A rogue trader is an employee authorized to make trades on behalf of their employer (subject to certain conditions) who makes unauthorized trades. It is most often applied to financial trading, when rogue professional traders make unapproved financial transactions.
This activity is often in the grey area between civil and criminal transgression, because the perpetrator is a legitimate employee of a company or institution, yet enters into transactions on behalf of their employer without permission.
|What a Rogue Trader Learned From the Financial Crisis, Alexis Stenfors interviewed by Knowledge@Wharton, 24:35, July 18, 2017. Includes edited transcript.|
In several cases traders have initially made very large profits for their employers, and bonuses for themselves, from trades in breach of the rules, and it has widely been said that employers turned a blind eye to transgressions due to the profits involved.
One famous rogue trader is Nick Leeson, whose losses on unauthorized investments in index futures contracts were sufficient to bankrupt his employer Barings Bank in 1995. Through a combination of poor judgement on his part, increasingly large initial profits, lack of oversight by management, a naïve regulatory environment, and an unforeseen outside event, the Kobe earthquake, Leeson incurred a US$1.3 billion loss that bankrupted the centuries-old financial institution.
The key factor determining the use of the term is lack of authorisation. There have been colossal financial losses and bankruptcies from what are considered to be catastrophically bad decisions by senior decision-makers in financial institutions, such as the bankruptcy of Lehman Brothers which necessitated the 2008 United Kingdom bank rescue package, but this is not described as rogue trading and is not punishable.
In the UK the term is also used to describe dishonest tradesmen such as double-glazing salesmen, second-hand car dealers, gas fitters, mechanics, roofers, plumbers and domestic rubbish collectors. A BBC Television programme exposing such practices was called Watchdog, which was later followed by Rogue Traders.
Largest rogue-trader losses
|Jérôme Kerviel||Paris, France||2006–2008||$6.9 billion (€4.9 billion)||Société Générale||European Stock Index Futures||5 years prison of which 2 years are suspended, pending appeal|
|Yasuo Hamanaka||Tokyo, Japan||1996||$2.6 billion||Sumitomo Corporation||Copper||8 years prison|
|Kweku Adoboli||London, United Kingdom||2011||$2.3 billion||UBS||S&P 500, DAX, and EuroStoxx Futures||7 years in prison|
|Nick Leeson||United Kingdom||1995||$1.3 billion (£827 million)||Barings Bank||Nikkei Index Futures||6.5 years prison|
|Toshihide Iguchi||Osaka, Japan / New York City, United States||1995||$1.1 billion||Resona Holdings||U.S. Treasury Bonds||4 years prison||Groupe Caisse d'Epargne||Equity Derivatives||€315 million fine (2 year suspended sentence)|
|John Rusnak||Maryland, United States||2002||$691 million||Allied Irish Banks||Foreign Exchange Options||7.5 years prison|
|Chen Jiulin||Singapore||2005||$550 million||China Aviation Oil||Jet Fuel Futures||4 years and 3 months prison|
|Melbourne, Australia||2003–2004||$187 million (A$360 million)||National Australia Bank||Foreign Exchange Options||3 years and 8 months prison|
2 years and 5 months prison
2 years and 4 months prison
16 months prison
|Matthew Taylor||United States||2007||$118 million||Goldman Sachs||S&P 500 e-mini Futures||9 Months Prison|
|Joseph Jett||United States||1994||$74.6 million||Kidder, Peabody & Co||US Treasury bonds.||banishing trading securities|
- Ball, Deborah; Sonne, Paul; Mollenkamp, Carrick (September 16, 2011). "UBS: Rogue Trader Hit Firm". Wall Street Journal. Retrieved 2011-09-16.
- "What a Rogue Trader Learned From the Financial Crisis". Wharton School of Business. July 18, 2017. Retrieved July 21, 2017. Audio with edited transcript
- "Nick Leeson: biography part I". 2011-03-01. Retrieved 2012-02-23. Nick Leeson's trades initially generated 10% of Barings' annual profit
- "Le trader livre sa version de l'affaire Société Générale". Le Monde, paper version. 29 January 2008. p. 1. Jérôme Kerviel said that his trading behavior was widespread at the company and that getting a profit makes the hierarchy turn a blind eye
- Slater, Steve (September 15, 2011). "Factbox - UBS trader joins rogues' gallery of financial crime". UK.Reuters.com. Retrieved 2011-09-15.
- "The curse of delta one strikes UBS". Financial Times. September 15, 2011. Retrieved 2011-09-15.
- "Rogue trader should pay $118 million to Goldman Sachs: US". CNBC.com. December 3, 2013. Retrieved 2013-12-03.