UBS rogue trader loses $2 billion

Same here. At the firm I worked at all positions showed up on the risk manager's screen and there was a max loss for the day. If you hit it you got all the other traders coffee and donuts the rest of the day :D. Oddly enough, this firm insisted on stop losses. It wasn't until I proved myself that they allowed me to use a wide stop loss and exit bad trades manually. Then they allowed me to use hedging strategies to manage my risk. They were pretty slow to to allow new traders to use different methods of risk control even though I had come from a quant program.

Quote from bone:

Well, it is true that bank desks are almost always hedging their risk through arbitrage, spread trades, and hedged market-making.

Bank traders do, however, have individualized agreements in terms of capital allocations, max drawdowns, and daily losses. At my firm, it was called the "appendix C" - which was actually a specific appendix to my employment contract. Their supervisors will stop them out unilaterally - that is why these 'rogues' go to such great lengths to hide stinkers. Even with the OTC products, each trade is supposed to get promptly logged into the firm's risk tracking system by the trader.

So, like every trader, there is in fact an 'uncle' point that is defined - whether it is the trader taking the loss, or the clearing firm offsetting the position and closing out the trader's account, or the firm locking the trader out of the system, or whatever. There is no endless supply of capital to never take a loss.

And whether you want to color it a 'stop loss' or whatever is really trivial. There is so much naivety and disinformation posted here on ET.
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That's a very valid point but as you noted there are exceptions to the rule. With the right training the success rate in the prop shop I worked at was 50%. Although, of that 50% not all made enough to make a living at trading.

Quote from AK100:


Always exceptions to the rule but not many. Take away the bid-offer games and order flow and 90% of the bank traders out there wouldn't last 6 months trading his own capital on his own in a single office.
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I note that almost all of the big banks on wall street when rogue trader on the mortgage market.

Pabst a former poster here... pointed out in a different context ever since these banks went public they had no reason to manage their risk.

They just play for their bonuses until they blow up.
When they were partnership... the firm capital had to be preserved so they could get their payouts from the partnership past the term of the lockups.
 
Quote from jem:

I note that almost all of the big banks on wall street when rogue trader on the mortgage market.
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Yes, but those trades were done as part of a collective firm-wide sanctioned strategy. No one person at the firm hid those trades in a drawer. The idiocy came from the top down.

There is a big difference.

Amaranth knew all about Brian Hunter's Nat Gas position. Dick Fulde at Lehman knew all about the mortgage bets, as did AIG management.
 
Quote from bone:

Good find, that one I do not remember. Was that Chicago, NYC, or London; and which office do you suppose oversaw the risk ? I find it strange but consistent that somehow US risk managers have better controls over 'rogue employees'. Notwithstanding idiot hedge funds like LTCM and Amaranth - where the risk is systemic by design and intent.
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As someone who holds both an EU and US passport and spends long periods in Europe..I will say this...

Europeans in general ex Germany, are very accepting of mediocrity and are quite incompetent. I remember Tony Blair once saying at a Labour party conference, he said something like" if it is one thing we are bad at, it is when unexpected things come along or things go wrong, we shrug our shoulders and say WELL IT COULD BE WORSE." Really sums up their attitude. This permeates every facet of their society.

Germans on the other hand, very competent, great attention to detail, nothing bad to say about them.
 
Umm, UBS didn't actually spot the loss, Adoboli fessed up....:p


"The disclosure that it was Mr Adoboli's decision to inform his colleagues of his actions that set alarm bells ringing at UBS, rather than its own monitoring system, will add to concerns that investment banks simply aren't capable of controlling the huge risks that their traders take," Robert Peston said.

http://www.bbc.co.uk/news/business-14950873

Unbelievable.
 
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