer. Forget printed sources. Financial jargon develops at such breakneck speed in the early 21st century that the dictionaries on your shelf are of little use. It helps to know the meaning: it refers to the trades that banks engage in with their own money. As the name implies, a brokerage house should really be only a broker. In theory, it should simply buy and sell the stuff its clients order it to. And charge huge commissions for those services. As the senior partner explains to Eddie Murphy's character in Trading Places:

Randolph Duke: Good, William! Now, some of our clients are speculating that the price of gold will rise in the future. And we have other clients who are speculating that the price of gold will fall. They place their orders with us, and we buy or sell their gold for them.
Mortimer Duke: Tell him the good part.
Randolph Duke: The good part, William, is that, no matter whether our clients make money or lose money, Duke & Duke get the commissions.
Mortimer Duke: Well? What do you think, Valentine?
Billy Ray: Sounds to me like you guys a couple of bookies.
Randolph Duke: [chuckling, patting Billy Ray on the back] I told you he'd understand.

However, that was back in a simpler, more innocent time known as the eighties. In the past quarter century, trading with your own money acquired a much, much greater importance. For instance, instead of buying mortgages, packaging mortgages, and selling them off, banks began to keep a lot of that stuff they "created" on their balance sheets. In theory, the housing meltdown should not have imperiled the financial system, but since the banks peddling these securities were just another participant holding a lot of this toxic material in their warehouses, the brokers almost went under, along with their clients. Contrary to the case of a bookie, who profits regardless of whether the Giants win or lose.

This is what the Volcker Rule has ended. So how do you translate it? As is the case for a lot of financial innovation, there is no agreed term for it. And as is also often the case, Spanish-speaking professionals working in the financial world simply use the term in the original English. One example:

"JP Morgan, el segundo banco americano por volumen de activos, ha confirmado a varios traders que operan en el mercado de commodities que cerrará sus actividades de proprietary trading para cumplir con la nueva regulación financiera aprobada en Estados Unidos."

However, what do you use if you decide to suggest a Spanish equivalent, at least in brackets?

Herewith a smattering of choices picked from among the abundant options on the Internet:

Se trata del llamado Proprietary Trading, la intermediación por cuenta propia de las entidades financieras para la que éstas arriesgan su propio capital y no el de sus clientes.

The reporter from Cinco Días expands the term without exactly translating it, although it could be shortened to "intermediación por cuenta propia."

The next option is a mistake:

El dirigente norteamericano anunció a principios de enero la puesta en marcha de una severa regulación para las entidades bancarias que lleve a limitar e, incluso, prohibir ciertas actividades financieras, para evitar la especulación en los mercados de los bancos, tanto por cuenta propia (a través del proprietary Trading, o comercio con capital propio) como para terceros.

The author is tripped up by the term trading, which could mean comercio, in the sense of buying and selling stuff, but which in the financial sphere refers specifically to "buying and selling securities" and needs to be transmitted using something such as intermediación, operación, compra y venta de valores, etc. However, the "capital propio" part of the option is correct.

Then there is this option, culled from and

Proprietary trading; Administración de Cartera Propia;
proprietary trading manager: Jefe Administrador de Cartera Propia

It is presented as authoritative, but is it really widespread throughout the industry? Google the phrase "Administración de Cartera Propia" and you get this curious result: You only get 20 or so hits. This is a very low tally that indicates the term has not caught on. Moreover, half the hits refer to an executive in a universal bank (not an investment bank) that was fined for a securities infraction. The term is almost exclusive to this one institution. It is therefore somewhat suspect. Moreover, it is not very exact, (as in the case of "comercio," above) since "administración" does not really transmit the meaning of trading. It should be viewed cum grano salis.

Therefore, after reviewing the different options, I feel the following are acceptable: intermediación por cuenta propia, intermediación con capital propio, operaciones por cuenta propia.

However, since none of these options are established (and depending upon the context), the term should be accompanied by the original in round brackets the first time it appears in the text.

That is, of course, unless the client simply asks you to leave it the original English, which happens frequently and renders the preceding moot. ;o) Although you can propose your preferred option in round brackets.

Miguel Llorens is a freelance financial translator based in Madrid who works from Spanish into English. He is specialized in equity research, economics, accounting, and investment strategy. He has worked as a translator for Goldman Sachs, the US Government's Open Source Center and H.B.O. International, as well as many small-and-medium-sized brokerages and asset management companies operating in SpainTo contact him, visit his website and write to the address listed there. Feel free to join his LinkedIn network or to follow him on Twitter.

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