Whenever a big bank or large trading operation loses a large chunk of change we immediately hear about the lone wolf, the young gun caught up in a glamorous trade, biting his nails, considering suicide, waiting for his position to come back. He's the ROGUE TRADER! Like dawn of the dead when they find out you're not one of them you're a rogue trader! Typically this drama plays out as a convenient smoke screen for much larger risk management issues that senior management at the negligent company would rather not come to light.
Why don't we hear about the rogue trader who makes a lot of money abandoning risk management guidelines, skirting compliance issues, management turning a blind eye. Does this guy ever get fired or outed by his community as a pariah trader?
UBS has fired their CEO and rightly so, over their latest incident with big losses brought about by over-sized positions and risk taking. This is rare. Normally the young guy caught in the wrong position, flapping in the breeze is rolled under the bus and ground up by the media machine and the corporate pr protection gang. He's thrown to the wolves, fired, degraded, often jailed or barred from their profession for life, tattooed Rogue Trader on the forehead.
Never mentioned in the whole affair is the company's risk management framework, position limits, risk monitoring, mark to market P&L reporting system. Is this guy reporting his positions in a spreadsheet? Doesn't the risk manager check in with his broker every day, confirm his trades monitor his position limits and delegation of authority?
If not then the the CEO deserves to get fired. Typically these traders do well for a time and are rewarded with more and more DOA or daily VAR. What management of traders often fail to realize is that if a trader breaks his profit target and DOA to the upside there is every chance in the world that they will experience a similar event to the downside. Typically the downside events are worse in proportion to the gains and managed less effectively because the trader doesn't want to admit the loss and take it. They ride the loss and even double down thinking that is will get better, that it will come back, that they can hide it for a few days. They've been successful in the past and an enormous portion of their professional ego is tied up in being right, being successful. After all how can you be a successful trader if you're not right most of the time? (quite a few ways actually but that's another post).
Often, these positions are sanctioned by someone higher up because they also don't want to take the loss and have to report it to their bosses. If the company is managing positions on a spreadsheet, fails to confirm daily trading activity and mark to market P&L daily, who is responsible for that decision? What is $10 million dollars spent on your risk management system when you're daily VAR is $50 million and some dude right out of business school with a spreadsheet, three girlfriends, credit and broker can take you down $2 billion? It's not that guy's fault.
Why don't we hear about the rogue trader who makes a lot of money abandoning risk management guidelines, skirting compliance issues, management turning a blind eye. Does this guy ever get fired or outed by his community as a pariah trader?
UBS has fired their CEO and rightly so, over their latest incident with big losses brought about by over-sized positions and risk taking. This is rare. Normally the young guy caught in the wrong position, flapping in the breeze is rolled under the bus and ground up by the media machine and the corporate pr protection gang. He's thrown to the wolves, fired, degraded, often jailed or barred from their profession for life, tattooed Rogue Trader on the forehead.
Never mentioned in the whole affair is the company's risk management framework, position limits, risk monitoring, mark to market P&L reporting system. Is this guy reporting his positions in a spreadsheet? Doesn't the risk manager check in with his broker every day, confirm his trades monitor his position limits and delegation of authority?
If not then the the CEO deserves to get fired. Typically these traders do well for a time and are rewarded with more and more DOA or daily VAR. What management of traders often fail to realize is that if a trader breaks his profit target and DOA to the upside there is every chance in the world that they will experience a similar event to the downside. Typically the downside events are worse in proportion to the gains and managed less effectively because the trader doesn't want to admit the loss and take it. They ride the loss and even double down thinking that is will get better, that it will come back, that they can hide it for a few days. They've been successful in the past and an enormous portion of their professional ego is tied up in being right, being successful. After all how can you be a successful trader if you're not right most of the time? (quite a few ways actually but that's another post).
Often, these positions are sanctioned by someone higher up because they also don't want to take the loss and have to report it to their bosses. If the company is managing positions on a spreadsheet, fails to confirm daily trading activity and mark to market P&L daily, who is responsible for that decision? What is $10 million dollars spent on your risk management system when you're daily VAR is $50 million and some dude right out of business school with a spreadsheet, three girlfriends, credit and broker can take you down $2 billion? It's not that guy's fault.
