Careers

10:09 AM
Richard Bentley, Progress Software
Richard Bentley, Progress Software
News
Connect Directly
RSS
E-Mail
50%
50%

Rogue Watch: Beware False Trades

Booking a false trade is as easy as typing in a false address on an online credit card application. In both cases, the bank should catch the falsified information almost immediately.

Within minutes of a trade being entered into a bank's risk management system, back office procedures check for confirmation from the counterparty or broker. If there is no confirmation forthcoming by the end of the trading day, an alert or red flag would be raised and the issue elevated in importance. Even in the smallest trading firm, someone notices when a trade is not confirmed.

To get away with hiding false trades for more than a day or two means that either: a) the back office (people and systems) did not perform adequately; b) there were false confirmations coming from outside the bank or; c) the trader still had access to middle and back office systems.

Either way, there was an extreme breach of the bank's risk management systems. Real-time transaction monitoring and surveillance technology would alert risk authorities to unauthorized or unusual access to trading and post-trading systems, and could limit position breaches by flagging if trade confirmations have not been received.

  • The Old School Rogue Trader
    As UBS reels from news of a trader gone rogue, we remember this isn't the first time a trader has gone off the rails. Advanced Trading interviewed Nick Leeson in 2008. Here's how he almost got away with it and what has changed since his forays in the 1990s - and what has not.
  • How to Spot a Rogue Trader
    Advanced Trading spoke with James Heinzman, managing director of Global Compliance Solutions, to discuss how firms can better detect rogue traders.

In many rogue-trading cases (Soc Gen, Barings) the trader had a history of making very good profits, so that the banks' risk managers turned a blind eye when the tide turned against him or her. This kind of moral hazard overrides even the best technology, as the alerts and red flags are ignored.

It remains to be seen whether this was the case at UBS.

Richard Bentley is industry vice president, banking & capital markets at Progress Software.

Comment  | 
Print  | 
More Insights
Register for Wall Street & Technology Newsletters
White Papers
Current Issue
Wall Street & Technology - Elite 8, October 2014
The in-depth profiles of this year's Elite 8 honorees focus on leadership, talent recruitment, big data, analytics, mobile, and more.
Video
Exclusive: Inside the GETCO Execution Services Trading Floor
Exclusive: Inside the GETCO Execution Services Trading Floor
Advanced Trading takes you on an exclusive tour of the New York trading floor of GETCO Execution Services, the solutions arm of GETCO.