A trader suspected of losing his employer as much as €751m ($940m) in ill-judged derivatives trades has been placed under investigation. The case has sparked a fresh assessment of the adequacies of compliance systems and how they might be improved and stirred up a few unhappy memories. Boris Picano-Nacci, of French mutual bank …
Managing trading risks?
The article is right that there are no silver bullets. The problem with derivatives is that there are down side risks that are hard to estimate. So you don't have a way to determine your exact exposure. A mark to market will let you know your current value of the investment but it doesn't tell you how much you can lose on your derivative investment, only what you would have made/lost if you had sold your investment at the time you did the mark to market.
The interesting thing is that the "rogue" traders are making uncontrolled trades in derivatives. That is, trading in derivatives are supposed to be a hedge against an underlying trade/investment and there should be oversight by upper management/senior traders.
While this isn't directly an IT issue, the technology does exist to help catch exposure...
What if he made €700m instead of lost it?
If he had made 700m how would he have got it past the compliance team? Until the banks punish the winners as well as losers when reckless gambles (beyond the normal reckless gambles they they are authorised to carry out!) are made then the bankers will always try their luck. In the end, its not their money is it.
I say tax all bank bonuses at 99% and let them fucking suffer.
no such thing as a "silver bullet"
Words of reason, to be sure.
But before looking for a silver bullet, they might want to try paying attention to warnings that are ALREADY IN PLACE ?
This guy already admitted that he bears responsibility, so it's no Kerviel again, but still - once again I hear on the radio that system warnings were ignored.
Sorry guys, but if the managers ignored warnings, then they should shoulder part of the blame as well. Knocking the trader is easy, but a trader is supposed to be controlled and supervised. Who takes the blame for not doing that ?
It will not help
Realtime monitoring will not help here. The banks have created and cherished the trader that lives fast, takes risks and dies by driving a LOTUS into a wall at the age of 27. This type of personality will always try to circumvent any controls internal or external. Some will always succeed.
The underlying reason for this is the relentless drive for short term profits in the market. So the only way to avoid this in the future is to emphasise long term investment and hire people capable of doing it. However, in order for this to happen the whole market structure has to change and that is not happening anytime soon.
Two words (well three and a hyphon)
You can't share accounts if you are limited to a single sign-on with shared logon token across Windows, Unix, Linux, OS/400, zOS, etc. with your job roles defined in your directory. I have used it before in financial institutions and it works just fine. You get a few people bitching that they can't prepare transactions and then approve them, but that's what the system is for.
As a prefrence your initial logon would have an RSA token or smartcard rather than just a password, but for cost, that could be limited to high power accoutns.
Why limit it? It's not like the banks are going to the wall if they have to pay $20 per employee for an RSA token.
There are tokens that are biometrically secured to the owner, so no more account sharing (at least not unknowingly).
Here's an example: http://news.bbc.co.uk/2/hi/programmes/click_online/7702065.stm. The only thing wrong with this article is that it is totally not a Siemens product at all (they merely resell it, I guess as integrator or something), it's actually made by a Swiss company whose name you can see on the gadget.