I’m reading an article about rogue trading from my Prof and so I figured it’d be good to discuss it over here.
Rogue traders just like any of us (ST 28 August 2012)
The article then mentioned about a local fraud case by Nicholas Leeson, then GM of Barings Futures Singapore, who used an error account to make unauthorized trades. He was capable of doing so as he was put in charge of both the front and back office which means that the issue here is no segregation of duties.
Looking into issues that make trading very susceptible to fraud, firstly, traders generally are prepared to take on more risks than face penalties for losses. This brings us to their compensation plans. They are paid on aggregate performance as opposed to daily performance. Thus, take big risks to recoup losses before the end of appraisal period.
Secondly, rogue traders are experts in operations of back office where critical decisions of trade & payment settlements are made.
What differentiates a losing & rogue trader is their attitude towards facing a loss because considering the nature of their job, losses are inevitable at some point of time. Ethics become essential as an ethical trader would abide by the loss limit while an unethical trader merely carries on.
So how to we reduce the likelihood of fraud? Strict regulation would help in enforcing the limits and improving risk monitoring eg. via stress-testing of positions & analysis of margin calls and daily settlements. Self-governance becomes crucial. Banks are enhancing their compliance & internal risk control departments and managers have to lead by example and play an active role in the transition.
Few words for me take note:
vilified – speak or write about in an abusively disparaging manner.
Bill Gates takes on world chess champ, mated in 9 moves
Amazing win in 1 minute 20 seconds! Well he is a world champ. I hope to play chess with a great contender when I retire! Which reminds me. I recently borrowed a book of IQ Tests. Yes, I find it pleasurable answering questions from these books correctly or faster than anyone I know. What got me intrigued is the statement that contends that the tests are accurate for individuals aged below 18 and beyond that, your cognitive ability will not show much change. So up till JC, my mind’s not developing already? I have maxed out my potential to be more adept? Is that what it’s suggesting? Does this account for the reasons behind why people find it difficult to change the minds of seniors? Well, I’m not sure and have no idea what means to take to answer those questions but it just sounds discouraging that’s all. Coupled with the fact that I couldn’t answer most of the questions. Yea, I have a big ego but I know what happens to those who do so I’ll keep my ego to myself and le blog.
Anyway, I will be going to Kuantan over the CNY holidays! I can’t wait. It’s at a resort and we’ll be overlooking the sea, which means the view will be breathtaking! 🙂 I’m looking through dining areas and activities to do while we’re there. Hope it’ll be substantive! Oh and they have a gym. YES.