I read the JLN essay about the events of February 5. I had heard many of the rumors that quickly emerged in the aftermath of the carnage and, as always the case in these types of situations, wasn’t sure what to believe.

So, first, congratulations on the incisive and important reporting. It’s scary to consider how vulnerable the FCM community—and by extension, the entire industry—is to these periodic shocks; especially since the previously rare black swan sighting has become an increasingly regular occurrence.

I suppose it’s possible to look at February 5 in a positive light. After all, every FCM that suffered losses was able to quickly recapitalize. But, what about the next time? And the next and the next?

In running a proprietary trading firm and broker-dealer, dealing with risk management is at the center of my daily concerns and, undoubtedly, the most important thing I do. And I can attest there are no simple answers to any of the questions your essay raises.

I also want to commend you for your comments at the end of the essay. Markets crave efficiency. So we use technology as a tool to maximize profit and mitigate risk. But, as you point out, it is individuals who create and utilize the technology that determine outcomes. And the backpack analogy is quite apt. Whether one acknowledges it or not, we all carry some portion of the burden of responsibility.

Every one of us is both a master of and slave to the system. And when you consider how little we actually know about the random forces of supply and demand, our inevitable reliance on heuristics to guide decision making and the unfortunate truism that some noticeable percentage of traders are bad actors, it’s remarkable the market functions as well as it does.

David Silverman

CEO

Alpha Trading L.P.