Subject: File No. S7-29-10
From: Stephen A. Boyko

November 5, 2010

To shift market realities to regulatory realities, Senator Dodd holds that he is "not suggesting that any size is okay, but it's really risk, it's these other elements in here." In a world of financial complexity, innovation, and bubbles, it is "randomness" that includes both uncertainty and risk that should become the main focus of robust capital market governance. Accordingly, capital market "Too Random To Regulate (TRTR)" governance dilemmas are framed by three questions.

  1. Does uncertainty exist in the capital market to a material degree?
  2. If so, can it be regulated by one-size-fits-all deterministic governance?
  3. What metric(s) demarcate risk from uncertainty in the capital market?

These questions, in turn, engender the following responses.

  1. As there are innate complexities in the capital markets, the element of uncertainty always will be a part of complex adaptive systems.
  2. Absent randomness segmentation, indeterminate information cannot be processed effectively and efficiently by determinate metrics.
  3. The bright line that demarcates determinate from indeterminate underlying economic condition depends upon structure.

The conflation of ?risk? and ?uncertainty? exacerbates capital market structural problems thus accelerating the troubling trend of larger and more frequent economic dislocations. It is not so much the riskiness of the structural processes related to proprietary trading, hedge fund, and/or private equity that is troublesome, but whether the instruments? contractual randomness contained in the portfolio?s investments are of a "risky" or "uncertain" nature.

The issue is whether it is more preferable to solve the "symptomatic problems" of scale that is "Too Big To Fail (TBTF)" and scope that is "Too Random To Regulate (TRTR)", or whether it is preferable to fix the "market foundation" by segmenting the underlying economic condition in terms of predictable, probabilistic, or uncertain governance regimes.

Author cites article "Mr. Volcker Is Wrong", The Yorktown Patriot, May 21, 2010, available at