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UBS Rogue Trader Exposes Massive Systemic Risk

September 16th, 2011

Yesterday, on the third anniversary of the collapse of Lehman Brothers, Swiss bank UBS (NYSE:UBS) announced a greater than $2 billion loss due to a “rogue” trader. The trader in question, London-based 31-year old Kweku Adoboli, was arrested on suspicion of fraud at 3:30 in the morning after UBS ratted him out to British authorities. He’s since reportedly admitted to creating losses. The BBC reports that UBS didn’t learn about the bad trades until Adoboli told them himself.

So he clearly didn’t sneak into UBS and cause troubles under the veil of anonymity. Until his arrest, Adoboli was reportedly a director on UBS’s “Delta One” derivatives desk. While the title of director perhaps means something different in Europe, in the States it means someone with the authority to make higher-level decisions such as “should this trading desk make a trade exposing us to a $2b loss?” Adoboli wasn’t operating outside the system, but rather was very much part of it.

Was this a one-off instance of a single employee operating outside the rules or evidence of systemic issues not just at UBS but the teetering Investment Banking system as a whole? To explore the issue, or at least bandy about conspiracy theories and mock efforts to regulate an inherently risk-laden business, Breakout welcomed Jon Najarian, the co-founder of Trade Monster and Friend of Breakout.


Since UBS isn’t owning the bad trades and Adoboli is busy doing things other than laying out his trading book, the most obvious question is what on earth Adoboli was trying to do that went so wrong. With markets this volatile the answer could be just about anything.

See the full “Breakout” segment below:

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