Sandor said, “We make a mistake in the futures industry because we talk about transparency in a vacuum. As soon as we started trading futures we started trading in 32nds that crushed the cash market spreads. That doesn’t make sense to the layman. What does that mean? In 2010 (last year of data) the U.S government saved $250 million in interest cost as a result of the minimization of transaction costs. Pension funds saved $5.6 billion.”
Hence good derivatives. They are good because they meet a risk management need that wasn’t available or was more costly.
Using market principles to reduce pollution makes more sense than simply having proscriptive rules that come at a cost with no chance to profit.
Sandor in his career has not only exploited opportunities others could not see, he actively looked for ways to benefit society through the creation of products that eliminate or reduce risk.
Sandor concluded by stating that the type of growth the industry has experienced over the last 40 years can be matched but only with the invention of new products. “The future is new products, the same way we grew the business before… I believe the 21st century commodity is going to be water.”
Sandor is no doubt already working on it. And he added that there would be opportunities in intellectual property, biodiversity and computer capacity.
Hopefully the interns learned the difference between good derivatives and bad derivatives. Good derivatives are transparent and create an efficiency that benefits people outside of the industry. Bad derivatives are opaque and were born of the need for institutions to offer more product and creates risk rather that reduces it.
There is fantastic opportunity here,” Sandor finished.