Shortly after [alleged UBS rogue trader Kweku] Adoboli's arrest in London, Nick Gibson, a former regulator and director of the risk consultant Chase Cooper, sent a 'rogue trading special edition' note to its bank clients, urging them to take a look around.
“Do you employ a likeable twenty-eight-year-old male index derivatives trader who has been promoted to the trading floor?” he wrote. “Does he have a good understanding of your back- and middle-office systems, including where the weaknesses are? Does he have a decent finance- or business-related degree from a good (but not topend) university? If so, go and take a closer look at what he's doing.”...
It is striking how alike many rogue-trading cases are and how similar, despite their various nationalities, the young men who perpetrate these frauds. In some ways, they look like any other ambitious junior trader who is keen to make a mark, yet they possess character traits and skills that turn them into severe threats to the banks that employ them.
First, they are (or they feel themselves to be) outsiders.... Rogue traders fight fiercely to make their mark because they cannot rely on their status being taken for granted....
Second, rogue traders are charismatic....
Third, rogue traders are clever. With hindsight, it often seems extraordinary that anyone believed them, particularly at sophisticated complex institutions filled with well-educated, assertive people. Yet they devise intricate ways of hiding what they are doing with false accounting and fictitious trades, and weave convoluted cover stories about how they are supposedly making money.
Their bosses want to believe them – that legitimizes the bank's success and the fact that everyone is paid a higher bonus.... Rogue traders thrive by taking large bets on markets while pretending to be doing something safe, such as arbitrage or hedging....
Fourth, rogue traders have worked in the middle- and back-offices where trades are checked and settled before being promoted....Fifth, rogue traders are control freaks. Even when they leave the office, they find ways to maintain control, and ensure that no one else examines their trading too closely....
The most notorious rogue traders have most, if not all, of these character traits and characteristics. But they also have a sixth, mysterious, flaw. When they get themselves in trouble and have gambled their way into such a deep hole that it is almost impossible for them to get out, they do not stop. They carry on until they are either caught, or the loss rises to a disastrous level.
Excerpted with permission of the publisher, Portfolio / Penguin, from How To Be a Rogue Trader by John Gapper. Copyright © 2011 by John Gapper.
