Sep

16

Those rogues can't be stamped out when they lose: "Rogue Trader At UBS Loses $2bn " .

Russ Sears writes: 

Could these problems with rogue traders at too big to fail institutions be the case of misinterpreting the example of leadership. Like the bribe taking cop's son getting busted for theft or the philandering preacher's boy getting the deacon's daughter pregnant. Corruption without some good protection is unforgivable!

Jim Lackey writes:

It's always a tech guy that can hack around the internal risk controls. It's easy to catch a trader in trouble if the managers actually talk to traders. The kid went on tilt and blew it up. Let me guess long the Dax hoping for a bailout. I always laugh at rogue or unauthorized. That is code for throw the new kid under the bus. Fact is no one was watching him.

When I was the new kid we had this happen. A tech guy wanted to be a trader. They gave him the usual line for trainees of 200 shares and no more than 5 positions. Weeks later he had 100,000 shares short of a Broadcom.com type stock right as the launch in 99.

It was the final nail in coffins at that bucket shop. Lessons learned, but weeks earlier I protested the clearing firm change from S to P. I loved clearing thru S and by then it was G. I was promised much cheaper clearing costs and for a day trader , man was it much cheaper… Of course the get the joke lessons learned was the firm was undercapitalized which is not the big deal. They were not smart. You can tell if traders or risk managers are smart on how they exit bad trades. They were obviously not, so the S risk manager boots the firm.

(edited for color but this is the gist of how it goes down) The street is small… "watch out for those guys". p calls late at night..hey what's up with the 100k short 5 against you… Instead of doing the correct thing and saying oh that is fine its a hedge on options position and we will get that trade cross first thing tomorrow…. they said OM gauche! what that isnt ours! Oh yes it is! Oh My thats a 500k loss no trader has a limit higher than 100k loss in a day.. that is not possible! Oh yes it is and dont worry it will be 1.5 million by the open. (no disaster plan)

By the next AM I have friends calling from other firms asking who is the moron that told everyone that NY guy is caught short 100k lot and he's a 200 share trader.. I said I dunno they didnt call me or Id be long with you on this huge gap up as the broker covers all at the open at the market.

We all pulled out money and quit the next day. A week later the firm was up for sale. No one bought it. A month later they were gone. and if the banks didnt have a line to treasury and feds this is how all of these disasters would go down. It's much like the 19th century system.

Not to say that the bank today with their 2 billion in losses should go. Yet I have 5 stocks on my screen right now that under normal trading conditions would be gone 3 years ago.. and we would all be uh better off.

Now you know who sold the Dax under 5,000, 10% ago. lack 


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5 Comments so far

  1. david on September 16, 2011 4:18 am

    But UBS shares recover upon report of jobs cut! There’s got to be a joke in there somewhere?

  2. Dan Costin on September 16, 2011 8:15 am

    Always a tech guy, except when it isn’t. Thinking of tech as the boogey-man is what keeps it in the 19th century. Except that’s not the century we’re in, which is perhaps why outfits like that have transient value?

    Nice story, rouge and all. Still a pig.

  3. Igor Petkovic on September 16, 2011 9:07 am

    If you lose you are Rogue if you are profitable you are Genius (sarcasm)…I’m thinking about legality of SNB’s peg of EUR/CHF. What it does to (option) Greeks !?

  4. Anatoly Veltman on September 16, 2011 11:03 am

    Fair query for shareholders and regulators: had limits been exceeded before, as UBS reported 50b(?) in trading losses last few years. Interesting how current investigation of the superiors comes out, as there didn’t seem to be harsh punishment at SocGen over theirs “3x the hole”!

  5. arthur on September 16, 2011 7:36 pm

    It’s only “rogue” if its a loss. But, its great news, ibs and money managers are cheap to hire a 150k help to oversee each and every trader and switch them around. They deserve to lose that much and more on every trade. Cheap short term will pay in the long, EXCELLENT! I love it. JP and Goldman loses by these “rogue” traders, the only difference is we never hear about it.

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