@awilliams, it is all about the amount of risk you're willing to accept. How much is too much? $2b, $5b? I'm sure if you were to ask the former management team at Barings if they wish they'd have checked up on Nick Leeson, I bet they would all say yes.
@awilliams, that doesn't mean it's the right way to do it. We've seen this historically, the problem is that banks are willing accept huge losses. How many $2b losses do you take before you take some action?
@jwallace. I must be missing something because it's surely no rocket science to have trades of a certain size or positions of a certain riskiness automatically trigger a check by whoever is managing the desk. I really thought traders were already subject to those controls.
even if you have coders and traders, the coders are always trying to pick up a good tip on a trade to make their money, and the traders are always looking to code up their personal model to get the big bucks.
I would say if there is a high enough risk that traders who've had access to the back-end system will always take advantage the solution is simple. If you code, you don't trade; separation of duties is a pretty basic risk mitigation technique.
@Awilliams -- the thing is, shouldn't big business do this sort of thing, especially when it's in their own best interests? It's why I get mad at Microsoft -- it's not so much because theyr'e doing something wrong as much as they can afford to do it right.
One thing about traders: the CEO of UBS in Switzerland said last week that he won't resign because "If someone acts with criminal intent, you can’t do anything. That will always exist in our job. If you ask me whether I feel guilty, then I say no.”
@Paul, right I understand it's speculation. It just seems to me that's a convenient place to point fingers. But, really, we were "too busy to take care of security because the big bad government gave us too much to do" doesn't fly. Sort of obnoxious, actually.
@smk unlikely that it is every trader who will use such info for personal gain.....but its all about probabilities. I would always assume a 50 percent probability to begin with. Unless something else is proved
@SMK: Well, some say that a good system could have spotted the deepening crisis. But there was also a management problem. Adoboli apparently had expressed to his bosses that he was in a panic about his situation.
While it seems obvious in hindsight, let's look at the flipside of things: Should we assume every trader who's had access to the backend is going to use it for personal gain? What measures are needed regardless?
As has been mentioned, are banks just too high on the profits? Is this a case of a trader who's losses were just too big and so the bank decided to classify it as a "rogue trader" so it didn't have to accept the losses? If that is true, then can any system really "protect" a bank from itself?
@Mary: one accusation that has been levy against financial institutions is that they seems to have move away from focus from risk management in favor of growth and profitability. Is that true in this case
I'm thinking real time surveillance is a good way to go because this could well be a planned "oversight" that happened. For a breach to be big enough to threaten a third quarter loss and nobody noticed
But there seems to be consensus that in UBS's case, the system should have been set up to flag the enormous returns that went with this kind of trade, even as the exchanges that were being traded against were tanking.
Just reading thru a June 2011 report which statde that: "A report conducted by the Economist Intelligence Unit and released this week by SAS, the big business analytics software firm, warns that financial institutions, particularly in the U.S., are “feeling too comfortable” about their risk management systems and suggests they may be unprepared for the next crisis."
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