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Rogue Trader

2011 September 16
by Paul Vallely

Another rogue trader has caused massive losses in the world financial system. A $2bn loss has been registered in the London office of the Swiss bank UBS after unauthorised trading by a single individual.

It is 16 years now since Nick Leeson’s unauthorised deals single-handedly collapsed Britain’s oldest merchant bank, Barings, with losses of £800m. Since then rafts of legislation, regulation, compliance reporting, and complex computer systems appear to have had no effect. Just three years ago another rogue trader ran up losses of €4.9bn at  Société Générale.

This is not rogue trading so much as rogue management – the UBS loss was not run up in a single day – which failed to apply proper tests of diligence, let alone ethics. The last UBS annual report boasted that “increased risk taking” had been authorised since 2010.

The trouble is that these increased risks are taken with someone else’s money. Traders in securities are effectively sent into the casino and told they can keep a cut of anything they win but face no real personal penalty for any losses. Bets get bigger and wilder. That is why the Facebook page of the man alleged to be responsible for the UBS disaster read, on his last update, “need a miracle”.

But it is not a miracle that is needed but greater regulation, a ban on high order derivatives and less risk-taking by banks which, like UBS, were bailed out by the taxpayer in late 2008. It is not the odd rogue trader who needs attention but a rogue system.

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