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.[1] It can also involve mismarking of securities.[2][3][4] 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.

External audio
audio icon What a Rogue Trader Learned From the Financial Crisis, Alexis Stenfors interviewed by Knowledge@Wharton, 24:35, July 18, 2017. Includes edited transcript.[5]

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.[6][7] 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.[8][9]

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.

Largest rogue-trader losses

Name Country Date(s) Loss Institution Market activity Sentence Incident
Jérôme Kerviel[10] Paris, France 2006–2008 $6.9 billion (€4.9 billion) Société Générale European Stock Index Futures 5 years prison of which 2 years were suspended 2008 Société Générale trading loss
Yasuo Hamanaka[10] Tokyo, Japan 1996 $2.6 billion Sumitomo Corporation Copper 8 years prison Sumitomo copper affair
Kweku Adoboli[11] London, United Kingdom[12] 2011 $2.3 billion UBS S&P 500, DAX, and EuroStoxx Futures 7 years prison 2011 UBS rogue trader scandal
Nick Leeson[10] United Kingdom 1995 $1.3 billion (£827 million) Barings Bank Nikkei Index Futures 6.5 years prison
Toshihide Iguchi[10] Osaka, Japan / New York City, United States 1995 $1.1 billion Resona Holdings U.S. Treasury Bonds 4 years prison
John Rusnak[10] Maryland, United States 2002 $691 million Allied Irish Banks Foreign Exchange Options 7.5 years prison
Chen Jiulin Singapore 2005 $550 million China Aviation Oil Jet Fuel Futures 4 years and 3 months prison
David Bullen
Luke Duffy
Vince Ficarra
Gianni Gray		 Melbourne, Australia 2003–2004 $187 million (A$360 million) National Australia Bank Foreign Exchange Options 3 years and 8 months prison
2 years and 5 months prison
2 years and 4 months prison
16 months prison
Matthew Taylor[13] United States 2007 $118 million Goldman Sachs S&P 500 e-mini Futures 9 months prison[14]
Joseph Jett United States 1994 $74.6 million Kidder, Peabody & Co US Treasury bonds. banishing trading securities
Stephen Perkins London, United Kingdom 2009 $10 million PVM Oil Futures Brent Crude barred from working as a trader & £72,000 fine Oil 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.
  2. ↑ Peter Nash (2017). Effective Product Control; Controlling for Trading Desks, Wiley.
  3. ↑ "Citigroup to Pay More Than $10 Million for Books and Records Violations and Inadequate Controls". SEC.gov.
  4. ↑ "Merrill Lynch Rogue Trader says system is broken". May 9, 2017.
  5. ↑ "What a Rogue Trader Learned From the Financial Crisis". Wharton School of Business. July 18, 2017. Retrieved July 21, 2017. Audio with edited transcript
  6. ↑ John Gapper (2011). How to be a Rogue Trader
  7. ↑ The SAGE Encyclopedia of Business Ethics and Society (2018).
  8. ↑ Nick Leeson: biography part I. 2011-03-01. Retrieved 2012-02-23. Nick Leeson's trades initially generated 10% of Barings' annual profit
  9. ↑ "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
  10. 1 2 3 4 5 Slater, Steve (September 15, 2011). "Factbox - UBS trader joins rogues' gallery of financial crime". UK.Reuters.com. Retrieved 2011-09-15.
  11. ↑ "The curse of delta one strikes UBS". Financial Times. September 15, 2011. Retrieved 2011-09-15.
  12. ↑ "Former UBS trader Adoboli sentenced to seven years for fraud". NBC News.
  13. ↑ "Rogue trader should pay $118 million to Goldman Sachs: US". CNBC. December 3, 2013. Retrieved 2013-12-03.
  14. ↑ Abrams, Rachel (December 6, 2013). "Ex-Goldman Trader Sentenced to 9 Months in Prison". DealBook.
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