UBS Rogue Trader Loses $2 Billion In Unauthorized Trades 360
PolygamousRanchKid writes with this snippet from Reuters that sounds like a ready-made movie script: "Switzerland's UBS said on Thursday it had discovered unauthorized trading by a trader in its investment bank had caused a loss of some $2 billion. 'The matter is still being investigated, but UBS's current estimate of the loss on the trades is in the range of $2 billion,' the bank said in a brief statement just before the stock market opened." Asks the RanchKid: "I wonder how this will reopen the debate about the role of computer systems in the trading and the safeguards that are supposed to protect against these risks. But if microseconds mean millions in trading ... who has time for checks?"
makes me wonder who earned $2 Billion (Score:2)
Who came out on top on this trade? Or was is spread amongst many?
Re: (Score:3)
Re: (Score:2)
No, but you can "lose" money in order for someone else to "gain" it, in a laundering fashion. There is more to the market than buying and selling stock.
Re: (Score:2)
Ultimately, it is, because ultimately, every trade has a winner and a loser, and ultimately, the value of every stock goes to zero. We just haven't seen the game played out long enough yet (though we came pretty close recently).
Re:makes me wonder who earned $2 Billion (Score:5, Insightful)
Ultimately, it is, because ultimately, every trade has a winner and a loser, and ultimately, the value of every stock goes to zero. We just haven't seen the game played out long enough yet (though we came pretty close recently).
No, it isn't (except in the 'in the long run we are all dead' sense). Consider the dot com boom. Over-inflated dot com stock valuations caused large amounts of additional investment in dot coms which were never going to make money, or quite possible provide any useful service at all. The economy wasted resources in pointless rubbish, thus reducing the amount available for consumption and investment in other things.
Stock market valuations and stock market investors motivated by them affect many decisions. Things like: should company x buy company y? What minimum rate of return should we require internally on our investments/what should we take our internal cost of capital to be? Should the current managers be retained? Should we raise money via a new share issue or IPO? What should I, as a VC or private equity investor, invest in and how much money do I get (from sales of businesses) to spend on new investments? What interest rate must the government pay me for me to lend to it instead of buying stocks?
I'm not going to claim stock markets do these well. I don't know the answer and I don't know what to compare them to. Nor will I claim there isn't a great deal of zero-sum or near zero-sum activity going on - that described in the article is almost certainly near-zero-sum (probably somewhat negative). It's quite plain, though, that these decisions have to be made and that they're important. They affect economic growth rates. They affect the distribution of wealth (amongst ordinary people, not just those in the industry). They are most certainly not zero sum.
Re: (Score:3)
Dot-com shows up IPO'd overvalued at $100. Shrewd investor spends $100. I: -$100; IPO: +$100. Total: $0.
Market frenzy overvalues dot-com at $350/share. Shrewd investor sells his stock to Sucker for $350. I:+$250. IPO:+$100. S:-$350. Total: $0
The IPO gained the company $100 per share. Investor spent $100, so he was down by $100. Then the value went up to $350. Investor sold, got $350, some other sucker went down by $350. The investor has made $250, as he just got $350 after giving $100 to the
Re: (Score:3)
Dot-com shows up IPO'd overvalued at $100. Shrewd investor spends $100. I: -$100; IPO: +$100. Total: $0.
Add up all the money people give to others. Take away all the money people receive from others. Total: $0. (Neglecting changes to the money supply which isn't really relevant here). This doesn't mean your economy has zero output. It doesn't mean your economy is a zero sum game. Prices affect decisions. Decisions affect production and consumption. Production and consumption affect human welfare. Human welfare (ideally, but conceptually tricky) or output is what you're summing, not transactions.
Market frenzy overvalues dot-com at $350/share. Shrewd investor sells his stock to Sucker for $350. I:+$250. IPO:+$100. S:-$350. Total: $0
Hypothetical S
Re: (Score:3)
You missed out: company spent $100 dollars per share (or the founders founded or VCs invested in the company in the hope of receiving $100 per share) on getting people to do stuff. The stuff they did produced no useful output. Had the company not got them to do that most (or possibly all) of those people would have done other stuff....stuff which quite possibly would have produced useful output.
I don't want to deal with the extremely complex socio-economic arguments in an argument about whether the stock market makes money vanish or not. The stock market is not a place where money goes to die; it is a place where people go to gamble... or, not quite, more of a game of skill against risk. Risk is controllable, whereas in gambling it's stacked such that risk is fixed. Still, the model fits: you put money in, someone else puts money in, and the lot of you hope to get your hands in the pot when i
Re: (Score:3)
I don't want to deal with the extremely complex socio-economic arguments in an argument about whether the stock market makes money vanish or not.
Good. Nor do I. It's not money that's important, except as a mechanism. The payoffs to the game are goods and services people consume, not money. I claim two things: 1. These payoffs are not zero sum. 2. The total of these payoffs across all players are affected by the existence and operation of the stockmarket.
The stock market is not a place where money goes to die; it is a place where people go to gamble... or, not quite, more of a game of skill against risk. Risk is controllable, whereas in gambling it's stacked such that risk is fixed. Still, the model fits: you put money in, someone else puts money in, and the lot of you hope to get your hands in the pot when it's full of everyone else's money.
No, it doesn't fit. The pot varies in size based on whether the investments are good investments or not and whether stock market pricing is good or not. It does this because it affects the investment
Re: (Score:2)
I don't think you understand what a zero-sum game is. The idea that, eventually, the stock market will be destroyed (or whatever you're saying) wouldn't make it a zero-sum game. From the wikipedia article:
So the stock market isn't a zero sum game. It's not that stocks are simply traded-- the total amount of wealth in the world grows an
Re: (Score:2)
The stock market doesn't affect the amount of wealth in the real world - it just lets you exchange tokens that represent that real world weath.
The amount of iron in the universe doesn't suddenly triple if someone issues 3x as much iron stock. Just like the number of tons of iron in a warehouse doesn't suddenly triple if the stock of the warehouse operator triples.
Re: (Score:2)
The economy isn't inherently zero sum because growth in the populous leads to an increase in wealth. Basically, think that the amount of gold is constant, but the number of people wanting it grows, so its price goes up with the population (which is how we used to use gold for coins, but now that's almost unthinkable). You could buy gold one year and sell it for a profit the next. The person that bought it could then resell it the year after and also make money. Nobody lost. (This assumes, of course, it
Re: (Score:2)
All the stock market is, is a way to gamble legally.
2 Points (Score:2)
Your right but....
ETF & Delta Hedging – the desk he was on - tend to be “commodity” trading. Simply, low risk / low profit stuff. It’s mostly arbitrage in the classic sense. Pounding out pennies as they say – and you make up the profit with large volume.
As for many players – maybe yes – maybe no. For example, the largest ETF out there is Blackrock’s S&P 500 (SPY). Because it is open ended, this means that Blackrock is contentiously creating shares (and
Re: (Score:2)
You're right, in the end it's net negative thanks to the commissions skimmed by the traders and fund managers. If a company like UBS bought and sold at a loss to the tune of $2B, you can be sure there were benefactors on the other side (say, someone or a group of someones who bought/sold and ended up UP by $2B). If they made one super-stupid purchase that later dropped by $2B, you can be sure that the price bump caused by the buying of all those shares was profited by someone. If it wasn't, the value of t
Re: (Score:2)
Market trading is a zero sum game. What if the price of a hypothetical $2billion trade increased to 2.1billion? The $100 million the seller, was given up by the buyer. There is no net change in the total net worth of the two traders so, economically, this is a zero sum game. Over time, the stock may be worth more than the trade price or less, but it's still a zero sum game. If the investment goes up, the buyer benefits. But the seller may regret not owning the investment. Likewise, if the seller is relieved
Re: (Score:2)
Unless, of course, the underling capital was put to productive work, and grew in value. (Or the company paid dividends)
Re: (Score:2)
My guess: he wanted to boost his bonus and gambled. He failed, tried to earn the loss by some more gambling, but as it goes the casino won.
The question is, how was he able to hide these transactions from controlling, and was it even difficult to do that.
To add insult to injury, this is a bailed out bank!
Re: (Score:2)
His background is in computers, his former job at UBS before becoming a trader was in communications. He may have hacked the oversight systems.
Re: (Score:2)
First to trade, first to lose (Score:2)
At that price, who doesn't have time for checks?
Bitcoin (Score:4, Funny)
I hear UBS is going to go to 100% bitcoin. A spokesman said, "basically there aren't enough computers on the planet to handle a billion bitcoin transactions per hour, so it will be days before the money is actually transferred. This gives us time to roll back anything, plus we can get interest on the float while we wait for the transaction to close."
Bitcoin, is there any problem it can't make better?
Re: (Score:2)
That's the thing. They don't have time to do checks, because it's a race to beat the other vultures to fleece the individual investors. It's still common practice for hedge funds to buy and sell stocks with knowledge of what the prices will be ahead of time on some of the smaller exchanges
Re: (Score:2)
Citation needed?
Re: (Score:2)
Yes, they do. Every trade is supposed to be monitored. Even if it means a few bad trades get through, they can and are supposed to review the accounts, timing, etc that go in to every trade to determine legitimacy and adherence to trading rules.
It's one thing to say you can't check an instantaneous trade. It's quite another to say you can't look at multiple trades your traders make and not pick up on improprieties.
This comes down to willful ignorance. So l
Re: (Score:2)
Pretty simple theory: you see someone with similar skills as you making much more money. How do you feel?
To compare, people here tend not to whine when sports stars make a buttload. You can't really be jealous of someone you don't compare yourself to.
I'm a better trader than this guy. (Score:2)
Not even 2 million.
Re: (Score:2)
There were several points in my military career where I was signed for over a billion dollars in mobile property, and a few where the amount was over three billion, a lot of it in the form of already loaded full cargo trucks with crates of helicopter turbine engines and such, that could easily have been stolen if I'd screwed up. When I left the service, I had to pay 2 dollars for a missing laundry bag, so i can't quite say I've never lost anything for anyone I worked for. But still, with a record like that,
Re: (Score:2)
They made you PAY for losing a bag? Seriously? That's a friggin risk of the business. What do they do if you mess up an F/A 18?
I've seen people screw up in trading, and quite simply nothing happens to them. When I was starting out the bosses were always telling us "mistakes cost money" but in the end, they just ate the losses. Part of the business is that people will forget to repo, they'll forget to roll their overnight currency positions, and they'll sometimes accidentally trade millions of dollars by cli
Re:I'm a better trader than this guy. (Score:5, Funny)
No offense but a successful career in a high-stakes environment like the military is no preparation for being a complete waste to society and eventually losing $2B on top of it all... For that you need a business degree.
Re: (Score:3)
Right; you just don't have the killer instinct it takes.
badda da booom
Thanks folks I'll be here all week. Just drop by and take in the show.
What? (Score:5, Insightful)
How does a human being engaged in $2B worth of fraud say anything about computer algorithms and millisecond-level trading?
Re:What? (Score:5, Funny)
Re:What? (Score:4, Insightful)
Because the banks could have checks in place to avoid this kind of unauthorized trading, but they chose not to because it would slow down the system a little bit. Bankers believe that a bank implementing all proper security protocols would be too slow to compete in this era of millisecond-level trading.
Re: (Score:2)
The idea is that the fraud wouldn't have been nearly as easy if it weren't for the insanity of the trading system. Your question is kind of like asking, "how does a human stealing secure data say anything about operating system security?" Humans choose to commit the crimes, sure; that doesn't mean we should structure the system to make it as easy for them as possible, which appears to be what we've done with trading.
Re: (Score:2)
So if the trade took 1 second instead of 0.01 seconds, it would have been easily noticed???
This is total nonsense. This has nothing at all to do with high-speed trading, if anything it has to do with policy enforcement, plain and simple.
Re: (Score:2)
"Adoboli, a University of Nottingham computer science and management graduate"
The investigation is still underway and I haven't seen anything that says how he did it or how long it took just that they noticed Wednesday, Yesterday.
If this has anything to do with HST then the only way to fix it is to put a 24 hour delay on electronic trades. However if this was done over the course of months or years and they just now found out then even putting a d
Re: (Score:2)
So if the trade took 1 second instead of 0.01 seconds, it would have been easily noticed???
Was it one trade worth $2 billion? I kind of doubt it. Most likely it was a bunch of trades, spread out over days or weeks. And yes, if those trades had taken a hundred times longer, maybe they would have been caught before such an insane amount of money was lost. (I'll note that the 0.01s you suggest is actually much, much slower than modern trading; it's more like a factor of a thousand, or ten thousand.)
This is total nonsense. This has nothing at all to do with high-speed trading, if anything it has to do with policy enforcement, plain and simple.
Again, policy enforcement is easier when the system isn't structured to make it easy for people to
They are paying people to gamble (Score:2)
Sometimes you don't win at gambling. What do they expect? If he had been lucky and instead made a 2 billion profit you would not be reading this.
Bonus (Score:2)
How big a bonus will he get this year?
Re: (Score:2)
Right.... (Score:5, Insightful)
Either these outfits are, in fact, handing people the keys to gigantic piles of risk with controls roughly on par with the ones used to keep bored 16-year-old cashiers from skimming the till, or there is a substantial amount of tacit looking-the-other-way as Mr. Golden Boy flouts the rules and makes huge piles of money, and then, if things go south, his actions were "rogue".
Honestly, I find it hard to believe the former. This industry is riddled with perverse incentives toward taking on outsize risk loads(that hopefully won't blow up until you leave, or will blow up in somebody else's face) in exchange for rewards now. Am I supposed to believe that Poor li'l UBS just got plumb slickered by some smooth talker, or that "rogue" is simply the PR response to those who operate particularly close to the risk/reward envelope and happen to stop producing the numbers that HQ wants to see?
Re: (Score:2)
I thought *exactly* the same when I first heard the news in more detail. It really feels like systematic abuse (especially when you take their history into account) and dropping all fault on guy when everything goes down the drain.
Re: (Score:2)
Re: (Score:2)
This industry is riddled with perverse incentives toward taking on outsize risk loads(that hopefully won't blow up until you leave, or will blow up in somebody else's face) in exchange for rewards now.
I rather suspect it's more like 'Let's give myself a chance of saving my own arse by covering up that $10m loss I shouldn't have made by making an even bigger bet' repeated with exponentially increasing losses than 'Let's see if I can become a hero by making lots of money with a monstrously huge bet which breaks all the rules'. I suspect that breaking the rules imposed on you in a really big mult-$bn way is going to get you fired whether you're successful or not.
Re: (Score:2)
These "rogue trader" stories come out from time to time, among employees of all the more respectable class of casino, and they leave me deeply skeptical...
Regulations and controls have not prevented the biggest market disasters of our time,
because those companies and individuals set out to do wrong from the beginning.
Locks only keep honest people honest.
I'm more interested in the fraud that doesn't get reported,
because companies think that eating the cost is better than the bad publicity.
Re: (Score:3)
This industry is riddled with perverse incentives toward taking on outsize risk loads
Which industry? That could equally apply to any business that pays perversely large performance bonuses.
When an executive can get a multi-million dollar bonus, why not take any necessary risk? The downside is insignificant for an individual who is already got enough to retire on.
"Rogue"? (Score:3, Insightful)
HFT is a problem (Score:5, Insightful)
High-Frequency Trading is a bet, not much different than counting cards at a Las Vegas blackjack table.
You're betting that:
- You get your trade in milliseconds or less before the opportunity vanishes.
- Your coders are not missing anything that would cause you to fail.
- Your coders are sharper than the other coders our there, or...
- You are taking from the humans, and aren't at risk from other HFT code.
- Nothing goes bad in all of this, from comm links to the market platform.
And of course you can always beg the SEC to unwind the transactions, claiming it was a programming glitch. That's been done before. The SEC is no longer an effective watchdog over the industry. It has in effect been 'captured'. Game Over unless Mary can turn it around. Unlikely.
When you dig into how the NYSE actually works today, with DMMs and 'liquidity providers', that one entity can account for 10-20% of total volume, and all of that is HFT, you may realize that the days of humans trading on news and speculation are over. If you want to hold for a duration and take profits over the span of years, just hope you don;'t need to cash out on the same day as the machines have decided they see opportunity in trashing your holdings. Nothing personal, it was an algorithm you know. Just happens.
It's a genuine miracle that we don't see more flash crashes and >$1B fails than we do. HFT is going ot destroy the market, but only for actual humans. One day, when we realize that 70% of the market volume is HFT, we will then understand that the NYSE in particular is a house of cards. Then what?
Re:HFT is a problem (Score:5, Insightful)
More or less, it's astonishing to me that the SEC hasn't cracked down on these scams. It's not like it's some sort of secret, people outside the industry know that Wall Street is largely run on fraud and insider trading and that there are massive bonuses handed out even when a company isn't doing well.
But, as long as the GOP continues to whip up anti-regulator sentiment, it's going to be really tough to get the regulations in place that are going to fix that.
Re: (Score:3)
and as long as money is the prime political motivator, it will only get worse
and it is, so changing it from within is, basically, impossible
so if you want it changed, you'll have to mobilize your fat ass to mobilize your local collection of fat asses to vote the fat-cats' fat-assed shills out of office, first.
Re: (Score:2)
If you want to hold for a duration and take profits over the span of years, just hope you don;'t need to cash out on the same day as the machines have decided they see opportunity in trashing your holdings.
If you diversify your holdings, and sell over time, you don't have much risk from this. When you are young, you should be investing in higher risk investments, but as retirements looms, you should move your holdings into guaranteed vehicles, like bonds. As all this happens over years, HFT shouldn't affect you too much. "Cashing out" is not part of a sane investment strategy.
Re: (Score:3)
HFT accounts for 60-70% of volume every day, news or not, events or not, doesn't matter.
If you trade on current events, you do live and die by that sword. But the quants implement trader speculations and blend them into the stream of HFT that is pure arbitrage, on a microsecond scale.
Yes, other than the occasional flash crashes caused by interacting or misperforming algorithms, market swings are often driven by news and events. And these swings usually correct well, with exceptions.
HFT distorts this by pla
Results matter: (Score:3)
I doubt they'd be calling it unauthorized if he'd made them 2 billion.
Re: (Score:2)
They would, but you wouldn't hear about since there'd be no need to make an announcement or have someone arrested. They'd just internally discipline - from sacking to lowering their limits to adding more oversight. Losing $2B is pretty obviously outside your limits whereas you could make $2B without exceeding your trading limits - so they may not notice if their oversight is shit (and apparently it is).
Back Door Code in Trading Algorithims? (Score:2)
Suppose you put in a trigger to "toss a trade" so your "friend" at another firm, which only you and your partner friend know how to trigger or exploit.
The payday could be small enough to set you up for life and still be chump change and pass by an audit or the other normal wins and losses each month and wouldn't be easily found out as long as everyone kept their mouths shut.
This is the danger of electronic algorithmic trading. No doubt there are safeguards in place, but that doesn't mean they can catch an
Re: (Score:2)
The market is anonymous, unless you and our 'friend' agree on which product to trade you have no way of identifying the other party. On popular products, i.e. Google or Apple, this is impossible. On other products liquidity (trade volume) is so small that such transactions would stick out like a sore thumb.
On top of that, it will take a lot more than two lines of code to defeat all the checks and balances in trading code. These checks and balances usually trace their origin to things having gone wrong in th
Re: (Score:2)
Wouldn't take but one database entry.
In risk management there are far more commodities traded then you have good market data for.
What you do is assign proxies for all commodities so you can aggregate your risk exposure. For example (pulled from a dark place) electricity traded in Phoenix could be proxied as 50% four corners, 50% S. Cal.
To break risk management you simply have to mis-proxy a commodity trade. Switching a sign on the commodity that you do half your trading on will turn a huge exposed po
This level of trading is hazardous to the world (Score:4, Insightful)
I think it is increasingly clear that the more developed this trading gets, the more risk it offers the world's economy. It is also recognized that "safeguards" need to be in place to prevent certain things from happening. These same safeguards also serve to decrease that highly sought-after and desirable "leverage" power when making trades. These market people have been pushing regulators to remove such safety restrictions which have apparently been connected with all manner of troubles including the most recent market failure.
I wouldn't be against banning the markets entirely. I think Hitler had it right in his analysis of why speculating is such a problem for economic stability. (Just as in the legal system, the only real winners are the lawyers)
Of course the world's bankers would never allow any governments to take their playground away, but that's what I think should be done.
Not so surprising (Score:4, Informative)
First of all, he'd worked in the back office, so he'd know both people and procedures.
Second of all, anyone who's ever worked in finance can tell you big banks are chaotic. It's not really that strange that he can go about his business undetected for a while, because there's loads of traders with loads of portfolios. And most people on one desk are not going to be experts on the business of another. UBS has had a number of restructurings since the financial crisis. People are moved on, some desks are closed, some are merged, it's gonna be a mess. Makes it easier to hide.
Third, risk officers are not what you think. They are not the internal police, vigilantly keeping an eye out for every possible transgression. They look at the positions, calculate the risk (big can of worms, don't ask), and when someone is over their limit, they show up at the trader's desk and are told to fuck off.
Finally, it is not at all clear that technology played an important role in this fraud. Yes, some HFT market makers trade ETFs, but it's not clear his desk was. That doesn't mean a software error caused it, or that the fraud could not have occurred without whatever system he was using. From efinancial (which you need a subscription to read) the latest rumour is that he messed up a hedge in EURCHF, and his attempt to fix it made it worse.
Re: (Score:2)
Re: (Score:2)
Profits are quite variable at a big bank in turmoil.
I can understand your surprise, but he's trading financial products. Most of them are simply numbers on a screen. There's no extra effort involved in buying 100M bucks worth of something over say 100K. It's not like if he bought and sold widgets which actually have to manufactured and delivered. And for the same reason, the bosses can't see him doing it either.
And if you wonder why it can be done at all, it's because you have to move a lot of money around
Re: (Score:2)
Big banks don't run VAR reports nightly (or more)?
VAR is designed to aggregate portfolios risk so you _can_ tell from casual observation.
Value at Risk is just a tool and has problems and limits. Catching 2Billion positions should be well within its grasp.
Re: (Score:3)
There's a couple of shenanigans you can do. If your firm is amateur enough, you can put in manual trades that weren't real. In other words, because he's a voice trader, he could type in a trade that offsets his big position, but isn't matched by a counterparty. This will naturally create a "break", but some shops have a special portfolio in which error trades are dumped. If the dude has backoffice connections, he might be able to "explain" the discrepancy to someone, and they'll leave it, because there's a
Re: (Score:2)
arb? I can't follow what you're saying in the Coca Cola vs Pepsi Cola example. Can you elaborate?
Re: (Score:3)
Suppose you're making the following assumption: Coca and Pepsi prices should roughly move together, because they essentially do the same thing. For simplicity, suppose they're both normally 100 USD each. Once in a while, for various reasons, Coke goes to 105 and Pepsi goes to 95. So, guessing that the long run price should return, you sell Coke and buy Pepsi. That's a statistical arb. (Not a pure arb, which would be sth like sell in London to buy in NY at the same time). Anyway, if you're and arb trader, th
Re: (Score:3)
That makes sense. For those not paying attention, EURCHF moved several percent in just a few minutes (1.12 to 1.20 IIRC) when the Swiss central bank decided to peg to the Euro. That is several times the expected daily range and about a hundred times the expected range over such a short period. Ordinarily since movements are so small, currency trades are highly leveraged, often 10x or more. Even small traders have trades nominally worth several hundred thousand euros. When the market gaps in price, stop-loss
Here's the guy: (Score:3)
They're investigating now. Apparently it was this guy:
@
Report anything to the nearest K. Last seen running toward a > .
This is the same ***hole! (Score:2)
This is the same A-hole who requested an iPad with company paid data plan from AT&T from IT! I knew he was up to no good the moment he mentioned AT&T! Think how much money would have been lost paying those data overages!
- UBS anonymous IT personnel (not authorized to make a statement)
Looking for a New Job? (Score:2)
Quantitative Investment Software coding is just about the highest paying work a software engineer can get. The jobs typically start at $150,000 per year, and can pay as much as a million if you're really good. It's all written in C++, with Linux being the operating system in recent years.
But you have to work in New York City. I don't want to live there, I think I'd go nuts. I've been looking for West Coast quant work, but none is available. You'd think there would be, as all the investment houses have
Nobody noticed? (Score:2)
Are you sure this is not a front? (Score:2)
Are you all sure this entire story is not a huge lie, that this one trader is not used as a scapegoat, a fall guy for a larger systemic problem at the bank? On one hand knowing how Credit Swiss and UBS handle customers I can sort of believe that there is large level of confusion and things are not, as you would expect them, at least not what engineering types would expect it to be. It's like you are always trying to build a better system, a system that handles transactions properly, a system that does not a
We really should actively discourage microtrading (Score:2)
OF COURSE it results in instability. It takes the irrationality of people's emotions that's already a play in the ma
Rogue Trader gone bad? Only one thing do to, then. (Score:3)
They should revoke his Imperial Warrant! [google.com]
Errrrm, I'm a full time trader myself (Score:4, Interesting)
The Swiss recently did a jaw droopingly stupid desperation move on their currency. They pegged it to the euro, in the attempt to stem their own currency's appreciation, which was ruining their trade with other countries, being thought of as "safe" in a time of turmoil, when so much cash was out of the other markets due to fear (the rest was going into gold). This resulted in a HISTORIC move of over 8.5% in something that normally moves .1% at most a day, overnight...That's a big enough move to really hurt (or help, depending on which side of a trade you're on) a normal trader. Now, with 100x leverage -- wow - even a tiny bet adds up very quickly, for or against you. With 100x leverage, everything is multiplied 100x -- except the money you have to put down to open the trade. In a gross oversimplification, you can bet $1, but lose $100 in that case. Meaning he might not even had had that huge a bet on. A lot of "safety obcessed" individuals also got hammered on this one. (and soon enough, on T bills when the bond vigilantes come out and treat us like the bankrupt jerks we are -- they'll be around as soon as BenB and TimG stop buying them in debt monetization).
Most people figured that when that happened, the safe trade would switch entirely to gold. The thing is, the Swiss needed tons of instant dough to buy Euros with all of a sudden. So they sold tons of gold (literally) and tried to do it when the western markets weren't open. That was too much for the Asian retail investors to eat, so gold went down too -- they (for reasons that should be obvious) didn't give anyone a heads up on this, except perhaps a few special friends, so the whole deal caught everyone completely off. It will fail, but the Swiss had no choice but to try it or face ruin anyway - their currency was so overvalued that they could sell nothing to anyone else, and no country can live with that very long.
Y'all might want to go look at zerohedge (no link, their servers are chronically overloaded as is - but a few more snarks won't hurt the place, just not all slashdot please) for some more on this. Sometimes they publish microsecond graphs of what the *headline reading* bots are doing too, they don't like HFT either, but it had nothing to do with this one. I used to think with my signal processing experience I could blow those bots off, as some of them seem pretty stupid. But they are a little ahead of most slashdotters in text understanding -- they actually can read the news tickers and adjust based on the headlines and content(!).
The SEC is more or less completely owned by the people they are supposed to regulate. Too small, they don't care about you. Too big, they're already bribing you. Middle size is all they do, and they do little of that. It's like with drugs where the big dealer turns in the smaller competition once in awhile to the bribed cops, so everyone gets a benefit -- cops look good, getting a bust, big dealer gets rid of competition, all go home happy, well...almost all. It's a dirty game, but you can still win at poker even with a cheating dealer, if he's not after you personally.
Re: (Score:2)
Re:FIRED ?? (Score:5, Funny)
Re: (Score:3)
Re: (Score:2)
He got a promotion. He learned what not to do, you can't buy that kind of experience.
Re: (Score:3)
"you can't buy that kind of experience."
Yes you can. For a mere $2 Billion, USD. :-)
Nah, wont happen like Steve Perkins. (Score:2)
Re: (Score:2)
His name is Kweku Adoboli. "Kweku" seems to be a Ghanian name meaning "born on a Wednesday".
(Updated verse: "Wednesday's child is full of WHOA")
Re: (Score:2)
They're not paid enough for that. Seven figure salaries don't cover being responsible for your own failures in this industry. That's something for poor people.
Re: (Score:3)
Re: (Score:2)
They've been having board-level meetings about improving their risk management. I'd expect head to roll.
Re: (Score:2)
I hate to burst your bubble but all banks are like that. The only reason these stories are coming out now is because we're in a bear market and the incompetence of these assholes is being exposed, in a bull market where the rising tide lifts all boats these kind of guys were superstars because hey couldn't lose.
Re: (Score:3)
So. What I want to know is...
Who has this 4 Billion now?
I invoke Teslacle's Deviant to Fudd's Law: "It Comes In, It Must Go Out"
If no one GOT this money? It never existed. Like the money I 'lose" when my stock-options lose value.
If someone - or many someones - GOT this money, then there's the possibility of collusion to be investigated.
I think this little fish is sombody's patsy. But who remembers Barings Bank and Nick Leeson?
Re: (Score:2)
Poor Elmer Fudd's got deviant testicles.
Re: (Score:3, Insightful)
> If no one GOT this money? It never existed.
Nearly all our money originated with fractional reserve loans, making it fictional money. Take the entire US money supply, subtract Fort Knox and the Strategic Oil Reserves, and the difference is all vaporware.
Re: (Score:3)
> If no one GOT this money? It never existed.
Nearly all our money originated with fractional reserve loans, making it fictional money. Take the entire US money supply, subtract Fort Knox and the Strategic Oil Reserves, and the difference is all vaporware.
Yes, and when you buy a car or computer with this non-existent money, you don't actually own it. And if you take out a mortgage on a house and don't receive the loan in gold bars you don't actually owe it to anyone. Oh, wait...
Re:Digital money (Score:4, Interesting)
This was a trader, not HFT. He was manually calling in trades, either through a computerized system or through UBS's trading desk. The money was lost over a period of time in which he was probably exploiting loopholes in the controls of UBS. It's really disturbing seeing the trend against HFT when there is no evidence to show how it's being perceived. The flash crash last year was not caused to to HFT but due to a fund selling $4.1bn in E-Mini S&P futures.
From Wikipedia...
http://en.wikipedia.org/wiki/2010_Flash_Crash [wikipedia.org]
The joint report "portrayed a market so fragmented and fragile that a single large trade could send stocks into a sudden spiral,"[10] and detailed how a large mutual fund firm selling an unusually large number of E-Mini S&P 500 contracts first exhausted available buyers, and then how high-frequency traders (HFT) started aggressively selling, accelerating the effect of the mutual fund's selling and contributing to the sharp price declines that day.
Still lacking sufficient demand from fundamental buyers or cross-market arbitrageurs, HFTs began to quickly buy and then resell contracts to each other – generating a “hot-potato” volume effect as the same positions were rapidly passed back and forth. Between 2:45:13 and 2:45:27, HFTs traded over 27,000 contracts, which accounted for about 49 percent of the total trading volume, while buying only about 200 additional contracts net.
"a large fundamental trader (a mutual fund complex) initiated a sell program to sell a total of 75,000 E-Mini contracts (valued at approximately $4.1 billion) as a hedge to an existing equity position."
--- end quoting
I just roll my eyes... "portrayed a market so fragmented and fragile that a single large trade could..." It was a sell order for $4.1bn let me type that out... $4,100,000,000. Anybody have any idea what that does to available liquidity? No time in the history of the US markets could they have withstood this type of hit. HFTs provided liquidity during that time, higher spreads but without the HFTs the bottom would have fallen out. The drop would have been MUCH MUCH worse.
Right now HFTs are the target of a smear campaign by the SEC, it's a scapegoat. HFTs almost uniformly lost their butts that day. Read between the lines and stop drinking the Kool-Aid.
Two more things I'll hold your hands on... a large FUNDAMENTAL trader, this means somebody who trades on fundamentals not technical analysis, which is critical to HFT, initiated a trade for 75K contracts. HFTs passed that around for a volume of 27K almost 1/3 of that... So if you try to take the worst slant on that they provided liquidity to 1/3 of the order that started this. hmmm... what if HFTs weren't trading that day... others would have had to absorb over 33% of that hit. The result, Armageddon!
Sometimes I don't know why I try... I guess the Kool-Aid is too tempting.
Re: (Score:3, Interesting)
A whole lot of effort in that post, and I still want HFT firms and the people who work there gutted. Good luck with that.
http://www.zerohedge.com/news/goodbye-high-frequency-trading-regulators-seek-secret-hft-codes [zerohedge.com]
The requests for proprietary code and algorithm parameters by the Financial Industry Regulatory Authority (FINRA), a Wall Street brokerage regulator, are part of investigations into suspicious market activity, said Tom Gira, executive vice president of FINRA's market regulation unit.
``It's not a fishing expedition or educational exercise. It's because there's something that's troubling us in the marketplace,'' he said in an interview.
The Securities and Exchange Commission, meanwhile, has also begun making requests for proprietary algorithmic trading data as part of its authority to examine financial firms for compliance with U.S. regulations, according to agency officials and outside lawyers.
The requests by SEC examiners are not necessarily related to any suspicions of specific wrong-doing, although the decision to ask for it can be triggered by a tip, complaint or referral.
Fucking scumbags is what HFT firms are.
Re:Digital money (Score:4, Interesting)
First, I almost worked at Teza in Chicago (a high frequency trading firm). I think, between the job interview and speaking to people there, I'm qualified to comment on the subject to an extent. Also, while not a professional economist, I have enough knowledge with regards to market liquidity to understand that HFT firms aren't required to provide the liquidity they so often proclaim is such a wonderful function of what they do.
HFT firms provide no value; they are a check valve sucking cash out of whatever market they're interacting within. If you work for an HFT firm, while I can't wish ill against you, I wouldn't exactly shed a tear if you were on the street. I'm not saying they're the only problem, but proclaiming "BUT! BUT! They're are other bad guys too!" is like trying to justify being a rapist because murders still exist.
Fuck HFT firms.
HAHAHA (Score:3)
And the winner for worst advice ever given goes to...you!
Right...nobody ever gets busted for anything on the internet ever. It's a safe haven! You can do what you want here with no chance of repercussions. The RIAA doesn't exist, the Feds don't troll chat rooms looking for pedophiles, cops don't check Facebook pages and bust parties. These are all rumors.
Hey, as much as I'd like to hear what happened at the interview - an NDA is an NDA. They have you sign them for a reason. And it takes only one l
How is this computer trading's fault? (Score:2)
This sounds like part of the closing summation from the culprit's defense attorney. Blame the computer? HFT had nothing to do with this. A man caused this withhis deliberate actions, not an algorithm.
Re: (Score:2)
The same thing senior execs do to earn millions at other companies, play golf.
Actually, there are benefits (Score:2)
Re: (Score:3)
And how would a delay help? As soon as trading resumed, it would be speed of light machines v.s my fat fingers.
You know that game in casinos with the spinning wheel and the little ball?
"Players" place their chips on numbers they think the ball's going to land on. At some point, the croupier announces "No more bets." Then he spins the wheel and launches the ball. When it lands, winners and losers are tallied, then you start over at the beginning.
Your fat finger trades and the HFT trades can go on side by side until the moment trades are executed. HFT can get a lot more trades done than you and your fat fingers in
Re: (Score:2)
Indeed, it's like those too big to fail banks that still haven't been broken up. IIRC the efficiencies of scale tend to max out somewhere around $100bn in holdings, why we haven't broken up larger ones is purely a matter of politics.
Oligarchies suck, unless you're one of the oligarchs, in which case it's pretty awesome to be able to behave in this sort of sociopathic way and be rewarded for the bad behavior.
Re: (Score:2)
The person administering the basket risk is supposed to not a have an interest in the basket.
Typically you proxy a thinly traded commodity to one or more commodities for which market data is available. Setting that proxy up wrong is how you could game the risk management system. Of course that is _not_ the traders job.