Rogues of Wall Street

CHAPTER 2 The Rogue Trader

The Rogue Trader is possibly the most famous in the Pantheon of Rogues of Wall Street. Over the years, there have been two types of Rogue trader: the one who blows up the firm in a sudden frenzy of wild trading activity and the one who acts with slow, steady accumulation of risk, unbeknownst to firm's management.

Rochdale Securities, a once stable, small, firm in Connecticut, was taken out by a single trade in 2012 and so fits into the first category of a sudden burst of wild trading activity.¹ Though the size of the loss was one of the smallest rogue trading episodes we have seen, $5 million in losses, its impact was devastating for Rochdale, which was subsequently forced to close. On the other hand, in 2011, UBS suffered far larger losses resulting from a Rogue Trader who slowly and steadily accumulated a huge level of risk, apparently unbeknownst to senior management. Like the Societe Generale episode before it,² the Kweku Adeboli incident (see below) shook up the world of investment banks. “Could it happen here?” boards immediately wanted to know and they asked their chief executive officers. CEOs didn't know, so they, in turn, asked their chief risk officers. Their CROs didn't know so they asked their heads of operational risk. The heads didn't know so they asked their operational risk coverage officers. At that point, the question had probably already been answered in the negative back to the board so it probably didn't matter what the truth ...