“There is only one side of the market and it is not the bull side or the bear side, but the right side.”
- Jesse Livermore.
Rogue trading respects few boundaries, either of
geography, or scale. Nick Leeson’s $1.4 billion hit in 1995 was enough to prove
fatal for Barings Bank. He was trading (i.e. punting) the Japanese stock market
via Singapore. Jérôme Kerviel’s 2008 “transgression” of $7.2 billion, as his
name implies, was an all-French affair, incurred at Société Générale, punting
European stock index futures. Japanese rogue traders, having carved out an
early name for themselves in the game, have lately been quiet (much like the
Japanese market). Toshihide Iguchi of Daiwa Bank – an alma mater of this author
– managed to pull off a definitively Japanese coup in 1995, by contriving to
lose $1.1 billion trading US Treasury bonds during one of the largest bull
markets for Treasury bonds in history. Since Mr. Iguchi also managed to
forge more than 30,000 trading slips, he must also have owned one of the
largest desks in history, too. His countryman Yasuo Hamanaka, ‘Mr. 5 Per Cent’,
dropped $2.6 billion at Sumitomo Corporation punting copper. (Sweeping crass
generalisation alert: the Japanese, one suspects, are especially poor at
trading, since their culture rejects both risk-taking and individualism,
preferring instead the comforting drift of the masses, for better or worse.) If
one can draw any conclusions about the activities of Messrs Leeson, Kerviel
(case now on appeal – rogue traders have a tendency to be somewhat delusional),
Iguchi, Hamanaka and now Adoboli, among them would be the observation that it
takes at least two to tango: an errant trader with messianic delusions of
relevance, and an errant employer lacking even the most basic clue about
risk management.
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