The Rogue’s Path

Ariane Chapelle

Many rogue-trading activities unfold according to the same mechanism: undetected unauthorised open positions, which are either fictitiously covered by fake trades, or are simply not included in the trading systems, turn bad, balloon to the point they cannot be hidden any more, leading to unacceptable losses. Tackling rogue trading must first take place in front offices, with managers being inflexible on traders exceeding their risk limits, regardless of the outcome of their bet.

Automatic capture of market positions integrated in a global monitoring system is the only efficient way to avoid errors and omissions in recording trades. Effective control coming from a real segregation of duties can only occur when middle- and back-office staff members are properly trained and fully aware of their role in the process and control chain.

In the fight against rogue trading, more regulation won’t immunise banks against further catastrophes. Proper incentives, comprehensive systems and financial training are the most effective answers to operational losses in trading activities, whether fraudulent or not.

Over the past few months, countless articles and comments have been published on

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