Unauthorized Trading Activities And Risk Management Practices

2673 Words Dec 18th, 2014 11 Pages
Introduction
Unauthorised trading, also known as Rogue trading refers to trading where a broker makes a trade to a customer without having permission from the customer or the authorization (Sec.gov, 2014). It is important to have knowledge of rogue trading because such incidents result in significant corporate loses and destroy the shareholders’ value. On the other hand such crimes raise major concerns about the institutions controls and risk management practices.
The level of risk caused due to unauthorised trading is not restricted to proprietary books of investment banks-it extends to investment portfolios of insurance companies, discretionary accounts of private bankers and third party funds managed by funds managers.
All of the financial sectors mentioned above contribute to the stability of the economy, hence a loss in one of them will have a direct impact to the destabilization of the economy.
According to a UBS press release on the 18th of September 2011 an unauthorised trading was conducted in Global Synthetic Equity business in London. The trader in question had been charged by UK authorities with fraud and the resulting loss was amounted to $ 3.2 Billion. The press also states that the loss was a result from an unauthorised speculative trading in various S&P 500, DAX, and EuroStoxx index futures over a period of three months (Reuters, 2014). This case is just one example of the many unauthorised trading and its penalties, the consequences of the risks are…
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