Every Derivative transaction is a zero-sum game, if the UBS rogue trader lost $2b, there must be someone who made the profit of $2b.
Not necessarily, e.g. multiple counter parties. Doubt very much this was a one-contract thing. It’d be cool to know the details though.
brain_wash_your_face Wrote: ------------------------------------------------------- > ETF desk, huh? Cover of CFA Mag last issue has > “Emerging Threat Funds”…depending on the > circumstances of this loss it could be a pretty > timely article. The FT has had some great coverage of this ETF financial innovation stuff recently too. Here is their latest take. http://www.ft.com/intl/cms/s/0/11d2679a-dfb7-11e0-b1db-00144feabdc0.html#ixzz1Y6XWtFJ3
I work in derivatives trading, I am still confused about how he managed to hide this much, it can’t be the whole story that he made unauthorized transactions. There’s no such thing as an “unauthorized transaction”. It’s not that easy to hide transactions, every call for funding, every single trade, every single hedge, change in trade or hedge, valuations, email communication between sales and clients, and every little market move passes through an array of risk management, compliance, and integrity checks. And specially for traders, it’s a mandate that none of his requests to be passed without e-mail from him, which again passes through array of checks. It’s not that trader is given money to invest on his sole discretion, that’s a myth. Something bigger must have got horribly wrong at UBS in their risk management system and compliance infrastructure that it happened. Traders usually put red flag immediately on anything that seems to be out of line, and every such thing is analyzed thoroughly even when it’s rare to see an actual fracture. This guy is probably paying up for his ignorance or lack of competency in identifying that flaw in the system, he’s not a master planner of great scheme, in fact he must be so incompetent to realize something is terribly wrong. I’ve seen errors in millions because of wrongful implementation in hidden corners of whole trading infrastructure, which is understandable because the system is extremely complex and fragile, but 2 Billion dollars is big thing. UBS is a terrible bank, they really need to wake up in terms of including more technology and sophisticated risk management.