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Rogue trader
Employee authorized to make trades on behalf of their employer who makes unauthorized trades

In financial trading, a rogue trader is an employee authorized to make trades on behalf of their employer (subject to certain conditions) who makes unauthorized trades. It can also involve mismarking of securities. The perpetrator is a legitimate employee of a company, but enters into transactions on behalf of their employer, or mismarks securities held by their employer, without their employer's permission.

One famous rogue trader is Nick Leeson, whose losses on unauthorized investments in index futures contracts were sufficient to bankrupt his employer Barings Bank in 1995. Through a combination of poor judgment on his part, increasingly large initial profits, lack of oversight by management, a naïve regulatory environment, and an unforeseen outside event, the Kobe earthquake, Leeson incurred a US$1.3 billion loss that bankrupted the centuries-old financial institution. In some cases traders have initially made large profits for their employers, and - their goal - large bonuses for themselves, from trades in breach of applicable laws and company rules, and it has been questioned by some whether in some instances traders are not in fact "rogue", as in those cases in which employers directed the activity or knew of it and turned a blind eye to the transgressions due to the profits involved.

There have been colossal financial losses and bankruptcies from what are considered to be catastrophically bad decisions by senior decision-makers in financial institutions, such as the bankruptcy of Lehman Brothers which necessitated the 2008 United Kingdom bank rescue package, but this is not described as rogue trading and is not punishable.

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Largest rogue-trader losses

NameCountryDate(s)LossInstitutionMarket activitySentenceIncident
Jérôme Kerviel9Paris, France2006–2008$6.9 billion (€4.9 billion)Société GénéraleEuropean Stock Index Futures5 years prison of which 2 years were suspended2008 Société Générale trading loss
Yasuo Hamanaka10Tokyo, Japan1996$2.6 billionSumitomo CorporationCopper8 years prisonSumitomo copper affair
Kweku Adoboli11London, United Kingdom122011$2.3 billionUBSS&P 500, DAX, and EuroStoxx Futures7 years prison2011 UBS rogue trader scandal
Nick Leeson13United Kingdom1995$1.3 billion (£827 million)Barings BankNikkei Index Futures6.5 years prison
Toshihide Iguchi14Osaka, Japan / New York City, United States1995$1.1 billionResona HoldingsU.S. Treasury Bonds4 years prison
John Rusnak15Maryland, United States2002$691 millionAllied Irish BanksForeign Exchange Options7.5 years prison
Chen JiulinSingapore2005$550 millionChina Aviation OilJet Fuel Futures4 years and 3 months prison
David BullenLuke DuffyVince FicarraGianni GrayMelbourne, Australia2003–2004$187 million (A$360 million)National Australia BankForeign Exchange Options3 years and 8 months prison2 years and 5 months prison2 years and 4 months prison16 months prison
Matthew Taylor16United States2007$118 millionGoldman SachsS&P 500 e-mini Futures9 months prison17
Joseph JettUnited States1994$74.6 millionKidder, Peabody & CoUS Treasury bonds.banishing trading securities
Stephen PerkinsLondon, United Kingdom2009$10 millionPVM Oil FuturesBrent Crudebarred from working as a trader & £72,000 fineOil futures drunk-trading incident

See also

References

  1. Ball, Deborah; Sonne, Paul; Mollenkamp, Carrick (September 16, 2011). "UBS: Rogue Trader Hit Firm". Wall Street Journal. Retrieved 2011-09-16. https://www.wsj.com/articles/SB10001424053111904060604576571931690088522 ↩

  2. Peter Nash (2017). Effective Product Control; Controlling for Trading Desks, Wiley. https://books.google.com/books?id=NiA3DwAAQBAJ&dq=%22mismarking%22+trader&pg=PA209 ↩

  3. "Citigroup to Pay More Than $10 Million for Books and Records Violations and Inadequate Controls". SEC.gov. https://www.sec.gov/news/press-release/2018-155-0 ↩

  4. "Merrill Lynch Rogue Trader says system is broken". May 9, 2017. http://instituteforfinancialtransparency.com/2017/05/09/merrill-lynch-rogue-trader-says-system-is-broken/ ↩

  5. John Gapper (2011). How to be a Rogue Trader https://books.google.com/books?id=D6hxfN_D_yUC&q=%22rogue+trader%22+securities ↩

  6. The SAGE Encyclopedia of Business Ethics and Society (2018). https://books.google.com/books?id=eHxTDwAAQBAJ&dq=%22rogue+trader%22+securities+leeson+billion&pg=PA214 ↩

  7. Nick Leeson: biography part I. 2011-03-01. Retrieved 2012-02-23. Nick Leeson's trades initially generated 10% of Barings' annual profit http://www.nickleeson.com/biography/full_biography.html ↩

  8. "Le trader livre sa version de l'affaire Société Générale". Le Monde, paper version. 29 January 2008. p. 1. Jérôme Kerviel said that his trading behavior was widespread at the company and that getting a profit makes the hierarchy turn a blind eye /wiki/Le_Monde ↩

  9. Slater, Steve (September 15, 2011). "Factbox - UBS trader joins rogues' gallery of financial crime". UK.Reuters.com. Archived from the original on March 6, 2016. Retrieved 2011-09-15. https://web.archive.org/web/20160306101323/http://uk.reuters.com/article/uk-ubs-factbox-idUKTRE78E1A920110915 ↩

  10. Slater, Steve (September 15, 2011). "Factbox - UBS trader joins rogues' gallery of financial crime". UK.Reuters.com. Archived from the original on March 6, 2016. Retrieved 2011-09-15. https://web.archive.org/web/20160306101323/http://uk.reuters.com/article/uk-ubs-factbox-idUKTRE78E1A920110915 ↩

  11. "The curse of delta one strikes UBS". Financial Times. September 15, 2011. Retrieved 2011-09-15. http://ftalphaville.ft.com/blog/2011/09/15/678306/the-curse-of-delta-one-strikes-ubs/ ↩

  12. "Former UBS trader Adoboli sentenced to seven years for fraud". NBC News. 20 November 2012. http://www.nbcnews.com/business/business-news/former-ubs-trader-adoboli-sentenced-seven-years-fraud-flna1C7172741 ↩

  13. Slater, Steve (September 15, 2011). "Factbox - UBS trader joins rogues' gallery of financial crime". UK.Reuters.com. Archived from the original on March 6, 2016. Retrieved 2011-09-15. https://web.archive.org/web/20160306101323/http://uk.reuters.com/article/uk-ubs-factbox-idUKTRE78E1A920110915 ↩

  14. Slater, Steve (September 15, 2011). "Factbox - UBS trader joins rogues' gallery of financial crime". UK.Reuters.com. Archived from the original on March 6, 2016. Retrieved 2011-09-15. https://web.archive.org/web/20160306101323/http://uk.reuters.com/article/uk-ubs-factbox-idUKTRE78E1A920110915 ↩

  15. Slater, Steve (September 15, 2011). "Factbox - UBS trader joins rogues' gallery of financial crime". UK.Reuters.com. Archived from the original on March 6, 2016. Retrieved 2011-09-15. https://web.archive.org/web/20160306101323/http://uk.reuters.com/article/uk-ubs-factbox-idUKTRE78E1A920110915 ↩

  16. "Rogue trader should pay $118 million to Goldman Sachs: US". CNBC. December 3, 2013. Retrieved 2013-12-03. https://www.cnbc.com/2013/12/03/rogue-trader-should-pay-118-million-to-goldman-sachs-us.html ↩

  17. Abrams, Rachel (December 6, 2013). "Ex-Goldman Trader Sentenced to 9 Months in Prison". DealBook. https://dealbook.nytimes.com/2013/12/06/ex-goldman-trader-sentenced-to-9-months-in-prison/ ↩