The role of structural factors underlying incidences of extreme opportunism in financial markets

Abstract

A sociological approach is used to analyze incidences of extreme opportunism in financial markets. Through an analysis of arguably the most widely publicized "rogue" trader events in recent history, a determination is made of the validity of explaining these events as aberrations, attributable to the actions of "rogues". The primary focus is the role of structural factors underlying these incidences of extreme opportunism in financial markets. A diverse range of documentary and other sources is used to avoid any form of bias as far as possible. It was found that structural factors act as countervailing forces to inhibit such behavior or as motivators and facilitators acting as catalysts for extreme opportunism. The balance between these factors largely determines the level of opportunistic behavior in a particular environment. Extreme opportunism is therefore not an aberration or "rogue" occurrence but a manageable phenomenon intrinsic to the social structural context within which it occurs.

By conceptualizing these factors as countervailing forces one is forced to view structural factors, like compensation structures and formal and informal restraints, relative to one another and no longer in isolation. This realization translates into the conclusion that restraints and oversight systems for example, should be designed relative to the relevant motivators and facilitators in its area of application. In an environment where traders of highly geared financial products are motivated with multimillion USD incentive packages, a low budget oversight system and inexperienced regulatory staff, is clearly not the appropriate tools to control and manage extreme opportunism.