FM: Of the various solutions offered, which do you support? Which ones do you think are a mistake?
LM: The insurance is not viable, and the federal government involvement? That isn’t anywhere I would go. The idea of a custodial is a good idea; it has to be vetted. The big banks don’t need it and don’t want it. In their view, they are at an advantage. If you run this theory to its conclusion, it would say you only trade with a big bank because your money is safer there. But JPMorgan showed they could lose $9 billion with a [London] Whale, so I am not convinced of that. The fact that you could have money laundering at HSBC, and you have the Libor thing and you can’t draw that line too well. The smaller firms wouldn’t mind the custodial approach. If a custodial operation were in effect, it would help the smaller [futures commissions merchants] (FCMs). You [must] have the smaller FCMs because the large FCMs don’t want the small customer, he is a pain in the rear. For us, those are important customers, they create a hell of a lot more liquidity than a block trade does. We’ve got to protect that. It is what we are wrestling with right now.
FM: Do you think the days of self-regulation are over?
LM: I would like to think that self-regulation is still the best way. However, like all things, you become a little too complacent sometimes and that is the time you have to review and reconstruct, and that has to happen. But I wouldn’t give up the self-regulation role. What we have to do is never be complacent. You go for a long stretch of time and you think you [have] everything in place, and then you are shocked into reality where suddenly something happens like MF Global and Peregrine. That shakes you up and causes you to review and restructure. That will happen, and we will be all the better for it.