In a showdown between a wild-eyed trader, looking for the Big Score, and an investing entity’s Chief Risk Officer (CRO), reasonable people (amongst them investors with a long equity interest in the entity, its employees, its creditors and other counter-parties) must hope that at least once in awhile the company’s Chief Executive Officer will step in and support his CRO, reining in the excesses of the speculative impulse.
If the wild-eyed trader manages to evade detection for some time, and thus avoids a showdown with the CRO, imperiling the firm in the process, by recent convention we call this person a “rogue trader.” But what language do we use of the CEO happens to be the one with the wild eyes? The question is of more than semantic interest, and has drawn a good deal of attention since the demise of MF Global in October 2011.
The Global Association of Risk Professionals has surveyed risk managers, analysts and academics to get a sense of the implications of the demise of MF Global Holdings for the role of risk managers. Its findings add to a growing sense that the firm’s last chief executive, Jon Corzine, a former New Jersey Governor and U.S. Senator, was an edge-dwelling trader at heart, eager (as Dealbook put it in an analysis in December) to play a “hands-on role in the firm’s high-stakes risk-taking;” indeed, a man enmeshed in a “romance with risk.”
This spreading understanding of the collapse of the firm, combined with what appears to be a serious, though as yet still an obscure, breach of the firm’s custodial function, could have serious consequences for the policy/regulatory environment in which a variety of investing entities do business going forward.
Read the full article at All About Alpha: http://allaboutalpha.com/blog/2012/02/15/when-the-boss-is-the-rogue-trader/