Managing Operating Risk in a Wired World

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Managing Operating Risk in a Wired
World FIA Futures Services Division Susan
Shaughnessy - Morgan Stanley March 15, 2007 Boca
Raton, FL
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Agenda

• Panel Introductions
• What is Operational Risk?
• Operational Risk Factors
• Open Discussion
• Summary

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Panel Members

• Tom Dugan Citigroup
• Ed Lynch Goldman Sachs
• Ray Tubridy Merrill Lynch
• George Haase NYBOT
• Kim Taylor CME

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What is Operational Risk?

• According to 644 of International Convergence
  of Capital Measurement and Capital Standards,
  known as Basel II, operational risk is defined as
  the risk of loss resulting from inadequate or
  failed internal processes, people and systems, or
  from external events. The Basel II definition
  includes legal risk, but excludes strategic risk
  i.e. the risk of a loss arising from a poor
  strategic business decision.
• Examples of operational risk include
• Technology failure
• Business premises becoming unavailable
• Inadequate document retention or record-keeping
• Poor management, lack of supervision,
  accountability and control
• Errors in financial models and reports
• Attempts to conceal losses or make personal
  gains (rogue trading)
• Third party fraud
• In short, risk is associated with the
  non-availability of an environment to function."
• Supervisory Guidance on Operational Risk Advanced
  Measurement Approaches for Reg Capital - July 2,
  2003

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Contract Volume By Exchange (Top Traded Products)
RISK LEVEL
Futures Industry Association Website
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Contract Volume By Exchange (Top Traded Products)
RISK LEVEL
Futures Industry Association Website
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Contract Volume By Exchange (Top Traded Products)
RISK LEVEL
Futures Industry Association Website
8
Contract Volume By Exchange (Top Traded Products)
RISK LEVEL
Futures Industry Association Website
9
Contract Volume By Exchange (Top Traded Products)
RISK LEVEL
Futures Industry Association Website
10
Contract Volume By Exchange (Top Traded Products)
RISK LEVEL
Futures Industry Association Website
11
Contract Volume By Exchange (Top Traded Products)
RISK LEVEL
Futures Industry Association Website
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Contract Volume By Exchange (Top Traded Products)
RISK LEVEL
Futures Industry Association Website
13
Contract Volume By Exchange (Top Traded Products)
RISK LEVEL
Futures Industry Association Website
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Open Discussion
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Summary
With increased complexity, demand and regulatory
scrutiny comes increased operating risk.
Management of these risk will be a key
underpinning of success.

• Paradigm Shift Focus on risk management need
  to be commensurate
• with running the line
• Identify, Measure, Report and Manage Risk
• Continue to instill Risk Aware mindset at
  all levels of the organization and within
• the industry