The recent CFTC concept release provided a thorough, detailed summary of the current state of electronic trading and risk controls, and asked for public comments with a set of 124 specific questions. The document itself is a significant effort, intended to serve as an impartial platform to stimulate discussion of current and best practices, and has received more than two dozen responses from industry participants.
However, the process reminded me of the following story about looking upstream for solutions to problems. Please bear with me as I may have embellished the story (just a bit) from its original script.
A prosperous village straddling a scenic river had a problem rescuing people who had fallen off an upstream bridge into the river. The number of rescues seemed to increase daily, and the villagers were up in arms demanding help for their over-worked rescue crews.
The village elders held a series of meetings and drew up a detailed plan of action. They would establish trained monitoring patrols, equipped with a new, elaborate alarm system that would quickly alert authorities when someone was spotted in the river. They would beef up the rescue crews with the newest, specialized equipment available and also keep additional rescue teams on call.
The elders, being very wise, also looked for ways to address the problem upstream at the source. So at the bridge, they planned to build entry gates to restrict access. Travelers would have to register to cross the bridge and, as part of the process, would have to prove that they were qualified to cross. The registration assured that if by chance they did fall in and needed rescue, they could later be identified and fined. Crossings would be limited both in frequency and in total number per day. Once you started to cross, if you changed your mind and abruptly turned back, you had to wait before you could cross again. “We only want serious travelers to make these trips, not inexperienced sightseers who might just cause accidents.”
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Tags: Risk Management
