A rogue trader is an employee authorized to make trades on behalf of their employer (subject to certain conditions) who makes unauthorized trades. It is most often a phrase applied to financial trading, when a rogue professional trader makes unapproved financial transactions.[1] In addition, it refers to a trader who engages in the 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 | |
|---|---|
 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]
The key factor determining the use of the term is lack of authorisation by the employer. 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.
In the UK the term rogue tradesmen is also used to describe dishonest tradesmen, such as double-glazing salesmen, second-hand car dealers, gas fitters, mechanics, roofers, plumbers, and domestic rubbish collectors.[10][11] A BBC Television programme exposing such practices was called Rogue Traders. The programme ran for nine series between 2001 and 2009, before it was decided to incorporate Rogue Traders' format as a multi-part segment for the long-running consumer series Watchdog.[12][13]
Largest rogue-trader losses
| Name | Country | Date(s) | Loss | Institution | Market activity | Sentence | Remarks |
|---|---|---|---|---|---|---|---|
| Jérôme Kerviel[14] | 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 | |
| Yasuo Hamanaka[14] | Tokyo, Japan | 1996 | $2.6 billion | Sumitomo Corporation | Copper | 8 years prison | |
| Kweku Adoboli[15] | London, United Kingdom[16] | 2011 | $2.3 billion | UBS | S&P 500, DAX, and EuroStoxx Futures | 7 years prison | |
| Nick Leeson[14] | United Kingdom | 1995 | $1.3 billion (£827 million) | Barings Bank | Nikkei Index Futures | 6.5 years prison | |
| Toshihide Iguchi[14] | Osaka, Japan / New York City, United States | 1995 | $1.1 billion | Resona Holdings | U.S. Treasury Bonds | 4 years prison | |
| John Rusnak[14] | 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[17] | United States | 2007 | $118 million | Goldman Sachs | S&P 500 e-mini Futures | 9 months prison[18] | |
| 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 | Artificially increased the global price of Brent Crude Oil by $1.50 a barrel. See Oil futures drunk-trading incident |
See also
- List of trading losses
- Oil futures drunk-trading incident
References
- ^ Ball, Deborah; Sonne, Paul; Mollenkamp, Carrick (September 16, 2011). "UBS: Rogue Trader Hit Firm". Wall Street Journal. Retrieved 2011-09-16.
- ^ Peter Nash (2017). Effective Product Control; Controlling for Trading Desks, Wiley.
- ^ "Citigroup to Pay More Than $10 Million for Books and Records Violations and Inadequate Controls". SEC.gov.
- ^ "Merrill Lynch Rogue Trader says system is broken". May 9, 2017.
- ^ "What a Rogue Trader Learned From the Financial Crisis". Wharton School of Business. July 18, 2017. Retrieved July 21, 2017. Audio with edited transcript
- ^ John Gapper (2011). How to be a Rogue Trader
- ^ The SAGE Encyclopedia of Business Ethics and Society (2018).
- ^ Nick Leeson: biography part I. 2011-03-01. Retrieved 2012-02-23. Nick Leeson's trades initially generated 10% of Barings' annual profit
- ^ "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
- ^ "Reporting An Unreliable Tradesman". www.traderscams.co.uk.
- ^ Papworth, Jill (October 12, 2002). "Rogue traders: What to do when the roof falls in". The Guardian.
- ^ "BBC to highlight Powys conmen". mywelshpool.
- ^ "BBC Rogue Traders' Dan Penteado jailed for benefit fraud". July 17, 2012 – via BBC.
- ^ a b c d e Slater, Steve (September 15, 2011). "Factbox - UBS trader joins rogues' gallery of financial crime". UK.Reuters.com. Retrieved 2011-09-15.
- ^ "The curse of delta one strikes UBS". Financial Times. September 15, 2011. Retrieved 2011-09-15.
- ^ "Former UBS trader Adoboli sentenced to seven years for fraud". NBC News.
- ^ "Rogue trader should pay $118 million to Goldman Sachs: US". CNBC. December 3, 2013. Retrieved 2013-12-03.
- ^ Abrams, Rachel (December 6, 2013). "Ex-Goldman Trader Sentenced to 9 Months in Prison". DealBook.
