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Minding the Boys: Operational Risk on the Trading Floor

Bad lads, poor handwriting and preening managers - let's take a look at operational risk on the floor of a London brokerage.

If you’re looking for an industry that defies gender roles, just skip right over Big Finance. In one brokerage based in London, the young male brokers occupy one row of desks and the compliance team, all women, sit in a row behind the traders.

Every now and then, a young trader will hold up a lad magazine and ask his mates, "Shag, marry or kill?" As his fellow brokers weigh in, the lady compliance staffers just smile along. What can they do, their job is to keep the lads in line?

[The JPMorgan Blame Game: Stupid Quants.]

These are some of the gems from a great monologue published in the Guardian. A young risk officer in his late 20s takes us inside his brokerage firm where risk meets human beings. Here’s how he does his job:

Operational risk on the trading floor of a brokerage means you are there to prevent things going wrong in the daily operations, and when they go wrong you fix them and try to make sure they don't happen again. In a stock phrase: 'operational risk makes sure all systems are robust, complete and up to date.' We monitor exceptions, errors, incidents…

"It's a new thing, relatively. Traditionally you have credit risk – your counterparts can't pay you – and market-risk – how could the market cause you losses? Operational risk at UBS for instance was crap, so this rogue trader Kweku Adoboli could commit all that fraud.

Things that go wrong? Brokers who miss trades, ie fail to do them because they didn't take details from the client. Brokers who took the wrong details. There's lots of that. Especially the metals traders who note trades details down from a phone call and then can't read what they've written. They are on the phone with lots of clients at the same time, and jot something down, next thing I hear: "I can't read my own handwriting." Things would change if we linked bonuses to mistakes. If you propose that, you have your head bitten off.

Imagine a world where mistakes are penalized! That might just put an end to trades that may have made sense at one time but seem senseless now. Look no further than the London Whale who ruled the Canary Wharf office of JPMorgan Chase. No one has reported or accused Bruno Iksil of intentionally trying to sabotage the venerated investment bank. Even rogues traders - like Jerome Kerviel at SocGen - often do quite well before the ceiling comes crashing down.

[The London Whale, Jamie Dimon and the US Senate - The Best Twitter Reactions.]

Despite newer, faster systems that can drill down deep into the data pool, often times the only thing that will stop sloppy or dishonest traders is another human being. A former colleague knew someone whose job it was to read the emails and IMs that flowed off a trading floor. :I know who's hungover, who is calling their drug dealer and who is having an affair," he said in wonder.

Not to be sexist, but perhaps these uncouth lads need to be monitored by schoolmarms with rulers.

Phil Albinus is the former editor of Advanced Trading and he currently edits the FierceFinanceIT newsletter. Follow him on Twitter at @philalbinus. Phil Albinus is the former editor-in-chief of Advanced Trading. He has nearly two decades of journalism experience and has been covering financial technology and regulation for nine years. Before joining Advanced Trading, he served as editor of Waters, a monthly trade journal ... View Full Bio

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