When the original Director of the SEC’s Office of Risk Assessment left the Commission in early 2007, the SEC knew it was going to be a challenge to find his replacement. The ideal person would need an unusual blend of economics, business, and securities knowledge, as well as a bit of an entrepreneurial streak to grow and lead the small office to the next level.

After over a year of searching, the SEC finally found its man, and right in its own building. In March 2008, the SEC announced that it had appointed Jonathan Sokobin as new Director of ORA. Sokobin had been with the SEC since 1998 in its Office of Economic Analysis, and had served as the SEC’s Deputy Chief Economist since 2002. Prior to joining the SEC in 1998, Sokobin was an Assistant Professor of Finance at Southern Methodist University in Dallas. He also had an ideal background, with a B.A. in Economics, as well as both an MBA and a Ph.D. in Finance from the University of Chicago to go with his experience at the SEC.

By the time Sokobin started with ORA at the beginning of March 2008, however, the ORA had dwindled down to what he described as “an office of one,” a CPA named John Niarhos. Although it had grown to as many as seven people under the prior Director, Charles Fishkin, the lengthy period it took the SEC to replace Fishkin (essentially all of 2007) caused the SEC to move the ORA employees who remained to various other parts of the SEC, integrating them into risk assessment functions across the agency.

Sokobin points out that despite the near disappearance of ORA by early 2008, the SEC had hardly abandoned its efforts at risk management. He says that to the contrary, even in early 2008 the SEC still had 30 people devoted to risk management in its Division of Trading and Markets, with 22 of those people focused on broker-dealers. Thus, some at the agency believe that the recent Congressional testimony by the SEC’s former chief accountant suggesting that the current financial crisis is due in part to the SEC forsaking risk management by letting ORA shrink to one person was gratuitous. Sokobin emphasizes that the ORA “was never, nor was it ever intended to be, responsible for investment bank risk management. That function was assigned to the Division of Trading and Markets.”

What, then, is the mission of ORA other than the generic “looking around corners and over hills” we’ve been hearing since its creation in 2003? Sokobin views it as having three key parts:

1. Financial markets intelligence - ORA is charged with understanding how financial markets are changing to identify potential and existing risks at both regulated and unregulated entities. For example, he says, risks may come from markets growing faster than their infrastructure can withstand, new products, or world developments.

2. Knowledge management - ORA helps the SEC use data and information more effectively across the entire “enterprise.” As one of the few groups at the SEC that is not also engaged in bringing cases or actively regulating industries on a day-to-day basis, ORA has the ability to focus on how to improve and best utilize the SEC’s tools and processes.

3. “Enterprise-wide” planning - ORA’s position above the day-to-day fray of enforcement and regulation allows it the perspective to look at the SEC and the financial markets “holistically,” Sokobin says. The ORA’s goal is to help figure out how the SEC can best allocate its resources and plan for future events and crises. Sokobin calls this “continuity planning,” i.e., considering how the SEC as an organization would react and recover in the event of a major crisis or disruption. For now, he notes, such planning is necessarily taking a backseat to the SEC’s real-world effort to respond to the financial crisis that is already upon it.

Sokobin says that although it tends to operate behind the scenes, the ORA has had its successes through the years. He says that the Enforcement Division credits ORA’s risk management approach with a share of its success in identifying and understanding the issue of options backdating. He also says that ORA worked closely with the SEC’s OCIE and Investment Management divisions to develop ways to obtain information and assess the exposure of money market mutual funds to risk from the subprime mortgage meltdown.

Finally, Sokobin reports that the ORA is no longer a lonely office of one. In his six months on the job at ORA, Sokobin has been able to quickly build the office back up to seven people, with two more coming soon. Since March he has added professionals to the office including a Ph.D. in economics, an expert on market microstructure, an attorney with expertise in international affairs, and a CPA with expertise in the mutual fund area. He expects to add an additional economist and programmer to the staff by the end of the year, which will bring the office to nine people.