Tuesday, 20 September 2011

Rogue Trading at UBS

Having worked for UBS equities for many years, I ought to be writing something intelligent and well-informed about the $2.3bn lost by a rogue trader at the bank.  Reportedly, the trader, Kweku Adoboli, lost the money by buying equity index futures while booking fictitious ETF trades, so that the futures appeared to be hedges for the ETFs.

In fact I am baffled.  First, Adoboli should not have been able to book fictitious client trades (nor genuine ones).  He should certainly not have retained systems access from his previous role in back office.  Second, fictitious trades should have been detected by reconciliation procedures - according to the charges he faces he started doing this in 2008, so there's been ample time to catch up with him.  And third, the Treasury desk will have had to post margin, in cash or securities, on his losing futures positions.  $2bn or so is not a trivial amount (no, really) and they'll have been looking for offsetting margin from the purported client trades.  This should have shown up very quickly.

Which goes to show what I know, since evidently he got round all these obstacles for an extended period...

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