Executive Director in Derivatives at UBS
Scott Farmer is Executive Director in Structured Products Groups at UBS, the largest Swiss bank, having officers in over 50 countries. During our interview, he shared what it's like to work on the sales and trading floor, why he listens to the still small voice to help him create products to trade, what he's learned about love and the importance of morality, and how Bible stories have helped him deal with emotionalism, stress, and more.
How did you get into banking?
When I was at grad school at the University of Michigan (MBA and Masters of Engineering MSE), I played on the MBA hockey team. One of my teammates, who graduated before me, went to Citibank to work in derivatives. When he came back, he said how much he loved it and told me I should interview. I had never thought of working in derivatives, but I went out for the interview, moved to NY, and found I loved it, too.
What do you do in derivatives?
I work on the UBS sales and trading floor covering credit derivatives. There are several different types of derivatives. The type of derivative most people will be familiar with is an employee stock option. These stock options are the right, but not the obligation, to buy the stock at a certain price, even though the stock may be higher than that price. There are also bond options. An option is only one kind of derivative. Credit derivatives are financial contracts whose value is related to the risk-factor of other underlyings, such as bonds or loans. So, credit derivatives are products derived from bonds, but they aren't bonds themselves. I create products to have either a higher or lower risk than the underlying bond (changing the risk-reward profiles of the bonds), which therefore yields a higher or lower return, depending on the customer's needs. Once the derivative is created, it has to go through approvals, pricing, and marketing. As a product creator, I'm always looking for the next generation of product. The derivatives market and customers' needs are always changing, which is something I like about my job.
What have you found that has helped you in creating products?
It's really important to keep an open mind regarding what can be done. I always try not to be limited by what can or can't be done or what has happened in the past. But I also want to use past experiences as building blocks so I can adapt.
Do you ever get stuck in the creative process, or do things generally run smoothly?
I often get stuck … and for many different reasons. I can get stuck if the economics don't work correctly, if the approvals don't work correctly, or if the customers don't want exactly what I've created or want something I am not sure I can create for them. They don't arise with every deal, but they are frequent obstacles. That's also what makes it fun: I get to work though the problems and use what I've learned in my next experience. Creating pushes me all the time.
Have there been times when you've relied on prayer to help you through the process?
Definitely! I've worked with the Bible a lot through the job in many different ways. I really want to make sure I listen to God for the right way to create the structure. I want to make sure I'm open to everyone's need, that I don't try to put my own will into it and do only what works for me. This can be especially difficult in the trading floor environment, which is very loud with over a thousand employees in one room. I try to listen to the "still small voice" (I Kings 19:12) and be like Samuel who took the time to listen to God and know God's voice (I Sam. 3:3-10). I deal with a lot of input from others, such as lawyers and marketers, who give me guidance which is helpful but often conflicting. I have to make sure I'm following the still small voice of God so I know the right way.
Can you describe the creating process on the trading floor?
It's not the New York Stock Exchange, which is what many people think when they hear "trading floor." It's the UBS trading floor. It's about three football fields in volume, and it's the world's largest trading floor. My work is slow compared to everything else on the floor, as most of the people there are dealing with products whose prices change nearly instantaneously. I generally create products and sell them over time. It can take a day, a week, three months to make the new products. I read a lot of documents, get information, and create the products. The traders tell me what we can afford to pay someone, and the salesmen are finding out what the customer wants. Then, I work to determine what I can create, explain it to the traders, find out the price for the product, and so the cycle goes. We also bring in rating agencies (Moody's, S&P's, etc.) for an external evaluation of how risky the products are. There's a lot of negotiation, which can often be long and very complicated.
How do you know you're hearing God's voice when there are so many voices around?
It's very difficult, especially when you hear your own voice. But it's not the loud voice of human will. God's voice, the still small voice, is a comforting voice. When you hit upon it, rather than upon the loud and boisterous voices, you know it. It's a peaceful feeling that makes you know it's the voice you want to trust.
Can you share any experiences that have emphasized the importance of following God's voice?
Sure -- times when I didn't listen to the voice and should have. I really wanted to have a project done my way and in my time frame, thinking it would work out better for me. I wasn't totally listening to the customer's needs. What I found was when (like a lot of things) I tried to force things through, it didn't work. The product didn't have a sellable outcome, didn't work internally, didn't get approved. Basically, I had wasted my time, and I ended up working on God's schedule to get everything together, which did happen. I shouldn't have even tried to take the short cut to get things done. I had the Jonah and the whale syndrome -- doing what I wanted to do rather than what God wanted done and then realizing I needed to do things God's way. It's nice when you learn lessons. It's also nice when you don't repeat the same mistakes.
Is your environment a difficult one in which to work?
Individuals get stressed and very emotional at times, and it's acceptable and common to yell and scream to get things done. It's not quiet. It's been a much different environment than I originally pictured myself in.
Was there an adjustment period for you?
There was. When I first started out, I wondered how people could work in cubicles with no privacy. I don't even have a cubicle. There's someone two feet to my left and someone two feet to my right. There are no barriers, no privacy; everyone knows everything. Plus, people yell and scream either because they're having fun or because they're upset about things. But if you want to be successful, you have to make yourself known. Growing up in Sunday school and learning about love, I didn't see yelling and screaming as loving or as expressing God's qualities. At the same time, I didn't want to back down or be pushed over.
How did you reconcile your concept of love with the need to yell to be heard?
My understanding of love changed. I learned that love can be strong; it's not just passive or dismissive. David was reflecting God's qualities and following the still small voice for him when he was led to fight and defeat Goliath (I Sam. 17). And Jesus flipped over the tables of the money changers (Mark 11:15-17, John 2:12-17). Jesus couldn't do anything but love, but those were not small, slight gestures. He was standing up for what was right. I learned that I didn't have to be pushed over by other people trying to push their own wills and ideas on me or be pushed around by my own human opinions. I realized I often needed to step back and be out of reach of "will power." At the same time, love doesn't have to be soft-spoken. I can stand up for myself, for God's qualities and right ideas, and still be reflecting love.
What qualities are required for this job?
It's the type of job that takes a lot of energy. I think you have to be enthusiastic, dedicated to it, and very moral. A lot of firms have had lawsuits recently because employees were accused of doing things illegally, immorally, or both, and the firms have paid out a lot money as a result. You're dealing with large sums of money -- others people's money -- and some people get greedy or try to push to do things that aren't right for the customer. So the moral issue comes up when I interview people. I look for candidates who will do what's right in a stressful environment instead of doing what's easiest. I've found that a lot of people I work with on the trading floor have strong religious backgrounds across many different faiths. I think this might surprise many people, but I think such faith gives these employees the moral strength needed for the job.
How do you deal with other people's emotions in a stressful environment?
I guess the first thing I try to do is not let them affect me, not get involved or provoked by them. If I can get myself stable, I can have a calming effect on other people and disarm them. So I try to be less emotional and more objective, listen to people's points, take what's valid, and keep the emotional points out of the conversation. The story of Shadrach, Meshach, and Abed-nego has been helpful to me in dealing with the emotional level on the floor. Even though they hadn't done anything wrong, they were thrown into the fiery furnace. But because they were doing God's will, they walked out totally untouched, without even the burning smell of soot on them (Dan. 3). So even though I'm thrown into the furnace of fiery emotions, those emotions don't have to touch me. I know I can (and do) walk away from pretty bad scenarios, often political in nature, not touched because I'm listening to and following God's voice.
What other challenges or successes come with working in derivatives, sales, trading and/or banking?
One of the things that I find challenging is that I walk in each January 1 with a zero balance. The firm keeps a running total of profit and loss, and I get paid on my profit (or loss) at the end of the year. I know on a day-to-day basis if I'm ahead of budget or behind. It can be stressful if I'm behind and great if I'm ahead. I'm always working to know that my supply and demand will be met. It's important, if people want to get into sales and trading, that they get comfortable with and understand this. It's given me a lot of opportunity to understand supply in a different way. Before this job, I had never thought a lot about the story of Jesus paying tribute. When the tax collector comes to collect taxes, Jesus tells Peter that he'll pay tribute "lest we should offend them" (Matt. 17:27). He tells him to go throw a line in, catch a fish, and open the fish's mouth to find the money they need. Now, I'm not going out and fishing during my work hours. But I know that Peter and Jesus were following God, and the supply was there in an unusual way. The story's also not saying that you don't have to work. But if you follow God's lead -- the still small voice -- you'll have what you need in every way, spiritually and humanly. That understanding was a different idea for me. Getting your own budget can be a motivator. The number is just a number, so you have to know what your own goals are. I'm not saying that you should ignore the goals set by management, but they shouldn't mean everything to you, either. As you work to reach your goal spiritually, these other goals work themselves out.
How does your work help you with your spiritual goals?
What I like about the job is that there are many challenges. The fast-paced market requires me to keep learning and developing new ideas. It pushes me toward the Bible to help me work through the challenges. Whether the challenge is about relationships at work or meeting budgets, I find new ways to look at and apply the Bible stories to my work, which help me move forward spiritually. The kids I teach in Sunday school like to hear the healings I've had, and I like to hear theirs, too. It keeps me on my toes -- working hard and accomplishing goals. It's fun and spiritually rewarding.
About Scott H. Farmer
Scott lives is Greenwich, CT with his wife and infant son.
May 2001 – Present
UBS Investment Bank
Credit Derivatives & Structured Credit Products - Executive Director
- Built and managed UBS's managed synthetic CDO program
- Engaged portfolio managers and conducted global road shows·
- Syndicated structured credit products in the United States, Europe, Japan, Asia, Australia, and South America
- Structured CDO's, Synthetic CDO's, correlation transactions and alternative credit structures
- Educated global sales force and their clients on structured products·
- Marketed alternative credit products to insurers, hedge funds and banks·
- Distributed insurance securitization product through US sales force
Feb 2000 – May 2001
Credit Suisse First Boston
New York, London
Credit Derivatives & Structured Credit Products - Director
- Structured and developed credit products for CSFB's sales force, including: synthetic CDO's, tax enhanced investments, CLN's, and alternative asset class securitizations
- Repacked HY Loans and bonds for distribution into European sales force
- Created models, reviewed documentation and worked with rating agencies on synthetic CDO transactions
July 1996 – Feb 2000
Derivatives & Structured Products – Vice President
- Structured first synthetic CDO for Citibank's loan portfolio to receive risk based capital relief
- Created, modeled and marketed new products for Citibank's insurance and reinsurance clients including; synthetic CDO; project finance CDO's, and film securitizations
- Products marketed included; synthetic CDO's, illiquid asset securitizations, equity options and project finance CDO's
Sept 1993- May 1996 University of Michigan
- Masters of Engineering Masters of Business Administration
- Masters of Business Administration
Sept 1989- June 1993 Princeton University