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. since an exchange does not stand between the two sides of the trade, parties make payments directly to each other to honor the terms of the contracts. the market practice is to use collateral or pricing to mitigate the risk that the other side of the trade cannot perform per the agreement. the recent industry study also found that competitive pressures were such that brokers did not enforce the standard cds agreement and allowed counterparties to assign their side of the trade to another party without notifying the broker. obviously, this can significantly change the risk profile of a transaction and also make it very difficult to settle payments in a timely manner. about six weeks ago, fourteen major market participants published a letter reiterating their commitment to improving the infrastructure that supports the credit derivatives markets. the market participants are committed to the development and implementation of a set of industrywide guidelines that include a targeted reduction in each market participant's confirmation backlogs and assurance that agreement terms will be enforced. additionally, the fourteen participants will work to create a largely electronic marketplace where all trades will be processed through an industry - accepted platform, develop a new set of processing standards for those trades that cannot be confirmed electronically, and establish a new procedure for settlement following a credit event. we are generally pleased with both the industry's self - identification of the issues and its commitment to making improvements. but for purposes of our discussion of erm today, the problems surrounding cds sales highlight the challenges risk managers face when market pressures make the firm's line management reluctant to initiate appropriate controls on their own. it also illustrates that in new lines of business, sometimes erm must go outside the enterprise and work with competitors to support the growth of shared systems and standards to mitigate risks. conclusion at the federal reserve, we believe that all banking organizations need good risk management. an enterprise - wide approach is appropriate for setting objectives across the organization, instilling an enterprise - wide culture, and ensuring that key activities and risks are being monitored regularly. senior management must be involved in erm, since they are the ones who decide the level and types of risk the organization is comfortable with accepting and what controls and risk mitigants will be employed to ensure that risk exposures stay within the agreed - upon levels. in addition, it is important for organizations to make sure they do not ignore or accidentally overlook lower - profile activities that still might bear substantial risks. as i noted, such activities can include financial statement reporting, information security, and back - office