In financial trading, a rogue trader is an

employee Employment is a relationship between two party (law), parties Regulation, regulating the provision of paid Labour (human activity), labour services. Usually based on a employment contract, contract, one party, the employer, which might be a cor ...

authorized to make

trade Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market. Traders generally negotiate through a medium of cr ...

s on behalf of their

employer Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any ot ...

(subject to certain conditions) who makes unauthorized trades. It can also involve mismarking of securities. The perpetrator is a legitimate employee of a company, but enters into transactions on behalf of their employer, or mismarks securities held by their employer, without their employer's permission. One famous rogue trader is

Nick Leeson Nicholas William Leeson (born 25 February 1967) is an English former derivatives trader whose fraudulent, unauthorised and speculative trades resulted in the 1995 collapse of Barings Bank, the United Kingdom's oldest existing merchant bank ...

, whose losses on unauthorized investments in index

futures contract In finance, a futures contract (sometimes called futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The item tr ...

s were sufficient to

bankrupt Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the de ...

his employer

Barings Bank Barings Bank was a British merchant bank based in London. It was one of England's oldest merchant banks after Berenberg Bank, Barings' close collaborator and German representative. It was founded in 1762 by Francis Baring, a British-born member ...

in 1995. Through a combination of poor judgment 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$ The United States dollar (Currency symbol, symbol: Dollar sign, $; ISO 4217, currency code: USD) is the official currency of the United States and International use of the U.S. dollar, several other countries. The Coinage Act of 1792 introdu ...

1.3

billion Billion is a word for a large number, and it has two distinct definitions: * 1,000,000,000, i.e. one thousand million, or (ten to the ninth power), as defined on the short scale. This is now the most common sense of the word in all varieties of ...

loss that bankrupted the centuries-old financial institution. In some cases traders have initially made large profits for their employers, and - their goal - large bonuses for themselves, from trades in breach of applicable laws and company rules, and it has been questioned by some whether in some instances traders are not in fact "rogue", as in those cases in which employers directed the activity or knew of it and turned a blind eye to the transgressions due to the profits involved. Jérôme Kerviel said that his trading behavior was widespread at the company and that getting a profit makes the hierarchy turn a blind eye 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 The bankruptcy of Lehman Brothers, also known as the Crash of '08 and the Lehman Shock, on September 15, 2008, was the climax of the subprime mortgage crisis. After the financial services firm was notified of a pending credit downgrade due to i ...

which necessitated the 2008 United Kingdom bank rescue package, but this is not described as rogue trading and is not punishable.

Largest rogue-trader losses

References

{{Reflist White-collar criminals Operational risk

Largest rogue-trader losses

See also

References