Managing Traders
Managing Traders
In analysing the behaviour of traders in financial markets, one would observe that the reliance of traders on high bonus payments slows down the accumulation of profits in the investment-banking sector and may expose how firms employ traders at high levels of operational risk. The other aspect concerns how publicity surrounding the concealment of losses has resulted in regulatory intervention and public concern about malfeasance. However, we know that traders are not supposed to take risks that extreme. This paradox is investigated by looking at how traders are managed. There is a regulatory concern with management's attitude towards risk and controls as a part of a broader risk-based approach in assessing firms' behaviour. The chapter will look into relevant theory, present data, and assess the implications of these data in order to address the main concern regarding the effect of loss aversion rather than profit accumulation.
Keywords: operational risk, profit accumulation, loss aversion, regulatory intervention, bonuses
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