Another rogue trader has caused huge losses at a major financial institution. MF Global Inc., which is largest broker of exchange-traded futures and options contracts, has said it set aside $141.5 million to cover losses caused by a trader who "substantially exceeded" trading limits in his own account. The FT identifies the culprit as Evan Dooley, a broker at the Memphis office, and reports that the trades were carried out at the CME Group in Chicago. Wheat traders in Chicago say he took a large short position on Tuesday night that backfired when the market turned the following day.
MF Global blames a failure of "retail order entry systems." We have no idea what that means. It sounds a lot like when our tech people tell us that our email has gone down because of "core switch failure" but they're reversing the polarity so everything will work better from now on.
There's a serious question about how many of these rogue traders are out there. We hear about them when they take losing positions but apparently no one who "substantially exceeded" his or her trading limits has ever made money for his firm. At least, that's what you'd have to believe by the absence of disclosures about gains from rogue traders.
"How come 'rogue trader' disclosures are always losses?" Kynikos founder Jim Chanos asks.
It's a good question. Is it even plausible that rogue traders always lose money? Or are risk management practices generally far more lax than is commonly believed? Are there lots of these "unauthorized trades" that we never hear about because they either make money or don't lose that much? From what we understand about SocGen,it seems at least plausible that they were all too happy to look the other way when Jerome Kerveil's trades were making money.
Rogue wheat trader loses $140m [Financial Times]
MF Global Statement [Wall Street Journal]
Posted by guest , Feb 28, 2008 11:35AM
ha, rogue trader who makes money by exceeding VAR limits = star trader.
Posted by guest , Feb 28, 2008 11:37AM
You skirt around the implication, but it is pretty clear that it is not that rogue traders lose money, but that big money-losing traders are declared to be rogue.
Posted by guest , Feb 28, 2008 11:45AM
Is a rogue trader at Kynikos someone who doesn't go short? Just wondering...
Posted by guest , Feb 28, 2008 12:03PM
the only way you get a large enough position on board to earn the "Rogue" label is when you are wrong, at least in the short term.
Posted by guest , Feb 28, 2008 12:07PM
Jesus!! Is the dude suggesting that an asshole trader who puts on a giant money making position (without permission) isn't a rogue????
Genius IQs are as much a birth defect as very low IQs.
Each is a defect, nonetheless.
Rogue traders, money making or not, are defective traders.
Regards,
The Forehead Slapper
Posted by brianvan , Feb 28, 2008 12:09PM
If you skirt the rules and wind up making money in the process, then the company will sponsor a party for you with the "ass-to-ass" strippers.
Posted by guest , Feb 28, 2008 12:14PM
If rogue traders were good traders they'd never be labeled "rogue".
Posted by guest , Feb 28, 2008 12:21PM
In the oil trading "bidness", some rogue trades were really "brother-in-law" deals.
There used to be a famous story about how one of Oscar Wyatt's little flying monkey oil traders at Coastal got tired of the Coastal Corp drudgery. So said FM (Flying Monkey) sold a boatload of oil at a very cheap price to a "friend" at another firm. Then the FM quit Coastal and soon found a job at his buddy's firm. What a coincidence! One of Oscar's spys told Oscar and he called the other firm and said something that made the other firm fire the FM and return the oil at same price just to keep Coastal's business.
I wonder where the Man "rogue" will get another job?
Posted by To The Hilt , Feb 28, 2008 12:24PM
Congratulations, Captains Obvious.
Brilliant analysis.
Posted by guest , Feb 28, 2008 12:31PM
Get back to work, Mr. Ellis !!
Posted by guest , Feb 28, 2008 12:34PM
DUH ! A trader who makes money like that is called a star trader, a super trader, or a Market Wizzard
Posted by davidmerkel , Feb 28, 2008 1:01PM
Consider Andrew Krieger, who made a boatload of money for MS trading foreign currencies. Had he gone wrong, he could have blown up MS. As it was, MS did not pay him what was promised in his comp agreement, which would have been a huge sum of money even in this era. He left and sued. No idea how it turned out.
Risk controls then weren't what they are now... but still, the tendency of management to accept gratuitous gains and look the other way remains. Losers get called rogues to protect the managements with bad risk controls.
Posted by guest , Feb 28, 2008 1:17PM
a) All traders who 'go rogue' (by exceeding their trading limits) lose money.
b) All traders who 'go rogue' and lose money are busted and blamed.
Pretty much a no brainer which one is more likely to be true.
Posted by guest , Feb 28, 2008 1:25PM
MF Global was the firm that acquired most of the assets of Refco when that company blew-up. Wonder whether Dooley was orignally a Refco trader. Back in the day, Refco was king of rogue.
Posted by guest , Feb 28, 2008 1:34PM
According to front page WSJ:
"Mr. Hall individually took on more risk than Citigroup typically permits some groups of traders to carry, according to a person familiar with the bank."
Does that make him a rogue trader? Compensation well north of a quarter billion so far, added the article. Make money, you're a hero.
Posted by guest , Feb 28, 2008 1:55PM
supposedly he went went short 5000 contracts instead of 500 contracts. ouch!
Posted by Mikeshardlemon , Feb 28, 2008 1:56PM
Yeah, I can see it now, "SocGen announces record earnings despite subprime losses due to rogue trading. In a press release, the company said that encouraging rogue trades was part of the company culture."
Posted by guest , Feb 28, 2008 3:37PM
I thought that as with Goldman Sachs, when a trade like shorting subprime goes really well, upper management gets the credit.
Posted by guest , Feb 28, 2008 3:51PM
From a tax perspective, it makes a lot more sense to call out your off-the-books losses than it does your gains.
Posted by guest , Feb 28, 2008 3:56PM
He was from Refco.
It was a lot more than 5000 contracts. 141.5 mil /3000 contracts would mean he lost 28,300 per contract. While Wheat is moving it isn't moving quite that much. :) A more accurate figure would be closer to 30,000 contracts. Big time ouch.
Posted by NotNasser , Feb 28, 2008 4:48PM
Zees is such nonsense. I am to talk like Maurice Chevalier to explain it tu you, yes?
A loss of $140 million is no rogue trader to zee French. Mais non. It is, how you say, bag of shells?
When billions you can say, zen maybe we will call you a rogue and attack ze Bastille together.
Posted by guest , Feb 28, 2008 11:27PM
I remember when Andy traded his own account for a while at Phibro and bought oil at 14 bucks a bbl on its way down in 1986. He covered at 12 bucks. (it went to 9 bucks and change.) Guess I have dated myself by that comment but it's not the worst thing I've done to myself.
Posted by guest , Feb 29, 2008 12:08AM
---when you get caught in a losing trade, you are a lone rogue trader who has figured out how to beat the system and failed.
—--when you have a winning trade, you are considered a Master of the Universe who has figured out how to beat the system and won.
The common trait is that these traders are usually arrogant and young with no sense of risk management. The smart traders and talking heads are usually right, but early and live sanely and remain in the business long past their 30th birthday.
Posted by guest , Feb 29, 2008 4:46AM
MF Doom
Posted by guest , Feb 29, 2008 12:29PM
ok first off MF Global DOES NOT HAVE TRADERS they have BROKERS!!! There is a difference because when some guy goes out and breaches his fiduciary duty and trades large volume in a low liquiduty market overnight, I think its suggestive...who made the 140 Mil???
Posted by guest , Feb 29, 2008 5:42PM
Man shareholders should sue the company and its management for ignoring a problem that was widely known among brokers using Man’s trading platform.
Man’s broker version of the electronic platform does not have any controls. A broker could place a 4000 and even a 10,000 lot order without going through any controls what so ever! Man, Refco, and Lind-Woldock management knew the problem and ignored it. It is a time bomb waiting to explode and as usual, shareholders are the victim.
Regards,
A Former Broker
Posted by guest , Mar 12, 2008 1:21AM
Thanks for the explanation, Evan, but there were other, less vindictive and destructive ways to make your point.
Posted by guest , Mar 12, 2008 1:22AM
Thanks for the explanation, Evan, but there were other, less vindictive and destructive ways to make your point.
Posted by guest , May 30, 2008 4:24PM
because 'rogue traders' are like Bigfoot: they were created fill a need -- someone to blame the collective mismanagement of a firm on.